Crude Prices to Fuel Chevron - Analyst Blog

U.S.energy behemoth Chevron Corp. (CVX) released its fourth-quarter 2010 interim update, covering the first 2 months of the quarter. On the whole, the update is on the bullish side, with earnings expected to be higher than the previous quarter.

The company expects results to be buoyed by a rise in crude prices and robust demand. The San Ramon, California-based integrated major further informed that fourth quarter refining and chemicals results would reflect the $400 million gain from the sale of a stake in Colonial Pipeline Company.

Additionally, Chevron expects net after-tax charges associated with corporate and other activities to come in between $250 million and $350 million. 

Upstream

The company reported that oil and natural gas production averaged 2.769 million oil-equivalent barrels per day, slightly below the fourth quarter 2009 level, as strength in Chevron's international operations were not enough to make up for reduced domestic volumes. However, production would be up by about a percent from the third quarter 2010 level, reflecting worldwide improvement.

In the first two months of the fourth quarter, Chevron's total domestic oil equivalent production rose 5,000 barrels per day from third-quarter levels, primarily due to small increases across a number of assets. Net international oil equivalent production was up by 26,000 barrels per day from the preceding quarter on the back of the completion of planned maintenance in Europe.

U.S.crude price realizations during October-November 2010 averaged $77.77 per barrel, up from $72.19 in the third quarter 2010, while international realizations were higher by $7.44 to $77.11 per barrel. Chevron's domestic realized natural gas prices for this period averaged $3.42 per thousand cubic feet (Mcf), compared with $4.06 in the third quarter. Average international natural gas realizations were up 4 cents per Mcf to $4.77.

Downstream

Regarding downstream operations (chemical and refining), the second-largest U.S. oil company by market value after ExxonMobil Corp. (XOM) said that its U.S. refinery crude-input fell 32,000 barrels per day (3.6%) from the previous quarter due to maintenance activities across multiple refineries. However, ex-U.S., Chevron's refinery crude-input volumes were in-line with third quarter results. Fourth quarter refining margins decreased $1.85 per barrel sequentially on the U.S. West Coast but increased $1.20 per barrel on the Gulf Coast.

Chevron plans to release its quarterly results on January 28, 2011, before the start of trading. The Zacks Consensus Estimate for Chevron's fourth quarter is $2.33 per share, higher than the earnings (excluding foreign-currency effects) of $1.57 in the year-ago period and $2.06 in the previous quarter.

Chevron shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.