Chevron Beats Low Bar as Record Permian Output Offsets Refining Pain

Chevron posted a $4.89 billion second-quarter profit that cleared a lowered bar, as record Permian production and a 14% cut in capital spending outweighed a 40% drop in downstream earnings.

The company earned $2.70 a share in the three months through June, down from $3.02 a year earlier but ahead of the $2.63 analysts had forecast, according to data compiled by Bloomberg. Shares rose 1.2% in premarket trading.

Production averaged 3.35 million barrels of oil equivalent a day, an all-time high. The Permian Basin alone pumped 870,000 boe/d, up 8% from the first quarter and above the company's own targets. Output from the Gulf of Mexico and international operations also climbed.

Eimear Bonner, Chevron's CFO, told analysts the quarter demonstrated the company could grow volumes while cutting costs. The upstream segment earned $6.2 billion, down 12% from a year ago. The decline was milder than some on the Street had feared, several analysts said on the call. Capital spending fell to $3.8 billion, and Bonner said full-year outlays would land at the low end of the $14 billion to $16 billion range.

Refining was the sore spot. Downstream earnings dropped 40% to $1.2 billion as margins narrowed across the Gulf Coast and West Coast systems. Bonner called the segment "cycling strong prior-year results" and said margins would stay under pressure through the third quarter.

The company returned $5.1 billion to shareholders during the quarter, including $3.5 billion in buybacks and $1.6 billion in dividends. That was down from $5.7 billion in the first quarter, a pullback several analysts pressed Bonner on. She said the pace reflected "capital allocation discipline" and that buybacks would remain tied to cash flow rather than a fixed quarterly target.

The buyback slowdown and the outlook for the dividend dominated the analyst Q&A. Mike Wirth, the CEO, said the board would review the payout at its October meeting. He declined to give a specific target but said the company had "room to grow" the dividend over time.

Wirth pushed back on the idea that Chevron's Permian growth was peaking. The company has 12 rigs running in the basin and plans to add two more by year-end. "We see running room," he said. "The inventory is deeper than the market gives us credit for."

Jeff Gustavson, president of Chevron New Energies, said the company was still evaluating its carbon capture and hydrogen projects but had no new large-scale commitments to announce. The New Energies unit lost $67 million, narrower than the $82 million loss a year earlier.

One unresolved item: the timing of the pending acquisition of Hess Corp. The deal, announced last October, has been held up by an arbitration dispute with Exxon Mobil over Hess's Guyana assets. Wirth said Chevron expected a ruling "before year-end" but offered no update on the proceedings.

The board has authorized a $10 billion increase to the share repurchase program, bringing the total to $85 billion. Bonner said the company had bought back $14 billion worth of shares so far this year.

For the third quarter, Chevron said it expected production to be roughly flat, with maintenance at several Gulf of Mexico facilities offsetting Permian gains. The refining outlook was more cautious. Bonner said the company was "guiding conservatively" on margins through September.

A handful of insiders sold shares in the weeks after the print. The sales totaled roughly $2.1 million across four executives, none of whom sold more than a small fraction of their holdings.

Chevron's Alpha Score sits at 55 out of 100, a neutral reading that reflects the tension between record production and thinning downstream margins. The score has drifted lower over the past two months as refining headwinds have offset operational gains.

The next catalyst for the stock is the October board meeting, where the dividend decision will land. Wirth's hint that the payout could rise was the most concrete signal management has offered all year.