had its most profitable year since 2014, reporting on Friday that it made a net profit of $15.6 billion in 2021 as commodity prices surged on the back of a global economic recovery.
The US oil giant’s annual revenue was a dramatic turnaround from 2020, when Chevron lost $5.5 billion after the global pandemic channeled demand for oil and gas. It reported fourth-quarter profit of $5.1 billion on Friday, compared with a loss of $665 million in the same period last year. Chevron also said it generated $21.1 billion in free cash flow in 2021, its highest level ever.
Chevron’s stock price hit an all-time high on Thursday, closing at over $135 per share as investors reacted to Chevron’s announcement to increase its quarterly dividend by 6%. But the company’s shares fell more than 3% in trading on Friday after the release of its fourth-quarter results, which were below analysts’ expectations.
Soaring commodity prices have investors wondering if oil and gas companies will follow their historic impulse to increase drilling in search of higher profits. Chevron is the first of Western oil’s biggest companies to report earnings, and analysts will be looking for tea leaves from Chevron’s management to find out if the price signal has changed its calculus.
Chevron chief executive Mike Wirth said gasoline demand was above pre-pandemic levels and he expects fossil fuel markets to pick up again in 2022. Despite this, he said that Chevron would stick to disciplined spending.
“I don’t think we’re going to be tempted by today’s price,” Wirth said in a call with analysts on Friday.
After years of dismal returns from oil and gas companies, investors have pressured producers to moderate growth and return more cash to shareholders. Chevron and its peers have responded by changing the way they allocate cash, which has driven their stock price higher and the cost of capital lower, according to Rob Thummel, senior portfolio manager at TortoiseEcofin.
While this is good for the company’s investors, there are growing concerns that there is not enough investment in new fossil fuel supplies to meet growing demand.
“Producers and management teams will continue to respond to what the market is asking of them, which is to return capital to shareholders, which will ultimately make it harder to keep up with global oil and gas demand,” Mr. Thummel.
US oil prices hit their highest level since 2014 in January and were trading around $87 a barrel on Thursday. More analysts are predicting oil prices to hit $100 a barrel in 2022 as global economies continue to recover and investment in oil and gas production remains relatively limited.
Chevron said it was sticking to a relatively modest budget and would return more and more money to shareholders. Chevron’s dividend increase on Thursday marked the 35th straight year the company has raised the payout. Chevron also said it would repurchase up to $5 billion of its stock after repurchasing $1.4 billion in 2021.
Late Thursday, a federal judge struck down a sale of an 80 million-acre U.S. oil and gas lease in the Gulf of Mexico, saying the Interior Department had failed to adequately consider the impacts of climate change in its environmental analysis. Chevron was among the companies that had bid for parcels in the sale. Mr Wirth called the decision disappointing on Friday.
Chevron announced in December that it would increase capital spending in 2022 to $15 billion, a 20% increase over the previous year but still well below pre-pandemic levels. Mr. Breber said the company would maintain that budget. Chevron said it would spend $15 billion to $17 billion through 2025, compared with previous plans to spend $19 billion to $22 billion a year before the pandemic.
Despite falling spending levels, Chevron said it set a record for oil and gas production in 2021, producing 3.1 million barrels per day, a modest increase from levels a year earlier. The company’s oil and gas production unit earned $7.3 billion in 2021, compared to a loss of $1.6 billion in 2020.
Chevron Chief Financial Officer Pierre Breber said the company was able to increase production despite its more disciplined spending due to structural cost savings implemented by Chevron during the pandemic. Chevron must grow to maintain the dividend, he said.
“We will rebuild activity as the market recovers,” Breber said.
Phil Gresh, an analyst at JPMorgan Chase & Co., said in a note to investors on Friday that Chevron’s forecast for oil and gas production in 2022 to be flat or slightly down came in below expectations. Breber said Chevron’s 2022 production would increase, excluding lost volumes from expiring contracts in Asia.
Write to Christopher M. Matthews at [email protected]
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