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Tag Archives: Chevron
Chevron Rides High Oil Prices to Record $35.5 Billion Annual Profit
Chevron Corp.
CVX -4.44%
banked historic profit last year as the pandemic receded and the war in Ukraine pushed oil prices to multiyear highs, with its shares climbing 53% for the year while other sectors tumbled.
The U.S. oil company in its quarterly earnings reported Friday that it collected $35.5 billion in its highest-ever annual profit in 2022, more than double the prior year and about one-third higher than its previous record in 2011. Almost $50 billion in cash streamed in from its oil-leveraged operations, another record that is underpinning plans to pay investors through a new $75 billion share-repurchase program over the next several years.
That payout, announced Wednesday, is roughly equivalent to the stock-market value of companies such as the big-box retailer
Target Corp.
, the pharmaceutical firm
Moderna Inc.
and
Airbnb Inc.
Chevron, the second-largest U.S. oil company after
Exxon Mobil Corp.
, posted revenue of $246.3 billion, up from $162.5 billion the previous year. The San Ramon, Calif., company reported a fourth-quarter profit of $6.4 billion, up from $5.1 billion in the same period the prior year.
The fourth-quarter results came short of analyst expectations, and Chevron shares closed down more than 4% Friday.
For all of its recent winnings, though, Chevron and its rival oil-and-gas producers could face a rockier year in 2023, according to investors and analysts, if an anticipated slowdown in U.S. economic growth dents demand for oil, and if China’s reopening from strict Covid-19 restrictions unfolds slowly.
U.S. oil prices have held steady this year, but are off about 36% from last year’s peak. The industry is proceeding with caution, holding capital expenditures for 2023 below prepandemic levels and saying production will grow only modestly. Chevron has said it plans to spend about $17 billion in capital expenditures this year, up more than 25% from the prior year, but $3 billion less than it planned to spend in 2020 before Covid-19 took root.
Oil companies are still outperforming other sectors such as tech and finance, which have seen widespread job cuts in recent weeks. The energy segment of the S&P 500 index has climbed 43.7% over the past year, compared with a 6.7% drop for the broader index.
Chevron Chief Executive Mike Wirth said the company is unsure of what 2023 will bring after global energy supplies were squeezed because of geopolitical events last year, particularly in Europe following Russia’s invasion of Ukraine. He said markets appeared to be stabilizing.
“We certainly have seen a very unusual and volatile year in 2022,” Mr. Wirth said, noting the European energy crisis has proven less dire than anticipated thanks to milder winter weather, growing natural gas inventories in Europe. “China’s economy has been slow throughout the year, which looks to be turning around. It’s good that markets have calmed.”
Chevron projects its output in the Permian Basin of West Texas and New Mexico to grow at a slower pace this year.
Photo:
David Goldman/Associated Press
Chevron hit a record in U.S. oil-and-gas production in 2022, increasing 4% to about 1.2 million barrels of oil equivalent a day, stemming from its increased focus on capital investments in the Western Hemisphere, particularly in the Permian Basin of West Texas and New Mexico, where it boosted output 16% last year. Worldwide, Chevron’s oil-and-gas production was down 3.2% compared with the prior year, at 2.99 million barrels of oil-equivalent a day.
Its overall return on capital employed came in at 20%, it said.
“There aren’t many sectors generating the type of free cash flow that energy is right now,” said
Jeff Wyll,
an analyst at investment firm Neuberger Berman, which has invested in Chevron. “The sector really can’t be ignored. Given the supply-demand balance, you have to have some things go wrong here to see a pullback in oil prices.”
Even so, institutional investors have shown limited interest so far in returning to the energy sector, after years of poor returns and heightened concerns about their environmental impact prompted large financiers to sell off their stakes in oil-and-gas companies or stop investing in drillers outright.
Pete Bowden,
global head of industrial, energy and infrastructure banking at
Jefferies Financial Group Inc.,
said energy companies in the S&P 500 index are throwing off 12% of the group’s free-cash flow, but only account for about 5% of the index’s weighting—an indication their stock prices are lagging behind.
