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Here's What Investors Need to Know About Chevron's Second Quarter Update

Chevron (NYSE: CVX  ) released its interim second quarter update at the beginning of this month, and it would appear as if the oil major is in for a stable second quarter.

Management sees total upstream production coming in at just under 2.6 million boe/d during the period, down marginally from the level reported during the first quarter and down by around 0.6% year on year.

The average realized price per barrel of oil and million cubic feet of natural gas did improve slightly from the year-ago period. Internationally, the average realized price per barrel of oil jumped from $93.71, reported in the year ago period, to $100.35 for the second quarter of this year. 

The stronger pricing environment did go some way toward offsetting Chevron's falling production. Nevertheless, Chevron cannot be reliant upon higher prices to offset declining output in the future. However, while production is falling right now, Chevron has a number of huge projects coming onstream over the next few years, which, if executed correctly without any problems, should boost production by around 20%.

For the time being then, Chevron can afford to rely on an advantageous pricing environment. 

Rising domestic production
On a segmental basis, Chevron is set to report higher U.S. output during the second quarter. Total oil-equivalent output is set to come in at 665,000 bbl/d, up 4% year on year. This growth was primarily due to less maintenance activity in the Gulf of Mexico and increased production in the Permian Basin.

Internationally, net oil-equivalent production was lower due to turnaround activity in Kazakhstan, and the shutdown of the LNG facility in Angola.

Downstream, Chevron's management is expecting earnings to be comparable to the first quarter. Higher margins within the U.S. will be offset by lower volumes and unscheduled maintenance costs.

One-off gains
However, while Chevron's production fell slightly, the company benefited from gains on asset sales and an absence of impairments in the prior quarter. Chevron took around $450 million of asset impairments during the first quarter, mainly relating to mining and upstream assets. During the second quarter Chevron is set to benefit from $500 million to $600 million of gains on asset sales.

On the other hand, foreign exchange losses are only getting worse for the company. Chevron estimates that unfavorable exchange rates will cost the company $250 million to $300 million during the quarter, compared to $79 million during the first quarter.

What's more, under the section entitled,  "All Other" Segment Guidance, the company is expecting to report losses of $400 million to $500 million. So all in all, including gains on asset sales, foreign exchange losses and "all other" items, Chevron is predicting a loss in the region of $150 million to $250 million. 

The bottom line
Chevron's production is set to fall overall but higher realized prices should stabilize upstream income. 

Still, for those who follow Chevron the details will come in the company's second quarter conference call. On the call management should provide an update on how the company's impressive deepwater Gulf of Mexico projects are progressing, a major building block in Chevron's long-term plan.   

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  • Report this Comment On July 24, 2014, at 12:40 PM, allrightallready wrote:

    Be careful folks.

    The Chevron hype machine seems to be out in force.

    A Zacks article's HEADLINE included forChevron: "solid earnings revisions."

    Reading the fine print. 2 cents!!!!! Wow.

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Rupert Hargreaves

Rupert has been writing for the Motley Fool since December 2012. He primarily covers tobacco and resource companies with a passion for value-oriented investments. .

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8/28/2015 10:37 AM
CVX $80.10 Up +2.46 +3.17%
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