On July 31, 2015 big oil company Chevron (NYSE: CVX) reported disappointing second-quarter earnings of $0.30 per share, missing consensus estimates by a huge margin. Apart from low crude oil prices creating a huge drag on revenue, the integrated oil and gas giant recorded non-cash impairments and other charges of $2.6 billion that raises questions about the company's asset quality against the backdrop of low oil prices.

Source: Chevron.

A spectacular drop in earnings
The San Ramon, California-based company reported net income of $571 million, thanks largely to its solid downstream operations. Unfortunately, this net income result is a spectacular 90% drop from last year's second-quarter earnings of $5.7 billion. Sales and other operating revenues also fell 34% to $36.8 billion, from $55.6 billion last year.

Segment-wise, upstream operations -- or exploration and production related activities -- clocked a net loss of $2.2 billion while the downstream, or refining and marketing, segment recorded a net profit of nearly $3 billion.

CEO John Watson admitted that overall results were weak due to a 50% decline in crude oil prices from year-ago levels. He, however, emphasized that efforts were on to improve future cash flows and earnings by cutting down on costs through renegotiations with the company's suppliers, as well as by downsizing the workforce. Additionally, he hinted that the company intends to pursue a smaller capital program and divest assets.

Digging deeper
Domestic U.S. upstream earnings fell to a $1.04 billion loss, against a $1.05 billion profit in the year-ago quarter. However, production increased 9% to 730,000 barrels of oil equivalent per day, which is definitely heartening. Ramp-ups in the Gulf of Mexico, the Permian Basin contributed to the production growth.

International operations fared worse, incurring a $1.2 billion loss versus a huge $4.2 billion profit last year. Net production too, fell 1% to 1.87 billion BOE per day. Normal field declines and production shut-ins in the Partitioned Zone in the Middle East contributed to the decline.

Higher margins on sales of refined products, counterbalanced partly with lower earnings from joint venture Chevron Phillips Chemical Company, increased U.S. downstream earnings by a solid 41% to $731 million. Additionally, last year's second-quarter earnings of $517 million also include a gain from an asset sale. In other words, comparing only core operations, the gain is much higher than 41%. Refinery crude input increased 6% to 916,000 bpd. Also, higher gasoline sales ensured that total refined product sales also grew by 3%.

Internationally, downstream operations earned $2.23 billion, which includes a $1.6 billion gain from the sale of Chevron's interest in Caltex Australia Limited. Foreign exchange effects decreased earnings by $103 million against a $84 million decrease last year. So removing the effects of the divestment and foreign exchange, core operations earned around $728 million versus $288 million in the year-ago quarter, a solid 153% increase.

Refinery crude input clocked in at 774,000 bpd, an 8% decline from last year, thanks to the Caltex divestment. Refined product sales also declined a little more than 4% as a result of the decline.

Cash flow from operations for the first half of 2015 came in at $9.5 billion -- a significant 42% fall. Somehow, Chevron couldn't replicate the results of its integrated counterpart, Total.

Foolish takeaway
Chevron's downstream segment wasn't enough to control the damage wreaked on its upstream operations as market conditions turned sour. In other words, the company's integrated model couldn't prove to be the savior in the low oil price environment, unlike Total.

From the earnings press release itself, it's not clear what the underlying components of the non-cash impairment charges are, except that depreciation, depletion, and amortization have spiked a massive 81% to $6.9 billion. Once the company files its second-quarter 10-Q, it will be clear which assets bore the brunt of being impaired in addition to delayed projects.