Chevron's Terrible Quarter Shows Weakness for Big Oil

Chevron's revenue and profit dropped in the fourth quarter, highlighting the challenges oil companies face long term.

Jan 31, 2014 at 11:36AM

The challenges facing Big Oil showed up loud and clear this morning when Chevron (NYSE:CVX) reported earnings that fell well short of expectations. Fourth-quarter revenue dropped 7.3% to $56.2 billion and net income was down 32% to $4.93 billion, or $2.57 per share. Earnings hit estimates from Wall Street but revenue was way short of the $64.9 billion analysts expected.  

Pressure came from across the business. Exploration and production earnings were down 29%, hurt by rising costs and falling oil prices. What's concerning is that low margins in exploration didn't translate to higher margins downstream, which saw a 58% drop in profit.

Oil companies are stuck between a rock and a hard place with exploration costs rising and the price of gasoline not rising at the same pace. That puts pressure on exploration or refining profits, depending on where the price of oil is in any given quarter. This quarter, conditions were bad enough to sink both upstream and downstream profits for Chevron.

Outside of a sharp rise in the price of gasoline, Chevron and other big oil companies are in for steadily declining profits long term. The developed world is using less oil than it did a decade ago and isn't willing to pay for gasoline the way it once was. This is still a dominant energy player but its dominance will slowly fade with time.


Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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