Chevron: Weak Q3 Pre-Earnings Update - Analyst Blog

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U.S. energy behemoth Chevron Corporation ( CVX ) released its third-quarter 2013 interim update covering the first two months of the September quarter. Chevron expects foreign exchange translation effect of negative $250-$350 million during the quarter. Moreover, Chevron believes its third quarter 2013 earnings to go down as compared to the previous quarter.

In the upstream activities, the update is slightly bullish with oil production expected to be above the year-ago period and the previous quarter. The price realization for crude oil is expected to increase from second-quarter 2013, both in the U.S. and abroad.

However, in the downstream sector, the outlook is negative as the company expects the sector's operating result to be substantially lower than the last quarter. Additionally, the refining margin is expected to decrease in the U.S. West Coast.

Segmental Analysis

Upstream: The company's oil and natural gas production averaged 2.589 million oil-equivalent barrels per day, up 2.9% from the third-quarter 2012 level. The hike was owing to increased domestic and international production. While production increased marginally by 0.3% sequentially.

In the first two months of the September quarter, Chevron's total domestic production was 651,000 barrels of oil equivalent per day (BOE/D) as compared to 659,000 BOE/D in the previous quarter. The decrease was owing to shutdown activities in the Gulf of Mexico.

Net international oil equivalent production - at 1,938,000 BOE/D - was 15,000 barrels per day more than the second quarter of 2013. The increase was due to comparatively lower maintenance work and shutdown activities worldwide.

The U.S. crude price realizations during Jul-Aug 2013 averaged $96.73 per barrel, up from $92.25 in second-quarter 2013, while international realizations increased by $10.91 to $104.62 per barrel. Chevron's domestic realized natural gas prices for this period averaged $3.30 per thousand cubic feet (Mcf), compared with $3.78 in the second quarter of 2013. Moreover, average international natural gas realizations were down 12 cents per Mcf to $5.81.

Downstream: Regarding downstream operations, the second-largest U.S. oil company by market value after Exxon Mobil Corp. ( XOM ), said that its domestic refinery crude-input rose 4,000 barrels per day as compared to the previous quarter. The results were aided by the restart of a refinery crude unit in Richmond and California. This was however partially offset by El Segundo, Calif. based refineries' planned shutdown activities.

Refinery crude input volumes outside the U.S. were also up (by 21,000 barrels per day) during the same period due to the completion of maintenance work by the first half of second-quarter 2013.

The third-quarter refining margins decreased by $3.97 per barrel sequentially in the U.S. West Coast, however, it increased by $2.07 per barrel in the Gulf Coast.

Third Quarter Estimate

Chevron plans to release its quarterly results on Nov 1, 2013, before the opening bell. The Zacks Consensus Estimate for Chevron's third quarter is $3.10 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.

Meanwhile, one can look at better performing energy firms like Dril-Quip Inc. ( DRQ ) and Stone Energy Corp. ( SGY ) that offer value. Both the stocks sport a Zacks Rank #1 (Strong Buy).

CHEVRON CORP (CVX): Free Stock Analysis Report

DRIL-QUIP INC (DRQ): Free Stock Analysis Report

STONE ENERGY CP (SGY): Free Stock Analysis Report

EXXON MOBIL CRP (XOM): Free Stock Analysis Report

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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 Nasdaq, Inc.

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

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