Oil and natural gas producer Chevron Corp reported a 43 percent drop in quarterly profit on Friday, though results beat analysts’ expectations as cost cuts and robust refining margins helped offset the impact of tumbling crude prices.
The help from refining operations mirrored results at large, integrated peers such as Exxon Mobil Corp and Royal Dutch Shell, which tend to lean on their refining divisions for profit during times of cheap oil.
Oil prices have slumped more than 40 percent since last June amid a glut of global supply, harming Chevron’s division that produces oil and gas, its largest, but helping profit more than double to $1.42 billion at its refining arm.
A Reuters analysis of industry data, though, shows that this “refining boom” for the sector isn’t likely to last long, and that producers’ best chance for improving profit is higher oil prices.
“The good thing about the quarter is that it’s over,” said Fadel Gheit, an oil analyst at Oppenheimer in New York. “Going forward, costs will continue to go down and oil prices are slowly going up, so margins will improve.”
Chevron has sold $4 billion in assets so far this year, part of a broader divestment plan to help fund its dividend from cash flow.
“We will continue to sell assets when we can generate good value,” Chief Financial Officer Pat Yarrington said on a conference call with investors. “Maintaining a competitive and growing dividend is our No. 1 priority.”
Shares of the San Ramon, California-based company fell 2.3 percent to $108.48 in afternoon trading.
The No. 2 U.S. oil company reported net income of $2.57 billion, or $1.37 per share, down from $4.51 billion, or $2.36 a share, a year earlier, but much better than analysts’ expectations of 79 cents a share, according to Thomson Reuters I/B/E/S.
Chevron posted a loss in its United States oil production division, a key indicator that the country is one of its highest cost areas.
Production grew 4 percent to 2.68 million barrels of oil equivalent per day, boosted largely by operations in the United States, Bangladesh and Argentina.
Chevron continued slashing costs during the first quarter, reducing operating expenses by 9 percent.
The company is renegotiating contracts with nearly 3,000 vendors and expects to wring about $900 million in cost savings out of them this year, Yarrington said.