Chevron Beats Expectations as Refining Profits Climb 80%

(Corrects oil-production mix percentages in last paragraph in story published July 27.)

Chevron Corp. (CVX), the second-largest U.S. energy company by market value, topped the highest profit estimate from analysts after an 80 percent increase in refining returns helped make up for falling oil prices.

Second-quarter net income fell to $7.21 billion, or $3.66 a share, from $7.73 billion, or $3.85, a year earlier, the San Ramon, California-based company said in a statement today. The result was 35 cents more than the average of four analysts’ estimates compiled by Bloomberg, which ranged from $3.10 to $3.47.

Chevron’s oil refineries and filling stations earned $1.88 billion as U.S. refining margins climbed to a second-quarter record average of $28.98 a barrel when crude costs fell faster than gasoline prices. Brent crude, the benchmark for two-thirds of the world’s oil, fell 7 percent from a year earlier to average $108.76 a barrel amid concern that slowing growth in China and Europe’s sovereign debt crises will stifle energy demand.

“Strong refining margins helped them a lot,” Allen Good, an analyst at Morningstar Investment Service in Chicago, said in a telephone interview today. “In contrast to some of their competitors, Chevron’s heavier exposure to oil and minimal exposure to low natural-gas prices helped keep the upstream afloat.”

‘Core’ Holding

Sales fell 9.2 percent to $62.6 billion. Chevron rose 0.9 percent to $109.26 at the close in New York.

Chevron’s refining profit included about $200 million in proceeds from the sale of a power business in South Korea and other assets, according to the statement. Income from oil and gas wells fell 18 percent to $5.62 billion.

“I view them as the core energy holding investors should have,” Brian Youngberg, an analyst at Edward Jones in St. Louis, said in an interview after the results were announced. “They’re more profitable per barrel, they have way more cash than debt and they pay a good dividend.”

Production declined 2.6 percent to the equivalent of 2.62 million barrels a day. The company won’t meet its full-year goal of producing the daily average equivalent of 2.68 million barrels of crude, Vice Chairman and Executive Vice President George Kirkland said during a conference call with analysts today.

Maintenance Disruption

Contributing factors to the shortfall include the temporary shutdown of the Frade field in Brazil after oil seeps on the sea floor angered government regulators, as well as maintenance work at the company’s Tengiz project in Kazakhstan, he said. Chevron shares dropped more than 1 percent in the first two minutes after Kirkland’s comments, before rebounding.

Chairman and Chief Executive Officer John Watson expanded the capital-projects budget 12 percent this year to $32.7 billion as part of a long-term plan to boost daily production by one-fifth to the equivalent of 3.3 million barrels by the end of 2017.

The company’s exploration plans include a pair of wells scheduled for next year in Iraq’s Kurdistan region. Chevron agreed in a deal announced last week to buy Reliance Industries Inc.’s stakes in two Kurdistan blocks.

Gas Effects

U.S. energy explorers were hurt by a 46 percent slide in gas prices during the second quarter compared to a year earlier, to an average of $2.354 per million British thermal units, the lowest since 1999.

Chevron is the least-exposed of the major U.S. energy producers to tumbling gas prices because its output is more heavily weighted to crude than its largest domestic rivals.

Chevron’s production slate was 69 percent crude oil in 2011, with the rest comprised of gas, according to data compiled by Bloomberg. For Exxon Mobil Corp. (XOM), the largest U.S. energy company by market value, the oil portion of total output was 51 percent.

For the next three largest U.S.-based explorers -- ConocoPhillips, Occidental Petroleum Corp. (OXY) and Anadarko Petroleum Corp. (APC) -- crude accounted for 54 percent, 61 percent and 32 percent of overall production, respectively.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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