Oil and gas company Chevron (
CVX) issued earnings warning for the fourth quarter that might be considerably lower than third quarter as refining margin and currency fluctuation set to upset the numbers. Predictably, the news has sent the stock down. The latest news from the oil major indicates what is in store for others in the same sector, especially those who are operating in the Gulf region.
The San Ramon, California-based oil and gas company disclosed that its profitable refining and marketing unit could only roughly breakeven in the fourth quarter, hurt by drop in refinery volumes both in the U.S. as well as overseas. This apart, refining margins witnessed a sharp fall on the U.S. Gulf Coast to average approximately $11.84 per barrel from $24.45 recorded in the third quarter. The company earned $1.99 billion from the downstream refining and marking division.
However, Chevron indicated that its profits from the upstream oil and gas production unit is likely to come approximately $6.2 billion, the same for the third quarter. This assumes excludes currency fluctuations.
The third quarter results were favorably benefited to the tune of $450 million from currency fluctuations. However, the fourth quarter will not only miss the benefits but also suffer loss on currency fluctuations. The company also sees corporate and others to be more than the normal $250 - $350 million in the fourth quarter.
Chevron's third quarter numbers also benefited from $500 million sale of its refinery at Pembroke in Wales.
For the third quarter, the company's earnings more than doubled to $7.8 billion or $3.92 a share from $3.8 billion or $1.87 a share in the year-ago quarter. The surge in profit was attributed mainly to higher price realization for crude oil and refined products. But sales and other revenues jumped 27.1 percent to $61 billion from $48 billion in the previous year quarter.
Chevron generated International upstream earnings of $4.69 billion compared to $2.08 billion on increased price realizations, though partly offset by higher tax charges. Foreign currency fluctuation also contributed to its earnings by as much as $304 million in the third quarter. The company realized crude oil price of $103 per barrel versus $70 a barrel, while average natural gas price was $5.50 per thousand cubic feet, up from $4.73 in 2010 third quarter.
The company indicated that crude oil price realization in the U.S. grew $5.14 per barrel during the first two months of the fourth quarter, whereas international liquids realization weakened $1.04 to $101.78 per barrel. Natural gas price realization in the U.S. slipped $0.43 to $3.71 per thousand cubic feet, while international natural gas price realization remained relatively flat at $5.51 per thousand cubic feet in the first two months of the fourth quarter.
Interestingly, Marathon Petroleum and Tesoro have also indicated earlier in the month that they may report losses during the fourth quarter.
Wall Street analysts were estimating Chevron to report earnings of $3.29 per share on revenues of $74.70 billion before the latest announcement came in. The company will report its fourth quarter earnings number on January 27.