Chevron (CVX) Q4 2025 earnings review
Record Volumes Clash with Weaker Pricing
Chevron delivered a mixed Q4 where operational execution was flawless, but macro headwinds weighed on the bottom line. While net oil-equivalent production surged 21% YoY to a record 4.05M barrels/day—driven by the Hess acquisition and TCO ramp-up—Net Income fell 14% to $2.77B. The culprit was a drop in realized crude prices ($64/bbl vs $75/bbl a year ago). However, the cash flow engine is roaring: Operating Cash Flow (CFFO) jumped 24% to $10.8B, supported by TCO distributions and Hess assets, allowing for a 4% dividend hike.
🐂 Bull Case
Despite lower oil prices ($64 Brent vs $75 YoY), CFFO accelerated 24% YoY to $10.8B. This disconnect proves the value of the TCO ramp-up (higher affiliate distributions) and the Hess integration, de-risking the dividend coverage.
Worldwide production hit >4 million BOED for the second consecutive quarter. This isn't just Hess; legacy assets like the Permian and Gulf of America (Anchor, Ballymore) are delivering organic growth.
🐻 Bear Case
Return on Capital Employed (ROCE) dropped significantly to 6.6% in FY25 from 10.1% in FY24. The capital base expanded (Hess acquisition), but earnings contracted due to pricing, signaling lower capital efficiency in the current price environment.
'All Other' net charges expanded to $1.1B in Q4 (vs $0.8B YoY), driven by higher interest expenses and pension settlement costs. These corporate-level drags are partially offsetting segment-level operational gains.
⚖️ Verdict: ⚪
Neutral/Positive. The operational transformation is impressive—Chevron has successfully integrated Hess and ramped TCO. However, the earnings leverage to oil prices remains the dominant factor. The stock is a cash flow play, not an earnings growth play in this environment.
Key Themes
Hess Integration & Synergy Acceleration
The Hess acquisition is outperforming early. Chevron achieved its initial $1 billion run-rate synergy target quickly after close. In Q4, Hess contributed significantly to the 21% production jump. Management highlighted that the deal has 'only gotten better,' with asset quality in the Bakken and Guyana exceeding expectations.
TCO Cash Engine Fully Online
The Future Growth Project (FGP) at Tengizchevroil (TCO) in Kazakhstan is now fully operational and running at nameplate capacity. This drove higher affiliate dividends, directly boosting CFFO despite lower oil prices. Management noted TCO production ramp-up was a primary driver for International Upstream volumes (+286,000 bpd YoY).
Aggressive Cost Reductions
Accelerating. Chevron realized $1.5B in structural cost reductions in 2025 and raised its target to $3-4B by the end of 2026 (previously $2-3B). This program, involving organizational streamlining and asset divestitures (Congo, Canadian assets), is critical to defending margins as oil prices soften.
Upstream Earnings Power Eroding
Decelerating. Upstream earnings fell to $3.0B in Q4 from $4.3B a year ago. While volumes were up, they could not offset the price realized drop ($42.99/bbl US Liquids vs $53.12 YoY). This highlights the sensitivity of the expanded portfolio to commodity fluctuations.
Downstream Rebound
Reversing. After a loss of $248M in 24Q4, the Downstream segment posted earnings of $823M in 25Q4. Drivers included higher margins on refined product sales, absence of prior-year impairments, and improved reliability (highest U.S. refinery throughput in 20 years).
All Other / Corporate Headwinds
Net charges in the 'All Other' segment (corporate/debt/pension) ballooned to $1.09B in Q4 from $817M a year ago. Management cited higher interest expenses, corporate tax costs, and specific pension settlement costs ($128M loss). As debt levels rise (to fund Hess/Capex), interest expense is becoming a more visible drag ($361M vs $199M YoY).
Other KPIs
Accelerating. Up 24% YoY from $8.7B. The cash flow story is decoupling from the Net Income story thanks to TCO distributions and working capital timing. This easily covered the $5.3B CapEx and shareholder returns.
Accelerating. Up from $4.3B in 24Q4. The increase is largely driven by spend on legacy Hess assets post-acquisition and investments in U.S. data center power solutions. FY25 Capex totaled $17.3B.
Accelerating. Debt load has increased significantly from $24.5B in 24Q4, primarily due to the Hess transaction and assumption of debt. Net debt ratio rose to 15.6% from 10.4% YoY, though still within manageable investment-grade limits.
Guidance
Accelerating. Raised by 4% effective March 2026. This marks the 39th consecutive year of dividend increases, reaffirming management's confidence in the higher structural free cash flow floor provided by TCO and Hess.
Accelerating. Management raised the target from the previous $2-3B range. $1.5B was already achieved in 2025. This suggests aggressive internal streamlining and efficiency measures are planned for the next 12-24 months.
Key Questions
ROCE Trajectory
ROCE has compressed to 6.6% from 10.1% a year ago. With the Hess integration and TCO ramp complete, what is the realistic timeline and commodity price assumption required to get ROCE back above 10%?
Permian Plateau vs. Growth
Permian production was a key driver in FY25. With the pivot to 'free cash flow mode' in the shale patch, should we expect Permian volumes to plateau in FY26, or is there still significant organic growth planned?
Data Center Power Economics
You mentioned increased investments in U.S. data center power solutions driving Capex. Can you quantify the capital allocated to this in FY26 and the expected return profile compared to traditional upstream projects?