The Rising Influence of Rising Affluence

[DewDiligence]

CVX 4Q09 Earnings: Upstream Yay, Downstream Nay

[You know the refining business is really bad when even CVX is losing money in the downstream segment—the US west coast, where CVX’s refining is focused, ordinarily has among the best refining spreads. Upstream, CVX has some big projects to look forward to (e.g. Gorgon), but 2010 won’t see much of an improvement: production guidance is 2.73 mbod, +1% vs 2009.

Despite all this (or rather *because* of it), CVX is dirt cheap: the stock trades at ~9x est 2010 EPS and ~7x est 2011 EPS and it pays a dividend yield of almost 4%. The litigation in Ecuador is not a material risk to shareholders, IMO, insofar as CVX has zero assets in Ecuador and the case has little if any chance of bearing fruit in another venue.]

http://online.wsj.com/article/SB20001424052748703389004575032933350010208.html

›JANUARY 30, 2010
By ISABEL ORDONEZ

Chevron Corp.'s fourth-quarter profit fell 37% due to losses in its refining-and-marketing business, a segment the oil company said will continue to struggle amid weak demand for fuels.

Chevron, like other oil companies with large refining operations, has taken a hit to earnings as the sluggish economy damps sales of gasoline and diesel.

"We're certainly not satisfied with our downstream results in 2009," Chevron Chief Executive John Watson said Friday in a conference call with analysts.

Mr. Watson said it is premature to talk about closing or selling refineries, like some independent fuel producers have done recently. Chevron, however, said earlier this month it plans to restructure its refining-and-retail business, including exiting some markets and cutting jobs.

"We are shifting to a simpler and less costly organization to improve returns and remain competitive in this difficult environment," Mr. Watson said. The San Ramon, Calif., company will elaborate on the restructuring plan at a meeting for Wall Street analysts in March, he said.

Chevron, the second-largest U.S. oil company by market value after Exxon Mobil Corp., posted a profit of $3.07 billion, or $1.53 a share, in the fourth quarter, down from $4.9 billion, or $2.44 a share, a year earlier. Results for the prior year included an asset-exchange gain of $600 million. Revenue increased 7.7% to $48.68 billion.

Losses of $613 million at the company's downstream business, which manufactures and distributes gasoline, diesel fuel and other refined products, overshadowed improved exploration-and-production results that benefited from higher energy output and oil prices.

Chevron increased production by 9.3% to 2.78 million barrels a day for the latest quarter and by 6.7% to a daily average of 2.7 million barrels for the full year. The increases were driven by new projects in the U.S. and Nigeria and expansion at the Tengiz project in Kazakhstan. Chevron's output in 2008 was cut by hurricanes, Oppenheimer & Co. analyst Fadel Gheit noted.

For 2010, the company said it expects to increase oil-and-gas production by 1% to 2.73 million barrels a day if oil prices average about $62 a barrel. On Friday, oil futures fell 75 cents to $72.89 a barrel in New York.

Chevron said the estimate doesn't take into account certain variables, including any curtailments the Organization of Petroleum Exporting Countries imposes in countries where it has operations. [There were zero such curtailments in 4Q09.]

Credit Suisse analysts said the outlook was disappointing as it is below the 2.7% growth they had forecast.

Chevron said it added about 1.1 billion barrels of net oil-equivalent to its proven reserves in 2009, aided by gains at the Gorgon Project in Australia and the Athabasca Oil Sands Project in Canada. The additions, which are subject to final review, equate to 112% of net oil-equivalent production for the year.

The oil giant also confirmed its capital-and-exploratory budget this year will be $21.6 billion, a 2.7% drop from 2009.‹