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HOUSTON: US oil major Chevron Corp on Friday swung to a surprise $11 million fourth-quarter loss as low margins on fuel, acquisition costs and foreign currency effects overwhelmed improved drilling results.

Oil companies are expected to benefit from a rebound in oil and gas prices after a one-two punch of falling demand and prices put the industry in a tailspin last year. But as Chevron’s final quarter of 2020 showed, pandemic-related travel restrictions continue to hammer fuel demand.

“We expect only a gradual recovery in the global economy,” said Chevron Chief Executive Michael Wirth in a call with analysts. Its oil production this year will be flat to slightly higher on lower spending. Refining operations that generated losses in the fourth quarter should improve, he said.

The company reported a $5.54 billion full-year loss, its first since 2016, compared with earnings of $2.92 billion in 2019. Chevron was quick to respond to the downturn last year, cutting up to 15% of its global workforce, slashing new project outlays by more than a third, and pulling back on oil production goals. It used a relatively strong financial position to acquire Noble Energy for about $13 billion including debt.

US President Joe Biden this week suspended oil and gas leasing on federal lands. Wirth said that if the policies become onerous, “We’ve got other places where we can take those dollars.”

The company is developing lower carbon technologies alongside new fossil fuel projects, he said, while cautioning a broad shift to renewable energy will take longer than some expect.

A dozen big oil producers got a jolt last week after debt rating firm S&P Global Ratings put them on watch for potential downgrades over profit challenges from renewables and lower oil prices.

The company’s “track record speaks for itself,” Chief Financial Officer Pierre Breber told analysts.

Chevron is investing in carbon capture and storage and hydrogen projects, Wirth said, noting it will focus on new areas where it feels it has a competitive advantage.

The second-largest US oil producer reported an adjusted loss of $11 million, or 1 cent per share, compared with a profit of $2.8 billion, or $1.49 per share, a year earlier. The net loss was $665 million including acquisition costs, the impact of foreign exchange and pension payouts. Results missed analysts’ expectations for a profit of 7 cents a share, according to data from Refinitiv IBES.

Improved oil and gas prices and a 6% increase in output from the Noble purchase boosted Chevron’s oil and gas earnings to $501 million, compared with a loss of $6.7 billion a year earlier.

The gain came as Chevron sold its oil for about $40 per barrel, up from $39 in the prior quarter and down from $57 a year earlier.

The company’s refining and chemical business reported a fourth-quarter loss of $338 million compared with a profit of $672 million in the prior year. Fuel sales fell 11% from the year-ago period as COVID-19 travel restrictions continued to reduce demand.

Its closely watched cash flow from operations was $2.3 billion, short of covering the $2.5 billion dividend and $3.2 billion in capital spending for the period.’