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Dow 30 Earnings: Chevron - Second Quarter 2011
Dow-30 component Chevron (CVX- Free Chevron Stock Report), the second-largest integrated energy company in the United States, and among the largest in the world (based on market cap), reported second-quarter share net of $3.85 (on a diluted basis). This compared with the year-earlier figure of $2.70, and our estimate of $3.10. The better-than-expected performance was primarily due to higher crude oil prices and the effect of political unrest in the Middle East, driving crude above $125 a barrel for the first time in two and a half years.
The company's Upstream business (Exploration and Production) was by far the greatest revenue generator (89% of sales), with the International division contributing a whopping 64% to total sales. International Upstream earnings increased by a prodigious 43%, to $4.92 billion. The unit reported an average selling price of crude oil of $107 a barrel, compared with $71 in the year-earlier period. The average price of natural gas was $5.49 per thousand cubic feet, versus $4.40 in last year's second quarter. Net oil-equivalent production was down by a slight 38,000 barrels of oil per day (boe/d) from the second quarter, to two million boe/d.
In the domestic Upstream segment, Chevron acquired additional shale gas acreage in the Marcellus Shale region, notably, Chief Oil & Gas, and Tug Hill holdings. Chevron is continuing its strategy of aggressively enhancing its Upstream business, as reflected by the 91% of budgeted capital expenditures for the first six months of the year being allocated to this segment. Much of it is going toward more deepwater exploration projects, and expansion of the Caspian pipeline, which carries crude oil from western Kazakhstan to terminals on the Black Sea. Chevron plans to spend $26 billion this year to drill for oil, build gas terminals, and repair refineries.
In the Downstream (Refining & Marketing) operation (13.5% of total sales), earnings benefited from improved margins on refined product sales and higher profits from the 50%-owned Chevron-Phillips Chemical Co.
Despite much better-than-anticipated earnings, Chevron stock slipped nominally in morning trading (along with the rest of the energy sector) on a weak second-quarter GDP report and fears the U.S. Congress will fail to craft a compromise on the nation's debt ceiling. Long term, this blue-chip stock has decent price appreciation potential to mid-decade, on a risk-adjusted basis.
About The Company: Chevron has daily gross crude oil and natural gas liquid production of about 1,850 million barrels. Natural gas production averages around 5,100 billion cubic feet. Net proved reserves at 12/10 were 7.173 billion barrels of oil. The company operates a multitude of well sites all over the globe, as well as owning/leasing about 4,100 gas stations, mostly in the U.S.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.