At first glance, Chevron (CVX 0.37%) reported rather ho-hum third-quarter results. The oil giant's adjusted earnings fell compared to the second quarter and the year-ago period. They also fell short of analysts' expectations. 

However, that was largely due to issues with some of its international operations. That masked the robust performance of its U.S. businesses, which thrived in the second quarter, fueled by its $7.6 billion acquisition of PDC Energy. 

A meaningful contributor

In the third quarter, Chevron reported $5.7 billion, or $3.05 per share, of adjusted earnings. That was down slightly from $5.8 billion, or $3.08 per share, in the second quarter. The decline was largely due to weaker international results. Its upstream production declined by 112,000 barrels of oil equivalent per day (BOE/d), while downstream earnings fell because of lower margins and output. 

That masked the exceptional performances of Chevron's U.S. businesses. U.S. upstream earnings grew from $1.6 billion in the second quarter to over $2 billion in the third, fueled by a 20% increase in production to 1.4 million BOE/d. That set a new quarterly record for the oil company. The main driver was PDC Energy, which added 179,000 BOE/d to Chevron's production, helping boost its earnings.

Chevron also produced strong results in its U.S. downstream business. Earnings grew to nearly $1.4 billion, up from almost $1.1 billion last quarter and $1.3 billion in the year-ago period. The main fuel was higher margins on refined product sales. The company benefited from a full quarter of its Richmond, California refinery, which was undergoing maintenance last year.

Chevron generated strong free cash flow at $5 billion, double what it produced last quarter. Free cash flow was a big driver of its PDC Energy deal. Chevron expects the acquisition will add $1 billion to its annual free cash flow, assuming oil averages $70 a barrel. With crude prices currently in the mid-$80s, Chevron should produce even more free cash following its PDC Energy deal. 

Chevron returned $6.2 billion in cash to investors during the quarter, paying $2.9 billion in dividends and repurchasing $3.4 billion in shares.

An even bigger acquisition-driven boost is coming

Chevron's acquisition of PDC Energy moved the needle for its U.S. upstream operations during the third quarter. It should be a meaningful contributor over the next year as Chevron integrates those operations, which it expects will help save over $500 million in annual capital and operations costs. That will help boost its free cash flow. 

However, an even bigger boost is coming after Chevron recently agreed to buy Hess (HES 0.67%). It's paying a whopping $60 billion for the oil and gas producer. Hess will significantly enhance Chevron's portfolio, adding the high-growth Guyana and the cash-flowing Bakken to its portfolio. It will also add complementary assets in the Gulf of Mexico and a steady free cash flow generating Southeast Asia gas business. 

Chevron expects the deal will be accretive to its free cash flow per share starting in 2025 following the start-up of a fourth floating production storage and offloading vessel in Guyana. The deal will also increase Chevron's five-year production and free cash flow growth rates while extending its growth profile into the next decade.  

That drives Chevron's expectation that it will increase its dividend per share by 8% next January, an acceleration from the 6% growth rate it has delivered in recent years. Chevron also envisions ramping up its annual share repurchase rate by $2.5 billion, pushing it to the top-end of its $10 billion-$20 billion guidance range. 

Acquisition-fueled growth

Chevron has gone on a shopping spree this year. It bought PDC Energy to boost its U.S. production and free cash flow. It followed that up with an even bigger deal for Hess, which will significantly enhance and extend its production and free cash flow growth profile. These needle-moving deals make Chevron a more attractive long-term investment.