Chevron shares fall as earnings slide and Hess merger delayed

By Sabrina Valle and Mrinalika Roy

(Reuters) -Chevron Corp shares fell on Friday on sharply weaker second-quarter earnings and as it discounted the chance to close its Hess Corp (NYSE:) acquisition before mid-2025.

The company had warned oil output this quarter would slip along with refining margins, but investors were surprised at the magnitude of the declines. Shares were off 3% at $148.12 in midday trading, headed for a second day of declines. Chevron (NYSE:) shares are down 9% since Wednesday’s close.

Quarterly earnings fell 19% to $2.55 per share, well below a year ago and 38 cents below Wall Street’s consensus estimate.

“This quarter was a little light due to some operational and other discrete items that impacted results,” CEO Michael Wirth told analysts.

The company’s plan to enter Guyana’s lucrative offshore oil fields through the $53 billion purchase of Hess was shaken by a challenge from Exxon Mobil (NYSE:). A slow arbitration process looks to drag the deal closing well into 2025.

Asked by analysts about the prospect of a compromise with Exxon that could shorten the arbitration dispute, CEO Wirth said the idea would be “sensible” and has been tried, but “it doesn’t appear that is how this is going to end up.”

Exxon is claiming a right of first refusal to Hess’ Guyana properties under its joint operating agreement with Hess and China’s CNOOC (NYSE:) Ltd.

Chevron reported earnings of $4.4 billion, or $2.43 per share, in the quarter, down sharply from $6 billion a year before.

It reported adjusted earnings of $4.7 billion, or $2.55 per share, down from $5.8 billion, or $3.08 per share, a year ago. In contrast, Exxon beat Wall Street estimates on strong oil production in U.S. shale and Guyana’s oil field.

Chevron’s earnings from pumping oil and gas were down 9.4% on weakness outside the U.S. Earnings from its fuels and chemical operations tumbled about 60%. Refining suffered from weak margins that also hit rivals Exxon and Shell (LON:).

“Despite recent operational downtime and softer margins, we remain poised to deliver significant long-term earnings and cash flow growth,” CEO Wirth said.

REFINING MARGINS

Oil refiners overall made less money selling gasoline in the second quarter, as demand softened after production had soared earlier this year. Companies had two years of stellar profits after ramping up production in the travel boom after COVID-19 shut ins dissipated.

HESS DEAL DELAY On Wednesday, Chevron said an arbitration panel that will evaluate Exxon’s challenge to its Hess acquisition should have a decision between June and August 2025. Exxon’s Chief Financial Officer Kathryn Mikells told Reuters that she expects a hearing in late May and a decision on the dispute by September 2025.

Chevron shares have underperformed both Exxon and the this year as it struggles to conclude the Hess deal, which would give it a stake in a Guyana joint venture that has found more than 30 significant oil discoveries.

CALIFORNIA

Chevron said it would relocate its headquarters to Texas from California, continuing an exodus of oil companies from the state due to higher taxes, stricter climate regulations and depleting oil fields.

Chevron expects all corporate functions to migrate to Houston over the next five years. Positions in support its California operations, which includes oil fields and two refineries, will remain in San Ramon.

Chevron CEO Wirth and Vice Chairman Mark Nelson will move to Houston before the end of 2024, the company said.

Chevron currently has roughly 7,000 employees in the Houston area and about 2,000 employees in San Ramon.