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Chevron Tops U.S. Big Oil Contingent

David Lee Smith
May 1, 2012

With earnings season essentially having been relegated to history for the major oil companies, it's difficult not to be impressed by the scope and direction of Chevron (NYSE: CVX  ) , the second-largest of the U.S.-based integrated companies, and Royal Dutch Shell (NYSE: RDS-B  ) , its Anglo-Dutch peer. 

In an overall evaluation of all the companies, including their relative approaches to their businesses and their geographic concentrations, one is likely to find the California-based company about as compelling as is Shell.

Production dips, but the wells are well
Chevron's earnings for the first period of 2012 reached $6.47 billion, compared with $6.21 billion in the comparable quarter a year ago. The per-share number was in line with the expectations of the analysts who follow the company. Chevron's production delta essentially mirrored big brother ExxonMobil's (NYSE: XOM  ) trend, slipping 4.7% percent on the quarter to the 5% pullback at the industry's Irving, Texas-based behemoth. Nevertheless, while Exxon's exploration and production profits fell by 10%, Chevron's increased by 3.2%.

The difference? Chevron is far less involved in the U.S. natural gas scene, having largely limited its primary exposure to dwindling gas prices in our country to what it obtained with its $4.3 billion purchase of Atlas Energy about a year and a half ago. In contrast, ExxonMobil spent $35 billion to buy U.S. gas leader XTO. While there likely will come a day when Exxon benefits from the magnitude of its bet on domestic gas, for now it's proving to be a drag.

To further make my point, Chevron's average price realization for gas rose about 17% internationally to $5.88 per thousand cubic feet (mcf), while its comparable U.S. price tumbled nearly 40% to $2.48 per mcf. To round out Chevron's results, downstream profits were buoyed by assets sales -- primarily involving its Pembroke Refinery in the U.K. -- for an increase of 29%.

Working with the Aussies won't boomerang
It is important to realize, however, that none of this is to imply that if gas prices rise, Chevron will be out in the cold. Indeed, the company has, with relatively little fanfare, become the kingpin of the burgeoning Australian LNG world. For starters, it enjoys a stake of nearly one-half of Western Australia's massive Gorgon project, along with Exxon and Shell. When it begins to produce LNG in 2014, the project's relatively pricey output will be shipped to the likes of China, Japan, India, and South Korea.

In addition, the company is the operator and 72% stakeholder of the big Wheatstone natural gas project, also in Western Australia. Other publicly owned shareholders in Wheatstone include Apache (NYSE: APA