Chevron's (NYSE: CVX ) first quarter results were pretty poor at first glance. The company's global oil-equivalent production for the period fell to 2.59 million barrels per day, down from 2.65 million reported during the same period last year.
Earnings for the quarter came in at $4.51 billion, or $2.36 a share, down from $6.18 billion, or $3.18 a share, in the year-earlier period. Revenue fell 6.3%.
These are pretty worrying figures but, as always, the company's outlook is more important than historic figures. So, what did Chevron's management have to say on the first quarter conference call with regard to the company's performance and outlook?
Well, management noted that Chevron's quarter was in line with guidance, after adding back in some negative asset impairments, including unfavorable foreign exchange effects and asset writedowns. Together these two factors affected results by $500 million, or $0.26 per share. Return on capital employed for the period was 12%.
Thankfully, Chevron kept its capital spending under control during the period, something the company has been struggling to do for some time. Chevron's capital spending amounted to only $8.5 billion for the quarter, cash generated from operations was $8.4 billion. At quarter end, cash balances totaled $16.2 billon.
What about operations?
While Chevron's underlying financials were in line, on an operational basis Chevron's equivalent oil production actually increased by 12,000 barrels per day from the fourth quarter of 2013. Production growth was due in part to the ramp up of the company's Angola LNG facility and Papa-Terra field offshore Brazil.
Further, Chevron continued to outperform its peers on many metrics during the quarter. Specifically, over the past four years, Chevron's cash margin per barrel of oil produced has increased by $15, that's an extra $15 profit per barrel of oil produced.
In comparison, Chevron's peer group has only managed to drive margin growth by $8 per barrel. At present, Chevron's cash margin per barrel of oil produced stands at $38, $10 above peers. Moreover, Chevron's management expects the cash margin to hit $40 per barrel later this decade.
Aside from these impressive probability metrics, the most important part of Chevron's conference call was management's comments on the progress of several major projects.
Chevron plans to ramp up oil output by more than 20% by 2017, and it would appear as if the key projects for this plan are progressing well. Essential to the company's growth plans are the Jack/St. Malo and Tubular Bells fields within the Gulf of Mexico.
The Jack/St. Malo platform was moored in a title location earlier this year, and the final testing of flow lines is under way. The project is on-budget and is on track for late start-up in the fourth quarter of this year.
Meanwhile, the Tubular Bells platform is in position, hook-up and commissioning is under way, and start-up is expected before year end. Chevron is the co-partner in the Tubular Bells project and holds a 42.9% interest. Hess Corp (NYSE: HES ) currently has a 57% working interest in the project and is the operator of the field.
The Tubular Bells field is not such an important project for Chevron, but it is for Hess. At its peak the field is expected to produce 45,000 barrels of oil equivalent per day at the high end. A 40% working interest for Hess will mean an additional 18,000 barrels of oil equivalent production to the company, around an 8.6% increase to Hess' current production rates based on first quarter numbers.
Going to plan
So, it seems as if things are going to plan, and it seems as if Chevron's management has done plenty of planning with regard to getting the Gulf of Mexico fields into production on time. The schedules have been designed around the weather within the Gulf of Mexico, so an active hurricane season between now and commissioning should have minimal impact on start-up.
Moreover, in Australia Chevron's Gorgon project, which is vastly over-budget is now 80% complete, and first gas is still expected mid-2015. Wheatstone is around 30% complete and is still on track for late 2016 start-up.
With regards to shale projects, Chevron drilled 120 wells during the quarter within the Permian Basin and continues to reduce expenditure and improve execution within the basin.
All in all, at first glance Chevron reported a poor fiscal first quarter, but after excluding one-off charges, it would appear that the company's earnings were in line with management expectations. Additionally, Chevron's plans for growth remain on track, and all of the company's major projects appear to be on schedule to start up during the next few quarters.
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