The lower projected earnings are mainly the result of a sharp decline in refined-product margins for the downstream business and the impact of nonrecurring items. In the second quarter, nonrecurring items included a benefit of $680 million from the company's sale of its common stock investment in Dynegy Inc. Third quarter results are expected to include an approximate $260 million gain on the sale of the company's marketing assets in the Benelux countries. Nonrecurring net charges in the third quarter are projected to be approximately $700 million. These charges include asset impairments, environmental remediation provisions, income tax adjustments, asset retirement obligations, and severance provisions.
Worldwide daily oil-equivalent production for the first two months of the third quarter declined about 1 percent from 2.63 million barrels per day in the second quarter. U.S. crude realizations improved by $8.55 per barrel -- in line with the increase in West Texas Intermediate (WTI) and California heavy crude prices. International liquids realizations were higher by $5.35 per barrel, slightly more than the increase in Brent spot prices. U.S. natural gas realizations decreased $0.81 per thousand cubic feet, reflecting similar reductions in bid week pricing.
Compared to the second quarter, the benefit of higher crude realizations for the full third quarter is expected to be more than offset by the decline in U.S. natural gas prices, volumetric effects (liftings), and an increase in net charges related to nonrecurring items. The U.S. West Coast industry refining margin indicator for the full third quarter declined more than 50 percent from about $30 per barrel in the second quarter. The U.S. Gulf Coast light-heavy-differential marker averaged $31.50 per barrel, down over 15 percent in the full third quarter. Outside the United States, benchmark refining margins were also considerably lower.
During the full third quarter, the Los Angeles mogas marketing margin indicator fell by more than 50 percent to $2.42 per barrel, while the Houston mogas indicator declined over 30 percent to $2.63 per barrel.
U.S. refinery daily crude-input volumes for the first two months of the third quarter decreased primarily due to planned and unplanned shutdowns at the company's refineries in El Segundo, California, and Pascagoula, Mississippi. On August 16, the company experienced a fire in the Number 2 crude unit at the Pascagoula refinery, and the unit remains out of service. No fire-related injuries occurred, and the company has been able to maintain uninterrupted product supplies to customers during this outage.
Outside the United States, refinery input volumes increased due to the completion of a planned shutdown at the company's refinery in Capetown, South Africa, and higher volumes at the Yeosu Refinery in South Korea.
Compared to the second quarter, the benefit of an approximate $260 million gain on the sale of the company's marketing assets in Belgium, the Netherlands, and Luxembourg is expected to be much more than offset during the full third quarter by the worldwide impacts of lower refined-product margins, U.S. refinery shutdowns and an increase in net charges related to nonrecurring items. Prices, economics, and views expressed by CMAI are strictly the opinion of CMAI and Purvin & Gertz and are based on information collected within the public sector and on assessments by CMAI and Purvin & Gertz staff utilizing reasonable care consistent with normal industry practice. CMAI and Purvin & Gertz make no guarantee or warranty and assume no liability as to their use.
In the Chemicals segment, industry indicator margins for the full third quarter in general were slightly higher than the second quarter.
The company's standard guidance for quarterly net after-tax charges related to corporate and other activities is between $160 million and $200 million. Due to the potential for irregularly occurring accruals related to tax items, pension settlements, and other corporate items, actual results may differ.
The second quarter included a gain of approximately $680 million on the sale of the company's investment in Dynegy and charges of about $160 million related to the redemption of Texaco Capital Bonds. For the full third quarter, net charges are expected to be at or above the $200 million high end of the standard range.
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