Chevron Stock Falls After Big Earnings Miss

Several factors appear to have contributed to the earnings shortfall. Refining margins, boosted in previous quarters by shortages of products such as diesel, looked weak overseas, one analyst observed. “Throughput at Chevron refineries was in line with expectations but margins were weaker, delivering the weakest segment result in the past six quarters,” wrote Peter McNally, analyst at Third Bridge.

McNally also noted that Chevron’s natural gas sales have been rising, a result of its acquisition of Colorado producer PDC Energy, while until recently, natural gas prices have been particularly weak. That weighed on the results, he said.

Chevron has been telling shareholders they can expect higher dividends in the quarters ahead, saying its free cash flow will allow for growing returns.

“We delivered another quarter of solid financial results and strong cash returns to shareholders,” said Mike Wirth, Chevron’s chairman and CEO, in a statement.

Chevron just announced a $53 billion deal to buy
Hess
(HES) that will give it a stake in a major offshore oil-drilling project that could last well over a decade. Given the enormity of that deal, investors may not dwell on the earnings miss for long.

“All-in, there looks little here in Chevron’s third quarter, either way, to change market forecasts, noting of course that consensus earnings from 2026+ have an upward bias from the flow-through of the Hess acquisition into estimates,” wrote Citi analyst Alastair Syme.

Chevron stock has been struggling since it peaked in January at $189. Wall Street appears skeptical of the Hess purchase, which valued the company at a greater multiple of its earnings than other recent oil-and-gas deals. Chevron says it paid more because Hess has a higher growth rate, given a large project that is now under way off the coast of Guyana. But mergers come with risks, and the stock price has been sliding since the deal. 

Other risks abound for the stock. Chevron is pursuing several projects in areas of the world now subject to sanctions or conflicts. That includes a large natural-gas project in the Mediterranean near Israel that was stalled after the Hamas attacks earlier this month. The expansion of a project in Kazakhstan—an increasingly important oil producer since the war in Ukraine curtailed Russia’s exports to Europe—has also experienced delays.

Chevron is also pursuing oil drilling projects in Venezuela, where the U.S. has lately agreed to ease sanctions in exchange for the government agreeing to hold elections. That thawing of relations could open an opportunity for Chevron to expand drilling there.

Investors will be interested in how those projects are going, and whether Chevron expects to be able to expand its international operations.

Write to Avi Salzman at avi.salzman@barrons.com