Morningstar | Chevron 3Q Earnings Double on Higher Prices and Surging Production; Shares Undervalued
Chevron’s third-quarter earnings doubled to $4.0 billion from $2.0 billion last year as its oil-leveraged portfolio benefited from a rise in prices while production surged nearly 9% thanks to new project growth and continued outperformance in the Permian.Upstream earnings increased to $3.4 billion from $489 million last year despite $930 million in impairment charges on higher prices and volumes. Production increased to 2,956 mboed from 2,717 mboed last year as the Wheatstone and Gorgon projects continue to ramp up and Permian volumes increased 80% to 338 mboed, well ahead of expectations laid out earlier this year. Management guided to a 7% full-year production growth figure, at the upper end of it previous guided range of 4%-7%. Downstream earnings fell to $1.4 billion form $1.8 billion last year as the absence of asset sale gains and lower international margins offset higher earnings from CPChem.
Operating cash flow grew to $9.6 billion from $5.5 billion last year, bringing the year-to-date total to $21.5 billion compared with $14.2 billion in the same period last year. As part of its previously announced $3 billion share repurchase program, Chevron repurchased $750 million of shares.
The quarter neatly summarizes the investment case for Chevron: oil-price earnings leverage, robust production growth with a premier Permian position and strong cash flow generation with a focus on shareholder returns. We expect continued strong production and free cash flow growth in the coming years. Our fair value estimate and narrow moat rating are unchanged, leaving shares undervalued in our view.
Chevron is engaged in energy and chemicals operations. Upstream operations consist primarily of, among others, exploring for, developing and producing crude oil and natural gas; processing, liquefaction, transportation and regasification associated with liquefied natural gas, storage and marketing of natural gas; and a gas-to-liquids plant. Downstream operations consist primarily of, among others, refining crude oil into petroleum products; marketing of crude oil and refined products; and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses and fuel and lubricant additives.
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