Chevron Corp. warned investors last week in an interim report that fourth quarter earnings would be “significantly” lower sequentially than in the third quarter, a signal that even Big Oil may not be immune to lower domestic natural gas prices, an analyst said.

Chevron’s realized U.S. gas prices averaged $3.71/Mcf in the final three months of 2011, which was 1.6% higher than the year before but 10.4% lower than in the third quarter. U.S. oil prices were up 34% in the final quarter year/year and up 5.1% from the third quarter.

The steep drop in U.S. gas prices quarter/quarter indicates that Chevron and other majors may be more impacted by low domestic prices than anticipated, said Barclays Capital analyst Paul Cheng in a note. He wrote that consensus estimates on earnings for the sector may be too optimistic.

“While the major oil companies’ 4Q2011 results should be helped by slightly stronger-than-expected oil prices, results will not be immune from the shortfall in their downstream and chemical results as well as the weakness in the North America gas market.

“Among the Big Three, we think ConocoPhillips will likely report a somewhat bigger miss than Chevron and ExxonMobil Corp. due to its relatively heavy exposure in refining and the North America gas market.”

Chevron, the second largest U.S oil major after ExxonMobil, reported 3Q2011 earnings that were “comparable” to 2Q2011, in part because of gains from asset sales and on higher refinery margins (see NGI, Oct. 31, 2011).

The San Ramon, CA-based major, which is scheduled to issue its fourth quarter report on Jan. 27, said U.S. oil and gas output in October and November reached nearly 660,000 boe/d, which is down 5.4% from the same period of 2010 and 0.3% lower than in the third quarter of 2011. International output for the two-month period totaled 1.98 million boe/d, off by 5.2% from the same period a year earlier and 2.2% below the third quarter.

In the final three months of 2011 Chevron’s refining operations were impacted by the same conditions recently noted by competitor Marathon Oil Corp., which is spinning off its refining operations. While domestic oil prices rose steadily, fuel demand was flat, which in turn has impacted refinery operations.

Chevron’s fourth quarter report also is expected to be impacted by a foreign exchange loss, versus a gain of almost $450 million in 3Q2011. Earnings within the exploration and production segment should be similar to those in the third quarter. After-tax net charges in the final period are expected to be $250-350 million.

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