Surging crude and natural gas prices buoyed Chevron’s fourth-quarter profits as rallying commodities left Big Oil groups flush with cash that shareholders are keen to recoup.
The California-based oil supermajor’s fourth-quarter net income was $5.1bn, reversing a $665m loss in the same period a year earlier when a coronavirus pandemic-driven market downturn gutted the industry’s finances. But the profit missed Wall Street’s expectations of $5.9bn, according to estimates compiled by S&P Capital IQ.
Brent crude prices topped $90 a barrel this week for the first time since 2014. Goldman Sachs was among a growing chorus of Wall Street analysts arguing that oil prices were likely to reach $100 a barrel in the coming months, amid lagging supplies and the risk that a Russian invasion of Ukraine will disrupt the market.
“It’s pretty clear we’re in an upcycle and these happen when demand grows faster than supply,” Pierre Breber, Chevron’s chief financial officer, said in an interview on Thursday. “We also have some geopolitical uncertainty and risk that’s priced into the market.”
The company said it generated record free cash flow in 2021 of $21.1bn, 25 per cent higher than the previous annual high in 2018. Free cash flow surged as prices rose but Chevron kept capital spending at much lower levels than in recent years.
“We’re generating much more cash than we even generated at $100 [a barrel],” said Breber.
Even as crude supplies lagged a surging recovery in fuel demand, Chevron and other oil companies remained under pressure from investors to limit capital spending and funnel the influx of cash from rising prices back to shareholders rather than into new output.
The company said on Wednesday that it was increasing its quarterly dividend 6 per cent to $1.42 a share. It also said its share buyback programme for this year would be at the high end of the $3bn to $5bn laid out earlier.
Still, Breber said the company’s output would increase two to five per cent this year, with operations in the Permian shale basin in West Texas a big driver of production growth.
“We’re right back on a growth trajectory that looks very much like what it looked like pre-Covid,” he said of the company’s Permian business.
Chevron’s shares are up almost 15 per cent since the start of the year and touched a record intraday high of almost $137 a share on Thursday.
US oil supermajors have been standouts amid the broader sell-off in the S&P 500, with Chevron and its rival ExxonMobil among the market’s top performers this month.
Exxon said in a regulatory filing in December previewing its results that higher oil and natural gas prices would lift profits in its production business as much as $1.9bn over the third quarter. The company will report its earnings on Tuesday.
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