With oil prices recovering from spring lows, a surprise profit for the third quarter was posted by Chevron Corp helped by its spending cuts which propped up its operating results.
A plummeting of demand for fuel and crude oil prices that stayed about 40 per cent of what the price was at the beginning of the year forced energy companies like Chevron and its peers to significantly slash spending budgets this year.
After implementing deep expense cuts this year, better than expected quarterly results were posed by Royal Dutch Shell Plc and BP Plc.
Earnings of $201 million, or 11 cents per share, excluding one-time items, were reported by the second-largest U.S. oil producer. In comparison, a profit of $2.9 billion, or $1.55 per share was reported by the company for the same period a year ago.
According to Refinitiv IBES data, a loss of 27 cents for the quarter was being expected by Wall Street analysts.
It was too early for the company to predict anything about when the decline in oil demand because of the novel coronavirus pandemic will come to an end, said Chevron Chief Financial Officer Pierre Breber.
Breber said that the outlook for energy consumption “depends on when the world – this country and other countries – get control of the pandemic and those activities resume. We don’t know when that’s going to be”.
Breber said that a year-long restructuring of its operations to address the prolonged period of low prices is coming to an end at the company. This restructuring included reducing the total staff numbers of 45,000 by up to 15 per cent. For the current quarter, about $500 million in severance payments is expected by the company.
A modest operating profit in oil and gas production and refining was reported by the company despite lower volumes. This was achieved by reducing expenses by 12 per cent year on year for reducing expenses for new projects by 48 per cent year on year except for acquisitions.
The impact of cheaper fuel was this offset by these efforts, the company said. While compared to the second quarter, the company sold its oil at 63 per cent higher price in the third quarter, that was till lower than the $47 a barrel price that the company had sold at in the same period a year ago.
“The world’s economy continues to operate below pre-pandemic levels, impacting demand for our products which are closely linked to economic activity,” Chief Executive Officer Michael Wirth said in a statement.
Breber said that compared to 565,000 barrels per day in the third quarter, Chevron expects output to dip to around 550,000 barrels of oil and gas per day in the top U.S. oil field, the Permian Basin shale field.
“The world doesn’t need more supply,” Breber said.
“Chevron generated enough cash flow to cover its capital spending and had only a modest deficit after funding its dividend,” Edward Jones analyst Jennifer Rowland said.
“The company’s strong balance sheet and liquidity position supports its dividend during this difficult period. We view the company as a defensive holding in a challenging industry.”
(Adapted from USNews.com)