Oil major Chevron (NYSE:CVX) came out with its interim results for Q1 2012, reporting that its profits for the period would be higher than in Q4 2011 because of rising oil prices and improving refining margins.  While upstream oil and gas output fell slightly over the last quarter, higher oil prices offset lower production and falling gas prices in North America. Downstream profitability is also expected to go up because of higher refining volumes and better margins. Rival ConocoPhillips (NYSE:COP) will be spinning off its downstream division at the beginning of next month.
We have a $109 price estimate for Chevron, which is about 10% higher than the current market price.
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Chevron’s production volumes in the U.S. saw a slight decline in Q1 because of lower gas production in the period. Daily output of oil in the U.S. rose slightly in the period between Jan to Feb 2012 to 450 MBD from 447 MBD in Q4 2011.  Although WTI prices rose by almost 8% in the period, the company’s realizations on its oil output rose much more slowly.
Realization from gas production fell by almost 25% in the same period because of the supply glut in the North American market and the mild winter in the region. International oil production fell slightly but higher output of natural gas helped increase overall output slightly. Realization on crude sales in international markets rose by around 6% over the last quarter. Gas prices in these markets also rose in the period. Profitability in Q1 2012 will also be pushed up because of lower operational expenses.
Going ahead, the company warned that the suspension of output from the Frade fields in Brazil could hit output by 33,000 barrels a day (b/d) in the next quarter.
All major market indicators for refining margins showed an improvement in Q1 2012.  Downstream results are also expected to show an improvement by higher input volumes. Chevron’s downstream results will also be boosted by an asset sale in Spain that will result in a $200 million gain in the period.
- Refining Margins Set to Improve As Capacity Surplus Falls (trefis.com)
- Chevron Feels Squeeze on Refinery Margins, Lower Oil Output Than Expected (trefis.com)
- Chevron Issues Interim Update for First Quarter 2012, Chevron [↩] [↩] [↩]