Energy

What Chevron is Likely to Say Might Not Matter (CVX, XOM, COP)

Chevron_logoAfter the market closes today Chevron (NYSE:CVX) is releasing its interim update for the third quarter of 2008. Typically these updates paint a pretty accurate picture of what investors can expect from the coming earnings release.  The company has made some changes during the quarter that will haveboth one-time and long-term effects on earnings.

Chevron shed all itsWest African and Nigerian fuels marketing operations for an undisclosedamount, and received around $730 million for its Brazilian marketingoperations. The company also nearly doubled production capacity at theTengiz oil field in the Caspian Sea, put its new LNG train in Australiainto operation, and signed a new 30-year deal with Saudi Arabia tocontinue to produce oil and natural gas in the Kingdom.

Profits on crude oil and natural gas will probably show a slightdownturn from the astronomical to the merely outrageous, and refiningmargins are likely to show improvement. Yesterday we noted theimprovement in refining margins at Marathon (NYSE:MRO), and we expectsimilar results for both Exxon (NYSE:XOM) and ConocoPhillips (NYSE:COP).

All this good news probably won’t do much to help the share pricethough. The forces now driving the market are bigger even than themajor integrated oil companies. Chevron reported about $8 billion incash at the end of the second quarter and Exxon reported about $40billion. All that cash helps insulate the companies from the creditmarket freeze, but analysts and investors worry anyway. The share pricefor Chevron is off 32% from its 52-week high, and Exxon is off 34% fromits high.

Crude prices below $90/b have pushed down the value of barrels of oilin the ground, and lower gasoline consumption in the US is beginning tolook like real demand destruction. Consumers stopped buying gasolinewhen it hit about $4/gallon and haven’t come back. They could begetting used to conserving or, more likely, the bad economic news issimply keeping people from driving so they’ll have more money to paythe mortgage and buy food.

There isn’t much positive that Chevron can say today that will change any of that.

Paul Ausick
October 9, 2008

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