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Chevron Profits Shoot Up
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Chevron Corporation (CVX) -- the second largest U.S. oil company -- reported a jump in its second-quarter 2010 profits.
As has been the case with the other integrateds that have already reported, such as ExxonMobil (XOM), ConocoPhillips (COP) and Royal Dutch Shell PLC (RDS.A), results were boosted by higher fuel prices. Robust upstream production growth and buoyant downstream margins also contributed towards Chevron’s strong results.
Earnings per share (excluding foreign-currency effects) came in at $2.58, ahead of the Zacks Consensus Estimate of $2.43 and more than double that of the year-ago adjusted profit of $1.10.
Quarterly revenue of $53.0 billion was up 31.8% from the year-earlier level and was 2.6% above our projection.
Upstream
Chevron’s total production of crude oil and natural gas increased 2.9% from the year-earlier level to 2,746 thousand oil-equivalent barrels per day (MBOE/d), driven by new project start-ups and the continued ramp-up of existing fields in the U.S. and Brazil, expansion of capacity at Tengiz in Kazakhstan, together with the restoration of Gulf of Mexico volumes that were offline in the second quarter of 2009 due to hurricanes.
U.S. volumes rose marginally (by 1.1%), while Chevron’s international operations experienced an approximately 3.5% rise in output. Gains on the production front were supported by higher realized oil and gas prices, resulting in a 174.1% year-over-year rise in upstream earnings to $4.5 billion.
Production Outlook
Chevron’s production outlook remains one of the most robust in its peer group, with a number of major deepwater projects scheduled to come online during the next few years. Major start-ups during the last few months include the Tahiti and Perdido in the Gulf of Mexico, Frade offshore Brazil and Tombua-Landana in Angola.
Downstream
Chevron’s downstream segment's earnings soared to $975 million during the quarter, as against a profit of just $131 million in the previous-year period. The positive comparison can be attributed to improved refined products margins and higher earnings from chemical operations, primarily from the 50%-owned Chevron Phillips Chemical Company LLC.
Capital Expenditure & Balance Sheet
Chevron spent $5.0 billion in capital expenditures during the quarter, up marginally from the year-earlier level. Approximately 88% of the total outlays pertained to upstream projects. At the end of the quarter, the company had $9.4 billion in cash and total debt of $10.5 billion, with a debt-to-total capitalization ratio of about 9.5%.
New Share Repurchase Program
Chevron informed that it has terminated its three-year, $15 billion share repurchase program that was started in 2007. The San Ramon, California-based oil behemoth approved a new, ongoing share repurchase program with no set term or monetary limits. Chevron further pointed out that it does not plan to purchase any shares in the third quarter.
Our Recommendation
Despite the second quarter results and the strong outlook, our short-term as well as long-term recommendations on Chevron remain Hold (Zacks #3 Rank) and Neutral, respectively.
We like Chevron’s strong pipeline of development projects and impressive recent exploration successes that will drive its long-term success. The company’s high oil price sensitivity and rebounding downstream operations add to the positive sentiment.
However, production shortfalls associated with PSC (Production Sharing Contract) interest reductions, exploration results and unpredictable downstream performance continue to keep us on the sidelines.
As has been the case with the other integrateds that have already reported, such as ExxonMobil (XOM), ConocoPhillips (COP) and Royal Dutch Shell PLC (RDS.A), results were boosted by higher fuel prices. Robust upstream production growth and buoyant downstream margins also contributed towards Chevron’s strong results.
Earnings per share (excluding foreign-currency effects) came in at $2.58, ahead of the Zacks Consensus Estimate of $2.43 and more than double that of the year-ago adjusted profit of $1.10.
Quarterly revenue of $53.0 billion was up 31.8% from the year-earlier level and was 2.6% above our projection.
Upstream
Chevron’s total production of crude oil and natural gas increased 2.9% from the year-earlier level to 2,746 thousand oil-equivalent barrels per day (MBOE/d), driven by new project start-ups and the continued ramp-up of existing fields in the U.S. and Brazil, expansion of capacity at Tengiz in Kazakhstan, together with the restoration of Gulf of Mexico volumes that were offline in the second quarter of 2009 due to hurricanes.
U.S. volumes rose marginally (by 1.1%), while Chevron’s international operations experienced an approximately 3.5% rise in output. Gains on the production front were supported by higher realized oil and gas prices, resulting in a 174.1% year-over-year rise in upstream earnings to $4.5 billion.
Production Outlook
Chevron’s production outlook remains one of the most robust in its peer group, with a number of major deepwater projects scheduled to come online during the next few years. Major start-ups during the last few months include the Tahiti and Perdido in the Gulf of Mexico, Frade offshore Brazil and Tombua-Landana in Angola.
Downstream
Chevron’s downstream segment's earnings soared to $975 million during the quarter, as against a profit of just $131 million in the previous-year period. The positive comparison can be attributed to improved refined products margins and higher earnings from chemical operations, primarily from the 50%-owned Chevron Phillips Chemical Company LLC.
Capital Expenditure & Balance Sheet
Chevron spent $5.0 billion in capital expenditures during the quarter, up marginally from the year-earlier level. Approximately 88% of the total outlays pertained to upstream projects. At the end of the quarter, the company had $9.4 billion in cash and total debt of $10.5 billion, with a debt-to-total capitalization ratio of about 9.5%.
New Share Repurchase Program
Chevron informed that it has terminated its three-year, $15 billion share repurchase program that was started in 2007. The San Ramon, California-based oil behemoth approved a new, ongoing share repurchase program with no set term or monetary limits. Chevron further pointed out that it does not plan to purchase any shares in the third quarter.
Our Recommendation
Despite the second quarter results and the strong outlook, our short-term as well as long-term recommendations on Chevron remain Hold (Zacks #3 Rank) and Neutral, respectively.
We like Chevron’s strong pipeline of development projects and impressive recent exploration successes that will drive its long-term success. The company’s high oil price sensitivity and rebounding downstream operations add to the positive sentiment.
However, production shortfalls associated with PSC (Production Sharing Contract) interest reductions, exploration results and unpredictable downstream performance continue to keep us on the sidelines.
Read the full analyst report on CVX
Read the full analyst report on XOM
Read the full analyst report on COP
Read the full analyst report on BP
Read the full analyst report on RDS.A
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