Chevron Loses Billions in Q1 and Q2 2016, but fundamentals are improving

Chevron Corporation (NYSE:CVX) continue to post huge losses over the last couple of quarters on the back of unstable crude oil prices. The historic decline in crude oil prices has significantly impacted Chevron’s performance and investment potential. The company’s earnings fell from $11 a share in 2013 to only $2.45 a share in 2015.

However, the company’s earnings turned into big losses at the beginning of this year amid continued down-turn in crude oil prices.

In the second quarter of 2016, CVX generated a loss of $0.78 per share, compared with earnings of $0.30 per share in the same quarter of last year. This was its third straight unadjusted quarterly loss – that represents significant instability in the energy markets, particularly in upstream operations.

In the second quarter, the company missed analysts earnings estimate of $0.32 per share by a wide margin due to the impairment loss of $2.8B.

Chevron’s upstream operations posted a loss of $2.46B, with the U.S. operations generated a loss $1.11B. Amid falling refinery margin, Chevron’s downstream profits also declined 56% year over year to $1.28B.

Its CEO said, “In our upstream business, we recorded impairment and other charges on certain assets where revenue from expected oil and gas production is expected to be insufficient to recover costs. Our downstream business continued to perform well.”

Though the company has lost billions of dollars in the last couple of years, its potential to sustain dividends makes it a good choice for dividend investors.

The company has sustained its dividend growth even in an unstable business environment, when the majority of its peers have suspended their dividends to save cash for their liquidity. Chevron currently offers a quarterly dividend of $1.07 per share, yielding above 4%. Its dividends look safe considering its cash generation potential and strategy of disposing non-core assets.

The company’s future fundamentals are also improving, supported by increasing crude oil prices. OPEC producers are looking to stabilize crude oil prices and they are planning to meet in Algeria the next month. Analysts are expecting crude oil prices to increase further following producer’s intention to freeze their production at current levels.

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