Coronavirus latest: US and European earnings seen falling further after bleak Q1

Chevron earnings top view but oil major announces further spending cuts

Derek Brower in London

Chevron, the US’s second-largest oil supermajor, on Friday reported first quarter earnings of $3.6bn, up from $2.6bn a year earlier, beating analysts’ expectations and bucking a trend of deep losses in a sector hit by the collapse of global oil demand and crude prices in the face of the coronavirus pandemic.

But the company will also reduce capital spending to as low as $14bn this year, a further 12.5 per cent reduction that follows sharp cuts to the capital expenditure programme announced last month.

Total revenue was down to $31.5bn for the quarter, a drop of around 11 per cent, but still marginally above analysts’ expectations. First-quarter diluted earnings per share of $1.93 was almost three times greater than the consensus forecast from analysts and well above $1.39 per share from a year earlier. Cash flow from operations of $4.7bn also beat forecasts.

Mike Wirth, Chevron chief executive, said the deeper capex cuts were consistent with the company’s “longstanding priorities”, including protecting its dividend. Chevron held its dividend for the quarter at $1.29 per share, following an 8.4 per cent increase in payout during the previous quarter.

Royal Dutch Shell on Thursday slashed its dividend in a move widely seen as a watershed moment for the oil industry and its supermajors.

Mr Wirth said Chevron’s first-quarter performance was driven by strong margins in its downstream business, which includes refineries, and increased Permian production. Asset sales in the Philippines and favourable tax items totalling $440m increased first quarter earnings, as did a $514m gain from foreign-currency effects.

While international upstream earnings rose last year thanks to the foreign-currency effects, earnings in the US upstream business fell from around $750m in the first quarter of 2019 to $241m this year, mainly due to falling oil and gas prices.

Chevron’s average crude oil sales price in the first quarter was $37 a barrel compared with $48 a year earlier. Oil prices have fallen 70 per cent since the beginning of January, although April’s steep decline will only be visible in producers’ second-quarter results.

On Thursday the company cautioned that financial results in future periods “are expected to be depressed as long as current market conditions persist”.

In late March, Chevron said it was cutting capex by $4bn, or 20 per cent compared with last year, to $16bn, with half the cuts to fall in the Permian shale. The cuts announced on Friday will take total capex to as low as $14bn in 2020.

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