Chevron Sees Upbeat 2Q

U.S. energy supermajor Chevron Corp. (CVX - Analyst Report) released its second quarter 2012 interim update, covering the first 2 months of the quarter. On the whole, the update is bullish, with earnings expected to be higher than the previous quarter.

The company, however, expects results for the Exploration and Production arm to move down sequentially due to a drop in crude oil prices, partially compensated by favorable foreign exchange items.

The San Ramon, California-based integrated firm added that second quarter refining and marketing results would also fare better than the first quarter of 2012, benefiting from wider profit margins and gains from the sale of assets.

Additionally, Chevron expects net after-tax charges associated with corporate and other activities between $300 million and $400 million.

Segmental Analysis

Upstream: Chevron reported that oil and natural gas production averaged 2.615 million oil-equivalent barrels per day, 2.9% below the second quarter 2011 level, due to reduced volumes both in the U.S. and overseas. Production would also be down by about a percent from the first quarter.

In the first two months of the June quarter, Chevron’s total domestic oil equivalent production improved 14,000 barrels per day from the previous-quarter levels, primarily attributable to strong contribution from the Gulf of Mexico operations. On the other hand, net international oil equivalent production decreased 30,000 barrels per day from in the first quarter.

U.S. crude price realizations during April-May 2012 averaged $108.80 per barrel, up marginally from $108.37 in the first quarter, while international realizations for liquids dipped by $5.56 to $104.47 per barrel. Chevron’s domestic realized natural gas prices for this period averaged $2.05 per thousand cubic feet (Mcf), compared with $2.48 in the preceding quarter. Average international natural gas realizations were up 35 cents per Mcf to $6.23.

Downstream: Regarding downstream operations, the second-largest U.S. oil company by market value after ExxonMobil Corp. (XOM - Analyst Report) said that its U.S. refinery crude-input remained almost unchanged from the first quarter. Refinery crude-input volumes outside the U.S. climbed 74,000 barrels per day during the period, aided by the completion of planned maintenance activities at various refineries.

Second quarter refining margins increased $1.68 per barrel sequentially on the U.S. West Coast and substantially by $4.33 per barrel on the Gulf Coast.

Second Quarter Estimate

Chevron plans to release its quarterly results on Friday, July 27, 2012, before the start of trading. The Zacks Consensus Estimate for Chevron’s second quarter is $3.23 per share, lower than the earnings of $3.89 in the year-ago period and $3.39 in the previous quarter (both excluding adjustments for foreign-currency effects).

Chevron is currently a Zacks #3 Rank (Hold) stock, implying that it is expected to perform in line with the broader U.S. equity market.