Chevron (CVX) through its subsidiaries engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. On November 2nd, Chevron reported third quarter earnings. During the quarter, the company had revenues of $58 billion which was a 10% decrease from revenues of $64 in the third quarter of 2011. Net income was $5.3 billion which was a 47% decrease from net income of $7.8 billion in the third quarter of 2011. Earnings per share came in at $2.69 which was a 46% decrease from earnings per share of $3.92 in the third quarter of 2011.
Analysts had predicted revenues of $63.9 billion and earnings per share of $2.83. Analysts are now predicting fourth quarter earnings of $3.15 per share up from $2.98 a share just 90 days ago. The average estimate for the 2012 fiscal year is $12.79 per share. Chevron's executives must feel good about the company's future because during the quarter the company repurchased $1.25 billion worth of shares, and it announced plans to repurchase an additional $1.25 billion worth of shares in the fourth quarter.
The primary reason that Chevron missed revenue and earnings estimates was because of lower than expected oil and gas prices. Chevron's CEO John Watson explained the company's less than stellar results as follows "Crude oil prices were down and we had a heavy period of planned oil field maintenance which temporarily reduced oil and gas production in several locations. Foreign currency movements also hurt our results this quarter, while they benefited the year-ago period." During the third quarter, the average sales price for a barrel of oil and natural gas liquids was $91 which was down from $97 in the third quarter of 2011. Oil production was down to 2.52 million barrels from 2.6 million barrels in the third quarter of 2011.
Looking forward, Chevron has several projects in the works that could boost revenues. Perhaps the most interesting is a project that will provide natural gas to eastern European countries. On October 26th, it was announced that Chevron has bought a 50% stake in LL Investicijos, a privately-held Lithuanian oil and gas exploration concern. Derek Magness, Chevron's director general of onshore European operations said the acquisition "fits in with Chevrons regional strategy". Chevron had already purchased 4 million acres of land in Poland and Romania and had been pushing Bulgaria to lift its moratorium on shale gas exploration.
Chevron has also started potentially lucrative drilling projects in Indonesia and in Australia. In Indonesia Chevron just began a $500 million expansion of its Duri field project in Sumatra. At peak production, the site is predicted to add 17 thousand barrels of oil per day to production. On October 25th, it was reported that Chevron had found more natural gas off Australia's west coast. Chevron has big plans for several natural gas projects in the area and is spending billions of dollars developing infrastructure and lining up future customers for natural gas in Asia. This was great news for Chevron, because in Asia, natural gas prices are up to five times higher than in North America.
Recent News about Chevron Corporation
On November 2nd, Chevron's shares pulled-back after disappointing Q3 results. CVX is UBS' preferred pick among U.S. oil majors as it has the least exposure to refining, and Edward Jones' likes CVS'x big development projects coming to fruition in 2014.
On November 2nd, Chevron (CVX -3.1%) says its 240K bbl/day Richmond, CA, refinery that caught fire in August is expected to be back on line in Q1 2013. In September, CVX said a corroded pipe was the focus of the investigation, and officials say they're waiting for test results to confirm it
On November 2nd, we learned that Chevron's misses on earnings and revenues are blamed on lower crude prices and a heavy period of planned oilfield maintenance. Worldwide production was 2.52M barrels of oil equivalent per day vs. 2.6M barrels of oil equivalent per day in the year-ago quarter. Average sales price per barrel of crude oil and natural gas liquids was $91 vs. $97 a year ago. Downstream operations earned $456M vs. $704M a year ago.
On October 31st, it was announced that plaintiffs from Ecuador will sue Chevron in Argentina, seeking to seize company assets in the country to enforce a $18B damage award in a lawsuit over pollution in the Amazon rain forest. CVX calls the Ecuador judgment "a product of bribery, fraud... illegitimate," and does not believe the judgment is enforceable "in any court that observes the rule of law."
On October 25th, Chevron plans to look for shale gas in Lithuania after buying a stake in a local oil company, the country's prime minister says as it seeks greater independence from its sole gas supplier Russia. On October 19th, two oil majors with shale gas concessions in Poland - Conoco Phillips (COP) and Chevron - are taking actions that look like a commitment to the country, in sharp contrast to Exxon Mobil (XOM), which pulled the plug on its Poland plans.
After Chevron reported third quarter earnings, its stock price sank $3.09 or 2.7% on above average trading volume. Investors were disappointed because the company's year-over-year net income was down by 47%. While the third quarter earnings were disappointing, I do not think the Chevron investors should be worried. Despite some one-0time problems that the company will get past, the earnings report seemed to indicate that the company's future looks bright. Chevron has begun several lucrative new overseas projects and analysts are predicting that earnings will improve in the fourth quarter. In the last 10 days, analysts at UBS and Edward Jones said that they prefer Chevron over its competitor Exxon Mobil, which reported what most would consider to be, disappointing earnings on November 1st.
Of the major integrated oil and gas companies, only two saw their stock prices move higher over the last 52 weeks. Those two are Chevron whose stock price is up by 0.6% and Exxon whose stock price is up 13.7%. Over the last 52 weeks the stock price of the other large oil and gas companies Conoco Phillips -19.4%, BP (BP) -3.3%, and Royal Dutch Shell (RDS-A) -1.5% were all lower. I believe that a diversified portfolio should hold at least one large integrated oil and gas company, and my top pick amongst the major energy companies is Chevron. I prefer it because its exploration projects seem to exhibit the highest potential for future earnings.