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U.S. energy giant Chevron Corp. (CVX - Analyst Report) reported weak second quarter earnings on lower crude prices and soft downstream margins.

Earnings per share (excluding adjustments for foreign-currency effects) came in at $2.62, below the Zacks Consensus Estimate of $2.96 and the previous year's $3.57.

The integrated supermajor’s quarterly revenue decreased 8.4% year over year to $57,369.0 million. However, it managed to beat the Zacks Consensus Estimate by 1.5% amid elevated North American gas prices.

Exxon Mobil Corp. (XOM - Analyst Report) – the world's largest publicly traded oil company – reported lower-than-expected earnings yesterday. In fact, the quarter under review has been disappointing for ‘Big Oil’ with European biggies Royal Dutch Shell plc (RDS.A - Analyst Report) and BP plc (BP - Analyst Report) also coming out with below-par results.

Segment Performance

Upstream: Chevron’s total production of crude oil and natural gas decreased by 1.6% from the year-earlier level to 2,582 thousand oil-equivalent barrels per day (MBOE/d). Volume gains in U.S. and contribution from the newly commenced Angola liquefied natural gas (LNG) project were more than negated by normal field declines.

The U.S. output remained flat year over year, while Chevron’s international operations (accounting for 74% of the total) delivered experienced a 2.1% decline in volumes. Moreover, losses on the production front were accompanied by depressed crude oil prices, with the net effect resulting in an 11.9% year-over-year decline in upstream earnings to $4,949.0 million.

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 LNG project in Angola, deepwater Usan project in Nigeria and the Caesar/Tonga project in the deepwater Gulf of Mexico.

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 2014 start-up.

Downstream: Chevron’s downstream segment achieved earnings of $766 million, 59.3% lower than the profit of $1,881.0 million last year. The results were negatively influenced by lower refined product sales margins and higher repair/maintenance expenses in its domestic business. Additionally, last year’s results were buoyed by the sale of its South Korean assets.  

Capital Expenditure, Balance Sheet & Share Repurchases

The second-largest U.S. oil company by market value after Exxon Mobil spent $9,452.0 million in capital expenditures during the quarter. Approximately 91% of the total outlays pertained to upstream projects.

As of Jun 30, 2013, the San Ramon, California-based company had $20,630.0 million in cash and total debt of $19,964.0 million, with a debt-to-total capitalization ratio of about 12.3%. As part of the stock repurchase program announced in 2010, Chevron repurchased $1,250.0 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.

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