Chevron's Record $35.5 Billion Annual Profit Thanks to High Oil Prices

Chevron Corporation (CVX) is an American multinational energy corporation.

It is engaged in every aspect of the oil, natural gas, and geothermal energy industries, including exploration, production, refining, marketing, and transportation. Chevron is one of the world's largest oil companies, with operations in more than 180 countries. Last year was a historic year for profits at the bank, as the pandemic receded and the war in Ukraine pushed oil prices to multiyear highs. The bank's shares climbed 53% while other sectors tumbled.

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The U.S. oil company reported Friday that it collected $35.5 billion in annual profit in 2022, more than double the prior year and about one-third higher than its previous record in 2011. Almost $50 billion in cash streamed in from its oil-leveraged operations, another record underpinning plans to pay investors through a new $75 billion share-repurchase program over the next several years.

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The $1.9 trillion stimulus package includes a $1,400 direct payment to most Americans, which is roughly equivalent to the stock-market value of the big-box retailer Target Corp., the pharmaceutical firm Moderna Inc. and Airbnb Inc. Chevron, the second-largest U.S. oil company, reported revenue of $246.3 billion for the year, up from $162.5 billion the previous year. The company posted a fourth-quarter profit of $6.4 billion, up from $5.1 billion in the same period the prior year.

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Chevron's fourth-quarter results fell short of analyst expectations, and the company's shares fell by 1% in premarket trading on Friday.
Chevron and its rival oil-and-gas producers could face a rockier year in 2023, according to investors and analysts. This is because an anticipated slowdown in U.S. economic growth could dent demand for oil, and if China’s reopening from strict Covid-19 restrictions unfolds slowly.

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U.S. oil prices have been relatively stable this year, but are still about 34% lower than they were at last year's peak. The industry is proceeding cautiously, with capital expenditures for 2023 below prepandemic levels and only modest growth in production. Chevron has said it plans to spend about $17 billion expenditures this year, which is up more than 25% from last year, but still $3 billion less than what was originally planned for 2020 before the Covid-19 pandemic began.

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Oil companies have been outperforming other sectors such as tech and finance, which have seen widespread job cuts in recent weeks. The energy segment of the S&P 500 index has climbed about 44% over the past year, compared with a 6.2% drop for the broader index. This is due to the fact that oil companies are still seen as a stable and profitable investment, despite the current economic conditions.

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"We are well-positioned to lead in both traditional and new-energy businesses, while delivering higher returns, lower carbon and superior shareholder value," Chevron Chief Executive Mike Wirth said. He also noted that the company whittled down its debt by about 26% over the year.

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In 2022, Chevron's oil and gas production in the United States reached a record high, increasing by 4% to 1.2 million barrels of oil equivalent per day. This was due to the company's increased focus on capital investments in the Western Hemisphere, particularly in the Permian Basin of West Texas and New Mexico, where output increased by 16% last year. Worldwide, Chevron's oil and gas production was down 3.2% compared to the previous year, at 2.99 million barrels of oil equivalent per day.
The company reported that its overall return on capital employed was 20%.

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Jeff Wyll, an analyst at investment firm Neuberger Berman, believes that the energy sector is currently generating a lot of free cash flow and is therefore worth investing in. He believes that it would take a lot of negative circumstances to cause oil prices to drop.

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Institutional investors have been hesitant to return to the energy sector in recent years, due to poor returns and increased concerns about the environmental impact of oil and gas drilling. However, some large financiers have begun to sell off their stakes in oil and gas companies, or to stop investing in them altogether. Pete Bowden, global head of industrial, energy and infrastructure banking at Jefferies Financial Group Inc., said energy companies in the S&P 500 index are not keeping up with the rest of the group in terms of stock price. He said that these companies make up only 5% of the index's weighting, but they are throwing off 12% of the group's free-cash flow.

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Investors who are concerned about environmental, social, and governance (ESG) issues may be hesitant to invest in energy companies. However, these companies often have strong earnings potential.

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Chevron and other oil companies have been criticized by the Biden administration and others for prioritizing shareholder returns over pumping oil and gas at a time when global supplies are tight and Americans are feeling pain at the pump. On Thursday, the White House assailed Chevron’s $75 billion buyout program, saying the payout was proof the company could boost production but was choosing to reward investors instead.

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Pierre Breber, Chevron's finance chief, said the company expects oil prices to be volatile but within a range needed to sustain its dividend and investments. While acknowledging that oil prices have been volatile in recent months, Breber said he is optimistic about the future, citing the strong performance of the U.S. economy in the fourth quarter of 2017.

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"There is a limited supply of oil and gas due to sanctions on Russian production and high demand from China," said Mr. Breber. "This is driving up prices and making it difficult for consumers in the United States." Mr. Breber said that Chevron's output in the Permian is expected to grow at a slower pace this year, around 10%. This is because the company has used up much of its inventory of wells that were already drilled but not yet in production.

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Exxon is set to report its quarterly earnings on Tuesday, and analysts are expecting it to post record profit for 2022, according to FactSet. This would be in line with its typical performance, as Chevron also posts its quarterly earnings on the same day.