Chevron's Earnings Amid Oil Price Slump: Impact of Hess Acquisition

Introduction:

Investors are putting heavy sell pressure on Chevron again as their recent earnings call exposes weaker profits attributed to lower oil prices. The market had expected better numbers to justify the company's expensive acquisition of Hess.

Event Recap:

Chevron generated a little over half the net income compared to the previous year, earning $6.5 billion from $51 billion in revenue. This dip aligns with the decline in oil prices over the summer. However, Chevron's profits fell even harder than anticipated, triggering a significant selloff. The overspending on maintenance and costly setbacks in key projects in Kazakhstan contributed to this outcome.

Current Status:

This profit shortfall becomes more challenging to overlook in light of Chevron's recent announcement of the $53 billion acquisition of Hess earlier this month. Given the context of these profits, the acquisition appears ambitious and perhaps a bit desperate on Chevron's part to keep pace with Exxon, which has the firepower to handle its recent purchase of Pioneer Natural Resources.

Why It Matters:

Consolidation season is in full swing, prompting companies to make riskier moves to maintain dominance. Chevron's bet on the Hess acquisition reveals the extent to which they are staking their position of relative strength in the market. As competitors threaten to siphon off market share, Chevron faces heightened risk. The market response is evident, with Chevron shares falling 5% in the first hour of trading.