Historic profits were collected last year as the pandemic subsided and The war in Ukraine It pushed oil prices to multi-year highs, with its shares up 53% for the year while other sectors fell.
The US oil company reported in its quarterly earnings on Friday that it raised $35.5 billion in its highest annual profit in 2022, more than double the previous year and about a third higher than its previous record in 2011. Nearly $50 billion was in cash. of its leveraged oil-based operations, another record-breaking support for investors’ payment plans through a new one $75 billion stock repurchase program over the next several years.
That compensation, announced Wednesday, roughly equals the market value of shares for companies like the big-box retailer
Chevron, the second largest US oil company after
Exxon Mobil corp.
, reported revenues of $246.3 billion, up from $162.5 billion a year earlier. The San Ramon, Calif., company reported fourth-quarter profit of $6.4 billion, up from $5.1 billion in the year-earlier period.
Fourth-quarter results fell short of analyst expectations, and Chevron shares closed down more than 4% on Friday.
For all its recent gains, Chevron and its rival oil and gas producers could face a tough year in 2023, according to investors and analysts, in the event of an expected slowdown in oil prices. US economic growth Cheated the demand for oil, if China Re-opening from strict Covid-19 restrictions unfold slowly.
Oil prices in the United States It has held steady this year, but is down about 36% from last year’s peak. The industry is proceeding cautiously, keeping 2023 capex below pandemic levels, saying output will grow only modestly. Chevron said it plans to spend about $17 billion in capital expenditures this year, up more than 25% from the previous year, but $3 billion less than it planned to spend in 2020 before Covid-19 took root.
Oil companies continue to outperform other sectors such as technology and finance They saw massive job cuts in recent weeks. The energy sector of the S&P 500 is up 43.7% over the past year, compared to a decline of 6.7% for the broader index.
Chevron CEO Mike Wirth He said the company is not sure what 2023 will bring after global energy supplies shrank due to geopolitical events last year, particularly in Europe in the wake of Russia’s invasion of Ukraine. He said the markets appeared to be stabilizing.
“We definitely had a very unusual and volatile year in 2022,” Wirth said, noting that the European energy crisis has proven to be less serious than expected thanks to mild winter weather, and rising natural gas inventories in Europe. The Chinese economy has been sluggish all year, and it appears to be changing. It’s good that the markets have calmed down.”
Chevron achieved a record oil and gas production in the United States in 2022, increasing by 4% to about 1.2 million barrels of oil equivalent per day, as a result of its increased focus on capital investments in the Western Hemisphere, particularly in the Permian Basin in West Texas. . and New Mexico, where it boosted production by 16% last year. Worldwide, Chevron’s oil and gas production was down 3.2% year over year at 2.99 million barrels of oil equivalent per day.
She added that the total return on capital employed amounted to 20%.
“There aren’t many sectors that generate the kind of free cash flow that energy currently provides,” said Geoff Weil, an analyst at the investment firm Neuberger Berman, which has invested in Chevron. The sector really cannot be ignored. Given the balance between supply and demand, some things would have to go wrong here to see a decline in oil prices.”
However, institutional investors have so far shown limited interest in returning to the energy sector, after years of poor returns and growing concerns about its environmental impact prompted major financiers to sell their stakes in oil and gas companies or stop investing in rigs. sincere.
Pete Bowden, global head of industrial banking, energy and infrastructure at
Jefferies Financial Group company ,
He said that energy companies in the S&P 500 scrape 12% of the group’s free cash flow, but they only account for about 5% of the index’s weight—an indication that their share prices are lagging.
He said investor concerns about environmental, social and governance issues are a constraint on energy companies’ share prices, “yet the earnings strength of these companies outweighs the earnings strength of companies in other sectors.”
Chevron and others have faced criticism from the Biden administration and others that they prioritize shareholder returns over pumping oil and gas at a time when global supplies are tight and Americans are feeling the pain at the pump. On Thursday, the White House attacked Chevron $75 billion acquisition programsaying the payment was evidence the company could boost production but chose to reward investors instead.
Pierre Breber, Chevron’s chief financial officer, said the company expects oil prices to be volatile but within the range needed to maintain dividends and investments. He added that there are some optimistic signs, including that the US economy grew faster than expected in the fourth quarter at 2.9%.
Supply is scarce. Oilfield services are close to capacity, and we are still sanctioning Russian production. “You’re seeing a huge uptick in international flights from China, and down unemployment in the US”
Chevron’s production in the Permian is expected to grow this year at a slower pace, about 10%, Mr. Breber said, because it has depleted much of its stockpile from wells it has drilled but not brought into production.
Exxon, which usually releases quarterly earnings on the same day as Chevron, will release a report on Tuesday. Analysts expect it will also post record profits for 2022, according to FactSet.
Both companies expect to slow their production growth this year in the Permian River, which is their growth engine. Neil Dingman, an analyst at Truist Securities, said the two US oil companies, whose production has been faster in the US than most independent shale oil producers, have begun to intensify their focus on shareholder returns and allow production growth to moderate.
“This was all driven by the demands of investors,” Dingman said.
Write to Collin Eaton at [email protected]
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