Chevron Corporation (CVX) Feeling The Heat

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The Country Caller explains Chevron’s journey through a troublesome period

Chevron Corporation (NYSE:CVX) year-to-date (YTD) stock performance has been impressive, i.e. a return of 11.5%. In the past five days of trading, stock has declined by 1.77%. The recent sell-off has been on the back of its poor results. We believe the stock could slide down further as the company faces off some real trouble.

For Q2, Chevron reported net loss amounting to $1.47 billion, or net loss of $0.78 per share. This was considerably lower than a net profit of $571 million or profit of $0.30 per share in the same period a year ago. This was third consecutive quarterly loss reported by the company.

The reason behind company’s poor performance could be attributed to lower commodity prices as compared to a year ago, which are out of company’s control, but that’s not the sole concerning factor for the investors.

Its production in the second quarter declined by 2.6% on year-over-year (YoY) basis, and amounted to 2.528 million barrels of oil equivalent per day (MBOED). It was also lower than analysts’ estimates of 2.618 MBOED.

Not only its upstream performance was poor but also downstream – or in other words, refining segment – also remained subdued. On YoY basis, the upstream losses continued to hamper company’s performance and increased by 11%. This was mainly attributed to decline of 37.8% in company’s realized oil prices.

In an era of lower oil prices, downstream segment provides substantial support to company’s overall performance. Its revenues from downstream segment declined from $2.956 billion in Q1 2015 to $1.278 billion in Q2 this year. This was mainly due to lower margins on refined products.

The outlook for crude prices does not seem to be appealing either. The supply disruptions from Nigeria and Libya are set to resume, higher production from Iran, high inventory levels of gasoline, maintenance of refineries, and higher rig count data from the US continue to put pressure on oil prices. Hence, the future performance appears no way near improvement.

Whether it is commodity prices, performance from downstream segment, or production figures, all pose concerns to investors.

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