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Shares of Chevron (CVX) saw some solid returns over the past trading week after the oil and gas major reported its first-quarter results on Friday. Driven by a solid first-quarter earnings report, shares have already returned 12% so far this year.

First-Quarter Results

Chevron generated first-quarter revenue of $56.8 billion, down 6.4% on the year before. Revenue was mostly impacted by lower oil prices.

Net earnings fell by merely 4.5% to $6.18 billion, predominantly as a result of lower taxes. The fall in earnings per share was limited to 2.7%, coming in at $3.18 per share, as the company spent $1.25 billion to repurchase its own shares during the quarter. Earnings per share came in ahead of consensus estimates of $3.10.

CEO and Chairman John Watson commented on the development in the first quarter, "Our first quarter earnings were strong. Our consistent financial performance has enabled us to significantly increase the dividend again, and fund major development projects that are the foundation of the company's future growth in production, earnings and cash flows."

Performance Across The Board

Chevron did manage to increase oil-equivalent production by roughly 1% to 2.65 million barrels per day, thanks to ramp-ups in Nigeria and the U.S. Oil production fell by 1.9% to 1.76 million barrels while gas production rose by 5.8% to 5.31 MMCF/D.

Earnings for the U.S. upstream segment fell by 26% to $1.13 billion amidst lower oil prices and higher operating expenses. Average realized oil prices fell by $8 towards $94 per barrel. Average natural gas prices recovered, as they increased by 25% to $3.11 per thousand cubic feet. Net oil-equivalent production was up almost 2% to 664,000 barrels per day.

The international upstream segment actually managed to increase earnings by a little over 3% to $4.78 billion, despite lower average realized prices. Chevron benefited from favorable tax items and lower exploration expenses, as production came in unchanged at 1.98 million barrels per day of oil-equivalent. Realized crude oil prices fell $8 towards $102. Average realized natural gas prices rose by 3% to $6.07 per thousand cubic feet.

The domestic downstream activities saw a 70% decline in earnings, coming in at $135 million. Earnings fell on the back of a 38% decline in crude input at 576,000 barrels per day, due to repair works at the Richmond refinery in California.

The international downstream activities reported a 64% increase in earnings, coming in at $566 million. Earnings were driven by margin expansion and a 5% increase in crude oil input.

Valuation

Chevron ended its first quarter with $19.0 billion in cash, equivalents, marketable securities and time deposits. The company operates with $14.1 billion in short- and long-term debt, for a net cash position of around $5 billion.

In 2012 Chevron generated annual revenue of $241.9 billion on which the firm net earned $26.2 billion.

Trading around $120 per share, the market values Chevron at approximately $233 billion, or its operating assets around $228 billion. This values operating assets at around 0.95 times annual revenues and 8-9 times annual earnings.

Chevron recently hiked its quarterly dividend by 11% to $1.00 per share, for an annual dividend yield of 3.3%.

Some Historical Perspective

Long-term shareholders have most certainly enjoyed their investment in the oil firm. Over the past decade, shares have almost quadrupled from levels around $35 in 2003, to trade at all-time highs around $121 at this moment. This even excludes the decent dividend yield that Chevron has paid out in the meantime.

Between 2009 and 2012, Chevron managed to increase its annual revenues by a cumulative 40% to almost $242 billion. Net income rose by some 150% to $26.2 billion, while earnings per share rose a little bit quicker on the back of share repurchases over the last year.

Investment Thesis

Chevron had a solid first quarter as price declines were offset by favorable tax items and production growth. The company is on track to start production of the Angola LNG activities, which will run at an expected run-rate of 60,000 barrels per day. It is a shame that Chevron missed out on the favorable U.S. refining environment due to the downtime at the Richmond refinery, and other planned maintenance work.

Chevron is targeting a 25% production increase through 2017, based on expansion in Angola and the planned production of the massive Gorgon project in Australia, which is still on track to come online in 2014.

Despite the planned $37 billion in capital expenditures for the year of 2013, Chevron keeps on boosting payouts to shareholders, which in its turn sends shares higher. The recent dividend hike and share repurchase program boosts cash flows to shareholders to over 5% per annum.

Back in October of 2012, I took a look at Chevron's prospects when the stock was trading around $115 per share. I concluded that an investment remains attractive as a result of the strong balance sheet, strong cash flows to investors through dividends and share repurchase programs, and the Gorgon project in Australia, which is coming online next year.

Today I reiterate my stance, despite the fact that shares trade at all-time highs. Shares of Chevron offer significant long-term appeal at these levels.

Source: Chevron's Shares Continue To Offer Long-Term Appeal Trading At All-Time Highs