Chevron Corp. on Friday said quarterly earnings were down 4.5% and revenue was off more than 6% as the integrated major spent for some big-ticket natural gas projects that won’t be ramping up for years, and it dealt with refinery maintenance issues in the United States.
Net profits were $6.18 billion ($3.18/share), versus $6.47 billion ($3.27) in 1Q2012. Revenue dropped 6.4% to $56.82 million, while operating margins were down at 18.1% from 19.9%. Wall Street’s consensus forecast for 1Q2013 was $3.08/share, on revenue of $67.73 billion.
Like ExxonMobil and ConocoPhillips executives, who discussed their operations on Thursday (see Daily GPI, April 26a; April 26b), Chevron continues to keep its U.S. dry gas drilling to a minimum, despite the recent price gains.
Also like its U.S.-based peers, Chevron’s big focus today is in the deepwater Gulf of Mexico, where Chevron is participating in some large new discoveries and is readying the St. Malo/Jack project in the Lower Tertiary Trend.
During an hour-long conference call, CFO Pat Yarrington talked about gas production and prices, as well as the costly long-term projects that will take more cash and several more years to complete.
Chevron’s U.S. natural gas production climbed to 1.26 Bcf/d in 1Q2013, up with 1.17 Bcf/d a year ago. Domestic gas sales climbed to 6,095 MMcf/d from 5,611 MMcf/d.
“We really have restricted all of our dry gas production to minimum amounts,” said the CFO. Most of the increased gas output was from the Marcellus Shale, which has certain benefits, she said.
A substantial drilling carry was put in place three years ago when Chevron bought onshore operator Atlas Energy Inc. (see Daily GPI, Nov. 10, 2010). Atlas’ joint venture partner in the Marcellus at the time, India’s Reliance Industries Ltd., was part of the agreement, and it is funding 75% of the drilling costs, up to $1.4 billion.
The carry, which should last another year to 18 months, has allowed Chevron to run eight gas rigs in the gassy play; current output is estimated at about 850 MMcf/d. There’s no plan to reduce rigs as long as someone else is paying the tab, said Yarrington.
“The expectation is the drilling carry is working through a period of relatively low U.S. gas prices, which allows us to understand the reservoir, build up development plans for the basin, and when the time for the carry is over, we’ll be in a strong U.S. natural gas price environment…
“At the same time, we’ve had good success in improving the well economics, improving the costs per well, improving our footprint per well and improving the environmental impact per well…”
Chevron’s gas production also rose in the latest period from associated production in its a “heavy liquids concentration efforts,” and “we’ll continue to see those ramp up,” she said.
Other gas projects are requiring lots of cash today for a big payoff in five or six years, she said. Among them is the Kitimat LNG facility in British Columbia, in which Apache Corp. is a half-partner (see Daily GPI, Dec. 26, 2012), and two LNG export projects in Australia, Wheatstone and Gorgon, which require “long-term investment cycles of 60-months-plus.”
Kitimat remains in the appraisal stage; Wheatstone has secured 80% of its takeaway contracts, all indexed to oil prices.
Total U.S. oil and gas production year/year increased to 664,000 boe/d from 651,000 boe/d. However, domestic liquids output fell to 455,000 b/d net from 456,000 boe/d. Worldwide, gas output rose to 5.31 Bcf/d from 5.02 Bcf/d, and oil and gas output was 2.65 million boe/d, versus 2.63 million boe/d.
Partly on U.S. refinery maintenance issues, net profits declined to $6.18 billion ($3.18/share) from $6.47 billion ($3.27) in 1Q2012. Revenue dropped 6.4% to $56.82 million, mostly on lower crude oil prices. Operating margins were down at 18.1% from 19.9%. Wall Street’s consensus forecast for 1Q2013 was $3.08/share) on revenue of $67.73 billion.
Exploration and production profits fell 4.1% to $5.92 billion from $6.17 billion. U.S. upstream earnings declined to $1.13 billion from $1.53 billion.
Chevron fetched $2.48/Mcf on average for its natural gas in 1Q2013, down from $3.11 in 1Q2012, and off from the Henry Hub average of $2.73. Average crude prices were $108.37/bbl, ahead of the year-ago price $97.23, while liquids earned a realization of $$101.93/bbl, compared with $90.67.
The company also repurchased $1.25 billion in shares during the quarter, and it expect the same for 2Q2013.
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