Chevron Deals with Weakened Oil Market in Second-Quarter 2012, But Continues Expansions at Full Speed

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Researched by Industrial Info Resources (Sugar Land, Texas)--Weaker oil markets took a toll on Chevron Corporation (NYSE:CVX) (San Ramon, California) in the second quarter of 2012, as lower volumes and price realizations for crude oil, numerous maintenance projects, and production field declines led to lower profits and revenues. Still, the company continued global expansion projects, including in the Gulf of Mexico. Net income for the quarter was reported to be $7.21 billion, a 6.75% decrease from second-quarter 2011.

Total revenues for the quarter stood at $62.61 billion, a 9.2% decrease from the same period last year. Capital and exploratory expenditures stood at $7.83 billion, a 6.2% decrease from the second quarter of 2011. The Upstream segment accounted for 90% of the expenditures.

During the quarter, the Upstream segment won bids for more shelf and deepwater exploration acreage in the Gulf of Mexico. The segment also saw production increases with ramp-ups at the Caesar/Tonga and Perdido projects in the Gulf, as well as ramp-ups in Nigeria and Thailand, although in both cases, the gains were more than offset by decreases that were attributed to normal field declines and maintenance. In particular, U.S. Upstream earnings were lower partly due to the loss of assets at Cook Inlet, Alaska, which were sold off last year (2011). The U.S. Upstream business also saw lower natural gas realizations, while the International Upstream business saw higher exploration expenses. Both reported lower crude oil realizations.

The International Downstream business benefited from improved refined product sales margins and a $200 million gain in asset sales, which was largely due to the sale of South Korean power operations by GS Caltex (Seoul, South Korea), which is owned by Chevron and GS Group (Seoul). Chevron also sold off several aviation and fuel-marketing assets in the Caribbean.

Industrial Info is tracking more than $92.5 billion in active projects involving Chevron, including two that are part of Western Australia's $43 billion Gorgon Gas Project at Barrow Island: the $1.93 billion construction of jetty and marine structures, and the $550 million construction of liquefied natural gas (LNG) and condensate storage tanks. The former project involves building open-pile, 2.1-kilometer jetty and marine structures, including a heavy lift facility, tug pens and navigation aids; the latter involves constructing two 180,000-cubic-meter LNG tanks and four 35,000-cubic-meter carbon steel condensate tanks to support an LNG production plant.

"So far this year, Upstream margins were approximately $26 per barrel," said George Kirkland, the vice chairman and executive vice president of Upstream for Chevron, in a conference call. "Although not all our peers have announced second-quarter results, we expect to continue to lead our competitors in this key metric. Based on the peers that have reported in the first half, we're almost $7 per barrel ahead of our nearest competitor. We have now held this top position for 12 consecutive quarters."

The Upstream and Downstream segments saw sharp earnings drops and gains, respectively:

• The Upstream segment reported total earnings of $5.62 billion, an 18.21% decrease from second-quarter 2011:
• The U.S. Upstream business reported total earnings of $1.32 billion, a 32.41% decrease from the same period last year.
• The International Upstream business reported total earnings of $4.3 billion, a 12.58% decrease from second-quarter 2011.
• The Downstream segment reported total earnings of $1.88 billion, compared with $1.04 billion in the same period last year:
• The U.S. Downstream business reported total earnings of $802 million, a 42.2% increase from second-quarter 2011.
• The International Downstream business reported total earnings of $1.08 billion, compared with $480 million in the same period last year.
• All other segments reported a total earnings loss of $291 million, compared with a $183 million loss in second-quarter 2011.

Production and sales volumes mostly tumbled from the same period last year, although sales of natural gas improved:

• Net liquids production was reported to be 1.78 million barrels per day (BBL/d), a 4.72% decrease from second-quarter 2011.
• Net natural gas production was reported to be 5.08 million metric cubic feet per day, a 2.23% increase from the same period last year.
• Total net-oil equivalent production was reported to be 2.62 million BBL/d, a 2.6% decrease from second-quarter 2011.
• Sales of natural gas were reported to be 9.7 million metric cubic feet per day, a 4.02% decrease from the same period last year.
• Sales of natural gas liquids were reported to be 245,000 BBL/d, a 3.16% decrease from second-quarter 2011.
• Sales of refined products were reported to be 2.84 million BBL/d, an 8.33% decrease from the same period last year.
• Refinery input was reported to be 1.8 million BBL/d, a 4.97% decrease from second-quarter 2011.

Chevron plans to invest nearly $3 billion for the full year in exploration.

Kirkland detailed some of the major capital projects in the conference call: "In the second quarter, we achieved startup of Agbami 2; we have brought online one new producer and one new water injection well. Our plan includes 10 wells in total, six of which are producers. We reached a final investment decision to expand our Bibiyana natural gas field in Bangladesh, where we have a 98% interest. This new project will include expansion of the gas plant to process increased gas volumes from the Bibiyana field, additional development wells, and an enhanced condensate recovery unit. The project is expected to boost Chevron's total natural gas capacity in Bangladesh to more than 300 million cubic feet per day, to 1.4 billion cubic feet per day. Our startup is expected in 2014."

For more information, visit Industrial Info's International Oil and Gas Production Project Database.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.