Chevron Corp. CVX -3.52% had its most profitable year since 2014, reporting Friday that it earned $15.6 billion in net income in 2021, as commodity prices surged on the back of a global economic recovery.
The U.S. oil giant’s annual earnings were a dramatic turnaround from 2020, when Chevron lost $5.5 billion after the global pandemic routed demand for oil and gas. It reported a fourth-quarter profit of $5.1 billion Friday, up from a $665 million loss during the same period last year. Chevron also said it generated $21.1 billion in free cash flow in 2021, its most ever.
Chevron’s stock price reached its highest level ever Thursday, closing at more than $135 a share, as investors reacted to Chevron’s announcement that it would raise its quarterly dividend by 6%. But the company’s shares fell more than 3% in trading Friday following the release of its fourth-quarter earnings, which were lower than analysts had expected.
Surging commodity prices have left investors wondering whether oil-and-gas companies will follow their historical impulse to increase drilling in pursuit of higher profits. Chevron is the first of the largest Western oil companies to report earnings, and analysts will look for tea leaves from Chevron’s management about whether the price signal has changed its calculus.
Chevron Chief Executive Mike Wirth said demand for gasoline is above pre-pandemic levels and that he expects further recovery in fossil markets in 2022. Despite that, he said Chevron will stick to disciplined spending.
“I don’t think we’re going to be tempted by the price of the day,” Mr. Wirth said on a call with analysts Friday.
Following years of dismal returns from oil-and-gas companies, investors have pressured producers to moderate growth and return more cash to shareholders. Chevron and peers have responded by changing how they allocate cash, leading to a jump in their share prices and declines in the cost of capital, according to Rob Thummel, a senior portfolio manager at TortoiseEcofin.
While that is good for investors in the company, there are mounting concerns that there isn’t enough investment in new fossil-fuel supply to meet growing demand.
“Producers and management teams will continue to deliver on what the market is asking them, which is to return capital to shareholders, ultimately making it harder to keep up with global demand for oil and gas,” said Mr. Thummel.
SOURCE: Wall Street Journal
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