Investors’ concerns around environmental, social and governance-related issues are a constraint on the share prices of energy companies, “yet the earnings power of these businesses is superior to the earnings power of companies in other sectors,” he said.
Chevron and others have faced criticism from the Biden administration and others that they are giving priority to shareholder returns over pumping oil and gas at a time when global supplies are tight and Americans are feeling pain at the pump. On Thursday, the White House assailed Chevron’s $75 billion buyout program, saying the payout was proof the company could boost production but was choosing to reward investors instead.
Pierre Breber,
Chevron’s finance chief, said the company expects oil prices to be volatile but within a range needed to sustain its dividend and investments. There are some optimistic signs, he added, including that the U.S. economy grew faster than expected in the fourth quarter, at 2.9%.
“Supply is tight. Oil-field services are near capacity, and we continue to have sanctions on Russian production,” Mr. Breber said. “You’re seeing international flights out of China are way up, and low unemployment in the U.S.”
Mr. Breber said Chevron’s output in the Permian this year is expected to grow at a slower pace, around 10%, because it has exhausted much of its inventory of wells that it had drilled but hadn’t brought into production.
Exxon, which has typically posted quarterly earnings on the same day as Chevron, will report Tuesday. Analysts expect it will also post record profit for 2022, according to FactSet.
Both companies expect to slow their output growth this year in the Permian, considered their growth engine. The two U.S. oil majors, which had been growing output faster in the U.S. than most independent shale producers, are beginning to step up their focus on shareholder returns and allow output growth to ease, said Neal Dingmann, an analyst at Truist Securities.
“This has all been driven by investor requirements,” Mr. Dingmann said.
Write to Collin Eaton at collin.eaton@wsj.com
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Intel, Chevron, American Express, Silvergate and more
Intel said April 5, 2022 that it has suspended all business operations in Russia.
Paco Freire/Sopa Images | Lightrocket | Getty Images
Check out the companies making headlines before the bell:
Intel — The chipmaker suffered a 9% loss in its shares in early morning trading after its latest financial results missed analysts’ estimates and showed significant declines in the company’s sales, profit and gross margin. The company also forecasted a loss for the current quarter.
Advanced Micro Devices — Chip stocks such as Advanced Micro Devices fell as a group following Intel’s results. Shares of Advanced Micro Devices fell nearly 2.4%, while shares of Nvidia and Micro dipped about 1.5% each.
Chevron — Shares dipped more than 1% after Chevron reported its latest earnings results. The oil producer missed earnings expectations, but topped revenue forecasts, according to consensus estimates from Refinitiv. The shares had gained on Thursday after Chevron raised its dividend and announced a buyback plan.
American Express — Shares of the credit card company rose 5% despite weaker-than-expected results for the fourth quarter. American Express reported $2.07 in earnings per share on $14.18 billion of revenue. Analysts surveyed by Refinitiv were looking for $2.22 per share on $14.22 billion of revenue. However, American Express’ guidance for 2023 was better than anticipated for earnings and revenue. Also, AMEX said it would be increasing its dividend by 15%.
Ralph Lauren — Shares fell more than 3% after BMO Capital Markets downgraded the stock to underperform. The investment firm said Ralph Lauren’s recent rally has gone too far.
Chewy — Chewy shares rose more than 4% after Wedbush upgraded the stock to outperform from neutral.
Silvergate Capital — The bank to crypto businesses slid about 8% after the company suspended payments on its Series A preferred stock dividend, in an effort to preserve capital as it navigates recent crypto market volatility. The stock has been falling since November, after crypto exchange FTX, for whom Silvergate held deposits, collapsed in scandal.
Visa — The payment network operator reported strong financial results for its most recent quarter, including adjusted earnings per share of $2.18 and revenue of $7.94 billion. Analysts expected $2.01 per share in adjusted earnings and $7.70 billion in revenue, according to Refinitiv. Visa shares rose about 1% in premarket trading.
Hasbro — Shares of the toy maker slid more than 5% after the company said it would eliminate around 1,000 employee positions and warned of weak holiday-quarter results. The layoff of around 15% of its global workforce comes as the company seeks to save between $250 million and $300 million annually by the end of 2025.
