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Chevron: Mixed 2Q Pre-Earnings Update

Zacks Equity Research

U.S. energy behemoth Chevron Corporation (CVX) released its second-quarter 2013 interim update, covering the first two months of the quarter. Chevron expects foreign exchange translation effect of $250–$300 million during the quarter.

In the upstream activities, the update is bearish with oil production expected to be significantly below the previous quarter. The price realization for crude oil is expected to decrease as compared to first quarter 2013, both in U.S and abroad. However Chevron’s domestic natural gas price realization is expected to go up.

In the downstream sector the outlook is positive for the company with refining margin to increase in the U.S. West Coast and Gulf Coast.

Segmental Analysis

Upstream: The company’s oil and natural gas production averaged 2.569 million oil-equivalent barrels per day, down 2.1% from the second-quarter 2012 level. This was mainly due to decreased production volume internationally. Production is also likely to fall 2.9% sequentially.  

In the first two months of the June quarter, Chevron’s total domestic production was 659,000 barrels of oil equivalent per day (BOE/D) as compared to 664,000 BOE/D in the previous quarter. Net international oil equivalent production – at 1,910,000 BOE/D – was 71,000 barrels per day less than the first quarter of 2013. The decrease was due to soft demand in Thailand coupled with maintenance work in Nigeria and planned shutdown activities in Australia and Kazakhstan.

The U.S. crude price realizations during Apr–May 2013 averaged $93.08 per barrel, down from $94.49 in first-quarter 2013, while international realizations decreased by $9.34 to $93.01 per barrel. Chevron’s domestic realized natural gas prices for this period averaged $3.83 per thousand cubic feet (Mcf), compared with $3.11 in the first quarter of 2013. Average international natural gas realizations were down 11 cents per Mcf to $5.96.

Downstream: Regarding downstream operations, the second-largest U.S. oil company by market value after Exxon Mobil Corporation (XOM) said that its domestic refinery crude-input rose 183,000 barrels per day as compared to the previous quarter. The results were aided by the restart of a refinery crude unit in Richmond, CA, along with the finishing of maintenance work of the Pascagoula, MS-based refinery.

Refinery crude-input volumes outside the U.S. were also up (by 40,000 barrels per day) during the same period due to the completion of maintenance of refineries based in Burnaby, Canada and Cape Town, South Africa.

The second-quarter refining margins increased 86 cents per barrel sequentially on the U.S. West Coast and by 81 cents per barrel on the Gulf Coast.

Second Quarter Estimate

Chevron plans to release its quarterly results on Aug 2, 2013, before the opening bell. The Zacks Consensus Estimate for Chevron’s first quarter is $3.00 per share.

Zacks Rating

Chevron currently retains 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.

However, there are certain firms in the energy sector that are expected to significantly outperform the equity markets in the next one to three months. These include InterOil Corporation (IOC) and Ferrellgas Partners LP (FGP). Both these stocks carry a Zacks Rank #1 (Strong Buy).

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