TCC takes a look at a possible turnaround that Chevron might see

Published By: Myrna Salomon on January 28, 2017 11:21 am EST

Chevron Corporation (NYSE:CVX) failed to impress stakeholders as it reported an annual loss for the first time since 1980. The more than 50% decline in crude oil prices weighed in on the company’s results and gave a disappointing picture to its shareholders.

Now, the question that remains is whether the company’s results would continue to come below expectations in the future or will the company be able to turn things around.

We believe the company in 2016 took a shift in its strategy. Unlike other exploration and production companies, Chevron shifted its focus to an extent to gas. The company launched two major liquefied natural gas (LNG) projects in Australia in the form of Gorgon and Wheatstone. With the focus towards cleaner and safer alternatives, the projects in Australia may offer the company something to rejoice in the upcoming years.

In addition, despite an yearly loss, the company did not perform that bad in the latest quarter. Although revenue and earnings failed to come in line with expectations they weren’t that bad. Revenue was up 7.7% when compared to the same quarter last year while earnings were converted from a loss of $588 million from 4QFY15 to a profit of $415 million.

Chevron, in addition,  has also managed to curb its costs by laying off employees and cutting back on its capital expenditures. As reported by Bloomberg, analyst Brian Youngeberg said: “After the 2016 loss, Chevron probably will be able to cover all of its costs this year with cash flow and generate excess cash as soon as 2018.”

Chevron also has a promising position in the Permian basin and most analysts feel it to be a promising area for the company. The area is expected to be the company’s driving point for production till 2025. John Watson, CEO of Chevron, regarding the results and the company’s future performance said: “Our 2016 earnings reflect the low oil and gas prices we saw during the year.”

He added: “We responded aggressively to those conditions, cutting capital and operating expenses by $14 billion. We are well positioned to improve earnings and be cash flow balanced in 2017 through continued tight spending and cost control and additional revenue from expected production growth.”