Chevron profits hit by lower oil prices

Slippin’ and slidin’

Chevron reported a drop in quarterly profit on Friday as oil prices weakened from a year earlier, but fatter refining margins cushioned the blow. Chevron’s second-quarter net income slid 6.7% to $7.21 billion, or $3.66 per share. The company easily beat analysts’ consensus forecast, which called for an EPS of $3.24, but had a harder time with revenues. Sales slid 9.2% to $62.6 billion, well below the $68.5 billion estimate.

Revenue weakness was more directly tied to Chevron’s upstream business this quarter. “Our second-quarter earnings and cash flow were among our strongest ever, even with softer oil markets,” said Chairman and CEO John Watson. Net oil equivalent production fell 2.6% to 2.624 million barrels per day, the company noted, as production increases from project ramp-ups was more than offset by shut-in production, downtime for maintenance, and dispositions.

In the U.S., the company saw upstream earnings hit $1.32 billion, $632 million less than in the year-ago quarter. Chevron saw both lower production and lower price realizations in Q2, as oil prices took a big plunge after a solid start to the year. Average price for liquids fell to $97 per barrel, from $104 a year ago, while average price realizations for natural gas stood at $2.17 per thousand cubic feet, down from $4.35.

Internationally, earnings were a bit stronger, sliding $619 million to $4.3 billion. The company noted lower volume and higher exploration expense, and highlighted the shut-in in Brazil’s pre-salt Frade field. Chevron’s earnings came a day after Exxon Mobil (XOM), where profits fell short of expectations as oil and gas output sagged and its chemical unit faced weak margins.

Looking forward, analysts seem increasingly negative, as the average estimate for the third quarter has moved down from $3.34 a share to $2.95 over the last ninety days. Over the past sixty days, the average estimate for the fiscal year has reached $12.47 per share, a decline from $13.39.

Chevron (CVX : NYSE : US$109.26), Net Change: 0.99, % Change: 0.91%, Volume: 8,338,204

About the Author

Canaccord Genuity Inc. is a global investment banking and institutional brokerage firm. Their website is www.canaccordgenuity.com.

For disclosures of any equities mentioned here please see: http://www.canaccordgenuity.com/en/ODD/pages/disclosures.aspx.

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