Chevron 2Q22 review: solid beat coupled with buyback hike

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Recently, Chevron announced its Q2 financial results with a solid 2Q beat coupled with a buyback guidance raise (now $5-15B annually vs. $5-10B prior). Although JP Morgan thinks Chevron's strategy is on track, it remains an Underweight rating given its premium valuation, as it sees the least upside in the stock from here.

CVX raised the top end of its annual buyback guidance by $5B, moving the FY range to $5-15B. With the environment remaining strong and net debt/capital of 8.3% well below the company’s 20-25% mid-cycle target, CVX guided to $3.75B of repurchases in 3Q ($15B annual pace). JP Morgan models a $15B annual pace through 2025 (JPM: $80/bbl long-term Brent price deck), or a ~8.5-9.0% annual total return of capital yield.

CVX’s Refining segment put up a strong beat for the quarter, at ~$3.5B in net income. While the overall result was driven by a highly favorable crack spread environment, JP Morgan thinks the near full reversal of 1Q’s $755mm timing headwinds (2Q: $700mm q/q tailwinds) was a key driver in the beat vs. expectations.

The WPMP and FGP projects at TCO continue to make solid progress, with construction now 92% complete and on track to be completed this year. Startup on the WPMP project is expected in 2H23, with FGP expected in 1H24. Despite court challenges aiming to shut down the Novorossiisk export terminal, TCO’s legacy production is currently running at full capacity, while the diversification of export capabilities to supplement the Caspian Pipeline Consortium pipeline appears to be a longer-term priority.

Activity levels continue to increase in the Permian as CVX expects to drill >200 wells this year and increase production by 15% (full-year guide: 700-750kboepd). Guidance levels imply a ramp of ~75kbd from 1H to 2H at the midpoint after averaging 694kboepd in 1H. CVX added 2 rigs in July, with the total fleet now at 10 and expected to be maintained through 2H (management noted that today’s rigs produce double what a typical rig produced in 2018).