Chevron (NYSE:CVX) is scheduled to release its quarterly earnings report tomorrow, and despite having seen all-time record highs in its stock price, the company is expected to post sizable drops in net income and revenue. But the big questions facing the No. 2 energy stock in the Dow Jones Industrials (DJINDICES:^DJI) are whether Chevron can keep its production pace ahead of rival ExxonMobil (NYSE:XOM) and whether Chevron's earnings will hit bottom and start growing in the near future.

Like its larger rival, Chevron has benefited from high oil prices, but its integrated operations make it essential for the oil giant to find new resources in order to replace played-out oil fields. By looking around the world for opportunities, Chevron has done a reasonable job of avoiding the worst of potential production declines, but the never-ending struggle will continue for the company. Let's take an early look at what's been happening with Chevron over the past quarter and what we're likely to see in its quarterly report.

Stats on Chevron

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$56.01 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Will Chevron's earnings turn around soon?
Analysts have modestly reduced their second-quarter Chevron earnings estimates in recent months, cutting their forecasts by $0.11 per share for the June quarter and $0.15 per share for 2014. The stock, though, has continued moving higher, gaining almost 5% since late April.

Chevron has actually offered advance warning that its second-quarter results could be disappointing, having announced in early July that its preliminary Q2 figures showed a 2.1% drop in oil and gas production compared to the year-ago period. A drop of 4.5% to 6% in prices for oil and gas liquids was offset by a 77% boost in dry-natural-gas prices. That led to some replacement of oil production with gas production domestically, but maintenance work and planned shutdowns internationally caused production declines overseas. That's consistent with the company's results from last quarter, when downtime at two of its domestic refineries hurt Chevron's overall earnings, and it also reflects Exxon's gradual erosion of production.

Still, Chevron has done everything it can to find new arenas for growth. With massive gas finds off the shore of Western Australia like its Gorgon project, Chevron hopes to supply natural gas to energy-hungry areas throughout Asia, where natural gas has much more profit potential than prevailing U.S. prices would suggest. It has also made big investments in the Gulf of Mexico, with its Jack and St. Malo deepwater oil fields expected to produce as much as 94,000 barrels per day starting next year. And with other lucrative plays in South America, Africa, and Saudi Arabia, Chevron has a well-diversified portfolio of properties to look for production growth.

Chevron's latest deal could prove to be its riskiest, getting involved in a $1.24 billion deal with Argentina's YPF (NYSE:YPF) to develop the Vaca Muerta oil and gas area. Argentina's political climate poses a risk to outside producers, especially given formerly private YPF's recent nationalization, so Chevron is counting on trustworthiness of the nation's attempts to reach out to foreign producers.

In tomorrow's Chevron earnings report, watch for the company to detail its various production opportunities and prioritize where it expects to make the largest capital expenditures. With so many places to look, Chevron has every opportunity to reverse its recent production declines and find ways to boost output in the future.

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