Chevron Expects 1Q Earnings to Rise, Helped by Higher Prices

HOUSTON (Dow Jones Newswires), Apr. 12, 2011

Chevron said it expects first-quarter earnings to rise from the prior quarter, helped by higher oil prices and slightly offset by lower profits from its refining and marketing arm.

The outlook from the second-largest U.S. oil company by market value after Exxon Mobil Corp. signals that major oil companies will report a surge in quarterly earnings for the period ended March 31, boosted by climbing oil prices, which appreciated in average almost $20 a barrel compared with the same quarter a year ago, says Fadel Gheit, an analyst at Oppenheimer & Co.

Chevron said an interim earnings update released Monday afternoon that its exploration and production earnings for the first quarter will be higher than fourth quarter, but added that profits will be hurt by less production received due to the negative effect of production-sharing contracts signed with foreign governments. These type of contracts lower the reserves the company can book when oil prices rise.

Chevron said that, during the first two months of the quarter, the company received $88.23 a barrel for crude oil from its U.S. fields, up 11% from the prior quarter and up 20% from a year earlier. Natural-gas prices rose 14% from the prior quarter but fell 22% from the year-earlier period to $4.15 per thousand cubic feet.

San Ramon, Calf.-based Chevron said its U.S. production in the first two months of the quarter was 686,000 barrels of oil equivalent per day. For the full first quarter of 2010, production was 734,000 barrels of oil equivalent a day. International output was 2.07 million barrels of oil equivalent per day in January through February. For the entire quarter a year earlier, daily international production reached 2.05 million barrels of oil equivalent.

Shares rose 1.8% to $109.76 in after-hours action. As of the close, the stock had risen 36% in the past year.

Chevron said it expects its downstream quarterly earnings to sink as it processed less fuel to sell than during the same period of the year before. The company said its U.S. plants processed 870 million barrels of oil a day into gasoline, diesel and other fuels through February 2011, compared to 889 barrels a day for the first full quarter of 2010.

Despite the lower sales volumes, Chevron realized a higher profit margin for the fuel it sold during the quarter. Refining margins at its U.S. plants averaged $21.08 through March, 40% higher than in the full quarter of 2010.

The oil giant also said its refining and marketing earnings in the first quarter are expected to be negatively impacted by the adjustment in the accounting of the fair value of some assets tied to oil prices. Oppenheimer's Gheit said this is likely to mean the company's downstream earnings will be affected by the difference between the price the company paid for oil and what it was worth by the time it was delivered to the company's refineries.

Chevron also noted that it expects to post between $250 million and $350 million of after-tax charges for the quarter. It said it expects the total charges to be at the high end of the guidance range.

The company has reported better results of late, helped by higher prices. In January, Chevron said its fourth-quarter earnings jumped 72%.

Chevron is slated to report first-quarter earnings on April 29.

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