Chevron Ends 2012 on Strong Note

U.S. energy giant Chevron Corp. (CVX - Analyst Report) reported strong fourth quarter earnings on the back of higher refining profitability and a rise in upstream volumes.

Earnings per share (excluding adjustments for foreign-currency effects and a gain from an asset exchange) came in at $3.06, ahead of the Zacks Consensus Estimate of $3.03 and the previous year's $2.62.

The integrated supermajor’s quarterly revenue increased 1.0% year over year to $60,552.0 million from $59,985.0 million, but was 4.0% below the Zacks Consensus Estimate amid lower crude prices.

Chevron is the third of the integrated supermajors to come out with fourth quarter results. Fellow biggie Exxon Mobil Corp. (XOM - Analyst Report) also reported today, while Europe’s largest oil company Royal Dutch Shell plc (RDS.A - Analyst Report) released results yesterday.

Segment Performance

Upstream: Chevron’s total production of crude oil and natural gas increased 1.0% from the year-earlier level to 2,668 thousand oil-equivalent barrels per day (MBOE/d). Volume gains in Thailand, the U.S. and Nigeria as well as contribution from the newly bought Delaware Basin assets were somewhat negated by normal field declines and the continued shut-in of the Frade deepwater field in Brazil.

The U.S. output improved 2.0% year over year, while Chevron’s international operations (accounting for 75% of the total) experienced a 0.7% increase in volumes. Gains on the production front were partially offset by depressed crude and North American gas prices, the net effect resulting in a 19.5% year-over-year rise in upstream earnings to $6,858.0 million.

Chevron’s production outlook remains one of the most robust in its peer group, with a number of major initiatives scheduled to come online during the next few years. Major start-ups during the last few months include the deepwater Usan project in Nigeria and the Caesar/Tonga project in the deepwater Gulf of Mexico.

Amongst the major upcoming projects, Chevron’s Gorgon and Wheatstone natural gas initiatives in Australia are progressing well.

Downstream: Chevron’s downstream segment achieved earnings of $925 million, a significant improvement from the loss of $61.0 million last year. The turnaround can primarily be attributed to better profit margins, increased earnings from the 50%-owned Chevron Phillips Chemical Company LLC and higher gains on asset sales.

Capital Expenditure, Balance Sheet & Share Repurchases

The second-largest U.S. oil company by market value after Exxon Mobil spent $11,556.0 million in capital expenditures during the quarter. Approximately 86% of the total outlays pertained to upstream projects.

As of Dec 31, 2012, the San Ramon, California-based company had $20,939.0 million in cash and total debt of $12,192.0 million, with a debt-to-total capitalization ratio of about 8.2%. As part of the stock repurchase program announced in 2010, Chevron repurchased $1,250.0 million worth of shares in the fourth quarter.

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