Chevron's Production Soared Along With Oil Prices in the First Quarter, But Its Profits Fell. What Happened With the Oil Stock?

Chevron (NYSE: CVX) delivered a production gusher in the first quarter as its global output soared 15% to nearly 3.9 million barrels of oil equivalent per day (BOE/d). That production surge coincided with a huge uptick in oil prices. That one-two punch would normally fuel a huge profit windfall for an oil company.

However, that wasn't the case for Chevron in the first quarter as its earnings declined. Here's what happened to the oil stock in the first quarter.

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Dual headwinds impacted Chevron's quarter

Chevron reported nearly $2.8 billion, or $1.41 per share, of adjusted earnings in the first quarter. That was down from $3 billion in the fourth quarter and $3.8 billion in the year-ago period, even though Brent oil (the global benchmark price) averaged $81 per barrel in the first quarter, up from $64 in the fourth quarter and $76 in the year-ago period.

While Chevron's production was up 15% from the year-ago period due to the acquisition of Hess and growth in the Gulf of Mexico (also known as the Gulf of America in the U.S.) and Permian Basin, it was down from the over 4 million BOE/d it produced in the fourth quarter. That was due to lower production in the Middle East (Israel and the partitioned zone between Saudia Arabia and Kuwait) and some downtime at its affiliate in Kazakhstan. That lower production impacted Chevron's ability to fully capitalize on higher oil prices.

The other issue impacting Chevron's financial results was $2.9 billion in unfavorable timing effects. These effects included timing mismatches in recognizing earnings on financial derivatives before the physical delivery of the associated oil and gas production. Without these unfavorable impacts, its earnings would have improved in the period.

Strength beneath the surface

While supply disruptions and timing mismatches impacted the quarter, Chevron's underlying operations performed well. It produced over 2 million BOE/d in the U.S. for the third straight quarter, driven by growth in the Gulf and Permian. Meanwhile, the company's U.S. refining assets operated at record oil throughput levels in March, while averaging over 1 million barrels per day during the quarter, marking its fifth consecutive quarter over the milestone. The company also continues to execute its cost-savings strategy and integrate Hess into its operations.

Additionally, Chevron made excellent progress on its long-term growth strategy. It announced an agreement to expand its heavy oil interest in Venezuela, signed a deal with Microsoft to support a gas-fired power plant development in Texas, started up an expansion project in Israel, and approved a gas project in Equatorial Guinea. Additionally, Chevron's partner made an oil discovery in the Gulf, while the company expanded its exploration portfolio. These initiatives put the company in a strong position to grow through 2030 and beyond.

Strength amid the storm

Chevron faced some war-driven headwinds during the first quarter that held back its ability to fully capitalize on the rise in crude prices. However, those headwinds should fade in the coming months as supplies normalize and the timing issues reverse. Meanwhile, Chevron's underlying operations continue to perform well, and it has plenty of fuel to continue growing in the future. That makes it a top oil stock to buy and hold for the long term.

Matt DiLallo has positions in Chevron. The Motley Fool has positions in and recommends Chevron and Microsoft. The Motley Fool has a disclosure policy.