(Bloomberg) – Chevron Corp. beat expectations for the second quarter in a row as strong oil production growth from recent acquisitions helped the company benefit from crude oil prices above $80 a barrel.
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First-quarter adjusted earnings of $2.93 per share were 3 cents above the average of analyst estimates in the Bloomberg Consensus. Crude oil production of nearly 2 million barrels per day exceeded forecasts.
Chevron faces questions from investors and analysts about whether its portfolio has enough long-term growth potential, especially if its $53 billion acquisition of Hess Corp. fails. The deal stalled in March when Exxon Mobil Corp. Chevron denied the right to take over Hess’s 30 percent stake in a huge Exxon-operated oil project in Guyana.
Chevron outperformed its peers during and after the pandemic as investors admired its financial strength and strong shareholder returns. Last year, buybacks totaled nearly $15 billion, or 5% of shares outstanding. But with global oil demand hitting new records and electric vehicle sales stagnating, the industry is targeting renewed growth in crude oil production.
Read more: Big oil companies focus on production growth as profits stabilize
That’s why the Hess deal is so important for Chevron. It would allow for a 30 percent stake in what Chief Executive Officer Mike Wirth has called “the industry’s most attractive and long-lasting growth asset.” This would also help narrow the valuation gap with Exxon, which operates Guyana’s Stabroek Block and owns 45%.
While Wirth still expects to complete the Hess acquisition, he is trying to make it clear to investors that Chevron alone has enough organic growth potential. The company is targeting production growth of between 4% and 7% this year excluding Hess, primarily from the Permian Basin, a new offshore platform in the Gulf of Mexico and the addition of PDC Energy, which Chevron acquired in August.
Wirth had previously indicated that Permian production would decline in the first half of the year and rise sharply in the second half, representing regional annual growth of about 10%. Longer term, Chevron’s growth prospects are more difficult. A huge expansion project in Kazakhstan is over budget and behind schedule, and shale production outside the Permian region is expected to stagnate.
(Adds adjusted earnings per share and oil production in second paragraph.)
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