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Global integrated firm Chevron Corp. (CVX - Analyst Report) released its third-quarter 2012 interim update, covering the first 2 months of the quarter. On the whole, the update is bearish, with earnings expected to move down from the previous quarter.

The company expects results for the Exploration and Production arm to be lower sequentially due to losses associated with foreign exchange along with reduced realizations. However, gains from asset disposition are expected to partially negate these factors.

The San Ramon, California-based integrated firm added that third quarter refining and marketing results would also disappoint compared to the second quarter of 2012, bruised by the influence of negative timings, less realized margins and other unfavorable effects.  

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

Segmental Analysis

Upstream: For the first two months of the September quarter, Chevron reported that oil and natural gas production averaged 2.518 million oil-equivalent barrels per day as compared with 2,599 oil-equivalent barrels per day recorded in the third quarter of 2011, due to reduced volumes both in the U.S. and overseas. Production also reduced by about 4% from the second quarter of 2012.

Chevron’s total domestic oil equivalent production dipped 19,000 barrels per day from the previous-quarter levels, primarily due to the impact of Hurricane Isaac. Net international oil equivalent production also decreased 87,000 barrels per day from the second quarter.

U.S. crude price realizations during July-August 2012 averaged $95.44 per barrel, down from $103.91 in the second quarter, while international realizations for liquids slipped $2.35 to $96.86 per barrel.

Chevron’s domestic realized natural gas prices for the 2-month period averaged $2.67 per thousand cubic feet (Mcf), higher than $2.17 in the preceding quarter. However, average international natural gas realizations decreased 11 cents per Mcf to $5.99.

Downstream: Regarding downstream operations, the second-largest U.S. oil company by market value after Exxon Mobil Corp. (XOM - Analyst Report) said that its U.S. refinery crude-input went down sequentially 92,000 barrels per day as a result of the closure of the Richmond, California plant in early August.

Refinery crude-input volumes outside the U.S. climbed 42,000 barrels per day during the period, aided by the changes in the reporting format of Star Petroleum Refining Company, Thailand.

Third quarter refining margins increased $3.05 per barrel sequentially on the U.S. West Coast and substantially by $3.30 per barrel on the Gulf Coast.

Third Quarter Estimate

Chevron plans to release its quarterly results on Friday, November 2, 2012, before the opening bell. The Zacks Consensus Estimate for Chevron’s third quarter is $3.06 per share, lower than the earnings of $3.69 in the year-ago period and $3.56 in the previous quarter (both excluding adjustments for foreign-currency effects).

Chevron currently holds a Zacks #3 Rank (Hold) stock, implying that it is expected to perform in line with the broader U.S. equity market. Moreover, we are also maintaining our long-term Neutral recommendation on the stock
 

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