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Chevron Ends 2012 on Strong Note

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U.S. energy giant Chevron Corp. (CVX) reported strong fourth quarter earnings on the back of higher refining profitability and a rise in upstream volumes.

Earnings per share (excluding adjustments for foreign-currency effects and a gain from an asset exchange) came in at $3.06, ahead of the Zacks Consensus Estimate of $3.03 and the previous year's $2.62.

The integrated supermajor’s quarterly revenue increased 1.0% year over year to $60,552.0 million from $59,985.0 million, but was 4.0% below the Zacks Consensus Estimate amid lower crude prices.

Chevron is the third of the integrated supermajors to come out with fourth quarter results. Fellow biggie Exxon Mobil Corp. (XOM) also reported today, while Europe’s largest oil company Royal Dutch Shell plc (RDS.A) released results yesterday.

Segment Performance

Upstream: Chevron’s total production of crude oil and natural gas increased 1.0% from the year-earlier level to 2,668 thousand oil-equivalent barrels per day (MBOE/d). Volume gains in Thailand, the U.S. and Nigeria as well as contribution from the newly bought Delaware Basin assets were somewhat negated by normal field declines and the continued shut-in of the Frade deepwater field in Brazil.

The U.S. output improved 2.0% year over year, while Chevron’s international operations (accounting for 75% of the total) experienced a 0.7% increase in volumes. Gains on the production front were partially offset by depressed crude and North American gas prices, the net effect resulting in a 19.5% year-over-year rise in upstream earnings to $6,858.0 million.

Chevron’s production outlook remains one of the most robust in its peer group, with a number of major initiatives scheduled to come online during the next few years. Major start-ups during the last few months include the deepwater Usan project in Nigeria and the Caesar/Tonga project in the deepwater Gulf of Mexico.

Amongst the major upcoming projects, Chevron’s Gorgon and Wheatstone natural gas initiatives in Australia are progressing well.

Downstream: Chevron’s downstream segment achieved earnings of $925 million, a significant improvement from the loss of $61.0 million last year. The turnaround can primarily be attributed to better profit margins, increased earnings from the 50%-owned Chevron Phillips Chemical Company LLC and higher gains on asset sales.

Capital Expenditure, Balance Sheet & Share Repurchases

The second-largest U.S. oil company by market value after Exxon Mobil spent $11,556.0 million in capital expenditures during the quarter. Approximately 86% of the total outlays pertained to upstream projects.

As of Dec 31, 2012, the San Ramon, California-based company had $20,939.0 million in cash and total debt of $12,192.0 million, with a debt-to-total capitalization ratio of about 8.2%. As part of the stock repurchase program announced in 2010, Chevron repurchased $1,250.0 million worth of shares in the fourth quarter.

Chevron currently carries 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.


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