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Chevron Registers 10% Growth in Q1 Net Income
5 May 08
Profits at Chevron during the first quarter of 2008 have jumped to US$5.17 billion, up nearly 10% year-on-year, though net oil-equivalent production has essentially remained flat.
Global Insight Perspective | | Significance | Chevron has recorded a 9.5% jump in profits, masking otherwise questionable performance both upstream and downstream. | Implications | As with its peers, Chevron's performance during the first quarter has essentially been supported by high oil prices, which have themselves consistently remained comfortably above the US$100/b level since January. Refining margins have been squeezed as a result, though contraction here has effectively been covered by upstream gains. | Outlook | Although net oil-equivalent production has fallen slightly over the quarter, the situation should improve throughout the rest of the year as several new projects come onstream. |
Chevron released its first-quarter earnings report on Friday (2 May), very much exhibiting the same general trends that have been observed among its immediate peer group. Net income for the quarter rose 9.5% to US$5.17 billion, from US$4.72 billion. Upstream income during the first quarter of 2008 constituted a massive 99.2% of net income, compared with 61.7% during the corresponding 2007 period. While the upstream business segment expanded by 76.4% over the period, downstream income contracted by 84.4%, shedding over US$1.3 billion to fall to US$252 million. At just under 69%, international operations have generated most of the upstream income, with the United States contributing the remainder. Chevron's U.S. refining income contracted to a meagre US$4 million, down from US$350 million. In terms of capital and exploratory expenditure, the supermajor increased its budget by 24% to US$5.1 billion, with over four-fifths dedicated to upstream projects. Net liquids production during the first quarter of this year showed a 6.4% year-on-year (y/y) fall to 1.665 million b/d, with output falling both in the United States and internationally. Natural gas production as a whole grew by 8.8% to 5.434 bcf/d, driven exclusively by strong international growth. Oil sands output in Canada fell by 12.5%. Overall, Chevron's global net oil-equivalent output fell by 1.6%, to 2.599 million boe/d. Outlook and Implications Chevron can thank high oil prices for the jump in net income, which despite resulting in much tighter refining margins has nevertheless allowed the company to post a respectable leap in earnings. Production growth this quarter has essentially been flat, though the company is on track to bring several new projects onstream this year, which should result in boosting overall output. Key among these are the start-up of the 75%-owned Blind Faith oilfield in the U.S. Gulf of Mexico (GOM) and the 68%-owned Agbami project in Nigeria. These two projects are expected to boost production by around 320,000 b/d within a year of coming onstream. The 50%-owned Tengizchevroil project in Kazakhstan is also due to come onstream during 2008, with an additional 140,000 b/d of crude output expected eventually. The company has continued to spend sizeable sums repurchasing stock, spending around US$2 billion so far this year. Excluding projects due onstream this year, Chevron is holding a strong hand in terms of projects due to come onstream from 2010 onwards. All these factors point towards the presence of a very solid platform for growth going forwards. Concern will, however, naturally be directed toward the downstream, where refining has effectively been a break-even business over the quarter. This might, over the longer run, encourage the company to decrease investments downstream, but much will of course depend on the future direction of oil prices. A decrease in oil prices to between US$80/b and US$100/b should allow profits to continue upstream while easing downstream margins. With Canada expected to increase oil sands production markedly in the years ahead, Chevron's refineries should anticipate having to process increasingly heavier and sourer crude, so the necessary capital will have to be invested to ensure that facilities are upgraded. In the meantime, Chevron will be pleased with its results this quarter and can look forward to higher production in the months ahead.
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