Oil industry leader Chevron Corp. (CVX – Free Chevron Stock Report) turned in a strong performance for the fourth quarter of 2018, earning $1.95 a share on profits of $3.7 billion. The effort compared favorably to year-earlier results of $0.58 a share and was in line with our estimate for $1.96 a share. For 2018 as a whole, the company earned $7.74 per diluted share on $14.8 billion in profits, doubling up the $3.79 a share earned in 2017 (excluding tax benefits). Investors were bullish on the report, and subsequently pushed up Chevron stock a few points.
There was a lot to like about the company's quarterly report card, not the least that it displayed a nice balance of good marks for several important categories. Combined oil and natural gas production rose an impressive 7% annually, for instance, to a record high. Many drillers are having a difficult time boosting volume, and Chevron's ability to raise production at a mid-single-digit clip sizes up very favorably to the competition. Prospects are for a further 4%-7% production gain in 2019, excluding any asset sales that might occur. The company is benefiting from major investments in a pair of liquefied natural gas (LNG) facilities in Australia that have been ramping up over the last couple of years. Importantly, too, Chevron noted a preliminary reserve replacement rate of 136% for 2018, indicating that it more than replenished production with fresh reserves. Development of both the Australian LNG ventures and the company's legacy position in the Permian Basin of Texas and New Mexico accounted for a large measure of reserve additions.
In refining, Chevron did very well internationally in the fourth quarter on improved margins, but full-year results did not stand out. Of note, the company is purchasing refining in Texas, which should complement its existing Gulf Coast facilities very well. There looks to be some upside here, with exports of petroleum products on the rise.
In terms of capital expenditures, Chevron's spending rose about 7% on the year, and may remain in the current range of around $20 billion annually. The company is also buying back stock, repurchasing $1.8 billion of its shares in the second half of 2018. Of further note, the dividend has been raised by 6% for the March payment. Overall, Chevron delivered an upbeat report. The shares offer a high yield and respectable total return potential, on a risk-adjusted basis.
About The Company: Chevron is one of the world’s largest oil company based on proven reserves. The company’s Upstream operations consist primarily of exploring for, developing, and producing crude oil and natural gas; processing, liquefaction, transportation, and regasification associated with liquefied natural gas; transporting crude oil by major international oil export pipelines; transporting, storage, and marketing of natural gas; and a gas-to-liquids plant. Downstream operations consist primarily of refining crude oil into petroleum products; marketing of crude oil and refined products; transporting crude oil and refined products by pipeline, marine vessel, motor equipment, and rail car; and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses, and fuel and lubricant additives.