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Rising production expected to boost Chevron

Jonathan Fahey, AP Energy Writer

NEW YORK (AP) -- Chevron Corp. is expected to post higher net income for the fourth quarter on increased production of oil and gas, when it reports results for the quarter and all of 2012 before the stock market opens Friday.

Chevron has been the best performing large oil and gas company in recent years because the bulk of its production is oil sold abroad, where prices have remained high, while competitors have been earning less selling oil and natural gas priced in the U.S.

Global oil prices rose sharply in 2010 as the world emerged from the Great Recession, and have stayed relatively high since. U.S. oil prices have lagged global oil prices. Supplies in the middle of the U.S. have soared because of new drilling, and there is not enough pipeline capacity to move it to refineries on the coasts.

U.S. natural gas prices have stayed low because supplies are plentiful thanks to newfound reserves and warmer-than-normal weather across much of the nation.

WHAT TO WATCH FOR: Investors' chief concern with Chevron and other oil companies is production, now and in the future. They want to see Chevron produce more oil and gas, and find enough new oil and gas reserves to continue to grow production in the future.

In a presentation to investors earlier this month, Chevron said production is on track to rise 2 percent over last year's quarter and 6 percent over the third quarter. The benefit of higher production will be offset by oil and gas prices that have slipped somewhat from last year.

Investors will also be looking for updates on a massive liquefied natural gas export project, called Gorgon, under construction in Australia that has become more expensive than Chevron originally projected. In December Chevron said the project will cost $54 billion, up from an original estimate of $43 billion, because the Australian dollar has strengthened and labor costs are rising.

WHY IT MATTERS: Chevron is the nation's second largest oil and gas company and among the 10 largest investor-owned companies of any kind in the world by market capitalization. As a member of the Dow Jones Industrial Average and a major component of the S&P 500 Index, Chevron's stock is widely held by private investors through mutual funds and exchange-traded funds. It is also popular with pension funds and other large investment pools.

WHAT'S EXPECTED: Analysts surveyed by FactSet expect Chevron's fourth-quarter earnings to rise 19 percent to $3.06 per share. For the full year, analysts forecast $12.38 per share on revenue of $245.89 billion.

LAST YEAR'S QUARTER: Chevron's net income dipped 4 percent in last year's fourth quarter on lower production of oil and gas, as existing fields suffered natural depletion and maintenance halted production. For all of 2011 net income jumped 41 percent to $26.9 billion on revenue of $253.7 billion. The company's results improved, even though production fell 3 percent for the year, because oil prices soared.