Chevron Earnings: Profits Rise On Oil Prices Despite Falling Volumes

CVX: Chevron logo

Oil major Chevron (NYSE:CVX) announced its Q1 results on Friday, posting a Year-on-Year (YoY) increase in quarterly profits despite falling production volumes. High oil prices in the past quarter helped the company post another quarter of rising profits. Chevron’s limited exposure to natural gas prices in the U.S. helped the company avoid the impact of low gas prices in the U.S. Rival Exxon Mobil (NYSE:XOM), the biggest producer of natural gas in the U.S., posted a drop in Y0Y Q1 earnings because of the sharp fall in gas prices over the past few months. Chevron’s gas production volumes in the U.S. fell by 8% in the last quarter, signalling that it was broadly following the industry trend to focus more on liquids exploration.

We are restructuring our model for Chevron (NYSE:CVX), which currently estimates a $110 price estimate for the stock, implying a 5% premium on its current stock price.

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Lower volumes

Chevron’s liquid production volumes in the U.S. fell by 6% in Q1 2012 over the same period last year. Gas production declined by 8% in the same period. Much of the decline was attributed to natural decline in fields, maintenance downtime and divestment projects. Output was also hit by low volumes from the Cook Inlet in Alaska. Average gas sales price in the U.S. stood at $2.48 / Thousand cubic feet (Tcf) in Q1, falling from $4.04 last year. Average liquids sales price stood at $102 / barrel, up from $89 / barrel a year ago.

Internationally, volumes showed a decline as well because oil production declined by 6% from the levels in Q1 2011. Natural gas production levels increased by 1% in the period. Chevron announced that international LNG projects and deepwater exploration will help it increase production over the next few years. Gas prices in international markets stood at $5.88 /Tcf, up from $5.03 /Tcf fron last year. Oil prices jumped from $95 /barrel in Q12011 to $109 /barrel in the past quarter.

Downstream prices

Downstream profits saw a rise in the last quarter as well, both in the U.S. as well as in international markets. U.S. downstream earnings increased from $442 million in Q1 2011 to $459 million in the past quarter. The rise in profits was partly explained by higher input volumes. International downstream earnings increased by $345 million from $180 million a year ago, largely because of asset sales.

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