Chevron, one of the world’s leading oil companies, has reported earnings of $6.5 billion in the third quarter, a notable decline from the $11.2 billion in the same period last year.
The significant drop in profit was primarily due to lower upstream realizations and lower margins on refined product sales.
Chevron revealed that its sales and other operating revenues in third quarter 2023 were $51.9 billion, down from $63.5 billion in the year-ago period primarily due to lower commodity prices.
Chevron said its Capex in the third quarter of 2023 was up over 50 percent from the year-ago period. This includes approximately $400 million of inorganic spend largely due to the acquisition of a majority stake in ACES Delta, but excludes the acquisition of PDC Energy.
“The acquisition of PDC Energy strengthened our position in important U.S. production basins. The DJ Basin now ranks among Chevron’s top-five producing assets. We also acquired a majority stake in ACES Delta, LLC, the United States’ largest green hydrogen production and storage hub,” Mike Wirth, Chevron’s chairman and chief executive officer, said in its earnings report.
This earnings miss follows a warning Chevron issued in the second quarter, indicating that maintenance in its oil and gas production and refining businesses would negatively impact results. Additionally, Chevron faced challenges in its ambitious more than $45 billion Kazakhstan project, resulting in a six-month delay. As a result, the project is now expected to achieve a production of 1 million barrels of oil equivalent per day (boed) by 2025.
Commissioning setbacks in adapting infrastructure dating back to the Soviet era are anticipated to add approximately 4 percent in costs, with a six-month delay in expanding production at its Tengizchevroil (TCO) operation. Chevron’s CFO Pierre Breber described this as “clearly disappointing news.”
The conversion of the field from high to low pressure is now scheduled to commence in the first half of 2024, with the future growth project expected in the first half of 2025, followed by a three-month ramp-up.
It’s important to note that Chevron is not the only major oil company facing challenges in the current market. Exxon and TotalEnergies also reported lower third-quarter results, largely attributed to weaker crude oil and refining profits. Exxon’s profit fell by 54 percent, while TotalEnergies’ profits were down 35 percent.
In response to these challenges, Chevron has pursued a strategic expansion through acquisitions. The company agreed to acquire U.S. rival Hess Corp for $53 billion in an all-stock deal, which aims to expand its shale and deepwater oil production and reserves.
Chevron also acquired U.S. shale oil and gas producer PDC Energy and a majority stake in ACES Delta, a U.S. hydrogen storage firm in recent months.
Capital expenditures during the quarter surged by more than 50 percent to $4.7 billion, primarily due to these acquisitions.
While profit from pumping oil and gas witnessed a decline of about 38 percent to $5.76 billion in the quarter compared to a year ago, cash flow from operations also fell from $15.3 billion a year ago to $9.7 billion, Reuters news report said.
However, Chevron experienced an overall 4 percent rise in global output to 3.15 million barrels of oil and gas per day, largely due to the PDC Energy deal, which increased the production of less-lucrative natural gas by 25 percent.
Refining profits fell by 33 percent from a year ago to $1.68 billion, with significantly lower results outside the United States, where margins and inputs declined.
As Chevron grapples with these challenges, the company projects that production at TCO will be down approximately 50,000 barrels per day next year due to maintenance and equipment conversions. Furthermore, Chevron’s proceeds from the project over the next two years have been revised down by about $2.5 billion.