Has Chevron’s Earnings Mix Changed?




We started this series by reviewing Chevron’s (CVX) strong upstream portfolio. The portfolio is expected to bring in volume growth in 2019. The company’s vital downstream assets base is ready to face future challenges. We discussed why analysts love Chevron stock. We also discussed the company’s strong debt and liquidity position in 2018. In this part, we’ll review whether Chevron’s earnings mix changed in 2018.

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Earnings mix

A rise in oil prices altered Chevron’s segmental dynamics in 2018. The company’s overall adjusted earnings rose from $7.0 billion in 2017 to $15.5 billion in 2018. The earnings mix changed radically.

Chevron’s upstream segment, which contributed 73% to the overall adjusted earnings in 2017, added 93% in 2018. Chevron’s adjusted upstream segment’s earnings rose from $5.1 billion in 2017 to $14.4 billion in 2018. The upstream earnings rose due to higher hydrocarbon production and better oil prices. In the United States, Chevron’s average crude oil realizations rose from $48 per barrel in 2017 to $64 per barrel in 2018. Chevron’s upstream production rose 7%, which we discussed in Part 1.

With the steep rise in upstream earnings, the contributions from the downstream segment declined. Chevron’s downstream segment’s contributions fell from 49% in 2017 to 22% in 2018. Chevron’s adjusted downstream earnings fell 3% YoY to $3.4 billion in 2018. Other expenses had a negative impact on the company’s earnings by 15% in 2018—compared to 22% in 2017.

Shift in the earnings mix

The rise in oil prices has led to an increase in Chevron’s upstream earnings, which altered the company’s earnings mix. The downstream earnings could support the company’s overall earnings in lower oil price scenario. The favorable scenario points to the company’s strong integrated earnings model.

Next, we’ll discuss how Chevron’s segmental capex trended in 2018.


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