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Chevron (CVX - Free Chevron Stock Report), the world's fourth-largest oil company based on proven reserves, and a member of the Dow 30, has reported first-quarter earnings per share of $3.18, compared to 2012's figure of $3.27 and our estimate of $3.40. The less-than-expected results were due mainly to a profit decline in the company's U.S. operations. The bottom line would have looked worse if not for positive figures turned in by the foreign businesses, which where helped significantly by the effects of favorable currency exchange rates. Chevron stock traded up on the news, as recent investor sentiment had fallen for large oil companies and the results were seen as somewhat supportive even at the lower level. Meanwhile…

In the core Upstream (Exploration and Production) business (89% of first-quarter profits), worldwide net oil equivalent production came in at 2.65 million barrels a day, compared with 2.63 million barrels per day in last year's similar quarter. This modest increase was due mainly to project ramp-ups in the United States and Nigeria. Progress would have been stronger in this area had it not been for natural field decreases in Chevron's mature properties.

Earnings in the U.S. Upstream segment were down a hefty 26%, to $1.1 billion, due to lower crude oil prices and higher operating expenses. A modest 2% increase in daily net oil-equivalent production was more than offset by the decline (from $102 to $94), in the company's average sales price per barrel of crude oil and natural gas liquids. The international segment of the upstream market actually managed to post a 3% rise in its earnings to $4.8 billion. This improvement came about almost exclusively because of favorable tax items and a stronger dollar, however. 

In the Downstream (Marketing and Refining) business, Chevron earned $566 million in its international segment compared with $345 million a year earlier. Profits rose primarily due to higher margins on refined product sales and, to a lesser extent, the strength of the U.S. dollar. Domestically, earnings plunged 71%, to $135 billion, as refinery crude oil input fell 36%, to 576,000 barrels per day, versus the year-earlier period. Higher costs associated with turnarounds at two of Chevron's largest refineries in El Segundo, California and Pascagoula, Mississippi, as well as lower margins on refined product sales, added to the poor performance.

As a result of this latest earnings report, we are lowering our 2013 share-net estimate for the company to $13.90, $1.00 less than our previous forecast. Despite this setback, long-term investors might still find the stock of interest due to its strong balance sheet and prodigious cash-generating ability. Indeed, during the first quarter, $1.25 billion was spent on share repurchases and the quarterly dividend was raised a hefty 11%, to $1.00 a share.

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 12/11 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 United States.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.