Oil industry giant Chevron (CVXFree Chevron Stock Report) has reported third-quarter earnings per share of $1.36, versus the year-earlier tally of $2.11 and our estimate for $1.85. Lower oil prices were the primary culprit for the downturn. The company earned $15 less per barrel stateside and $13 less per barrel less internationally compared to the previous year. The bottom line was also hurt by a $430 million charge to repatriate cash and a downturn in refining profits. The stock initially declined on the somewhat disappointing report, but then recovered. 

The bright spot in the quarterly report was a solid increase in combined oil and natural gas production from a year ago. Large, integrated oil companies, such as Chevron, have long encountered difficulties boosting pumping volume since they are unable to access fields in many OPEC countries. Other oil-rich nations offer onerous terms. All that has changed with the shale revolution in the United States, where Chevron is leading the way. The company's shale production rose an impressive 35% in the past year. Chevron is also on track to double oil production from the Permian Basin of Texas, from 455,000 barrels a day now to around 900,000 barrels daily in three to five years. Despite some criticism for pushing hard to boost production during a period of low prices, Chevron feels justified since it takes a longer term approach. The company also has cost advantages, given that its legacy position in the Permian Basin allows it to produce with lower royalty rates. 

Chevron's is also benefiting from investments in a pair of liquefied natural gas (LNG) facilities in Australia. Those operations fill out broad plans to supply fast-growing Asian markets hungry for fuel. The big plus the LNG plants provide is the ability to capitalize on much higher natural gas price realizations than can be achieved in the United States. The average international price per million cubic feet of natural gas was $5.62 in the latest quarter, versus a weak $0.95 domestically. Importantly, the completion of the LNG facilities marked a point where the company would not need to spend as much for a few years. Chevron has been able to buy back stock with its extra cash as a result, including the repurchase of $1.25 billion of shares in the latest quarter.

Overall, the latest earnings report was a bit of a letdown, in view of less-than-expected profits. But the company is basically on track to meet its long-term goals. Investors can still expect to earn generous income from blue-chip Chevron stock.

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. 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.