KLA — Chip maker KLA Corporation declined about 4.6% after issuing weaker-than-expected forward guidance for its fiscal third quarter. Otherwise, KLA reported a beat on earnings and revenue expectations.
— CNBC’s Tanaya Macheel, Yun Li and Jesse Pound contributed reporting
Chevron to Buy Back $75 Billion in Stock After Record Profit
(Bloomberg) — Chevron Corp. plans to buy back $75 billion of shares and increase dividend payouts after a year of record profits that evoked angry denunciations from politicians around the world as soaring energy prices squeezed consumers.
Most Read from Bloomberg
The stock repurchase program will kick in April 1 and will be triple the size of the previous authorization unveiled in early 2019, the company said in a statement Wednesday. The program is equivalent to almost one-fourth of the company’s market value and five times the current level of annual buybacks.
Although Chevron’s plan pales in comparison to the $89 billion that Apple Inc. allocated to repurchases in the past year, it’s likely to incense critics who’ve accused the oil industry of war profiteering after Russia’s invasion of Ukraine sent energy prices surging.
President Joe Biden was among those who lambasted oil explorers for devoting cash to shareholder-friendly initiatives like dividends and buybacks instead of plowing it into more drilling that would swell crude supplies. Chevron rose as much as 3.9% in after-hours trading.
“For a company that claimed not too long ago that it was ‘working hard’ to increase oil production, handing out $75 billion to executives and wealthy shareholders sure is an odd way to show it,” Abdullah Hasan, a White House spokesman, said in a statement on Wednesday night. “We continue to call on oil companies to use their record profits to increase supply, and reduce costs for the American people.”
The company also will pay investors a $1.51-a-share dividend on March 10, a 6.3% increase from the previous quarter.
Even though energy prices have pulled back since the early phases of Russia’s assault on Ukraine, analysts expect US oil companies’ profits to stay strong because they have kept capital spending in check, unlike in previous boom cycles. Instead, the windfall has been used to pay back debt and increase investor returns.
Chevron raised share buybacks multiple times last year as oil prices rose, but Chief Financial Officer Pierre Breber has pledged to maintain the repurchase rate even as commodity prices pull back. With net-debt ratios currently below the company’s target range, Chevron is willing to let borrowing levels rise to keep buying back shares if needed, Breber said last year.
The company last year announced that capital spending for 2023 will be at the top end of its guidance range at $17 billion. Chevron is scheduled to report fourth-quarter results on Jan. 27.
–With assistance from Tom Contiliano and Justin Sink.
(Updates with White House reaction, in fifth paragraph.)
Most Read from Bloomberg Businessweek
©2023 Bloomberg L.P.
Chevron announces $75 billion stock buyback, dividend boost
Chevron last month reported its second-highest quarterly profit ever.
Justin Sullivan | Getty Images News | Getty Images
Energy giant Chevron announced a $75 billion stock buyback program and a dividend hike on Wednesday evening.
Shares of Chevron were up more than 2% in extended trading.
The buyback program will become effective on April 1, with no set expiration date, the company said in a press release. The dividend hike increases Chevron’s per share payout to $1.51 from $1.42, and that will be distributed on March 10.
Chevron’s market cap was roughly $350 billion as of Wednesday’s market close, meaning that the buyback would represent more than 20% of the company’s stock at current prices.
This buyback plan follows a $25 billion plan enacted in 2019. The old plan will be terminated at the end of March. For the third quarter of 2022 — the most recent quarter that Chevron has reported — the company repurchased $3.75 billion of shares.
The new buyback plan comes after a massive year for energy stocks, as a reopened U.S. economy and Russia’s invasion of Ukraine combined to drive oil and gas prices hire in 2022. Chevron reported more than $12 billion of free cash flow and $11 billion of net income in the third quarter alone.
Shares of Chevron rose more than 50% in 2022 even as the broader stock market declined.
Chevron was a hot stock in 2022.
The financial success of energy companies has led to criticism from politicians, including U.S. President Joe Biden, who threatened higher taxes on energy companies last year for their “war profiteering.”
