Chevron's Production Fell. Its Profit Nearly Tripled. Here's How.
Key Points
Chevron's Q3 adjusted profit nearly tripled to $10.4 billion, even as production fell 2.6%.
Surging refining margins drove downstream earnings up 333%, with Chevron's refineries operating at 98% capacity.
Chevron's integrated business model helped offset lower production, underscoring its resilience and 39-year streak of dividend increases.
Since the start of the year, the conflict in Iran has resulted in disruptions in the Strait of Hormuz, through which roughly 20 million barrels of oil pass daily. Oil prices have jumped. More importantly, diesel fuel and other refined products have surged.
Chevron's (NYSE: CVX) third-quarter adjusted profit nearly tripled year over year to $10.4 billion, despite production declining 2.6%. The seemingly contradictory move illustrates the advantages of Chevron's integrated business model. Here's what investors should know.
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Chevron's refining capacity ran near 100% in the third quarter
As an integrated oil and gas company, Chevron's business spans upstream exploration and production of crude oil and natural gas, as well as downstream refining and fuel sales. By operating across the value chain, Chevron has a natural hedge that helps it weather major fluctuations in crude oil prices and fuel and other refined products.
In the third quarter, production dropped by roughly 106,000 barrels of oil equivalent per day, or roughly 2.6%. This was driven in part by fewer physical barrels under production -- sharing contract entitlements and by disruptions in the Middle East. While production fell, upstream earnings surged 72% to $5.7 billion.
On top of this, downstream refining margins exploded as global refining capacity took a hit amid the Iran conflict, with strikes hitting facilities in the Middle East and Ukrainian attacks on Russian refineries taking roughly 10% of the world's fuel-making capacity offline. As a result, Chevron's refineries operated at 98% capacity, and downstream earnings surged 333% year over year to $4.9 billion.
Chevron is a top integrated oil and gas company vital to the energy complex, and this year illustrated the strengths of its integrated business model and capital discipline, showing why it continues to deliver for long-term investors with 39 consecutive years of dividend increases.
Courtney Carlsen has positions in Chevron. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.