Chevron Beats Profit Estimates as Gas Rally Mutes Oil Slump

Chevron Corp., the world’s third-biggest energy company by market value, reported first-quarter profit that exceeded analysts’ estimates after boosting natural gas output amid rising prices for the fuel.

Net income declined 4.5 percent to $6.18 billion, or $3.18 a share, from $6.47 billion, or $3.27, a year earlier, the San Ramon, California-based company said in a statement today. The per-share result was 8 cents higher than the average of 19 estimates compiled by Bloomberg.

Chevron’s earnings from oil and gas wells outside the U.S. rose 3.1 percent to $4.78 billion as increased gas output more than offset lower crude production. In the U.S., the company raised gas output from new wells in Appalachia’s Marcellus Shale formation where most of the drilling costs are being borne by India’s Reliance Industries Ltd. under the terms of a joint-venture.

Chevron “is almost drilling for free out there, so when you combine that with the prolific nature of the Marcellus, the returns are high,” Allen Good, an analyst at Morningstar Inc. in Chicago, said in a telephone interview today.

Total sales declined by 6.4 percent to $56.8 billion on slumping oil prices. During the January-to-March period, Brent crude futures fell 4.9 percent from a year earlier to average $112.61 a barrel, according to data compiled by Bloomberg.

Chevron rose 1.3 percent to $120.04 at the close in New York.

Increasing Production

Chevron is spending $36.7 billion this year on exploration, gas-export terminals and refinery upgrades from the Indian Ocean to British Columbia after oil and gas output fell to a four-year low in 2012. Chairman and Chief Executive Officer John S. Watson has expanded the company’s onshore North American holdings and last month said it will use intensive drilling techniques perfected in U.S. shale formations to unlock crude reserves in the deep-water Gulf of Mexico.

The company’s worldwide production increased 0.5 percent to the equivalent of 2.65 million barrels of oil a day during the first quarter, according to the statement.

During the quarter, Chevron raised U.S. gas output by 7.3 percent as prices that touched a 10-year low in early 2012 surged 39 percent to an average of $3.48 per million British thermal units during the quarter.

Chevron entered the Marcellus Shale in 2011 with the acquisition of Atlas Energy Inc. The transaction included a previously-signed joint venture between Atlas and Reliance that committed the Indian company to cover most of the drilling costs in exchange for a stake in each well.

Outperforming Exxon

Chevron expects oil and gas production to increase 1.5 percent this year to a daily average equivalent to 2.65 million barrels a day, the company said in a slide presentation for analysts on March 13. The outlook assumes an average crude price of $112 a barrel for 2013.

Chevron shares advanced 9.9 percent during the first quarter, outperforming bigger rival Exxon Mobil Corp, which increased 4.1 percent.

Chevron reaps 70 percent of its operating earnings from oil and gas sales outside the U.S., Paul Cheng, an analyst at Barclays Plc, said in an April 8 note to clients. Among U.S.- based international oil producers, only Marathon Oil Corp. and Exxon gather a higher proportion of earnings overseas, according to Cheng.

Exxon is the world’s largest energy company based on market value, followed by PetroChina Co., according to data compiled by Bloomberg.