Chevron, one of the world’s leading integrated energy companies, posted a profit of US$1.4bn in Q1 2021, which is still down from pre-pandemic levels a year ago of US$3.6bn, despite the recovery in energy prices. After following a $20 billion divestment plan, the US-based oil giant was able to pay a strong dividend for shareholders amid lower oil prices.
Along with weaker refining margins and production losses in this quarter due to a severe winter storm in the US, Chevron’s Q1 earnings managed to keep investors captivated with a strong cash flow generation of US$4.2bn and a 3.9% dividend increase during this quarter, along with multiple initiatives in its energy transition strategy.
“The company is right in holding back in capital spending to boost production as its current priority remains in creating a strong balance sheet and generating free cash flow,” said GlobalData, a leading data and analytics company.
Steven Ho, Upstream Oil & Gas Analyst at GlobalData, commented: “Chevron should remain cautious in further increasing oil and gas production until a strong signal in global recovery emerges because there is still limited mobility outside of the US due to slower vaccination efforts.”
While Chevron boosted its dividend and turned a profit this quarter, the energy company was more than $1 billion below Wall Street estimates, according to Refinitiv IBES data. The lower-than-expected cash generation “left a slightly higher net debt position than expected,” of $38.3 billion, said analyst Biraj Borkhataria at RBC Europe Limited.
Along with Chevron’s support for the Paris Climate Agreement, the company has been able to meet its carbon emission reduction target and even readjusted to higher 2028 targets. Besides lowering carbon intensity, Chevron is also proactively looking for an opportunity to increase renewable fuel in its production mix or alternative fuel. The company recently signed a memorandum of understanding with Toyota Motor to explore a commercially viable hydrogen business. Toyota Motor has decades of experience in developing hydrogen-powered technology around the Asia-Pacific (APAC) market and proves to be a strong partner for Chevron.
Ho added: “Chevron is also looking into new ventures related to the energy transition, but it is still uncertain how quickly the company can generate growth from these new businesses. As with other major oil and gas companies, investors are evaluating how these companies can profitably enter new energy sectors, and this will surely play a strong part in the investor sentiment and stock prices.”
