In retrospect, it was inevitable. Even as well-run as Chevron Corporation (CVX) is, with crude oil now down 70% from its mid-2014 peak price — and at a price lower than most oil companies’ production costs per barrel — something had to give.

It finally gave last quarter, with the oil and gas giant posting its first quarterly loss in over a decade.

The company put on its requisite game face, of course, assuring CVX shareholders it would do everything it needed to do in order to maintain its current dividend. Thing is, it may not just be the usual always-bullish boilerplate rhetoric coming from the company.

Although Chevron still desperately needs oil prices to recover, it’s doing many of the right things it needs to do to (1) survive the glut, and (2) come out of the glut ready to soar.

Chevron Earnings

Last quarter, Chevron Corporation lost 31 cents per share (a net loss of $588 million) on $28 billion in revenue. The bottom line fell short of the profit of 45 cents per share of CVX stock analysts had estimated, though the top line was a bit better than the anticipated $27.7 billion.

On a year-over-year basis, the plunge in the price of oil made a dramatic adverse impact. In the fourth quarter of 2014, Chevron posted a profit of $1.85 per share and revenue of $42 billion.

CEO John Watson said of the fourth quarter numbers,

“Our 2015 earnings were down significantly from the previous year, reflecting a nearly 50 percent year-on-year decline in crude oil prices. … We’re taking significant action to improve earnings and cash flow in this low price environment. Operating expenses and capital spending were reduced $9 billion in 2015 from 2014, and I expect similarly large reductions again in 2016. In addition, asset sales proceeds were $6 billion in 2015, with additional sales planned for 2016 and 2017.”

The earnings report also underscored the performance disparity between its upstream and downstream operations. Between its U.S. and international upstream businesses, Chevron lost $1.36 billion, compared to a profit of $2.67 billion in the same quarter a year earlier. Downstream, on the other hand, managed to earn $1.01 billion in Q4. That’s down from the year-ago Q4 tally of $1.52 billion, though the year-ago total was beefed up by about $400 million due to a one-time asset sale.

On a purely operational basis, the downstream side of the business did as well last quarter as it did a year ago, despite weak crude prices.

It’s also worth noting the $588 million loss would have been a $512 million profit were it not for an accounting write-down of $1.1 billion, to reflect the lowered value of some of its properties and cancelled projects stemming from the pullback in oil prices.

Food for Thought

To Watson’s credit, he is directing a scale-back on capital expenditures and operational spending. Operating outlays fell $9 billion last quarter while capital expenditures and exploration expenses fell $2.6 billion, and he believes those costs will fall about the same amount in 2016.

For perspective, however, capital expenditures only fell a total of $6.3 billion in all of 2015, to $34 billion, suggesting the bulk of any cost reductions will come from the non-capex categories … where they should come from when oil prices are low. Indeed, though Chevron is culling some capital expenditures, Watson is simultaneously adding upstream projects that require capital.

It remains to be seen to what extent capex will truly be reeled in to sustainable levels should oil prices not budge, though during the earnings conference call he was talking about total 2016 capex in the low $20’s (billion) range.

Additionally, and partially related to the expense question, though oil and gas prices have fallen to levels below what many oil companies are paying to drill and refine it, Chevron’s production of gas and oil actually ticked a bit higher last quarter. Output was up 2% overall in 2015, and is expected to grow similarly on 2016.

From a market share and customer-retention perspective it’s a bold move…. if oil prices recover in the foreseeable future. If oil remains stuck at low prices, Chevron is simply selling oil and gas at a weak price that it possibly should be holding — at least partially — for better days.

In the meantime, there’s the little matter of an additional $10.8 billion in debt it took on in 2015, bringing the total to $38.6 billion.

Bottom Line for CVX

It’s admittedly a tricky situation. Either now’s the time for an oil company to go completely defensive and spend no capital on exploratory and development operations (and protect the dividend as much as possible), or spend aggressively, forget the dividend and gamble that crude will rebound soon enough. Walking the tightrope in the middle of those two extremes is tough to do, but that’s essentially what Chevron Corporation is doing.

If the gambit pays off and oil does rebound soon, CVX will be well-positioned to effectively capitalize on the recovery and continue to pay and even raise its dividend.

The “if” and “when” issues don’t make CVX stock easy to own in the meantime though.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.