Good Earnings Aren’t Always Enough (CVX, EGO, EQT, TDW)

Pre-open earnings came out today for Chevron (NYSE:CVX), El Dorado Gold (NYSE:EGO), Equitable Resources, (NYSE:EQT), and Tidewater (NYSE:TDW). Two play in the oil and gas patch, one is an oilfield services company, and one is miner. All did well, but maybe not well enough.

Chevron reported earnings of $6 billion, or EPS of $2.90, for thesecond quarter of 2008, up from $5.4 billion and EPS of$2.52 for thesame period last year. Revenues totaled $83 billion for the quarter.But analysts were expecting revenues of $92.41 billion and EPS of$3.03. It’s the same story as last quarter: production revenues are wayup, following crude oil prices, and refining/marketing revenues are waydown.

Equitable, which focuses mainly on natural gas production, reportedsecond quarter earnings of $55.39 million (EPS of $0.44) on revenues of$215 million. For the same period a year ago, the company had revenuesof $176.29 million, income of $107.34, and EPS of $0.88. Analystsexpected EPS of $0.44 on revenues of $289.71 million. Like Chevron,Equitable fell short on revenues mainly due to production problems andhigher operating costs.

In oilfield services, Tidewater reported earnings of $84.8 million, orEPS of $1.64, on $340.1 million in revenues. For the same period a yearago, the company earned $87.5 million ($1.55 EPS) on $205.5 million inrevenues. The company beat expectations of $1.52 EPS and revenues of$333.24 million. But operating costs are up sharply, and that’sdragging the stock down in early trading.

As for gold, El Dorado reported net income for the second quarterof$25.16 million, or EPS of $0.07, on revenues of $82.53 million. Inthe same period last year, the company posted revenues of $76.66million, net income of $26.73 million, and EPS of $0.08. El Dorado metanalysts EPS estimates. The stock is up about $0.35 in early trading.The big plus in El Dorado’s report is its low cash costs per ounce ofgold produced. Average costs were $229/ounce, and average sales pricewas $904/ounce. In the same period last year, El Dorado’s cash costswere $259/ounce and its sales price was $664/ounce. Production was thedifference. In the second quarter of 2007, the company produced 112,702ounces of gold compared with 88,610 ounces in the 2008 second quarter.

The high cost of fuel helps Chevron and Equitable, but Chevron’sproduction and operating costs rose more than 50% y-o-y. Equitable’sproduction operating expenses in the 2008 second quarter were $50.8million, 35% higher than the same period a year ago. Tidewater’s vesseloperating costs were nearly 28% higher y-o-y. Only El Dorado reducedits production costs.

Historically, gold trades at about 10x the price of oil. Oil is up morethan $4.00 so far today, to more than $128/b. Gold is up about $1.60,to about $924/ounce. If you believe the prior ratios are relevant intoday’s world, this looks like an opportunity.

Paul Ausick
August 1, 2008