Chevron Expects Improved Profits on Refining Gains (CVX, BP, XOM, COP)

Chevron Corp. (NYSE: CVX) has released its interim update for the 2010 second quarter ahead of its earnings release scheduled for July 30th. Chevron expects earnings to rise about first quarter earnings on “significantly higher” results in its downstream operations, which includes refining and marketing.

Chevron’s release is the first information investors have seen about the results of the major integrated oil companies. The most closely watched earnings report will be that from BP plc (NYSE: BP), due out on July 27th. ConocoPhillips Corp. (NYSE: COP) reports second quarter earnings on July 28th, and Exxon Mobil Corp. announces earnings on July 29th.

Through the end of May, Chevron produced 714,000 barrels of oil equivalent per day in the US, up from 700,000 for the full second quarter of 2009. The average spot price for WTI in 2009 was $59.61/b compared with $77.91 in the second quarter of 2010. International production, including synthetic crude from the Canadian oil sands, totaled 2.03 million barrels of oil equivalent through May, compared with 1.97 million barrels through the full second quarter a year ago. The average spot price/barrel of Brent crude rose to $78.24, compared with $59.13 a year ago.

Looking at Chevron’s natural gas operations, the company’s average realization for the first two months of the quarter were $3.96/thousand cubic feet, down from $5.29 in the first quarter, but up from the 2009 second quarter price of $3.27.

Refinery inputs are on track to surpass 2009 volumes and refining margins on the Gulf coast increased from $13.46/b in 2009 to $21.65/b this year. Refining margins rose everywhere else as well, but not as dramatically. Marketing margins also improved year-over-year in every region.

Chevron also noted that its downstream earnings will benefit from a more favorable currency exchange rate and the timing effects of declining commodity prices.

In operational terms, the other major integrated oil companies’ should show similar results. Crude prices are up, so upstream revenues will be up and profits will rise. Downstream, refining margins are up, finally.

Paul Ausick