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Chevron (CVX) Announces Non-Cash Writedowns in 4Q Filing
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Chevron Corporation (CVX - Free Report) , in a recent securities filing, revealed significant developments impacting its financial landscape. The U.S. Integrated Oil and Gas giant disclosed plans to take non-cash writedowns on U.S. oil and gas production, particularly in California. This move is also associated with securing abandoned wells and pipelines in the U.S. Gulf of Mexico, previously sold by Chevron. The repercussions are expected to manifest in the fourth quarter of 2023, with anticipated non-cash charges ranging between $3.5 billion and $4 billion.
Non-Cash Writedowns: Unraveling the Details
The filing did not provide a detailed breakdown of the allocations of writedowns between the California oil and gas production and the Gulf of Mexico assets. However, it specified that the losses recognized against former offshore Gulf of Mexico properties are tied to abandonment and decommissioning obligations. These obligations have become a contentious issue, especially with claims requiring companies like CVX to pay for securing wells, pipelines and platforms that were divested.
Legal Battles and Chapter 11 Fallout
Fieldwood Energy, to which Chevron sold offshore properties, filed for Chapter 11 bankruptcy in 2020. The restructuring plan left the costs of abandoning the offshore properties on its previous owners, including CVX. Legal disputes have ensued, with CVX and other companies contesting claims related to securing the sold assets. The recent filing acknowledges the probability of a portion of these obligations reverting to CVX, necessitating non-cash charges.
A Decade-Long Commitment
CVX anticipates undertaking decommissioning activities on these assets over the next decade. The commitment to this extended timeline reflects the complexity and scale of the decommissioning process, further underscoring the impact on CVX's balance sheet.
Impairment of California Assets
The impairment of California assets is due to the ongoing regulatory challenges in the state. CVX anticipates lower future investments in its business plans because of these challenges. Andy Walz, CVX's president of Americas products, highlighted the increased risk associated with investing in California compared with other states. The company has had to cancel several projects in the past year due to permitting challenges, adding to the financial strain.
Operational Setbacks and Earnings Estimates
Chevron's operational setbacks have not gone unnoticed by Wall Street analysts. The fourth-quarter earnings estimate for CVX has moved downward, projecting a lower profit compared with the prior-year quarter’s level. Before the recent filing, the expected fourth-quarter profit totaled $6.68 billion, or $3.27 per share, according to financial firm LSEG. This marks a deterioration from the previous year's profit of $7.85 billion, or $4.09 per share.
Outlook
Despite the challenges, CVX remains committed to operating the affected assets in both California and the Gulf of Mexico for many years to come, as indicated in the filing. The company's website records a daily production of about 75,000 barrels of oil and gas in the fields of Central California. The long-term vision highlights resilience in the face of adversity and the determination to navigate the complex regulatory landscape.
Conclusion
CVX's recent disclosure of non-cash writedowns and the associated challenges in California and the Gulf of Mexico highlights the intricacies of the oil and gas industry. The company's proactive approach to addressing these challenges and its commitment to continued operations underscore its resilience. As Chevron charts a course through regulatory uncertainties and legal battles, the financial landscape reflects the dynamic nature of the energy sector.
The Williams Companies is valued at $42.37 billion. The company currently pays a dividend of $1.79 per share, or 5.14%, on an annual basis.
WMB, the U.S.-based energy infrastructure company, operates through Transmission & Gulf of Mexico, Northeast G&P, West and Gas & NGL Marketing Services segments.
MUSA is worth $7.59 billion. In the past year, its shares have risen 31.5%.
MUSA is involved in the marketing of retail motor fuel products and convenience merchandise. It operates retail gasoline stores, principally in the Southeast, Southwest and Midwest United States.
Archrock is valued at $2.40 billion. AROC currently pays a dividend of 62 cents per share, or 4.03%, on an annual basis.
AROC is a U.S.-based energy infrastructure company that designs, sources, owns, installs, operates and maintains natural gas compression equipment for the oil and natural gas industry.
