2 Factors That Will Drive Total SA and Chevron in the Second Quarter

Total SA (NYSE: TOT  ) and Chevron (NYSE: CVX  ) didn't perform well in the first quarter, with both companies hit by lower revenue. But can these companies recover in the second quarter? And how will the recent developments in the oil market affect their performance?

A rally on the way?
In 2014, Chevron expects a rise in production. During the first quarter, however, its earnings reached only 53,265 million -- nearly 6% lower than in the parallel quarter in 2013. One of the reasons for this fall was a 2.3% decline in the company's global net oil-equivalent production. Its production increased in Nigeria, Angola, and the United States, but the rally was offset by weather-related issues and unplanned downtime, mainly in Kazakhstan. Most of the decline in production was weather-related. Since weather conditions have improved in the past several months, this factor is less likely to impede Chevron's production in the coming quarters.

Much like Chevron, Total's first quarter results showed a 5.4% drop in revenue mainly due to a 6% fall in its production; specifically, its liquids production segment plummeted by 14%. The lower production in Total's Africa, Middle East, and South America regions more than offset the rise in production in Europe and Asia.

In the second quarter, Total expects its production to be adversely affected by seasonal maintenance in the UK, Norway, and Thailand. Total's investors are likely to see little or no growth in production in the second quarter.

Nonetheless, the company expects to augment its operations in the coming years so that its production in the upstream segment (which accounts for the majority of its revenue) will reach 3 Mboe by 2017; that's nearly 30% higher than in 2013. Moreover, asset sales generated $13 billion in the past couple of years and are expected to generate $7 billion this year. This divestment program could allow the company to allocate more funds toward new projects and higher growth in production in the coming years.

Improved oil and natural gas prices
Another (obvious) factor that plays in favor of these oil companies is the progress in oil and natural gas prices. During the first quarter, Total's average realized oil price was 102.1 per barrel -- nearly 4% lower than in the first quarter in 2013. Chevron hasn't done much better; its U.S. average realized price of oil and natural gas liquids was $91 during the previous quarter, more than 3% below last year's price. The company's international realized crude oil and natural gas liquids price was also 3% lower than in the same quarter in 2013.

During the second quarter (up to date), however, the price of Brent oil reached $108.5 per barrel, which is roughly 5% higher, year over year. The price of WTI oil is set at $101.8 per barrel, which is 8% above last year's price. Natural gas prices also reached higher than normal levels. Despite their fall in the past couple of months, they are still well above last year's prices. These higher energy prices are likely to reflect in these companies' revenues.

Foolish bottom line
On a yearly scale, both Chevron and Total expect to show a rise in their operations. In the second quarter, however, only Chevron is likely to augment its production. Both companies are likely to benefit from the modest rise in oil and gas prices in recent months, though.

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  • Report this Comment On June 04, 2014, at 1:17 AM, buyandsqueeze wrote:

    whereas most such articles discuss only anticipated production increases, this article correctly focuses on BOTH of the main factors that affect oil company revenues and earnings: production and price...this is such a simple concept - but most authors fail...well done !

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Lior Cohen

Lior has been a contributor for the Fool since 2012. His main interests are in commodities, and energy and materials companies.You can follow him on Twitter to stay up to date with his industry analysis. @tradingnrg

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