Chevron Corp. posted a 6.8% decline in second-quarter profit, the latest oil company to feel the pinch of lower crude-oil and natural-gas prices triggered by global economic insecurity.
The earnings slowdown came despite a Chevron prediction earlier this month that strong profits in its refining arm would offset any decline in profits from its sale of oil and natural gas. Oil prices fell by 20% during the quarter as economies in Europe, China and the U.S. slowed. In April, natural-gas values reached their lowest point in a decade.
Still, strong refining margins brought Chevron's refining segment $1.9 billion in net earnings, up 80% year over year, as fuel demand in the U.S. West Coast region increased and low oil prices improved refining margins worldwide. The strong refining earnings pleased investors who were already braced for lower profits on the oil-and-gas production business.
"The numbers were very good, particularly in the downstream," said Iain Reid, analyst at Jeffries.
Exploration-and-production earnings fell 18% to $5.62 billion, due primarily to lower crude-oil and natural-gas realizations, lower production and the absence of gains on asset sales.
Overall, Chevron reported a profit of $7.21 billion, or $3.66 a share, down from $7.73 billion, or $3.85 a share, a year earlier. Revenue dropped 9.2% to $62.61 billion. Analysts polled by Thomson Reuters had most recently forecast earnings of $3.24 a share on revenue of $68.56 billion.
Operating margin edged up to 19.7% from 19.2%.
Chevron said production fell to 2.6 million barrels of oil equivalent a day as older wells depleted and legal wrangling over a 2,000-barrel oil spill in offshore Brazil forced it to suspend drilling at its Frade field.
Chevron made more than $21 on each barrel of oil equivalent it produced, a better profit margin than competitors Exxon Mobil Corp. and Royal Dutch Shell PLC that have already reported second-quarter earnings. The profit margin helped Chevron, the second-largest U.S. oil company by market value after Exxon, build its cash reserves to $21 billion, up by one-third from the year before and higher than Exxon's $13 billion.
"In the upstream, they are the most-profitable company on a per-barrel basis," said Oppenheimer & Co. senior energy analyst Fadel Gheit.
Copyright (c) 2012 Dow Jones & Company, Inc.
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