Chevron’s Positive Upstream Update

Yesterday, after the market close, Chevron Corp. (CVX - Analyst Report) released its third-quarter interim update, covering the first two months of the quarter. On the whole, the update is positive, with earnings expected to be higher than in the previous quarter.

The company expects the upstream segment to benefit from an increase in crude oil prices as well as from gains of about $400 million associated with asset sales and tax items. Downstream results are likely to be relatively flat, as it continues to be hurt by weak refining margins. Chevron further said that unfavorable foreign currency movements will affect the segment profitability.

Upstream

The best part of the update pertained to upstream volumes, highlighting Chevron’s attractive growth profile among the super-majors. The company reported that oil and natural gas production average 2.687 million oil-equivalent barrels per day – better than estimates and nearly 10% above the third-quarter 2008 level. Compared to the second quarter of 2009, production would be up by about a percentage.

In the first two months of the third quarter, Chevron’s total domestic oil equivalent production increased 41,000 barrels per day from second-quarter levels, driven by the startup of its Tahiti platform in the Gulf of Mexico. The net international oil equivalent production, however, fell by 24,000 barrels per day from the quarter before, mainly due to civil unrest in Nigeria.

U.S. crude price realizations during July-August 2009 averaged $62.47 per barrel, up from $53.21 in the second quarter, while international realizations were up $8.52 to $61.69 per barrel. Domestic realized natural gas prices for this period averaged at $3.47 per thousand cubic feet (Mcf), compared with $3.27 in the second quarter. Average international natural gas realizations were up $0.23 per Mcf to $3.96.

Downstream

Regarding downstream operations, the second-largest U.S. oil company after ExxonMobil Corp. (XOM - Analyst Report) said that its U.S. refinery crude-input fell 55,000 barrels per day (nearly 6%) from the previous quarter, reflecting planned maintenance at the company’s Richmond refinery in California. Ex-U.S., refinery crude-input volumes were up 25,000 barrels per day following planned second quarter maintenance at the Yeosu refinery in South Korea.

Chevron, however, cautioned that its international downstream results are likely to be lower due to absence of gains from sales of its marketing businesses in Kenya and Cameroon, coupled with unfavorable tax effects.

Third-quarter refining margins rose by 95 cents per barrel sequentially on the U.S. West Coast, but fell 92 cents per barrel on the Gulf Coast.  
 
Chevron plans to release its quarterly results on October 30, 2009.

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