CVX Reports a Gusher

Updated from 9:39 a.m. EST on Jan. 31.

Integrated oil producer Chevron (CVX - commentary - Cramer's Take) reported a 12.6% earnings increase over 2007, to $8.83 per share, and strong 33.7% fourth-quarter earnings growth, to $2.34 per share.

The discrepancy between the fourth quarter and the full year originates from the substantial increase in the price of crude over the year. Volumes declined , however, and downstream margins were anemic.

Fourth-quarter and full-year revenues increased by 28.6% and 5%, respectively, to $220.9 billion and $61.4 billion.

While the company is investing heavily in upstream gas and exploration worldwide, possibly securing volumes long term, for the time being, company earnings depend on favorable pricing winds, partly dependent on OPEC quota decisions. It should be noted that the return on capital employed for the company didn't budge, at 23.1%, while operating margins remained stable at 28.7%.

(Note: All of the following results will be for the full year, unless indicated otherwise.)

Upstream income for the year increased by 12.7%, to $14.8 billion, and constituted 79% of income. Total upstream net oil equivalent production declined slightly by 1.8%, to 2.62 million barrels per day. Natural gas volumes increased slightly by 1.3%, to 5 billion cubic feet per day, while liquids production stabilized at 1.8 million barrels per day.

The outlook for production volume for 2008 depends crucially on the anticipated price of oil. At a price of $70 per barrel, production is expected to increase slightly to 2.65 million barrels of net oil equivalent production.

Increasing upstream production is one of the major goals of Chevron. To that end, it is devoting the lion's share of its 2008 $22.9 billion capex to upstream production. The company will devote 76% of its 2008 capex budget to exploration activities in diverse areas such as Angola, China, Kazakhstan and Thailand.

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At the time of publication, Vijayraghavan had no positions in the stocks mentioned.

Vasu Vijayraghavan was an academic finance professor at the University of Paris who has now turned to a new career as a financial consultant. As an academic, she wrote on corporate governance issues, especially in the European context, and she believes in a long-run and balance sheet approach to stock picking.

Currently, Vasu is working as a consultant for lawyers, doing business valuation. She is a Level II CFA candidate and enjoys writing long/short and earnings calls pieces for TheStreet.Com.

Vasu holds a Ph.D. from the University of Michigan and a B.A. from Harvard University.