Chevron CEO Mike Wirth told CNBC in December that the company was “in contact” with the Biden administration on a variety of issues.
“Our goal of stable markets and prices that are affordable for the economy is something we share. How we get there, sometimes we have different ideas,” Wirth said on “Squawk Box.”
U.S. grants Chevron license to pump oil in Venezuela
The move came as the government of Nicolás Maduro held its first formal talks with Venezuela’s opposition coalition in more than a year. Meeting in Mexico City on Saturday, the two sides agreed to ask the United Nations to manage several billion dollars in government funds held in foreign banks that will be unfrozen to help assuage a humanitarian crisis in Venezuela.
The negotiators also agreed to continue talks next month to discuss a timetable for “free” elections in 2024 and human rights issues.
“We have long made clear we believe the best solution in Venezuela is a negotiated one between Venezuelans,” said a senior Biden administration official who spoke on the condition of anonymity under rules set by the White House. “To encourage this, we have also said we were willing to provide targeted sanctions relief.”
The policy “remains open to further calibrating sanctions,” the official said. “But any additional action will require additional concrete steps,” including the release of political prisoners and recognition of opposition legitimacy, as well as unfettered access for U.N. humanitarian missions.
The official dismissed reports that the administration was acting to ease an oil shortage and high energy prices exacerbated by Russia’s invasion of Ukraine. “Allowing Chevron to begin to lift oil from Venezuela is not something that is going to impact international oil prices. This is really about Venezuela and the Venezuelan process,” the official said, where the United States is “supporting a peaceful, negotiated outcome to the political, humanitarian and economic crisis.”
Venezuela has the world’s largest oil reserves, slightly more than Saudi Arabia, although its thick crude is more difficult to extract. But its production faltered due to poor government management even before Maduro took over in 2013 after he death of Hugo Chávez, a former military officer who was elected in 1998.
U.S. sanctions against Venezuela that began 15 years ago on grounds of drug trafficking, corruption and human rights abuses gradually expanded, culminating under Donald Trump’s administration. Trump sharply tightened measures against the state oil company, Petróleos de Venezuela S.A. or PDVSA; the central bank; and individuals and companies. U.S. oil company activities there were almost completely banned.
The sanctions were an attempt to block global revenue from oil sales, and production fell sharply as black market exports have been sold primarily to China and India. When the Venezuelan opposition declared December 2018 elections illegitimate, it recognized Juan Guaidó, the opposition leader in the parliament, as interim president. The United States quickly followed suit, recruiting dozens of other Latin American countries to do the same.
But economic and political pressure on Maduro had little effect, and the Venezuelan people bore the brunt of a failing economy and repression, leading millions to flee to neighboring countries as well as to the United States, where the number of Venezuelan refugees has swelled.
President Biden came to office convinced that Trump’s Venezuela policy had failed, but he took few steps to reverse it, as powerful lawmakers vowed to block any action and the administration retained hopes of winning the midterm votes of anti-Maduro Venezuelans and other Latin Americans in Florida. As recently as the summer, Biden called Guaidó to assure him of continued American recognition and support, even as other governments and members of Guaido’s own opposition coalition were turning away from him and calling for negotiations with Maduro.
The Republican electoral rout in Florida appeared to convince the administration it was time to move. Chevron officials have said it will take some time to get their operations up and running again in Venezuela.
The sanctions change appears to be an agile circumvention of a main complaint of U.S. critics — the possibility that the Maduro government would benefit directly. Under the terms of the license, PDVSA is cut off from any profits its joint venture may make with Chevron.
But Maduro would not be any worse off than he is now, and one crack in the sanctions may lead to others. For the administration, assuming negotiations with the opposition continues toward democratic elections and human rights improvements, any loosening of global energy supply is seen as positive.
In a statement Saturday on the resumption of talks in Mexico, Sen. Robert Menendez (D-N.J.), the chairman of the Senate Foreign Relations Committee and a longtime hard-liner on Venezuela, said that “if Maduro again tries to use these negotiations to buy time to further consolidate his criminal dictatorship, the United States and our international partners must snap back the full force of our sanctions that brought his regime to the negotiating table in the first place.”
