U.S. energy behemoth Chevron Corporation (CVX) released its fourth quarter 2012 interim update, covering the first 2 months of the quarter. On the whole, the update is bullish, with earnings expected to be significantly higher than the previous quarter.
The company expects results for the Exploration and Production arm to improve sequentially, thanks to gain from asset transactions and higher output.
The San Ramon, California-based integrated supermajor added that fourth quarter refining and marketing results would also fare better than the third quarter of 2012, benefiting from the price differential between oil bought and sold, partially offset by narrower profit margins.
Additionally, Chevron expects net after-tax charges associated with corporate and other activities to come in between $300–$400 million.
Upstream: The company reported that oil and natural gas production averaged 2.662 million oil-equivalent barrels per day, a nominal 0.8% above the fourth-quarter 2011 level, due to minor volume increases both in the U.S. and overseas. Production would also be up by about 5.8% from that achieved during the third quarter of 2012.
In the first two months of the December quarter, Chevron’s total domestic oil equivalent production rose 39,000 barrels per day from the previous quarter levels, primarily due to normalization of the company’s Gulf of Mexico operations following the impacts of Hurricane Isaac in August and volume gains from its recently acquired Permian Basin assets. Net international oil equivalent production – at 1,986,000 oil-equivalent barrels per day – was 107,000 barrels per day above the third quarter of 2012. The upsurge was driven by the completion of planned repair work in Kazakhstan and the U.K.
U.S. crude price realizations during October-November 2012 averaged $97.61 per barrel, up marginally from $97.34 in the third quarter 2012, while international realizations were higher by $1.86 to $100.06 per barrel. Chevron’s domestic realized natural gas prices for this period averaged $3.14 per thousand cubic feet (Mcf), compared with $2.63 in the third quarter. Average international natural gas realizations were down 9 cents per Mcf to $5.94.
Downstream: Regarding downstream operations, the second-largest U.S. oil company by market value after Exxon Mobil Corporation (XOM) said that its U.S. refinery crude-input fell 77,000 barrels per day, affected largely by the ongoing shutdown of the Richmond, California refinery crude unit after a fire in August. Refinery crude-input volumes outside the U.S. were up a tad (by 9,000 barrels per day) during the same period.
Fourth quarter refining margins decreased $4.92 per barrel sequentially on the U.S. West Coast and by $4.95 per barrel on the Gulf Coast.
Fourth Quarter Estimate
Chevron plans to release its quarterly results on Friday, February 1, 2013, before the opening bell. The Zacks Consensus Estimate for Chevron’s fourth quarter is $2.99 per share, higher than the earnings of $2.61 per share in the year-ago period and $2.83 per share earned in the previous quarter (both excluding adjustments for foreign-currency effects).
Chevron is currently a Zacks Rank #3 (Hold), 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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