Higher Oil Prices Lift Chevron Earnings but Production Drops - Analyst Blog


U.S. energy giant Chevron Corp. ( CVX ) reported strong second quarter results on higher oil prices , partially offset by falling production.

Earnings per share came in at $2.98, well above the Zacks Consensus Estimate of $2.68 and also improved from the year-ago profit of $2.77 per share. The company's quarterly revenue increased 1% year over year to $57,938 million and easily outperformed the Zacks Consensus Estimate of $54,588 million.

Chevron Corporation - Earnings Surprise | FindTheBest

Chevron is the third of the integrated supermajors to come out with better-than-expected second quarter results following Exxon Mobil Corp. ( XOM ) and Royal Dutch Shell plc ( RDS.A ).

Segment Performance

Upstream: Chevron's total production of crude oil and natural gas decreased by 1.4% from the year-earlier level to 2,545 thousand oil-equivalent barrels per day (MBOE/d). Contribution from project ramp-ups in the U.S., Nigeria, Brazil and Argentina were more than negated by normal field declines, production entitlement effects in certain regions and maintenance-induced downtime issues in Kazakhstan.

Though the U.S. output augmented 1.2% year over year, Chevron's international operations (accounting for 74% of the total) registered a 2.3% fall in volumes.

Losses on the production front were more than offset by higher oil prices and gains on asset sales, the net effect resulting in a 6.4% year-over-year rise in upstream earnings to $5,264 million.

However, despite the lower volumes for the quarter under consideration, 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 liquefied natural gas (LNG) project in Angola, deepwater Usan project and the Escravos Gas-to-Liquids facility in Nigeria, Caesar/Tonga project in the deepwater Gulf of Mexico, and the Chirag development in the Caspian Sea.

Amongst the major upcoming projects, Chevron's Gorgon and Wheatstone natural gas initiatives in Australia are progressing well, while the Jack/St. Malo and Big Foot initiatives in the deepwater Gulf of Mexico remain on track for late 2014 and 2015 start-up, respectively.

Downstream: Chevron's downstream segment achieved earnings of $721 million, lower than the profit of $766 million last year. The results were dragged down by decreased earnings from the international business. Ex-U.S. profits were hampered by lower refinery margins.

However, improved profitability from U.S. on the back of higher refined product sales margins and better performance from the 50%-owned Chevron Phillips Chemical Company LLC, resurrected the overall results to some extent.

Capital Expenditure, Balance Sheet & Share Repurchases

The second-largest U.S. oil company by market value after Exxon Mobil spent $10,185 million in capital expenditures during the quarter. Approximately 92% of the total outlays pertained to upstream projects.

As of Jun 30, 2014, the San Ramon, CA-based company had $13,959 million in cash and total debt of $23,548 million, with a debt-to-total capitalization ratio of about 13.3%. As part of the stock repurchase program, Chevron repurchased $1,250 million worth of shares in the second quarter.

Zacks Rank

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. A better-ranked stock in the integrated energy space would be Argentina's YPF S.A. ( YPF ), which hold a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: LNG , CVX , XOM , YPF , RDS.A

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