Chevron Gets U.S. License to Pump Oil in Venezuela Again
WASHINGTON—The U.S. said it would allow
Chevron Corp.
CVX -0.29%
to resume pumping oil from its Venezuelan oil fields after President Nicolás Maduro’s government and an opposition coalition agreed to implement an estimated $3 billion humanitarian relief program and continue dialogue in Mexico City on efforts to hold free and fair elections.
Following the Norwegian-brokered agreement signed in Mexico City, the Biden administration granted a license to Chevron that allows the California-based oil company to return to its oil fields in joint ventures with the Venezuela national oil company, Petróleos de Venezuela SA. The new license, granted by the Treasury Department, permits Chevron to pump Venezuelan oil for the first time in years.
Biden administration officials said the license prohibits PdVSA from receiving profits from Chevron’s oil sales. The officials said the U.S. is prepared to revoke or amend the license, which will be in effect for six months, at any time if Venezuela doesn’t negotiate in good faith.
Venezuela produces some 700,000 barrels of oil a day, compared with more than 3 million in the 1990s.
Photo:
Isaac Urrutia/Reuters
“If Maduro again tries to use these negotiations to buy time to further consolidate his criminal dictatorship, the United States and our international partners must snap back the full force of our sanctions,” said Sen.
Robert Menendez
(D., N.J.), the chairman of the Senate Foreign Relations Committee.
The U.S. policy shift could signal an opening for other oil companies to resume their business in Venezuela two years after the Trump administration clamped down on Chevron and other companies’ activities there as part of a maximum-pressure campaign meant to oust the government led by Mr. Maduro. The Treasury Department action didn’t say how non-U.S. oil companies might re-engage with Venezuela.
Venezuela produces some 700,000 barrels of oil a day, compared with more than 3 million barrels a day in the 1990s. Some analysts said Venezuela could hit 1 million barrels a day in the medium term, a modest increment reflecting the dilapidated state of the country’s state-led oil industry.
Some Republican lawmakers criticized the Biden administration’s decision to clear the way for Chevron to pump more oil in Venezuela. “The Biden administration should allow American energy producers to unleash DOMESTIC production instead of begging dictators for oil,” Rep. Claudia Tenney (R., N.Y.) wrote on Twitter.
Biden administration officials said the decision to issue the license wasn’t a response to oil prices, which have been a major concern for President Biden and his top advisers in recent months as they seek to tackle inflation. “This is about the regime taking the steps needed to support the restoration of democracy in Venezuela,” one of the officials said.
The Wall Street Journal reported in October that the Biden administration was preparing to scale down sanctions on Venezuela’s regime to allow Chevron to resume pumping oil there.
Jorge Rodriguez led the Venezuelan delegation to the talks in Mexico City, where an agreement was signed.
Photo:
Henry Romero/Reuters
Under the new license, profits from the sale of oil will go toward repaying hundreds of millions of dollars in debt owed to Chevron by PdVSA, administration officials said. The U.S. will require that Chevron report details of its financial operations to ensure transparency, they said.
Chevron spokesman Ray Fohr said the new license allows the company to commercialize the oil currently being produced at its joint-venture assets. He said the company will conduct its business in compliance within the current framework.
The license prohibits Chevron from paying taxes and royalties to the Venezuelan government, which surprised some experts. They had been expecting that direct revenue would encourage PdVSA to reroute oil cargoes away from obscure export channels, mostly to Chinese buyers at a steep discount, which Venezuela has relied on for years to skirt sanctions.
“If this is the case, Maduro doesn’t have significant incentives to allow that many cargoes of Chevron to go out,” said
Francisco Monaldi,
director of the Latin America Energy Program at Rice University’s Baker Institute for Public Policy. Sending oil to China, even at a heavy discount, would be better for Caracas than only paying debt to Chevron, he said.
The limited scope of the Chevron license is seen as a way to ensure that Mr. Maduro stays the course on negotiations. “Rather than fully opening the door for Venezuelan oil to flow to the U.S. market immediately, what the license proposes is a normalization path that is likely contingent on concessions from the Maduro regime on the political and human-rights front,” said
Luisa Palacios,
senior research scholar at the Columbia University Center on Global Energy Policy.
