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Chevron Announces US$6 bil. in Q2 Profits4 Aug 08Chevron has unveiled an 11% jump in net income during the second quarter, taking overall profits to just under US$6 billion.
Chevron released its latest quarterly operational and financial results on Friday afternoon (1 August) showing a healthy rise in income of just over 11%. The supermajor's second-quarter net income jumped to US$5.98 billion, up by US$595 million year-on-year (y/y). Overall revenues were up just under 48% to US$83 billion, while capital expenditures rose to US$5.16, up US$614 million, driven primarily by a US$577-million jump in upstream spending. Upstream
Upstream profits showed stellar performance this quarter, displaying growth of nearly 100%, to take net income in this business segment in the second quarter to US$7.25 billion. The jump in profits has in large part been down to higher oil prices during the first two quarters of this year. Oil prices surpassed the US$100/b level in January, and have remained above this point ever since, reaching as high as US$147/b just a few weeks ago. Compared to the second quarter of 2007, average oil prices during the period have jumped by a remarkable 81%. Natural gas prices have followed oil prices upwards also, helping Chevron to realise further gains thanks to a near-4% rise in gas production. The rise was not consistent across its regions of operations, with gas output in the United States actually falling by nearly 7%, to 1.588 bcf/d. International gas production, however, jumped by just over 9%, to 3.62 bcf/d. Clouding the picture so far, crude oil and natural gas liquids (NGL) output fell quite acutely by nearly 7% y/y, to 1.645 million b/d. The scale of the drop was similar both in the United States and from international operations, ranging between -6.4% and -6.9%. In both cases, the drops were attributed to higher royalties from certain production-sharing contracts (PSCs) kicking in as a result of higher oil prices. Chevron notes that excluding these lost volumes, overall production across its region actually increased slightly. Downstream Chevron's downstream performance this quarter stands in almost complete contrast to that of its upstream. Net income from refining, marketing, transportation, and chemicals was down nearly 150%, dropping from US$1.4 billion during the second quarter of 2007 to a loss of nearly US$700 million. While sales of refined products jumped internationally by 5.6%, to 2.07 million b/d, a sharp fall in U.S. sales of 8.2% wiped out any potential gains, leaving the company with an overall 0.3% drop in sales. Compounding the problem, refinery throughputs in Chevron's U.S. system dropped by over 7%, to 816,000 b/d. Moreover, overall refining inputs across all regions dropped by 3%, to 1.77 million b/d. Outlook and Implications Chevron's operational performance upstream this quarter has been disappointing, contributing weaker fundamentals not just to upstream earnings, but to downstream as well. Unfortunately, the company is hampered by the fact that its own production is insufficient to feed its refining capacity, leaving the company particularly exposed to having to make up for the shortfall by purchasing crude at international market rates. Downstream, the company has pointed to weak refining margins, especially in gasoline (petrol) production, in the United States as being to blame for the poor operational and financial figures seen this quarter. Indeed, with the average retail price of gasoline in the country having jumped above the psychologically important US$4/gallon level, consumers, also hit by the credit crunch and a weaker U.S. economy, have responded by driving less. As a result, refiners have been hit by a double whammy of factors this year, from constricted margins due to fast and sharp oil price rises during the first quarter, to gasoline demand destruction seen during the second. In Chevron's case, the poorer U.S. results were also due to planned maintenance at its facilities, though it also appears that losses on derivatives trading in futures markets also contributed to a significant extent. The company has said that it intends to cut back on such trading activities in the future. While Chevron's options downstream are limited, it will likely follow the example of some of its peers by taking advantage of robust demand for diesel and kerosene by prioritising distillate production. This should limit the scale of losses seen thus far, but the company will also be crossing its fingers for overall margins to recover. In terms of upstream liquids production, the company appears to be placing most of its hope in the new Agbami field start-up in Nigeria, in which it owns a 68% share. The 250,000-boe/d field is expected to be running at its maximum output by the end of next year. Projects elsewhere, especially in the U.S. Gulf of Mexico, remain delayed due to equipment shortages, though output should begin to come onstream by the close of 2009. With international investment opportunities somewhat lacking, the company has continued its policy of repurchasing its own stock. |
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