Chevron makes $ 15.6 billion in annual profits when oil prices rise

Chevron’s share price reached its highest level ever on Thursday, closing at more than $ 1[ads1]35 per share, as investors reacted to Chevron’s announcement that it would raise its quarterly dividend by 6%. But the company’s shares fell more than 4% on Friday after the release of the fourth quarter result, which was lower than analysts had expected.

Rising commodity prices have led investors to wonder whether oil and gas companies will follow their historic impulse to increase drilling in the pursuit of higher profits. Chevron is the first of the largest western oil companies to report earnings, and analysts will look for tea leaves from Chevron’s management on whether the price signal has changed the calculation.

Chevron CEO Mike Wirth said that demand for gasoline is above pre-pandemic levels and that he expects further improvement in fossil fuel markets by 2022. Despite this, he said Chevron will stick to disciplined spending.

“I do not think we will be tempted by today’s price,” Mr. Wirth said in an interview with analysts on Friday.

After years of gloomy returns from oil and gas companies, investors have pressured producers to moderate growth and return more money to shareholders. Chevron and its peers have responded by changing the way they allocate cash, leading to a jump in stock prices and a drop in capital costs, according to Rob Thummel, a senior portfolio manager at TortoiseEcofin.

Although it is good for investors in the company, there is growing concern that there is not enough investment in new fossil fuels to meet growing demand.

“Manufacturers and management teams will continue to deliver on what the market demands of them, which is to return capital to shareholders, and ultimately make it harder to keep up with global demand for oil and gas,” said Mr. Thummel.

The US oil price reached its highest levels since 2014 in January and traded at around 87 dollars per barrel on Thursday. Several analysts predict that oil prices will peak at $ 100 a barrel by 2022, as global economies continue to recover and investment in oil and gas production remains relatively subdued.

Chevron has said it is sticking to a relatively modest budget and will return increasing amounts of cash to shareholders. Chevron’s increase in dividends on Thursday marked the 35th year in a row that the company has raised its payment. Chevron has also said it will buy back as much as $ 5 billion of the stock after buying back $ 1.4 billion in 2021.

Late on Thursday, a federal judge invalidated a U.S. oil and gas sale of 80 million acres in the Gulf of Mexico, saying the Department of the Interior had not adequately assessed the impact of climate change in its environmental analysis. Chevron was among the companies that had offered treaties in the sale. Mr. Wirth called the decision disappointing on Friday.

Chevron said in December that it would increase capital spending in 2022 to $ 15 billion, an increase of 20% from the previous year, but still well below pre-pandemic levels. Mr. Breber said the company will maintain this budget. Chevron has said it will spend between $ 15 and $ 17 billion by 2025 compared to previous plans to spend $ 19 to $ 22 billion a year before the pandemic.

Despite lower spending levels, Chevron said it set a record for oil and gas production in 2021, producing 3.1 million barrels a day, a modest increase from last year’s levels. The company’s oil and gas production unit earned $ 7.3 billion in 2021, compared to a loss of $ 1.6 billion in 2020.

Chevron’s CFO Pierre Breber said the company could increase production despite its more disciplined expenses due to structural cost savings that Chevron implemented during the pandemic. Chevron must grow to maintain yields, he said.

“We will rebuild activity as the market recovers,” Breber said.

Phil Gresh, an analyst at JPMorgan Chase & Co., said in a note to investors on Friday that Chevron’s guidance that oil and gas production in 2022 will be flat to slightly down was lower than expected. Mr. Breber said Chevron’s 2022 production would grow, excluding lost volumes from expiring contracts in Asia.

Write to Christopher M. Matthews at christopher.matthews@wsj.com