Chevron Corporation (NYSE:CVX) is set to report earnings on Friday. Before every quarter, I like to prepare ahead of the release so that the results don’t bias my perception of the numbers after the fact. Here are five things I’ll be listening for in the company’s conference call this week.
(1) Weak production results
In March, Chevron Corporation (NYSE:CVX) reaffirmed its target to raise production 20% by 2017. However, it seems the company is off to a rough start. According to Chevron Corporation (NYSE:CVX)’s preliminary results posted earlier this month, the company’s international output fell 2.8% year-over-year. Fortunately it looks like most of this drop can be credited to planned maintenance work at the firm’s operations in Kazakhstan, Australia and Nigeria. But if those final results come in weaker than expected, it could call into question management’s ability to hit those long term goals.
(2) Updates on the litigation front
In June, Argentina’s Supreme Court revoked an embargo on the assets of the company’s Argentinian subsidiary. This was a major victory for Chevron Corporation (NYSE:CVX) in the company’s decades old litigation battle against indigenous groups in Ecuador.
But this contest is far from over. Because Chevron Corporation (NYSE:CVX) doesn’t have significant assets in Ecuador, representatives of the Amazon Defence Front are trying to freeze the company’s assets in other countries to enforce a $19 billion judgement. The plaintiff is pursuing Chevron Corporation (NYSE:CVX) in Brazil and Columbia and has also appealed the case in the United States. Investors should be eager to hear about any updates in the call.
Long term trends
(3) Risky bets in Latin America
With a market capitalization north of $240 billion, Chevron is going to need a lot of needle-moving projects if it hopes to achieve its long term production goals. But during the quarter the company made significant progress landing two joint venture agreements with Venezuela’s and Argentina’s state-run oil companies. While these deals are small relative to Chevron’s size, expect to hear more commentary regarding the company’s Latin America expansion.
This comes at a time when most energy majors are struggling to grow production. In April, rival Exxon Mobil Corporation (NYSE:XOM) reported its seventh consecutive quarterly decline in output with production falling 3.5% year-over-year. This comes in spite of $81 billion in capital expenditures since 2011.
Looking ahead, Exxon Mobil Corporation (NYSE:XOM) plans to spend about $38 billion per year through 2017, and management projects production will grow by 2% to 3% annually. But this is coming from a company that hasn’t hit its annual production target since 2006.
The troubles at Exxon Mobil Corporation (NYSE:XOM) should be a reminder to energy investors that cost-effectively growing production after the age of easy oil will be no simple task. By doubling-down in political risky countries, it may be a sign of desperation on Chevron’s part.
(4) Liquefied Natural Gas
Chevron has made liquefied natural gas, or LNG, a linchpin of its expansion strategy. Chevron’s CEO John Watson sees rising demand from Asia exceeding LNG supplies by the end of the decade.
Chevron is well positioned for this development and the company has been making lots of progress on its LNG business. In June, Chevron announced the first LNG shipment from its $10 billion Angola facility. The company also expects to start exporting natural gas from its Australian Gorgon and Wheatstone projects by 2015 and 2016 respectively. Investors should be listening for progress reports in upcoming quarters as those deadlines approach.
Catalysts
(5) Dividends and buybacks
Chevron will be entering into a period of robust free cash flow generation by 2014 as the company begins to reap the rewards of its heavy investment program over the past five years. This has many analysts wondering if a big round of dividend hikes and share buybacks are in store.
In Chevron’s conference call last quarter, CFO Patricia Yarrington said any change to the dividend or share buyback program would depend on the company’s project queue at the time. But given that Chevron is expected to generate $50 billion in cash by 2017 (up more than $10 billion from 2012), will the company really be able to find a productive use for all that money? A big capital return program would be a massive catalyst for the stock.
Foolish bottom line
We’re now prepared to make our own assessment of Chevron’s quarterly release and what to listen for on the conference call. Being well-informed ahead of the announcement is critical whether you’re a prospective or current shareholder. Now bring on that earnings report!
The article 5 Things to Look for From Chevron This Earnings Season originally appeared on Fool.com and is written by Robert Baillieul.
Robert Baillieul has no position in any stocks mentioned. The Motley Fool recommends Chevron. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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