On Friday, Chevron (NYSE:CVX) will release its quarterly report, and investors have remained optimistic about the oil giant's long-term prospects. Like ExxonMobil (NYSE:XOM), BP (NYSE:BP), and other big oil companies, Chevron has had to work increasingly hard in order to make sure its production levels stay solid. But with Chevron having boosted its dividend by 7% on Wednesday afternoon, shareholders are wondering if they should take the payout raise as a sign that earnings will be better than expected.

Chevron's dividend increase represents the 27th straight year that the oil company has raised its quarterly payout. Yet even with the vote of confidence from Chevron's board, investors still have to worry about rising levels of competition and the higher base cost of new resources that require unconventional drilling methods to recover oil and gas. BP reported lower profits earlier this week, and ExxonMobil is expected to see similar declines. Can Chevron stay far enough ahead of the curve to keep both production and profits up? Let's take an early look at what's been happening with Chevron over the past quarter and what we're likely to see in its report.

Stats on Chevron

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$54.47 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Can Chevron earnings finally recover this quarter?
Analysts have dramatically reduced their expectations on Chevron earnings in recent months, having cut first-quarter earnings estimates by almost 13% and lopping almost $0.75 per share from their full-year 2014 projections. The stock has still managed to rise by 9% since late January.

Chevron suffered mightily during the fourth quarter of 2013, with net income plunging 32% on a 7% drop in revenue. With falling spreads between prices of domestic and international oil, profits at its downstream refining segment fell 58%. Yet falling oil prices weighed on Chevron's upstream exploration and production segment as well, with a 29% decline in earnings from that division. The results sent the stock down more than 4% the day they were announced.

Source: Chevron.

Chevron has also continued to see problems in the first quarter. Chevron issued a warning in early April, saying in its preliminary first-quarter outlook that oil and gas production and net income would both fall sequentially, with weather playing a role in the declines not only in North America but also in the Asian nation of Kazakhstan. Now, investors are concerned that even more favorable conditions in the oil market might not boost Chevron earnings.

Yet from a long-term perspective, Chevron seems to be making smart moves to sustain its business. Massive natural-gas finds in Australia give Chevron a strategically valuable source from which to transport liquefied natural gas to key markets in Asia and the Pacific, and with two big projects about 70% complete, Chevron should be able to move forward as soon as next year. Moreover, its long-term plans include a commitment to boost production capacity by 20%, keeping its annual capital expenditures stable in order to fund shale oil and deepwater drilling projects as well as its Kazakhstan partnership.

Chevron also won a major victory during the quarter, with a U.S. federal court striking down an Ecuadoran judgment that could have cost the company as much as $9.5 billion, even after judges in Ecuador had cut the original amount in half. With Chevron demonstrating that the judgment in Ecuador involved corrupt practices, the U.S. court refused to honor it, and that brought Chevron one step closer to putting the whole episode behind it.

In the Chevron earnings report, watch to see how the company deals with its production and cost challenges. If it can demonstrate an ability to reduce its cost structure while still sticking with its ambitious production-growth goals, Chevron could give competitors BP and ExxonMobil a run for their money -- and give its shareholders reason to celebrate above and beyond the dividend increase.

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