Chevron Expects Sequentially Lower Q1 Earnings - Analyst Blog

U.S. energy behemoth Chevron Corporation CVX released first-quarter 2014 interim update covering the first two months of the quarter. Chevron expects to post lower first-quarter earnings than the previous quarter. Huge currency conversion expenses along with charges associated to asset impairment are expected to hamper the result. However, excluding these charges, first-quarter profit is anticipated to match the Oct-Dec 2013 figure.  

In upstream activities, total production is expected to fall below the year-ago quarter level. However, the output will likely remain in line with the fourth-quarter 2013 number. The crude oil price realization outside U.S, where Chevron conducts majority of its operations, is anticipated to be lower than the previous quarter.

In the downstream sector, the refining margin in the U.S. west coast is expected to decrease. However, the reverse is projected for the Gulf Coast.

Segmental Analysis

Upstream: The company's oil and natural gas production averaged 2.579 million oil-equivalent barrels per day, down 2.5% from the first-quarter 2013 level. The decrease can be primarily attributed to fall in both domestic and international production. However, production was almost flat with the previous quarter.

In the first two months of the March quarter, Chevron's total domestic production was 637,000 barrels of oil equivalent per day (BOE/D) as compared to 650,000 BOE/D in the previous quarter. Downtime activities along with unfavorable weather hampered the result.

Net international oil equivalent production – at 1,942,000 BOE/D – was 16,000 barrels per day more than the fourth quarter of 2013, owing to higher output at Angola's liquefied natural gas LNG facility.

The U.S. crude price realizations during Jan-Feb 2014 averaged $91.26 per barrel, up from $89.88 in fourth-quarter 2013, however, international realizations decreased by $2.20 to $98.37 per barrel. Chevron's domestic realized natural gas prices for this period averaged $4.70 per thousand cubic feet (Mcf) compared with $3.35 in the fourth quarter of 2013. Moreover, average international natural gas realizations were up 20 cents per Mcf to $5.95.

Downstream: Considering downstream operations, Chevron, the second-largest U.S. oil company by market value after Exxon Mobil Corp. XOM, stated that its domestic refinery crude input fell 8,000 barrels per day from the previous quarter.

Moreover, refinery crude input volumes outside the U.S. were down (by 84,000 barrels per day) during the same period. Active maintenance work hampered the result.

First-quarter refining margins decreased $3.28 per barrel, sequentially, in the U.S. west coast. However, it increased by $1.66 per barrel in the Gulf Coast.

First Quarter Estimate

Chevron plans to release its quarterly results on May 2, 2014. The Zacks Consensus Estimate for Chevron's first-quarter is pegged at $2.75 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 consider better-ranked players in the energy sector like Range Resources Corporation RRC and World Point Terminals LP WPT. Both the stocks sport a Zacks Rank #1 (Strong Buy).