TCC takes a look at why Chevron reported such disappointing results

Published By: Myrna Salomon on January 29, 2017 09:00 am EST

The start to the fourth quarter of the fiscal year 2016 was a shaky one for integrated oil companies. The San Ramon based Chevron Corporation (NYSE:CVX) was the first to report the financial results among the oil majors and the investors didn’t react to it well. The shareholders sent the stock sliding 2% on Friday’s close.

Oil prices throughout 2016 have remained at low levels. There has been uncertainty over the supply and demand dynamics, thus not providing any consistency to the oil prices. Oil prices, however, in the last few months have shown a slight recovery as the Organization of Petroleum Exporting Countries (OPEC) has finally decided to step in and control the prices.

The US benchmark for crude oil, West Texas Intermediate (WTI) was down 1.13% on Friday’s close at $53.17 per barrel, while the global benchmark for crude oil, Brent Crude was down 1.28% at $55.52 per barrel.

While the slight recovery in the latter part of 2016 allowed Chevron to turn to a quarterly profit,  it still managed to come below the estimate of all 20 analysts under Bloomberg’s survey. To make matters worse, the company reported a full year loss of $497 million the first time since 1980.

Chevron, since the decline in oil prices in 2016, has done well to cut costs. It now employs 9500 employees after substantial layoffs. In addition, the compay has also managed to significantly reduce its capital expenditures. While most oil and gas companies following a recovery in prices are investing more, Chevron plans to adopt a different approach.

Perhaps, the most important aspect of Chevron’s earnings was its dividends. The company continues to make improvements to the dividend and distributes around $2 million in dividends to shareholders every quarter. Chevron’s results are followed by disclosures by other super majors including Exxon Mobil Corporation (NYSE:XOM), Royal Dutch Shell plc. (ADR) (NYSE:RDS.A) and BP plc. (ADR) (NYSE:BP). It would be interesting to see whether these super majors follow Chevron’s footsteps or report better than expected results.