U.S.energy behemoth Chevron Corp. (CVX) released its third-quarter 2010 interim update, covering the first 2 months of the quarter. On the whole, the update is on the bearish side, with earnings expected to be lower than the previous quarter.
The company expects results to be eroded by a drop in crude prices, rising costs associated with the U.S. Gulf of Mexico deepwater-drilling ban and decline in U.S. production.
The San Ramon, California-based integrated major further informed that third quarter results will be weighed down by a weaker U.S. dollar. Additionally, Chevron expects net after-tax charges associated with corporate and other activities to come in between $250 million and $350 million.
Upstream
The company reported that oil and natural gas production averaged 2.733 million oil-equivalent barrels per day, more than 1% above the third quarter 2009 level. The positive update highlights strength in Chevron’s international operations. However, production would be down marginally (by approximately 0.5%) from the second quarter 2010 level, reflecting reduced domestic volumes.
In the first two months of the third quarter, Chevron’s total domestic oil equivalent production decreased 16,000 barrels per day from second-quarter levels, primarily due to small declines across a number of assets. But the net international oil equivalent production was up by 3,000 barrels per day from the preceding quarter on the back of improved output in Kazakhstan and Canada, somewhat offset by planned maintenance in Europe.
U.S.crude price realizations during July-August 2010 averaged $72.23 per barrel, down from $74.16 in the second quarter 2010, while international realizations were down $2.52 to $68.92 per barrel. Chevron’s domestic realized natural gas prices for this period averaged $4.33 per thousand cubic feet (Mcf), compared with $4.01 in the second quarter. Average international natural gas realizations were up $0.44 per Mcf to $4.84.
Downstream
Regarding downstream operations (chemical and refining), the second-largest U.S. oil company by market value after ExxonMobil Corp. (XOM) said that its U.S. refinery crude-input fell 14,000 barrels per day (1.5%) from the previous quarter due to maintenance activities across multiple refineries.
However, ex-U.S., Chevron’s refinery crude-input volumes were up 82,000 barrels per day, following planned maintenance completed in the second quarter. Third quarter refining margins increased 65 cents per barrel sequentially on the U.S. West Coast and but decreased $4.41 per barrel on the Gulf Coast.
Chevron plans to release its quarterly results on October 29, 2010, before the start of trading. The Zacks Consensus Estimate for Chevron’s third quarter is $2.25 per share, higher than the earnings of $1.80 in the year-ago period but below the second quarter 2010 profit of $2.58.
Chevron shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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