Chevron, the second-largest U.S. oil company, reported a significant decrease in its fourth-quarter profit compared to the previous year. The decline was attributed to impairment charges. However, despite the challenging financial results, Chevron managed to achieve a record cash return to its shareholders in 2023. The company returned a total of $26.3 billion to investors through dividends and share buybacks. This article examines Chevron’s financial performance, discusses the implications of the profit drop, and analyzes its strategy of returning cash to shareholders.

Profit Decline and Shareholder Returns

Chevron’s profit for the fourth quarter plummeted approximately 40% from $35.5 billion in 2022 to $21.4 billion in 2023. This substantial decline was primarily driven by impairment charges and other financial obligations. However, despite the challenging market conditions, Chevron made significant efforts to reward its shareholders. The company returned $11.3 billion in dividends and bought back $14.9 billion worth of shares. Chevron’s CEO, Michael Wirth, emphasized that nearly 10% of the company’s market capitalization was returned to shareholders in the previous year, demonstrating its commitment to delivering value to investors.

In recognition of its shareholders’ loyalty and support, Chevron’s board approved an 8% increase in the quarterly dividend to $1.63, starting in March. This decision further enhances Chevron’s reputation as a reliable dividend-paying company. The market responded positively to this news, with Chevron’s stock rising more than 3% in morning trading on the announcement day. This increase in the dividend not only provides additional income to shareholders but also signals management’s confidence in the company’s future prospects.

Chevron’s financial results for the fourth quarter were analyzed in comparison to Wall Street analysts’ expectations. According to LSEG’s survey, Chevron exceeded expectations in terms of adjusted earnings per share. The company reported $3.45 per share, surpassing the anticipated $3.21 per share. However, Chevron’s revenue fell short of expectations. The company generated $47.18 billion in revenue, while analysts were expecting $51.62 billion. While Chevron managed to beat earnings estimates, the revenue shortfall might have contributed to the market’s cautious response.

Challenges in the U.S. Oil and Gas Assets

Chevron faced challenges in its U.S. oil and gas assets, particularly in the fourth-quarter performance. The company recorded a loss of $1.35 billion in this segment, primarily due to impairment charges totaling $1.8 billion. Additionally, Chevron incurred a $1.9 billion hit associated with the decommissioning of previously sold assets in the Gulf of Mexico. Despite these setbacks, Chevron managed to report an adjusted profit of $3.45 per share by excluding the impairment charges from its financial results. This achievement demonstrates the company’s resilience and ability to navigate challenging market conditions.

Chevron’s refining profit in the fourth quarter stood at $1.15 billion, representing a 35% decrease compared to the same period in the previous year. The decline can be attributed to lower margins on product sales in the U.S. refining segment. The volatility of crude oil prices in 2023 also impacted Chevron’s financial performance. Both West Texas Intermediate and Brent experienced a decline of over 10% for the year due to factors such as a weakening Chinese economy and record oil production in the U.S. These market dynamics pose challenges for oil companies, including Chevron, as they navigate the complexities of the global energy landscape.

Expansion and Production Highlights

Despite the challenging market conditions, Chevron pursued expansion opportunities to enhance its production capabilities. The company entered into an agreement to acquire Hess for $53 billion in stock. This strategic move expands Chevron’s presence in Guyana, a significant emerging crude producer. Chevron achieved a record production of 3.1 million oil-equivalent barrels per day in 2023, with notable growth of 14% in the U.S. The Permian Basin played a crucial role in Chevron’s production, reaching a record 860,000 barrels per day. Furthermore, the company aims to achieve 1 million barrels per day in the Permian Basin by 2025. Despite a slight decline in international production, Chevron forecasts a production increase of 4% to 7% in 2024.

Chevron’s fourth-quarter profit decline highlights the challenges faced by the company in a volatile market. However, Chevron’s commitment to returning cash to its shareholders demonstrates its ability to deliver value amidst adversity. The company’s decision to increase the dividend and its strong production performance provide positive signals for investors. As Chevron navigates the complexities of the energy industry, its focus on shareholder returns and strategic expansion positions the company for continued growth and success.

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