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GlobalData: Chevron should remain cautious in capital spending as it returns to profitability in 1Q21

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Chevron posted a profit of US$1.4 billion in 1Q21, which is still down from pre-pandemic levels a year ago of US$3.6 billion, despite the recovery in energy prices. The difference is mainly driven by benefits of asset sale last year, along with weaker refining margins and production losses in this quarter due to a severe winter storm in the US. The company is right in holding back in capital spending to boost production as its current priority remains in creating a strong balance sheet and generating free cash flow, says GlobalData.

Steven Ho, Upstream Oil & Gas Analyst at GlobalData, commented: “Chevron should remain cautious in further increasing oil and gas production until a strong signal in global recovery emerges because there is still limited mobility outside of the US due to slower vaccination efforts. However, the company managed to keep investors captivated with a strong cash flow generation of US$4.2 billion and a 3.9% dividend increase during this quarter, along with multiple initiatives in its energy transition strategy.”

Along with Chevron’s support for the Paris Climate Agreement, the company has been able to meet its carbon emission reduction target and even readjusted to higher 2028 targets. Besides lowering carbon intensity, Chevron is also proactively looking for an opportunity to increase renewable fuel in its production mix or alternative fuel. The company recently signed a memorandum of understanding with Toyota Motor to explore a commercially viable hydrogen business. Toyota Motor has decades of experience in developing hydrogen powered technology around the Asia-Pacific (APAC) market and proves to be a strong partner for Chevron.

Ho added: “Chevron is also looking into new ventures related to the energy transition, but it is still uncertain how quickly the company can generate growth from these new businesses. As with other major oil and gas companies, investors are evaluating how these companies can profitably enter new energy sectors, and this will surely play a strong part in the investor sentiment and stock prices.”

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