Soaring natural gas and oil prices are fueling Chevron’s free cash flow to record high

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Chevron Corp. said it reaped significant benefits from soaring natural gas and crude prices in the third quarter, boosting free cash flow (FCF) and paying down debt while positioning the company to further increase production.

The San Ramon, Calif.-Based integrated major generated $ 6.7 billion in free cash flow in the quarter, more than at any time in its history as both upstream and downstream operations recorded substantial increases in their income while controlling costs. The company said that, compared to pre-pandemic results, its operating costs are lower, even though upstream production is on the rise, making Chevron more capital efficient.

The company reduced its debt from $ 5.6 billion in the third quarter to $ 37.3 billion.

“Profitability and capital are essential to navigate commodity price cycles, provide resilience during low times and take advantage of the upside when markets are strong,” CFO Pierre Breber said on Friday at an earnings conference call with analysts. “This has been evident in the last few quarters, and particularly in the most recent one, as we generated a corporate record FCF, higher than the strongest quarters of 2008 and 2011, when oil prices were well above $ 100 a barrel. “

U.S. natural gas futures have doubled this year and benchmark West Texas Intermediate crude prices have risen more than 60% – to exceed $ 80 / bbl – reflecting a combination of tight global offers and a rebound in demand in the wake of the coronavirus pandemic.

Chevron said third-quarter net oil and gas production was up 7% from a year earlier, in part due to its takeover of Noble Energy Inc. last year, and in part to lower production cuts. With strong prices and strong demand expected to last through 2025, the company plans to increase oil and gas production slightly each year for the next four years, with most increases coming to the United States. .

[Tune In: Join NGI’s Director of Strategy & Research Patrick Rau as he dives into what to expect from third quarter earnings reports. From where U.S. natural gas producers are with regard to boosting production to the next wave of LNG projects, from the industry’s hyper-focus on RSG to M&A activity coming down the pike, get in the down with NGI’s Hub & Flow podcast.]

The company said capital spending (capex) for the entire year would be in the range of $ 12 billion to $ 13 billion. Investments totaled just $ 8.1 billion in the first nine months of the year, down 22% from the same period a year earlier.

“You will see us increase investment in the fourth quarter just to hit that $ 12 billion to $ 13 billion,” Breber said. “And you’ll see that in the Permian Basin,” along with “two more rigs, two more completion crews. We will have higher activity levels… We will maintain a peak workforce through the winter.

The company’s investment forecast increases further from next year. From 2022 to 2025, he estimates investment spending between $ 15 billion and $ 17 billion.

Strength of gains

Chevron reported third-quarter profit of $ 6.1 billion ($ 3.19 / share), down from a loss of $ 207 million (minus 12 cents) a year earlier. Revenues were the highest since the first quarter of 2013.

In the upstream US segment, net production totaled 1.13 million boe / d in 3Q2021, up 145,000 boe / d from a year ago. Chevron gained 224,000 boe / d of production with its Noble acquisition.

The net liquid component of third quarter oil equivalent production increased 15% year-over-year to 842,000 bpd, while net natural gas production increased 13% to 1 , 71 Bcf / d.

The company reported an average price of petroleum and natural gas liquids of $ 58 / bbl in the third quarter, down from $ 31 a year earlier. The company’s average natural gas price was $ 3.25 / Mcf, down from 89 cents.

Upstream operations in the United States gained $ 1.96 billion in the third quarter, up from $ 116 million a year earlier.

The upstream international division posted production of 1.91 million boe / d in 3Q2021, up 55,000 boe / d from the previous year.

Net liquids production declined 6% to 915,000 bpd, while net natural gas production of 5.95 Bcf / d rose 13%.

The average selling price of natural gas crude and liquids was $ 68 / bbl, down from $ 39 a year earlier. Natural gas prices averaged $ 6.28 / Mcf, up from $ 3.89.

International upstream operations generated $ 3.17 billion in the third quarter, up from $ 119 million a year earlier.

Downstream operations in the United States, meanwhile, reported a profit of $ 1.08 billion for the third quarter, up from $ 141 million a year earlier, while the international downstream segment recorded a profit. of $ 227 million, compared to $ 151 million.


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