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U.S. energy major Chevron Corporation (CVX - Analyst Report) issued a second-quarter 2014 interim update covering the first two months of the quarter.  The company expects earnings to increase sequentially.

This quarterly growth is attributable to gains from asset sales (mainly upstream-related assets) and an absence of impairment charges. However, foreign exchange losses are expected to widen from the first-quarter level.

While upstream production witnessed a nominal sequential decline, both domestic and international liquid realizations improved substantially in the said period. Meanwhile, downstream earnings are anticipated to remain almost flat sequentially.

Segmental Analysis

Upstream: The company’s oil and natural gas production averaged 2.566 million oil-equivalent barrels per day, compared with 2.582 million oil-equivalent barrels per day in second-quarter 2013. The decrease was due to the fall in international production. Production also witnessed a marginal sequential decrease of 0.9%.

In the first two months of the quarter, Chevron’s total domestic production was 665,000 barrels of oil equivalent per day (BOE/D) as compared with 640,000 BOE/D in the previous quarter. The improvement was primarily due to higher production from the Permian Basin and lower maintenance activity in the Gulf of Mexico.

Net international oil equivalent production – at 1,901,000 BOE/D – was 47,000 barrels per day less than the first quarter of 2014. The decline in production level was due to shutdown of the Angola LNG facility and planned turnaround activity in Kazakhstan.

Average U.S. liquid realization for the first two months of the quarter was $92.01 per barrel, up from $91.49 in first-quarter 2014. International liquid realization of $100.35 per barrel increased 1.8% sequentially. Average domestic natural gas realization for the same period was $4.11 per thousand cubic feet (mcf), compared with $4.77 per mcf in first-quarter 2014. Meanwhile, international natural gas realization was $6.00 per mcf against $6.02 per mcf in the prior quarter.

Downstream: Chevron mentioned that the U.S. downstream earnings for the second quarter should be similar to that of the prior quarter as reduced refinery crude volumes and increased operating expenses offset the higher refining margins. Domestic refinery crude input fell by 79,000 barrels per day from the previous quarter as a result of substantial planned turnaround activity at the El Segundo, CA-based refinery.  

On the international front, refinery input volumes increased 60,000 barrels per day from the previous quarter due to reduced maintenance activities at several refineries.

Second-Quarter Estimate

Chevron is expected to report its second-quarter earnings on Aug 1 and the Zacks Consensus Estimate for the quarter is currently pegged at $2.78 per share.

Zacks Rank

Chevron, the second largest U.S. oil company after Exxon Mobil Corporation (XOM - Analyst Report) in terms of market value, currently has a Zacks Rank #3 (Hold). Meanwhile, one can consider better-ranked players from the integrated oil space like Royal Dutch Shell plc (RDS.A - Analyst Report) and Statoil ASA (STO - Analyst Report), both of which hold a Zacks Rank #2 (Buy).

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