The Rising Influence of Rising Affluence

[DewDiligence]

Chevron's Profit Declines 71% Year-Over-Year

[It’s impressive, IMO, that CVX managed to increase 2Q09 production by 5% Y-o-Y in spite of the disruptions in Nigeria. The guidance for full-year 2009 production is likewise a 5% increase vs 2008. As is the case with XOM, CVX hasn’t done any aggressive cost cutting, but rather is positioning itself for the long term. Among the oil majors, CVX has the highest proportion of its hydrocarbon production in oil (rather than NG) and it plans to increase this proportion even further due to low NG prices.]

http://online.wsj.com/article/SB124904446052296783.html

›AUGUST 3, 2009
By ANGEL GONZALEZ

Chevron Corp. reported a 71% drop in second-quarter earnings on lower oil and gas prices, weak demand for refined fuel and a weaker dollar. But success with new projects prompted the company to raise its 2009 production outlook.

Profit at the second-largest U.S. oil company by market value after Exxon Mobil Corp. sank to its lowest level since the second quarter of 2003. Exxon Mobil, which reported results on Thursday, also saw its profits drop to six-year lows. Both companies fell short of Wall Street's expectations.

Energy prices are sharply lower compared with a year ago, but analysts had expected a recent rebound in oil prices to lift producers' earnings from a slump in the first quarter.

Chevron, which is based in San Ramon, Calif., posted second-quarter profit of $1.75 billion, or 87 cents a share, down from $5.96 billion, or $2.90 a share, a year earlier. Analysts polled by Thomson Reuters expected earnings of 95 cents a share.

Revenue dropped 52% to $40.21 billion, despite a 5.1% rise in oil and gas production.

Chevron's second-quarter performance was marked by "weaker than expected" exploration-and-production results, Credit Suisse said in a research note.

Profit in Chevron's upstream business, which includes exploration and production, slumped 79% to $1.52 billion. As the company had warned, exchange-rate fluctuations took a bite out of the segment's earnings, subtracting $476 million.

At the same time, the company highlighted operational successes, including the start-up of major projects in the Gulf of Mexico and offshore Brazil.

Some of its new projects have performed better than expected, leading the company to raise its full-year production outlook to 2.66 million of barrels of oil equivalent per day -- 30,000 barrels more than in previous guidance and 5% higher than its 2008 output.

The boost marks a turning point for the company, which saw its hopes for production growth dimmed in the past two years by several significant delays, said Phil Weiss, an analyst with Argus Research. Now "they've got their act together," he said.

Meanwhile, Chevron's downstream business -- which refines and markets petroleum products -- swung to a profit of $161 million, despite a loss in the U.S.

"Although our downstream results were better than a year ago, the demand for refined products remained generally weak," Chevron Chairman and Chief Executive Dave O'Reilly said in prepared comments.

Earnings in its chemical business more than doubled to $108 million.

While other companies in the industry have had to cut jobs, production and dividends to help weather the recession, Chevron hasn't yet made any major cost cuts. It announced Wednesday a 4.6% dividend boost, marking the 22nd consecutive year it has increased the payout.

However, the company said Friday it isn't reinstating a share buyback program, as it allocates cash toward capital spending as well as dividend payments.

Chevron executives also said they are reducing investment in U.S. onshore natural gas, where depressed pricing has led many companies to curtail production. Instead, the company will steer spending toward oil drilling.‹