U.S. energy behemoth Chevron Corp. (CVX) released its fourth quarter 2011 interim update, covering the first 2 months of the quarter. On the whole, the update is bearish, with earnings expected to be significantly below the previous quarter.
The company expects results for the Exploration and Production arm to be about the same as the third quarter performance, as higher overseas production and crude prices offset perennially low prices for natural gas.
But the San Ramon, California-based integrated major cautioned that fourth quarter refining and marketing results would roughly break even because of weaker profit margins, lower refinery input volumes and the absence of proceeds from the sale of a major refinery that buoyed last quarter’s numbers.
Additionally, Chevron expects net after-tax charges associated with corporate and other activities to be ‘notably higher’ than its usual level of $250-$350 million.
Segmental Analysis
Upstream: The company reported that oil and natural gas production averaged 2.639 million oil-equivalent barrels per day, 5.3% below the fourth quarter 2010 level, due to reduced volumes both in the U.S. and overseas. However, production would be up by 1.5% from that achieved during the third quarter of 2011, driven by rising international output.
In the first two months of the December quarter, Chevron’s total domestic oil equivalent production remained flat from the previous quarter levels. But net international oil equivalent production was up by 42,000 barrels per day from the third quarter of 2011, reflecting the completion of planned repair work in Kazakhstan, the resolution of a third party pipeline incident in Thailand, and the ramp up of the Platong II gas project (also in Thailand).
These factors were partially offset by an extended turnaround in Trinidad and lower natural gas demand in Thailand on account of flooding.
U.S. crude price realizations during October-November 2011 averaged $106.41 per barrel, up from $101.27 in the third quarter 2011, while international realizations were lower by $1.04 to $101.78 per barrel. Chevron’s domestic realized natural gas prices for this period averaged $3.71 per thousand cubic feet (Mcf), compared with $4.14 in the third quarter. Average international natural gas realizations were up a penny per Mcf to $5.51.
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 fell 180,000 barrels per day largely pulled down by a major maintenance activity at the Richmond, California refinery. Refinery crude-input volumes outside the U.S. were down by 90,000 barrels per day during the same period, adversely affected by the sale of the Pembroke U.K. refinery on August 1.
Fourth quarter refining margins decreased 14 cents per barrel sequentially on the U.S. West Coast and by a massive $12.61 per barrel on the Gulf Coast.
Fourth Quarter Estimate
Chevron plans to release its quarterly results on Friday, January 27, 2012, before the start of trading. The Zacks Consensus Estimate for Chevron’s fourth quarter is $3.26 per share, higher than the earnings of $2.49 in the year-ago period but below the $3.69 earned in the previous quarter (both excluding adjustments for foreign-currency effects).
Chevron is currently a Zacks #2 Rank (Buy) stock, implying that it is expected to perform better than the broader U.S. equity market over the next one to three months.
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