Thursday, January 21, 2010

Chevron Corp. (NYSE: CVX): Q4 Earnings Preview 2009

Chevron Corp. (NYSE: CVX), the second biggest U.S. oil company by market capitalization, is scheduled to release its fourth quarter 2009 earnings before the opening bell on Friday, January 29, 2010. Analysts, on average, currently expect the company to report earnings of $1.71 per share on sales of $40.45 billion. In the year ago period, the company reported earnings of $2.13 per share on sales of $45.20 billion.

Chevron Corporation operates as an integrated energy company worldwide. The company's Petroleum operations include the exploration, development, production, and marketing of crude oil and natural gas; refining, marketing, and transportation operations comprise refining crude oil into finished petroleum products; marketing crude oil and products derived from petroleum; and transporting crude oil, natural gas, and petroleum products by pipeline, marine vessel, motor equipment, and rail car.

In preceding third quarter, the San Ramon, California-based company reported a 51% drop in profit, reflecting sharp declines in earnings from both upstream and downstream businesses. Net income dropped to $3.83 billion, or $1.92 per share, down from $7.89 billion, or $3.85 per share, in the same quarter a year ago. Total revenues and other income of $46.63 billion, down 41% from $78.87 billion in the prior-year quarter. However, earnings still exceeded analysts'estimates. Analysts, on average, expected the company to report earnings of $1.47 per share on revenue of $47.84 billion. Lower prices for crude oil and natural gas impacted the upstream business, while the downstream business was hurt by weak margins on the sale of gasoline and other refined products. Chevron's average sales price per barrel of crude oil and natural gas liquids was approximately $60 in the quarter, down from $107 in the same period last year. Average sales price of natural gas was $3.28 per thousand cubic feet, down from $8.64 in last year's third quarter.

Early in January, the oil producer warned that it anticipates fourth quarter earnings to be lower than that recorded in the third quarter, impacted by weaker downstream results due to weaker refining margins. However, upstream exploration and production business are likely to be in line with its third-quarter 2009 results, due to the absence of gains recognized in the third quarter with the approval of Gorgon project in Australia, despite higher prices for crude oil during the current fourth quarter.

In its downstream segment, the company noted that its refining indicator margins worldwide for the full fourth quarter dropped to the lowest levels of the year. In the key U.S. Gulf Coast market, refining margins plunged 39% to $11.56 a barrel from $18.96 in the year-earlier quarter. Refining margins at its European perations plummeted 45% to $3.59 a barrel from $6.58 a year ago.Daily U.S. refinery crude-input volumes were down 50,000 barrels per day or about 6% during the first two months of the fourth quarter, as a result of planned maintenance at the El Segundo refinery in California. The company also noted that downstream earnings are projected to include unfavorable timing effects due in part to the increase in crude oil and refined product prices between the beginning and end of the quarter.

For the Chemicals segment, full fourth quarter earnings are expected to fall due to lower margins and sales volumes across several product lines.

The company pumped more oil and gas in October and November than a year ago. For the first two months of the fourth quarter, Chevron's total oil equivalent production rose to 2,014 or Million Barrels Oil Equivalent per Day or MBOED, from 1,957 MBOED for the third quarter. Net U.S. oil-equivalent production during the first two months of the fourth quarter increased to 759 MBOED from 745 MBOED in the prior quarter, due to the ramp-up of production in the Gulf of Mexico.

U.S. crude oil realizations for the first two months of the fourth quarter increased by $6.64 per barrel compared with the third quarter to $69.92 and international liquids realizations increased by $6 to $68.14 per barrel. Compared to the third quarter, U.S. natural gas realizations increased by $0.66 to $3.94 per thousand cubic feet or MCF during the fourth quarter, while average international natural gas realizations improved slightly to $3.99 per MCF during the quarter.

Benchmark U.S. crude oil prices rose 12 percent during the fourth quarter and averaged $76 per barrel, up from $68 in the third and $59 in the same quarter a year before.

Last month, the oil company unveiled a $21.6 billion capital and exploratory budget for 2010, which is 5% less than the projected expenditures for 2009. Chevron said that it has allocated $17.3 billion for oil and gas exploration and production projects in 2010, and $3.4 billion, or about 16% of the total budget, for its downstream businesses that manufacture, transport and sell gasoline, diesel fuel and other refined products. The rest will be spent on chemicals, technology, power generation and other corporate activities. Major upstream spending expected in 2010 includes development of Gorgon and Wheatstone natural gas resources, including LNG facilities, in Western Australia, deepwater exploration and development in the U.S. Gulf of Mexico and development of other projects in Brazil, Nigeria and Thailand.

The company's stock currently trades at a forward P/E (fye 31-Dec-10) of 9.84. In terms of stock performance, Chevron shares have gained nearly 17% over the past year.

Full Disclosure: None.

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