Chevron dips after surprise loss, dividend gloom

Bloomberg

Chevron Corp slumped after posting a surprise loss and failing to increase its dividend, signaling that the aftermath of 2020’s pandemic-driven petroleum demand crash will linger for the world’s biggest oil companies for some time to come.
The California oil titan lost a penny per share during the fourth quarter, compared with the Bloomberg Consensus for a 7-cent profit due to a weak performance from its refineries, where runs were reduced substantially in response to lower demand for jet fuel, diesel and gasoline. Analysts expressed disappointment that the company failed to raise its first-quarter dividend despite having lower debt than peers.
“The absolute metrics do not make for great reading,” Alastair Syme, a London-based analyst at Citigroup, wrote in a note. “The simple message is that Chevron (and integrated oil company peers) is not well suited to a sub-$50 oil price world.”
A substantial rally in oil and gas prices since Covid-19 vaccines were first approved in early November isn’t enough to lift the doom and gloom surrounding Big Oil stocks. While executives will use the extra cash to pay down debt and begin to rebuild their reputations with investors, steep hurdles remain. Chevron won’t resume its production growth plan for the Permian before the pandemic is
in the rearview mirror, sees continued pressure in its refining division and is taking a cautious approach to shareholder payouts, executives said.
While Brent crude traded up 0.7% to $55.92 a barrel, near the highest since February, there’s “downside risk” to prices, Chevron CEO Mike Wirth said on a conference call with analysts.
“We are still in the middle of a pandemic, demand is still off and in total the global economy is functioning below its capacity,” he said. Chevron maintained its dividend at $1.29 a share this week, in contrast to a hike in the first quarter of last year. “Some people were maybe a little surprised you didn’t increase your dividend the other day,” JPMorgan Chase & Co analyst Phil Gresh said on the call.
Wirth said cuts to capital spending and costs last year means that Chevron now generates free cash flow in excess of its dividend at oil prices below $50 a barrel and that growing the payout in the future is the company’s top priority.
Evidence of why a cautious approach is needed came in Chevron’s fourth-quarter results. Even after aggressively cutting capital spending by a third, it was still almost $3 billion more than incoming cash flow.