Chevron Beats Estimates as Hess Deal Helps Boost Oil Production

(Bloomberg) -- Chevron Corp. beat earnings estimates as profits from the $53 billion Hess Corp. acquisition were included in the results for the first time, boosting oil production and cash flow.

Adjusted, third-quarter earnings of $1.85 a share exceeded the $1.66 average forecast in a Bloomberg survey of analysts. Net income of $3.6 billion was 20% lower than a year earlier. The US driller joined European rival Shell Plc in posting stronger-than-expected results.

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International oil prices are on pace for the steepest annual drop in half a decade as OPEC and its allies increase supplies, taking the shine off the oil sector’s fat, post-pandemic profits and US President Donald Trump’s pro-industry regulatory regime. Low prices, high volatility and concerns over the future of fossil fuels mean energy now makes up less than 3% of the S&P 500 Index despite the US becoming the world’s biggest producer of oil and natural gas.

Chevron’s global production rose 21% to the equivalent of 4.1 million barrels a day, boosted by the addition of Hess’ 30% stake in the Stabroek Block, an Exxon Mobil Corp.-operated discovery off the coast of Guyana. Cash flow from operations was up 20% from a year earlier despite tumbling oil prices.

“We talked before about the cash flow inflection that was coming, and we saw that in the third quarter,” Chief Financial Officer Eimear Bonner said in an interview. The Hess assets “are significantly impacting the results already.”

Big Oil’s challenge is to prove to Wall Street it can maintain dividends and buybacks through what portends to be a prolonged downturn in crude prices. Chevron bought back $2.6 billion of shares in the third quarter, the same as the prior period, after trimming the payout earlier in the year. It also paid $3.4 billion in dividends, which were increased after the Hess takeover.

Chevron Chief Executive Officer Mike Wirth has taken a series of steps to turn the company into a steady cash generator that can better withstand oil’s notorious boom-and-bust cycles.

Excluding the addition of Hess’ assets, Chevron was already on course to expand production by 7% this year and a further 5% in 2026 with so-called high-margin output from fields in Kazakhstan and the Gulf of Mexico that turn profits even if crude were to dip to $20 a barrel. The US benchmark price, known as West Texas Intermediate, has been trading around the $60 level for the past month.

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Chevron is also working to boost cash flow by reining in production growth in capital-intensive shale fields in places like the Permian Basin and the Denver-Julesburg region, while cutting 20% of the company’s global workforce.

“We’re well positioned for any price environment, or any pressure that we should see over the short-term,” Bonner said.

Chevron has climbed 6% this year despite the roughly 13% drop in global crude prices.

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