Chevron reported third-quarter earnings below market expectations on Friday because of higher expenses in both expansive operations and general operational costs.
For the quarter ending on Sept. 30, the California-based oil and gas giant reported $5.7 billion in net profits and $3.05 in earnings per share (EPS), below Wall Street’s expectations of $7 billion in net revenues and $3.71 EPS.
Business operations expenses were approximately $1 billion higher than in the previous quarter. Some of the reasons for higher expenses included the delay in the expansion of the Tengiz oil field in Kazakhstan, the acquisition of PDC Energy in Colorado and other unanticipated expenses the company said during the conference call.
Chevron also reported 14.5 percent in profits from capital investment, 1.1 percent higher than its second quarter.
The report is a setback for Chevron after its announcement on Monday that it had reached an agreement to buy Hess, providing access to 11 billion barrels of proven oil reserves off the coast of Guyana. During the conference call, Chevron announced lower production estimates, lower revenues and higher costs for the Tengiz project due to delays in its final stage.
“We’ve had a significant change in our approach to this,” said Michael Wirth, Chevron’s CEO, during the conference call when asked by Paul Chang, analyst for Scotia Bank, for reassurance about the Tengiz field. “We’ve got a more conservative guidance here that we’re issuing now.”
The completion of the Tengiz Future Growth Project (FGP), expected to ramp up oil production by 260,000 barrels a day, has been delayed until the end of 2024. The last part of the project consists in the “field conversion from high pressure to lower pressure” to increase production. The delays are expected to increase the project’s costs between 3 to 5 percent, Wirth said.
Chevron has invested $45 billion in the FPG. Upon completion, oil production is projected to reach around 1 million barrels a day in the first half of 2025, Wirth said. In addition, the planned downtime for the project is expected to reduce production by 50,000 barrels a day in 2024.
Chevron’s overall oil production has risen by 6 percent due to the added production from the acquisition of PDC plants in Colorado. But profits were offset by the increment of production costs in PDC and even unanticipated expenses in Chevron’s fields in the Permian Basin, located in western Texas and southeast of New Mexico.
The same day Chevron’s stock value dropped 6.7 percent, to $144.35 per share. It was the largest one-day drop for the company in a year in which the energy sector also reported losses in the stock market. Chevron lost 10.1 percent in the week while Exxon and the Energy Selector Fund (XLE), which measures energy companies’ performance, dropped by 4.7 and 3.5 percent respectively.
The company also discussed the acquisition of Hess and business in Venezuela.
Chevron announced Monday an agreement to purchase Hess with $53 billion worth of shares and is expected to close the deal in the first half of 2024. But Chevron’s share buyback program, expected to be around $3 billion worth in shares “plus or minus 20 percent” for the fourth quarter, will be restricted by SEC regulations because of the purchase of Hess, Pierre R. Breber, Chief Financial Officer at Chevron said.
“Given [Hess] 30 percent in Guyana, in terms of long term volume growth and cash flow growth there’s 15 plus years of visibility there,” Ryan Todd, managing director and senior research analyst at Piper Sandler & Co, said. “I think that addresses the major concerns that shareholders had with [Chevron’s] portfolio.”
When asked about the possibility of expansion of operations or additional investment in Venezuela after the U.S. announcement on Oct. 19 to lift sanctions on oil exports, Wirth said the company will remain cautious until the country becomes more stable and safer for business in the long term.
Chevron has continued to operate in Venezuela since the government nationalized all energy companies in 2007, using the profits from production there to cover maintenance costs and operations and to recover an outstanding debt of roughly $3 billion.
“We’re really working on what I would call pretty straightforward field maintenance and things to restore production that aren’t particularly long cycle or capital intensive,” Wirth said. “ I would expect that the posture will remain for a while until we see how the longer term sanctions environment plays out.”