Chevron 4Q Net Falls 3.2%

HOUSTON - Chevron Corp. said Friday fourth-quarter earnings fell 3.2% as its refining arm swung to a loss, missing Wall Street expectations and overshadowing a large addition of new oil and gas reserves.

Chevron reported a profit of $5.12 billion, or $2.58 a share, down from $5.3 billion, or $2.64, a year earlier. The results were well below analysts' estimates of $2.84 a share. The miss was "entirely" due to plunging results in the company's refining and marketing units, according to UBS.

Chevron's refining, marketing and chemical operations--known as downstream operations-- posted $61 million in losses in the fourth quarter, down from $742 million in profits in the same period a year earlier, while earnings from its exploration and production segment jumped 18% to $5.7 billion thanks to high oil prices.

The company's revenue rose 11% to $60 billion.

The results show Chevron is feeling the pinch of the struggling refining sector, where refining margins--or the difference between the price of the crude oil refiners buy and the price of the products they sell--were hit by higher oil prices and weak fuel demand.

At the end 2011, Chevron had $15.9 billion in cash and cash equivalents, according to a filing with the Security and Exchange Commission Friday.

Chevron, the second-largest U.S. oil company by market value after Exxon Mobil Corp., estimates its 2012 production will remain unchanged from last year at 2.6 million barrels of oil equivalent per day, assuming $111 for a barrel of oil. The 2011 output was 3.3% below the oil giant's 2010 production, reflecting how Chevron continues to struggle to boost its output despite making large shale acquisitions and opening up new fields worldwide.

The company said 2012 production start-ups at its Angola liquefied natural gas project and its Niger oil fields are expected to be largely offset by the normal decline of production that occurs as fields age. Chevron, however, reiterated its 2010-2014 target of having production grow an average of 1% a year over that span--and achieve long-term production growth of 4% to 5% per annum from 2014 to 2017.

Chevron also added about 1.67 billion barrels of net oil-equivalent reserves in 2011, an amount equivalent to nearly triple its annual production.

Speaking to analyst in a conference call, Chevron Chief Executive John Watson and said the company would favor spending some of its abundant cash in acquisition opportunities rather than boasting its share buyback program.

"We are opportunistic when it comes ... to add to the portfolio, and we want to be in a position of having sufficient resources to be able to take advantage of an opportunity," Watson said.

Chevron said its capital spending will peak in the next three years as it funds the development of its liquefied-natural-gas projects known as Gorgon and Wheatstone in Australia. The company confirmed it expects to have a $32.7 billion capital expenditure this year.

In 2011, Chevron's capital expenditure budget of $29.1 billion was above its guidance of $26 billion because the company bought adjacent acreage to the properties it owns in Marcellus Shale area of northeast U.S.

Separately, Watson said Chevron is doing its "best" to deal with Brazilian authorities following an offshore oil spill last November. A Brazilian prosecutor reportedly may file criminal charges against the company and some of its personnel over the incident.

On another oil spill the company faces offshore Nigeria, Watson said it expects to drill next week a relief well that will seal a burning natural gas well. The fire erupted after a rig collapsed in mid-January, killing two workers.

On the exploration side, Chevron said the company couldn't complete its Coronado deep-water exploration well in the U.S. Gulf of Mexico and that its first well in China's South China Sea came out dry. The company is drilling a second well.

Copyright (c) 2012 Dow Jones & Company, Inc.


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