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Chevron (CVX) Announces Non-Cash Writedowns in 4Q Filing
Chevron Corporation (CVX - Free Report) , in a recent securities filing, revealed significant developments impacting its financial landscape. The U.S. Integrated Oil and Gas giant disclosed plans to take non-cash writedowns on U.S. oil and gas production, particularly in California. This move is also associated with securing abandoned wells and pipelines in the U.S. Gulf of Mexico, previously sold by Chevron. The repercussions are expected to manifest in the fourth quarter of 2023, with anticipated non-cash charges ranging between $3.5 billion and $4 billion.
Non-Cash Writedowns: Unraveling the Details
The filing did not provide a detailed breakdown of the allocations of writedowns between the California oil and gas production and the Gulf of Mexico assets. However, it specified that the losses recognized against former offshore Gulf of Mexico properties are tied to abandonment and decommissioning obligations. These obligations have become a contentious issue, especially with claims requiring companies like CVX to pay for securing wells, pipelines and platforms that were divested.
Legal Battles and Chapter 11 Fallout
Fieldwood Energy, to which Chevron sold offshore properties, filed for Chapter 11 bankruptcy in 2020. The restructuring plan left the costs of abandoning the offshore properties on its previous owners, including CVX. Legal disputes have ensued, with CVX and other companies contesting claims related to securing the sold assets. The recent filing acknowledges the probability of a portion of these obligations reverting to CVX, necessitating non-cash charges.
A Decade-Long Commitment
CVX anticipates undertaking decommissioning activities on these assets over the next decade. The commitment to this extended timeline reflects the complexity and scale of the decommissioning process, further underscoring the impact on CVX's balance sheet.
Impairment of California Assets
The impairment of California assets is due to the ongoing regulatory challenges in the state. CVX anticipates lower future investments in its business plans because of these challenges. Andy Walz, CVX's president of Americas products, highlighted the increased risk associated with investing in California compared with other states. The company has had to cancel several projects in the past year due to permitting challenges, adding to the financial strain.
Operational Setbacks and Earnings Estimates
Chevron's operational setbacks have not gone unnoticed by Wall Street analysts. The fourth-quarter earnings estimate for CVX has moved downward, projecting a lower profit compared with the prior-year quarter’s level. Before the recent filing, the expected fourth-quarter profit totaled $6.68 billion, or $3.27 per share, according to financial firm LSEG. This marks a deterioration from the previous year's profit of $7.85 billion, or $4.09 per share.
Outlook
Despite the challenges, CVX remains committed to operating the affected assets in both California and the Gulf of Mexico for many years to come, as indicated in the filing. The company's website records a daily production of about 75,000 barrels of oil and gas in the fields of Central California. The long-term vision highlights resilience in the face of adversity and the determination to navigate the complex regulatory landscape.
Conclusion
CVX's recent disclosure of non-cash writedowns and the associated challenges in California and the Gulf of Mexico highlights the intricacies of the oil and gas industry. The company's proactive approach to addressing these challenges and its commitment to continued operations underscore its resilience. As Chevron charts a course through regulatory uncertainties and legal battles, the financial landscape reflects the dynamic nature of the energy sector.
Zacks Rank and Key Picks
Currently, CVX carries a Zacks Rank #3 (Hold).
Investors interested in the energy sector might look at some better-ranked stocks like The Williams Companies (WMB - Free Report) and Murphy USA Inc. (MUSA - Free Report) , each sporting a Zacks Rank #1 (Strong Buy), and Archrock, Inc. (AROC - Free Report) , carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Williams Companies is valued at $42.37 billion. The company currently pays a dividend of $1.79 per share, or 5.14%, on an annual basis.
WMB, the U.S.-based energy infrastructure company, operates through Transmission & Gulf of Mexico, Northeast G&P, West and Gas & NGL Marketing Services segments.
MUSA is worth $7.59 billion. In the past year, its shares have risen 31.5%.
MUSA is involved in the marketing of retail motor fuel products and convenience merchandise. It operates retail gasoline stores, principally in the Southeast, Southwest and Midwest United States.
Archrock is valued at $2.40 billion. AROC currently pays a dividend of 62 cents per share, or 4.03%, on an annual basis.
AROC is a U.S.-based energy infrastructure company that designs, sources, owns, installs, operates and maintains natural gas compression equipment for the oil and natural gas industry.