U.S. oil giant Chevron swung to a fourth-quarter net profit but posted its first annual loss in decades as it struggled to recover from a collapse in oil prices.
The California-based company had a US $497 million loss last year. For the fourth-quarter, it posted a net income of $415 million, or 22 cents per share, after a net loss of $588 million, or 31 cents a share, a year earlier.
Chevron’s stock was punished, losing about $5 billion of its value on Friday as the earnings came in below analysts’ average estimates from Reuters and Bloomberg surveys.
Production fell slightly to 2.7 million barrels of oil equivalent per day. Earnings rose in the company's upstream segments, which pump oil and gas, but dropped in the refining segments due to lower margins and higher taxes. Chevron's flagship Richmond, Calif., refinery, which is undergoing a $1 billion renovation, also had downtime during the quarter, denting profit.
“Our 2016 earnings reflect the low oil and gas prices we saw during the year,” Chairman and CEO John Watson said in a statement. “We responded aggressively to those conditions, cutting capital and operating expenses by $14 billion. We are well positioned to improve earnings and be cash flow balanced in 2017 through continued tight spending and cost control and additional revenue from expected production growth. That confidence enabled us to increase the 2016 annual dividend payout for the 29th consecutive year.”
Chevron’s earnings may herald bleak news for an industry battered by the oil-market crash that began in mid-2014.
Since the end of 2014, Chevron has laid off 9.500 employees and slashed its annual budget to boost results and protect its dividend.
After hundreds of thousands of job cuts, billions of dollars in asset sales and the accumulation of staggering debt loads to endure the collapse, investors have been optimistic that oil producers who survived the darkest days are on the cusp of a new era of growth.
However, Chevron may be able to cover all of its costs this year with cash flow and generate excess cash as soon as 2018.
Chevron added the equivalent of 900 million barrels of oil to its reserves last year, or 95 percent of what it produced, according to the statement. The new reserves involved oil and gas fields in Kazakhstan, Australia and the Permian Basin beneath Texas and New Mexico. Reserves are a key indicator of future profit potential for investors.