A Tough Quarter for Chevron's Refining Business Has Prompted the Company to Move From California to Texas

On Friday, Chevron Corp. saw its shares tumble to a five-month low after reporting second-quarter earnings that fell short of profit expectations despite surpassing revenue forecasts. The oil and gas giant attributed the profit shortfall to weaker margins and recent operational downtimes.

‍

In a separate announcement, Chevron revealed its plans to relocate its headquarters from San Ramon, California, to Houston, Texas. Chairman and CEO Mike Wirth, along with Vice Chairman Mark Nelson, will move to Houston by the end of the year to enhance collaboration and engagement with senior leaders, employees, and business partners. Chevron currently has about 7,000 employees in Houston and approximately 2,000 in San Ramon.

‍

Citi analyst Alastair Syme noted that Chevron's quarterly earnings were significantly below market expectations. The results were impacted by both planned and unplanned downtimes, affecting the company’s ability to capitalize on the favorable macro environment of the second quarter. Additionally, guidance for the third quarter suggests further significant planned downtime.

‍

Chevron reported an 11% increase in production compared to the previous year, primarily due to its acquisition of PDC Energy, completed on August 7, 2023, and strong performances in the Permian and DJ basins in the U.S.

‍

On Friday, Chevron’s stock fell 2%, heading towards its lowest closing price since March 6, when it closed at $148.33. This marks a two-day decline, with the stock down 7% over this period.

‍

Chevron’s net income for the quarter dropped to $4.43 billion, or $2.43 per share, from $6.01 billion, or $3.20 per share, a year ago. Adjusted earnings per share, excluding nonrecurring items, were $2.55, falling short of the FactSet consensus estimate of $2.93.

‍

Total revenue rose by 4.7% to $51.18 billion, surpassing the FactSet consensus of $48.68 billion. However, net oil-equivalent production increased by 11.3% to 3,292 thousand barrels of oil-equivalent per day (MBOED), which was below the FactSet consensus of 3,373 MBOED.

‍

In the U.S., net oil-equivalent production surged 29% to 1,572 MBOED, while international production decreased by 1.1% to 1,720 MBOED.

‍

Chevron’s U.S. downstream operations, which include refining and delivery, experienced an 8.6% decrease in refinery crude unit inputs to 900 thousand barrels per day (MBD), primarily due to downtime at the El Segundo refinery in California. Refined product sales, however, increased by 2.5% to 1,327 MBD. Internationally, refinery crude unit inputs rose by 2.5% to 650 MBD, and refined product sales grew by 2.2% to 1,485 MBD.

‍

Chevron returned $6 billion in cash to shareholders during the second quarter, with $3 billion distributed through dividends and $3 billion through share repurchases. The company declared a regular quarterly dividend of $1.63 per share, payable on September 10 to shareholders of record as of August 19.

‍

At Thursday’s closing price, Chevron’s dividend yield stood at 4.27%, significantly higher than the S&P 500 index’s implied yield of 1.36% and above the current 10-year Treasury yield of 3.98%.

‍

Regarding the headquarters move, Chevron stated that the immediate impact on employees in San Ramon would be minimal, but it plans to transfer all corporate functions to Houston over the next five years. Jobs supporting California operations will remain in San Ramon, where Chevron operates crude oil fields, technical facilities, two refineries, and supplies over 1,800 retail stations.

‍

Year to date through Thursday, Chevron’s stock has gained 2.3%, while the Energy Select Sector SPDR ETF has risen by 8.2%, and the S&P 500 has advanced by 14.2%.

‍