The license allows Venezuelan oil back into the U.S., historically its largest market, but only if the oil from the PdVSA-Chevron joint ventures is first sold to Chevron and doesn’t authorize exports from the ventures “to any jurisdiction other than the United States,” which appears to restrict PdVSA’s own share of the sales to the U.S. market, said Mr. Monaldi.
The license prohibits transactions involving goods and services from Iran, a U.S.-sanctioned oil producer that has helped Venezuela overcome sanctions in recent years. It blocks dealings with Venezuelan entities owned or controlled by Western-sanctioned Russia, which has played a role in Venezuela’s oil industry.
Jorge Rodriguez,
the head of Venezuela’s Congress as well as the government’s delegation to the Mexico City talks, declined to comment on the issuance of the Chevron license.
Freddy Guevara,
a member of the opposition coalition’s delegation, said the estimated $3 billion in frozen funds intended for humanitarian relief and infrastructure projects in Venezuela would be administered by the United Nations. He cautioned that it would take time to implement the program fully. “It begins now, but the time period is up to three years,” he said.
The Venezuelan state funds frozen in overseas banks by sanctions are expected to be used to alleviate the country’s health, food and electric-power crises in part by building infrastructure for electricity and water-treatment needs. “Not one dollar will go to the vaults of the regime,” Mr. Guevara said.
Chevron plans to restore lost output as it performs maintenance and other essential work, but it won’t attempt major work that would require new investments in the country’s oil fields until debts of $4.2 billion are repaid. That could take about two to three years depending on oil-market conditions, according to people familiar with the matter.
PdVSA owes Chevron and other joint-venture partners their shares of more than two years of revenue from oil sales, after the 2020 U.S. sanctions barred the Venezuelan company from paying its partners, one of the people said. The license would allow Chevron to collect its share of dividends from its joint ventures such as Petropiar, in which Chevron is a 30% partner.
Analysts said the new agreement raises expectations that will take time and work to fulfill. “Ensuring the success of talks won’t be easy, but it’s clear that offering gradual sanctions relief like this in order to incentivize agreements is the only way forward. It’s a Champagne-popping moment for the negotiators, but much more work remains to be done,” said Geoff Ramsey, Venezuela director at the Washington Office on Latin America.
—José de Córdoba and Ginette Gonzalez contributed to this article.
Write to Collin Eaton at collin.eaton@wsj.com and Andrew Restuccia at andrew.restuccia@wsj.com
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
US provides Chevron limited authorization to pump oil in Venezuela after reaching humanitarian agreement
Washington
CNN
—
The US has granted Chevron limited authorization to resume pumping oil from Venezuela following the announcement Saturday that the Venezuelan government and the opposition group have reached an agreement on humanitarian relief and will continue to negotiate for a solution to the country’s chronic economic and political crisis, including a focus on the 2024 elections.
A senior Biden administration official described Saturday’s announcements as “important steps in the right direction,” but noted that there is still much to be done as both parties work toward a more permanent solution to the ongoing crisis. The official also highlighted the license’s limited nature saying that they do not expect this to have a tangible impact on international oil prices and that the move is intended as an inducement for the negotiations – not a reaction to high global oil prices.
The Treasury Department’s Office of Foreign Assets Control on Saturday issued Venezuela General License 41, which authorizes Chevron to “resume limited natural resource extraction operations in Venezuela,” according to a news release from the Treasury Department. This is a 6-month license, and the US can revoke it at any time. Additionally, any profits earned will go to repaying debt to Chevron and not to the Maduro regime, according to the senior official, and states that the US government will continue to require significant reporting by Chevron on its financial operations.
“GL 41 authorizes activity related to Chevron’s joint ventures in Venezuela only, and does not authorize other activity with PdVSA. Other Venezuela-related sanctions and restrictions imposed by the United States remain in place; the United States will vigorously enforce these sanctions and will continue to hold accountable any actor that engages in corruption, violates U.S. laws, or abuses human rights in Venezuela,” the release said. PdVSA is the state-owned Venezuelan oil and gas company.
