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U.S. energy behemoth Chevron Corporation (CVX - Free Report) released its fourth-quarter 2013 interim update covering the first two months of the quarter. Chevron expects its fourth-quarter earnings to be similar to the previous quarter’s profit.

In the upstream activities, the update is bearish as Chevron projects lower sequential earnings from the segment. Decreased domestic and international oil equivalent production during the first two months of the December quarter as compared to third-quarter 2013, has justified the company’s expectation. Both domestic and international liquid price realization during Oct-Nov 2013 has decreased from the previous quarter.

However, in the downstream sector, the outlook is positive with refining margin projected to increase in the U.S. West Coast.

Segmental Analysis

Upstream: The company’s oil and natural gas production averaged 2.564 million oil-equivalent barrels per day, down 3.9% from the fourth-quarter 2012 level. The decrease was due to the fall in both domestic and international production. Production also witnessed a nominal sequential decrease of 0.8%.

In the first two months of the December quarter, Chevron’s total domestic production was 650,000 barrels of oil equivalent per day (BOE/D) as compared to 655,000 BOE/D in the previous quarter. The decrease was owing to planned shutdown activities in the Gulf of Mexico.
Net international oil equivalent production – at 1,914,000 BOE/D – was 16,000 barrels per day less than the third quarter of 2013. Australia’s maintenance work and shutdown activities at Angola’s liquefied natural gas (LNG) facility affected the result.

The U.S. crude price realizations during Oct-Nov 2013 averaged $90.17 per barrel, down from $97.18 in third-quarter 2013, while international realizations decreased by $4.74 to $99.55 per barrel. Chevron’s domestic realized natural gas prices for this period averaged $3.28 per thousand cubic feet (Mcf) compared with $3.23 in the third quarter of 2013. However, average international natural gas realizations were down 20 cents per Mcf to $5.68.

Downstream: Regarding downstream operations, the second-largest U.S. oil company by market value after Exxon Mobil Corp. (XOM - Free Report) , said that its domestic refinery crude input rose 27,000 barrels per day from the previous quarter. The restart of the El Segundo, California-based refinery aided the result.

Refinery crude input volumes outside the U.S. were, however, down (by 9,000 barrels per day) during the same period.

The fourth-quarter refining margins increased by $1.46 per barrel sequentially in the U.S. West Coast. However, it decreased by 67 cents per barrel in the Gulf Coast.  

Fourth Quarter Estimate

Chevron plans to release its quarterly results on Jan 31, 2014, before the opening bell. The Zacks Consensus Estimate for Chevron’s fourth-quarter is $2.88 per share.

Zacks Rating

Chevron currently retains 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.

Meanwhile, one can look at better-ranked players in the oil and gas integrated industry like YPF SA (YPF - Free Report) and OMV Aktiengesellschaft (OMVJF - Free Report) . YPF sports a Zacks Rank #1 (Strong Buy) while OMV holds a Zacks Rank #2 (Buy).

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