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Chevron Strikes Optimistic Note for Quarterly Earnings

Chevron Corp. (CVX)’s forecast for “notably higher” quarterly profit bodes well for competing international energy producers also grappling with oil- production and refining challenges.

Chevron’s fourth-quarter earnings exceeded the third quarter on higher oil prices and better performance from its refining business, according to an interim results statement from the San Ramon, California-based company yesterday. Increased sales of crude from storage tanks and pipeline terminals and a $1.4 billion gain from a gas-field swap in Australia also contributed, Chevron said.

The outline given by the second-largest U.S. oil producer by market value hints at a bright succession of earnings reports when the world’s biggest publicly traded energy producers begin releasing results in coming weeks, said Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis. Chevron is scheduled to report full quarterly results on Feb. 1, as is Exxon Mobil Corp. (XOM), the largest U.S. energy company.

“Chevron’s results certainly provide an optimistic preview of what its peers in the integrated energy sector have in store,” Youngberg said in a telephone interview yesterday. “All these companies are subject to the same general price realizations and market pressures, so they tend to move in the same general direction over time.”

Hefty fourth-quarter gains still may not lift the oil industry to the heights attained prior to the global financial collapse in 2008, when Brent crude prices touched a record $147.50 a barrel and Exxon raked in full-year profit of $45.2 billion, or the equivalent of $5.15 million an hour.

Exxon Forecast

Exxon, based in Irving, Texas, is expected to report net income of $43.8 billion for 2012, according to the average of six analysts’ estimates compiled by Bloomberg.

Chevron trades at 9 times estimated 2013 earnings, above the 8.6 average ratio of a 15-member peer group of oil companies tracked by Bloomberg. Exxon’s price-earnings ratio is 11, an indication it may have better-than-average earnings growth.

Royal Dutch Shell Plc (RDSA), Europe’s biggest energy company by market value, is scheduled to announce fourth-quarter results on Jan. 31. BP Plc (BP/)’s release is scheduled for Feb. 5.

Chevron rose 1.1 percent to $111.73 at the close in New York. Chevron gained 1.6 percent in 2012, the smallest annual increase since 2008, when the stock tumbled 21 percent.

Barrel Price

Chevron received an average of $100.06 a barrel for crude produced outside the U.S. during the October-to-December period, a 1.9 percent increase from the preceding quarter, according to the statement. Non-U.S. oil production accounts for about 75 percent of the company’s crude output.

The international “crude price environment is very robust and that’s playing itself out favorably for producers,” Gianna Bern, founder of Brookshire Advisory & Research Inc. in Chicago, said in a telephone interview yesterday.

Chevron said its “notably higher” fourth-quarter results were aided by a gain from the exchange of a stake in the Browse gas fields in Australia for Shell (RDSA)’s interests in the Clio and Acme fields. The swap agreement also included a $450 million cash payment to Chevron, according to an August statement.

The company also saw better refining results compared with the third quarter, even as the industry experiences declining margins for turning oil into gasoline and other fuels.

Chevron pumped the equivalent of 2.662 million barrels of oil a day in October and November, compared with a daily average rate of 2.641 million during the full fourth quarter of 2011, according to the statement. If the trend held throughout the final month of the year, Chevron will have halted its longest production slide since 2007-2008.

Crude Output

Crude output, the most valuable portion of the company’s production stream, dropped to 1.802 million barrels a day during October and November from 1.816 million during the full fourth quarter of 2011.

Chevron’s focus on oil and liquefied natural gas contracts tied to crude prices means the company is less-exposed to weak North American gas markets hurt by a supply glut from shale formations, Bern said.

Chevron Chairman and Chief Executive Officer John S. Watson said last month he plans to spend $36.7 billion this year to explore for crude, build natural gas export terminals and upgrade oil refineries. The company expects to reach output of 3.3 million barrels a day in 2017. Watson is scheduled to update analysts and investors on the company’s long-term exploration and development goals on March 12 in a day-long briefing in New York.

Kitimat Investment

Chevron announced plans in December to buy a 50 percent stake in the proposed Kitimat gas export terminal on Canada’s western coast from Encana Corp. (ECA) and EOG Resources Inc. (EOG) to capitalize on rising Asian demand for the fuel. Chevron also acquired stakes in British Columbia gas fields and a pipeline system that would bring the fuel to the terminal. Terms of the agreements weren’t disclosed.

That same month, Chevron boosted the cost estimate for its Gorgon liquefied natural gas project in Australia by 21 percent to A$52 billion ($55 billion) last month, citing local currency fluctuations and escalating labor expenses. The increased estimate still was less than the $60 billion or more anticipated by analysts such as Paul Cheng of Barclays Plc.

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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