High oil prices ignite upstream business! Chevron Corporation (CVX.US) Q1 profits exceed expectations, reaffirming $10-20 billion share buyback target.

Chevron Corporation (CVX.US), the second largest company after Exxon Mobil Corporation, announced first-quarter earnings on Friday that exceeded the unanimous expectations of Wall Street analysts, primarily driven by high oil prices related to the US-Iran war, which helped boost its upstream business performance. According to analysts' expectations compiled by LSEG, the company reported adjusted earnings per share of $1.41, far exceeding the consensus estimate of $0.95. Despite the significant beat, overall profits still hit the lowest level in five years, partly due to adverse timing effects related to financial derivatives. Against the backdrop of high oil prices resulting from political conflicts in the Middle East, Chevron Corporation's largest business segment including its upstream division, which includes crude oil operations generated around $3.9 billion in profit, a 4% increase year-on-year, mainly due to increased revenue and profit from rising oil prices. The political turmoil in the Middle East has pushed international oil prices significantly above $110 per barrel, but the impact on the profits of oil giants is not evenly distributed. The conflict in Iran that erupted on February 28 severely disrupted the global energy market. Shipping in the Strait of Hormuz came to a virtual standstill, leading to supply shortages and pushing oil prices higher, causing a sharp 50% increase in the international oil price benchmark, Brent crude futures, in the first quarter. Chevron Corporation CEO Mike Wirth said in a statement, "Despite the intensification of political turmoil in the Middle East and related oil supply disruptions, Chevron Corporation delivered a robust performance in the first quarter, highlighting the resilience of our operational portfolio and the value of disciplined execution." Chevron Corporation's net profit totaled approximately $2.2 billion in the period from January to March, lower than the $3.5 billion in the same period last year. However, unlike Exxon Mobil Corporation, Chevron Corporation's exposure to the political turmoil in the Middle East through its total production is less than 5%. Exxon Mobil Corporation has around 20% of its oil and gas production in Middle Eastern partnerships, which means it has one of the highest exposures among its North American competitors. Downstream performance turns into losses In contrast, the downstream business recorded an operating loss of $817 million, compared to a profit of $325 million in the same period last year. Chevron Corporation stated that this decline was mainly due to timing effects associated with hedging derivatives business, and expects these effects to reverse in the next quarter. Larger competitors like Exxon Mobil Corporation have also disclosed similar timing effects impacting their earnings. Chevron Corporation CFO Eimear Bonner, in an interview, stated that Chevron Corporation expects to close out hedging positions worth about $1 billion in paper crude oil in the second quarter, resulting in profits. She said that excluding common timing impacts seen in a volatile environment, Chevron Corporation's core operational performance was very strong. "We can see cash flow increasing, we can see profitability increasing, and all of our plans are on track." The company stated that if oil prices continue to rise, there may be additional timing impacts; and when oil prices fall, there will be further "significant reversals." Limited exposure in the Middle East operations Compared to most North American oil and gas peers, Chevron Corporation has lower exposure to production in the Middle East. The company stated that US production remains strong, exceeding 2 million barrels per day for three consecutive quarters. Due to a halt in operations following a fire at the Tengiz oil field in Kazakhstan, production in the first quarter slightly decreased to 3.86 million barrels of oil equivalent per day. Bonner reiterated that the company aims to achieve an annual growth rate of at least 10% in adjusted free cash flow by 2030. In the first quarter, Chevron Corporation paid out $3.5 billion in dividends and repurchased around $2.5 billion worth of stock. Although the buyback amount was significantly lower than the previous quarter, Bonner stated that the company continues to target $10 to $20 billion in buybacks for the full year. RBC Capital Markets analyst Biraj Borkhataria stated in a research report that Chevron Corporation delivered strong performance, although some investors may be disappointed by the lack of increased buybacks. He added that the stronger cash generation capacity this year could help increase the size of stock buybacks in the second quarter. Bonner stated that Chevron Corporation is not willing to expand its share buyback program based on recent energy price increases, and would need to see more sustained price increases to change its strategy. "We need to see more sustained improvements in fundamentals and more structural price uplifts before any adjustments are made. At this point, we are satisfied with the status quo." The company stated that capital expenditures in the first three months of 2026 were higher than the previous year, partly due to investments related to its acquisition of energy major Hess, although this was partially offset by reduced spending in the Permian Basin. Chevron Corporation management stated that the $60 billion acquisition of Hess, along with continually increasing production in the US Gulf of Mexico and Permian Basin, largely ensures that Chevron Corporation's output is higher than a year ago, enough to offset production losses due to the isolation zones between Israel, Saudi Arabia, and Kuwait, as well as the shutdown in Kazakhstan.