U.S. energy behemoth Chevron Corp. (CVX) released its third quarter 2011 interim update, covering the first 2 months of the quarter. On the whole, the update is neutral, with earnings expected to be in-line with the previous quarter.
The company expects results for the Exploration and Production arm to be hampered by a fall in crude oil prices and lower output. But the San Ramon, California-based integrated major further added that third quarter refining and marketing results would benefit from the proceeds from a refinery sale.
Additionally, Chevron expects net after-tax charges associated with corporate and other activities to come in between $250 million and $350 million.
Segmental Analysis
Upstream: The company reported that oil and natural gas production averaged 2.602 million oil-equivalent barrels per day, 5.0% below the third quarter 2010 level, due to reduced volumes both in the U.S. and overseas. Production would also be down by 3.4% from that achieved during the second quarter of 2011.
In the first two months of the September quarter, Chevron’s total domestic oil equivalent production fell 18,000 barrels per day from the previous quarter levels, primarily due to maintenance activity across a number of assets in the Gulf of Mexico. Net international oil equivalent production was down by 74,000 barrels per day from the second quarter of 2011, reflecting a now-remediated third party pipeline incident in Thailand and planned repair work in Kazakhstan and the U.K.
U.S.crude price realizations during July-August 2011 averaged $100.87 per barrel, down from $108.80 in the second quarter 2011, while international realizations were lower by $3.40 to $103.44 per barrel. Chevron’s domestic realized natural gas prices for this period averaged $4.16 per thousand cubic feet (Mcf), compared with $4.35 in the second quarter. Average international natural gas realizations were up 11 cents per Mcf to $5.60.
Downstream: Regarding downstream operations, the second-largest U.S. oil company by market value after ExxonMobil Corp. (XOM) said that its U.S. refinery crude-input rose 29,000 barrels per day after completing maintenance activity early in the second quarter. However, refinery crude-input volumes outside the U.S. were down by 74,000 barrels per day during the same period, adversely affected by the previously announced sale of the Pembroke U.K. refinery on August 1, partially mitigated by reduced maintenance activity during the third quarter.
Third quarter refining margins decreased $5.10 per barrel sequentially on the U.S. West Coast and $3.27 per barrel on the Gulf Coast.
Third Quarter Estimate
Chevron plans to release its quarterly results on October 28, 2011, before the start of trading. The Zacks Consensus Estimate for Chevron’s third quarter is $3.35 per share, higher than the earnings of $2.06 in the year-ago period but below the $3.89 earned in the previous quarter (both excluding adjustments for foreign-currency effects).
Chevron is currently a Zacks #3 Rank (Hold) stock, implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months. We are also maintaining our long-term Neutral recommendation on the stock.
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