Chevron’s Downstream Segment in 2Q17: Analyzing the Trend
So far in this series, we’ve provided an update on Chevron’s (CVX) market and financial performance. We examined CVX’s stock performance, moving average crossovers, and its 11-day price forecast. We then looked at analyst ratings, expected dividends for the next quarter, institutional ownership changes, and valuations.
We reviewed Chevron’s leverage and liquidity position, followed by its capex activities in 2Q17. We also analyzed Chevron’s segmental earnings followed by its Upstream segment’s details. In this part, we’ll look at the performance of Chevron’s Downstream segment.
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Chevron’s Downstream segment
In 2Q17, Chevron’s Downstream earnings fell, although it constituted a major portion of Chevron’s total earnings. Chevron utilizes its Downstream portfolio as a hedge for the Upstream segment’s commodity price volatility. Improved margins supported its Downstream segment’s earnings in the quarter. The marginal decline in earnings was due to lower volumes, which were impacted by turnaround activities.
Pat Yarrington, Chevron’s CFO, noted during the company’s 2Q17 earnings call, “I think we have been very successful over the last decade improving the returns of downstream through transaction, fine-tuning, and optimizing the portfolio, plus significant efforts around cost management and cost containment.”
Yarrington added, “It’s also a growth opportunity for us, if you are including the chemical sector. So I think it’s a key part of our portfolio going forward. And we would look to expand and evaluate its investment opportunities for future growth projects, just the same way we would look at other opportunities. The chemical sector in particular would compete for capital for future investments.”
CVX’s refining margin indicators
Refining margins of the areas where Chevron operates are indicators of its margin performance. These zonal margins are Singapore-Dubai 3-1-1-1, the US West Coast (or USWC) Blended 5-3-2, and the US Gulf Coast (or USGC) Maya/Mars 5-3-2.
On a yearly basis, the fall in Chevron’s USGC margin was offset by a rise in the Singapore-Dubai margin. In 2Q17, the USGC margin fell 6% YoY (year-over-year) to $18.90 per barrel. However, the Singapore-Dubai margin rose 47% YoY to $7.90 per barrel in 2Q17. The USWC margin remained unchanged at $21.00 per barrel in 2Q17.
Quarter-over-quarter, all three regional indicators posted a rise in margins.
To learn about the cross-sectional analysis of leading integrated energy stocks ExxonMobil (XOM), Chevron (CVX), Royal Dutch Shell (RDS.A), and BP (BP), please read XOM, CVX, RDS.A, BP: Where They Stand after 2Q17 Earnings.