Chevron buoyed by cost cuts, production

The company generated $1.45 billion in profit compared with a loss of $1.47 billion last year

Chevron posted a secondquarter profit of $1.45 billion, buoyed by cost cuts and fast-rising energy production, the company reported Friday.

The profit represented a welcome reversal from a year-ago second-quarter loss of $1.47 billion and fueled a rally in its stock price. Chevron shares ended the day up 1.9 percent at $108.12.

“We’re delivering higher production with lower capital and operating expenditures,” John Watson, Chevron’s chief executive officer, said in a prepared release.

Second-quarter worldwide production totaled 2.78 million barrels of oil equivalent a day, Chevron reported. That was up 9.9 percent from the 2.53 million barrels of production during the same quarter a year ago.

San Ramon-based Chevron’s business strategy depends largely on production of oil and gas from an array of sites, in the

United States and overseas.

Chevron’s second-quarter upstream operations — consisting of exploration, development and production — generated $853 million in profits compared with a year-ago loss of $2.46 billion.

Downstream activities — primarily refinery and retail operations — generated $1.2 billion in profits in the second quarter, down 6.5 percent from the profits in the same quarter a year ago.

U.S. downstream operations, which include Chevron’s giant refinery in Richmond, earned $634 million in profits, up 18.1 percent from the year before.

“We started and ramped up multiple major projects” during the second quarter, Jay Johnson, a Chevron executive vice president for upstream operations, told analysts during a conference call.

The boost in production is coming from projects in locations such as the seas off western Australia and the Permian Basin, a vast region of the southwestern U.S. that stretches from western Texas to southeastern New Mexico.

In Australia, Chevron has begun large deliveries of liquefied natural gas from its Gorgon field and is pushing ahead with production at its Wheatstone field.

“We expect to see reliable production from the assets that are currently on stream, further growth in the Permian Basin and Wheatstone coming on line,” Johnson said during the call. He added, “Gorgon is running really well.”

Chevron, however, also has embarked on an aggressive push to slash expenses.

“Operating expenses were down 10 percent and capital spending was down 25 percent in the first six months of the year versus 2016,” Watson said.

During 2016, Chevron slashed 6,300 jobs from its worldwide workforce and 3,100 from its U.S. staff. Chevron had stated at the outset of its cost-cutting drive that it intended to chop 8,000 jobs.

Chevron appears to have turned around its fortunes after struggling with losses over three straight quarters that began in the fourth quarter of 2015 and stretched over the first six months of 2016.

“We view this as a good quarter for Chevron,” Stewart Glickman, an analyst

“Operating expenses were down 10 percent and capital spending was down 25 percent in the first six months of the year versus 2016.” — John Watson, Chevron’s chief executive officer

with CFRA Research, an investment firm, stated in a research note Friday.

Over four consecutive quarters starting with the second quarter of 2016, Chevron has posted a profit.

“We think 2017 is very much a transition year and it is an inflection year,” Patricia Yarrington, Chevron’s chief financial officer, said during the conference call.

Some experts such as Pavel Molchanov, an analyst with investment firm Raymond James, pointed to the nearly 10 percent rise in production as a positive sign for Chevron’s turnaround.

“Chevron’s production was actually quite good this quarter,” Molchanov said. “Production was supposed to grow, it did grow, and in fact it delivered a little bit ahead of our expectations.”