Growth in Marcellus, Permian, Gulf of Mexico Boosts Chevron in Second-Quarter 2014, with Major Start-Ups on Horizon

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Researched by Industrial Info Resources (Sugar Land, Texas)--With market conditions improving for crude oil, Chevron Corporation (NYSE:CVX) (San Ramon, California) reported narrowly higher revenues and profits for the second quarter of 2014. The company also was boosted by production growth in the Permian Basin, Marcellus Shale and Gulf of Mexico, although some of these improvements were offset by higher operational costs. Net income for the quarter was reported to be $5.67 billion, a 5.59% increase from second-quarter 2013.

Industrial Info is tracking $142 billion in active projects involving Chevron, including the $4 billion expansion of the Jackpine Oil Sands Mine in Fort McMurray, Alberta. The plan, which is part of the 255,000-barrel-per-day (BBL/d) Athabasca Oil Sands Project (ASOP), involves expanding the open pit operation and flotation processing plant by 100,000 BBL/d and increasing the bitumen production capacity to 355,000 BBL/d. The project is being steered by the owners of the Athabasca Oil Sands Project: Shell Canada Energy (NYSE:RDS.A) (60%), Chevron (20%) and Marathon Oil Canada (NYSE:MRO) (20%). It is expected to be completed in fourth-quarter 2014.

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Total revenues stood at $57.94 billion, a 1% increase from second-quarter 2013, as price realizations for crude oil and natural gas improved globally. Despite notable production gains in the Permian Basin and the Marcellus Shale, global oil-equivalent production was down 1.16% from the same period last year, to 2.55 million barrels per day. Much of the decrease was attributed to planned maintenance at the Tengizchevroil facility in Kazakhstan. Global exploration and depreciation expenses were higher in both the Upstream and Downstream segments.

Chevron Phillips Chemical Company LLG, a 50:50 joint venture with Phillips 66 (NYSE:PSX) (Houston), led improvement in the Downstream segment's gains during the quarter as it began production at a 250,000-metric-ton-per-year hexene plant at the Cedar Bayou complex in Baytown, Texas.

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Although U.S. Downstream business benefited from strong margins on refined product sales, the International Downstream business saw lower margins and weaker crude oil input.

Chevron's massive Australian projects made significant progress: the Gorgon project is closer to liquefied natural gas (LNG) production after the installation of its first train, and the Wheatstone project saw the delivery of major components for its offloading facility. The Gorgon project is now expected to begin operations in mid-2015. For more information, see July 8, 2014, article - Massive LNG Projects in Australia Reach Significant Milestones.

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Among the other factors affecting the company's quarter was a $232 million decrease in earnings from foreign currency translation, which somewhat skews a year-over-year comparison since second-quarter 2013 saw positive foreign currency translation of $302 million.

Capital and exploratory expenditures were reported to be $19.6 billion for the quarter, compared with $18.3 billion in second-quarter 2013. About 93% of the expenditures were for the Upstream segment.

"Higher production volumes at the Perdido and Caesar Tonga fields in the Gulf of Mexico, and the Midland and Delaware basins in the Permian, and San Joaquin Valley, increased earnings by $115 million," said Jeff Gustavson, the general manager for investor relations at Chevron, in a conference call. "Higher exploration expenses, mainly associated with the Deepwater Gulf of Mexico, decreased earnings by $95 million."

Chevron executives expect to see a 20% growth in production by 2017 from ongoing capital projects. These include the Gorgon and Wheatstone projects in Australia, and the Tubular Bells, Jack/St. Malo and Big Foot projects in the Gulf of Mexico. The Gulf projects are expected to start up in third-quarter and fourth-quarter 2014, and next year, respectively.

"For the last several years, we been in a period of high investment while our [major capital projects] progressed through the construction phase," said George Kirkland, the vice chairman and executive vice president of the Upstream segment, in the conference call. "As these projects now transition to operations--beginning with our deepwater projects Tubular Bells and Jack/St. Malo--we forecast significant volume and earnings growth.

"While many projects contribute to our growth, the majority of our new volume is generated by eight of our largest major capital projects: Gorgon and Wheatstone in Australia, Mafumeira Sul and A-LNG in Angola, Papa Terra in Brazil, and Jack/St. Malo, Tubular Bells and Big Foot in the Deepwater Gulf of Mexico."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, 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.