Is Climate Change Raining on Chevron’s Parade?
Shares of Chevron (NYSE:CVX) dipped 1 percent during after hours trading Wednesday after a press release stating that first-quarter earnings would be down from fourth-quarter earnings. Stating that the cause was “principally as a result of adverse foreign exchange effects, and selected asset impairments and related charges,” Chevron hinted at other causes that could create trouble down the line.
In the press release, Chevron stated that, “Current year production has been affected by downtime, in part due to adverse weather across multiple regions including Kazakhstan, Canada, and the U.S.” It did mention that higher demand in Thailand and increased production in Angola has offset this drop in production. However, this seems more like a deflection than a reason to not worry.
Chevron has set aside a $40 billion CAPEX budget in 2014 to fuel growth (even more last year.) So, any production drop from current facilities, if truly offset, should not have any impact on growth and earnings. Although with the increasingly harsh weather this should not come as a surprise, especially after its warning in January of a fourth-quarter drop.
I must admit that it is ironic that climate change is the likely cause of Chevron and other oil company’s current woes, but it needs to be taken into consideration as it is likely only going to get worse. According to a report released earlier this year by the U.S. Accountability Office, America’s energy infrastructure is “increasingly vulnerable.” The report focuses on major areas in the energy supply chain such as drilling, transportation, and electricity, and identified greater extremes in temperature and precipitation, stronger storms, and rising seas as potential threats.