Chevron exceeds Q2 expectations on strong oil production amidst ExxonMobil, Hess arbitration over Guyana

(Bloomberg) – Chevron Corp. surpassed expectations for a second straight quarter as strong oil-production growth from recent acquisitions helped the company take advantage of crude prices above $80 a bbl.

Adjusted first-quarter profit of $2.93 a share was 3 cents higher than the average of analyst estimates in the Bloomberg Consensus. Crude-oil production of almost 2 MMbpd exceeded forecasts.

Chevron is facing questions from investors and analysts over whether its portfolio has enough long-term growth potential, especially if its $53 billion acquisition of Hess Corp. falls apart. The deal hit a roadblock in March when Exxon Mobil Corp. disputed Chevron’s right to absorb Hess’ 30% stake in a massive, Exxon-run oil project offshore Guyana.

Chevron outperformed rivals during and after the pandemic as investors admired its financial strength and large shareholder returns. Last year, its buybacks amounted to almost $15 billion, or 5% of outstanding shares. But with global oil demand hitting fresh records and electric vehicles sales stumbling, the industry is starting to target crude-production growth once again.

That’s why the Hess deal is so vital to Chevron. It would provide a 30% stake in what Chief Executive Officer Mike Wirth has called “the industry’s most attractive, long-lived growth asset.” It 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’s attempting to make the case to investors that Chevron has enough organic growth potential on its own. The company is targeting between 4% and 7% production growth this year without Hess, largely 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 previously flagged that Permian production would drop in the first half of the year before rising strongly in the second half, for region-wide annual growth of about 10%. Longer term, Chevron’s growth outlook is more challenged. A giant expansion project in Kazakhstan is over budget and behind schedule, and shale production outside the Permian region is expected to flatline.