Chevron (NYSE:CVX) crushed first-quarter earnings estimates, thanks to strong refining margins that doubled since last year's first quarter. The integrated oil giant today reported first-quarter net income of $2.6 billion, or $1.37 per diluted share , versus analyst estimates of $0.79 per diluted share. Nevertheless, it's a 42% drop compared to last year's first quarter. Let's jump into the details:
Upstream disappoints despite production increase
Sales and operating revenue fell 37% from Q1 2014 to $32 billion as the company's average sales price for oil and natural gas liquids fell to $41 per barrel from a heady $91 a year ago in the United States. Internationally, a similar barrel fetched $46, down from $99 a year ago. Natural gas sales fared no better. In the United States, average sales price fell 52% to $2.27 per thousand cubic feet while international sales fared marginally better by clocking $5.01 per thousand cubic feet, a 17% drop.
Not surprisingly, U.S. upstream operations suffered a net loss of $460 million. However, it's interesting to note that Chevron increased its production volumes by 9% or 59,000 barrels of oil equivalent per day -- or boepd -- more compared to a year earlier. Production grew in the Gulf of Mexico, the Permian Basin and in the Marcellus shale. The liquids component grew a solid 12%. Investors should note that for a company that's Chevron's size, the ability to ramp up production by nearly 10% is remarkable. Internationally, total production grew 2% to 1.98 million boepd.
...but takes advantage of high refining margins
However, the downstream segment negated much of the upstream damage to earnings, thanks to Chevron's integrated model. U.S. earnings came in at $706 million -- a solid 67% growth. Management attributes this to higher margins on sale of refined products. However, actual operational earnings growth is higher if we take into account last year's gain from the sale of a pipeline. The company also took advantage of higher margins by increasing its total refinery crude input by 5% to 918,000 barrels per day. Refined product sales grew a modest 1% to 1.21 million barrels per day.
International downstream earnings grew a whopping 149% to $717 million thanks to higher refined product margins as well as foreign currency effects. Foreign exchange effects added up to a significant $82 million advantage over last year's first quarter. While total refinery crude input remained pretty much flat at 782,000 bpd, refined product sales grew nearly 13%, or 177,000 bpd, to 1.58 million bpd, riding on higher gasoline and jet fuel sales.
While earnings comfortably surpassed analyst estimates, the market doesn't seem to be impressed with the results with the stock down about 2% this morning. We should be able to fill in with more details once the conference call takes place today. However, one clue could be found in Chevron's cash flow from operations which fell a significant 72% from last year's first quarter to $2.3 billion. The market possibly wasn't expecting such a major fall. That said, market expectation will hinge heavily on the earnings call in some time.