Chevron CEO Mike Wirth told Bloomberg TV earlier this year that if there was a thaw that it would take months and years to refurbish their oil fields in the country and that there “wouldn’t be an instantaneous” effect on oil production.
If the Venezuelan regime continues to take concrete steps toward reaching a negotiated solution, then future targeted sanctions relief is possible, according to the official.
Buffett’s Berkshire Lifts Chevron Bet, Profits From Rate Hikes, Dollar
- Warren Buffett’s Berkshire Hathaway reported third-quarter earnings on Saturday.
- The investor’s company appears to have boosted its Chevron stake, and ramped up stock buybacks.
- Berkshire benefited from higher interest rates and a stronger US dollar.
Warren Buffett’s Berkshire Hathaway published third-quarter earnings on Saturday that teased fresh purchases of Chevron stock, and signaled a faster pace of share buybacks this quarter.
Berkshire confirmed it will treat a chunk of Occidental Petroleum’s profits as its own from now on. It also revealed the billion-dollar hit to its insurance business from Hurricane Ian, and the positive impact of higher interest rates and a stronger US dollar on its operations.
Here are 6 key insights from Berkshire’s Q3 earnings:
1. Stocking up
Berkshire appears to have bolstered its Chevron stake last quarter.
It disclosed the value of its position in the oil-and-gas major was $24.4 billion at the end of September. It held 161 million shares at the end of June, which would have been worth $23.2 billion at Chevron’s stock price of about $144 on September 30.
The discrepancy suggests it raised its stake to about 170 million shares last quarter.
Moreover, Berkshire may have boosted its number-one holding, Apple. It owned about 908 million shares of the iPhone maker at the end of December, and purchased nearly 4 million more shares in the second quarter of this year.
That stake would have been worth $126 billion on September 30, based on Apple’s stock price at the time. Yet Berkshire valued the position at $126.5 billion, suggesting it bought a few more shares.
Meanwhile, Berkshire reported an estimated $4.7 billion drop in the cost base of its financial stocks, a $2 billion drop for its commercial and industrial stocks, and a $700 million drop for its consumer-products stocks. Those declines point to which parts of its portfolio it pruned last quarter.
2. Bigger buybacks
Berkshire spent $1.05 billion repurchasing shares last quarter. It appears to have spent another $500 million or so on buybacks between October 1 and October 26, based on the decline in Berkshire’s outstanding shares and the average trading price of Berkshire stock in that period.
Buffett and his team are now on track to spend upwards of $1.5 billion on buybacks this quarter, which would trump their outlays in each of the past two quarters.
3. Sharing in Oxy’s success
Berkshire, which built a 20.9% stake in Occidental from scratch this year, said it would account for that holding using the equity method.
That means it will report a proportionate share of the oil-and-gas company’s revenues and earnings as its own, with a one-quarter lag as Occidental reports its quarterly earnings later than Berkshire.
The position could contribute $2 billion in quarterly revenues and $750 million in net income to Berkshire every three months, based on Occidental’s second-quarter financials.
4. Higher rates are helping
The Federal Reserve has hiked interest rates from nearly zero in March to a range of 3.75% to 4% today, in an effort to curb historically high inflation.
The US central bank’s rate increases boosted the amount of interest that Berkshire earned on its cash and Treasury bills. As a result, the company’s income from interest and other investments soared by 182% year-on-year to nearly $400 million last quarter.
5. Disaster strikes
Hurricane Ian buffeted Florida, South Carolina, and other US States last quarter. Berkshire, which owns a raft of insurance and reinsurance companies, suffered an after-tax blow of $2.7 billion to its profits from the catastrophe.
Geico, the Berkshire-owned auto insurer, incurred about $600 million of losses and related expenses from the tropical storm. Meanwhile, the reinsurance arm of Berkshire’s property-casualty business swallowed a $1.9 billion loss.
6. Greenback gains
Buffett famously favors American stocks such as Coca-Cola and Kraft Heinz, and has built a vast collection of US businesses including the BNSF Railway and See’s Candies.
