U.S. energy giant Chevron Corp. (CVX) reported bright third-quarter 2011 results, riding on the back of higher oil prices and stronger refining margins.
Earnings per share (excluding adjustments for foreign-currency effects) came in at $3.69, handsomely above the Zacks Consensus Estimate of $3.42 and the year-ago adjusted profit of $2.06.
Quarterly revenue of $64,432 million was 29.6% higher from the prior-year quarter result of $49,718 million and was 14.7% above our projection.
Chevron hiked its quarterly dividend 3.8% sequentially to 81 cents per share or $3.24 per share annualized.
Segmental Performance
Upstream: Chevron’s total production of crude oil and natural gas decreased by 5.1% from the year-earlier level to 2,599 thousand oil-equivalent barrels per day (MBOE/d). Strong contributions from volume gains in Canada, United States and Brazil along with benefits of Atlas Energy acquisition were more than offset by normal field declines and maintenance-related downtime.
The U.S. output dipped 4.3% year over year and Chevron’s international operations (accounting for 75% of the total) experienced a 5.3% decline in volumes. Losses on the production front were more than made up by higher realized crude oil and natural gas prices, resulting in a 74% year over year rise in upstream earnings to $6,201.0 million.
During the third quarter, Chevron continued to progress its major capital projects, restarted important exploration and development drilling operations in the deepwater Gulf of Mexico, and acquired new upstream resource opportunities.
Downstream: Chevron’s downstream segment's earnings increased to $1,986.0 million during the quarter, from $565.0 million in the previous-year period. The improvement can be attributed to better refined products margins and gains from the sale of Pembroke Refinery and related marketing assets in the United Kingdom and Ireland.
Capital Expenditure, Balance Sheet & Share Repurchases
During the quarter, Chevron incurred a spending of $7,413.0 million on capital programs. Approximately 89.6% of the total outlays pertained to upstream projects.
As of September 30, 2011, the company had $14,229.0 million in cash and total debt of $9,743 million, with a debt-to-total capitalization ratio of about 7.5%. As part of the stock repurchase program announced in 2010, Chevron repurchased $1,025.0 million worth of shares in the September quarter.
Outlook
Chevron’s production outlook remains promising, with a number of major deepwater projects scheduled to come online during the next few years. The company’s prominent Wheatstone liquefied natural gas ("LNG") venture in Australia has received the necessary government approvals.
We believe that Chevron – with its Wheatstone project coupled with the other major Gorgon Project – will hold the leadership position among natural gas and LNG suppliers in the Asia-Pacific belt. These massive resource ventures aim at providing considerable economic benefits such as employment, government revenue and local business opportunities.
We also appreciate Chevron’s initiatives to trim its less lucrative refining/marketing operations and concentrate on the high profit generating exploration and production business. In this regard, the company is already in the process of selling various downstream properties in more than 20 counties, including Spain, Caribbean and southern Africa.
Our Recommendation
Chevron is one of the largest integrated energy companies in the world and has an impressive business model. Its current oil and gas development project pipeline is among the best in the industry, boasting of large, multi-year projects. Additionally, Chevron possesses one of the healthiest balance sheets among peers, which helps it to capitalize on investment opportunities with the option to make strategic acquisitions.
However, due to its integrated nature, Chevron is particularly susceptible to the downside risk from continued weakness in the global economy. We are also concerned by the company’s high level of capital spending and competition from peers BP plc (BP) and Exxon Mobil Corporation (XOM).
As such, we see the stock performing in line with the broader market and maintain our long-term Neutral recommendation.
CHEVRON CORP (CVX): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment