Chevron Q2 Earnings Surge, Demonstrating Upstream Leverage; Increases Repurchases

Chevron reported second-quarter earnings that easily topped market expectations and demonstrated the company’s leverage to commodity prices and relatively low cost position that underpins our narrow moat rating. Adjusted earnings surged to $11.4 billion from $3.3 billion the year before. Higher commodity prices offset lower production volumes to drive upstream earnings to $8.4 billion from $3.2 billion the year before even as production fell to 2,896 mboe/d from 3,126 mboe/d the year before, largely on contract expirations. However, Permian production has grown more than 15% from a year ago. Downstream earnings improved to $3.4 billion from $838 million a year ago thanks to higher margins that offset lower chemical earnings.