Berkshire’s domestic focus meant it enjoyed a $1.2 billion pretax gain from the dollar’s surge against other world currencies in the past quarter. It only saw a $264 million foreign-exchange gain in the same period of 2021.
Moreover, Buffett’s company notched a $858 million gain from non-dollar-denominated debt. That’s partly because the yen debt it issued to hedge its investments in five Japanese companies became less onerous, thanks to a stronger dollar.
Read more: David Rubenstein sees Warren Buffett as the ultimate investor. The private equity billionaire lays out the 12 traits and habits that are key to Buffett’s success.
Chevron, Exxon post record profits from oil-price boom
The blockbuster results come a day after Europe-based Shell also posted record profits: The three, plus France’s TotalEnergies, collectively earned nearly $51 billion in the most recent quarter, nearly twice what they brought in during the same three months in 2021, according to Reuters.
The staggering results are mostly tied to the West’s effort to punish Russia for the unprovoked attack on its neighbor by cutting off its energy sales. Crude prices that had shriveled in the early months of the coronavirus pandemic suddenly swelled, and are now 37 percent higher than they were a year ago. That’s still lower than what markets commanded in June, when West Texas Intermediate crude, the U.S. oil benchmark, surged over $120 per barrel. As of Friday, WTI remained close to $100 per barrel.
Energy companies have flourish as the rest of Wall Street has gotten hammered this year. Vanguard’s Energy Index Fund, an exchange-traded fund that includes major oil companies, is up 37 percent year to date even as the broad-based S&P 500 index has pulled back 14 percent. Exxon and Chevron shares have soared 51 percent and 36 percent, respectively.
Consumers and businesses have felt the sting of surging fuel prices amid decades-high inflation.
The U.S. average for a gallon of gasoline price topped $5 for the first time in June. On Friday it stood at $4.26, according to AAA. Consumers’ gasoline bills surged nearly 49 percent that month, the Bureau of Economic Analysis reported Friday, after rising 20 percent in May. Diesel fuel, which underlies much of the U.S. shipping system, has also spiked, putting pressure on major retailers in a fragile economy.
President Biden, facing criticism from the right over his handling of inflation and the economy, called out Exxon for making “more money than God” in a June address, while imploring it and Chevron to redouble their efforts to get more oil supply on the market.
In late June, Chevron chief executive Mike Wirth responded with a sharply worded letter admonishing the administration for its attempts, “to criticize, and at times vilify, our industry.”
He added that Chevron “is also concerned about the higher prices Americans are experiencing,” while highlighting his companies recent capital expenditures.
Oil companies are pumping more to meet demand, with Exxon increasing its oil and gas production in the Permian Basin by 130,000 oil-equivalent barrels per day compared with the first half of 2021. But the market for crude oil still suffers a drastic imbalance in supply and demand, and industry insiders say it will take years to bring new supply online.
“If you look at what it takes to bring on new investments to grow supply in the oil industry, it is a fairly long-cycle investment … three to five years is a reasonable time frame to think about bringing significant additional production into the mix,” Exxon chief executive Darren Woods said on CNBC Friday.
Alongside the production increases, oil giants are also sending billions of dollars to Wall Street through share buybacks and dividends. Exxon reported that it distributed $7.6 billion to shareholders, including dividends, while Shell announced $6 billion in share buybacks designed to boost its stock price.
Exxon stock jumped 4.7 percent Friday, closing at $96.97, while Chevron spiked 8.9 percent to settle at $163.78. Shell climbed 3.7 percent, to $53.38.
The gains came as the rest of Wall Street wrapped up July with a third consecutive winning session. The Dow Jones industrial average added 315.50 points, or 1 percent, to land at 32,845.13. The S&P 500 jumped 1.4 percent to close at 4,130.29, and the Nasdaq climbed 1.9 percent to finish at 12,390.69.
For the week, the Dow rose 3 percent, the S&P 500 4.3 percent and the Nasdaq 4.7 percent.
For July, the Dow gained 6.7 percent, the S&P 500 grew 9.1 percent and the Nasdaq spiked 12.4 percent. Those were the biggest monthly gains for all three indexes since November 2020, according to MarketWatch.