Chevron expects weak second quarter as production drops

Chevron expects a weaker second quarter performance, driven by lower oil prices and lower international oil production for the second quarter, a result of maintenance and turnaround activity, the company said in an interim update issued Wednesday evening.

Chevron produced 2.57 million barrels per day of oil and natural gas in April and May, down from 2.62 million barrels per day for the full second quarter of 2012.

The decline was mostly driven by drops in international production of about three percent to 1.91 million barrels per day, as maintenance work was performed in Kazakhstan, Australia and Nigeria, the company said.

The interim report covers the first two months of the second quarter, but is considered an early indication of quarterly results for other major oil companies.

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Chevron’s refineries processed 1.61 million barrels per day, down from 1.8 million barrels per day in the second quarter of 2012. These numbers should improve with the Richmond refinery, which came back online in the end of April.

Some analysts question whether continuing to keep its refineries is dragging down Chevron’s value.

“Have the board of directors and management considered the possibility that the super-major business model may ultimately be the source of this undervaluation?” asked Deutsche Bank in a Thursday morning analyst’s note.

Simmons lowered its earnings per share estimate from $2.98 per share down to $2.80 in response to the interim update, due to the updates forecast of weaker than expected international oil production, weaker contributions from its chemicals units and cuts to refining profitability expectations.

Chevron has not invested heavily in domestic unconventional plays and has less to gain from recent higher natural domestic gas prices. It has focused instead on deepwater Gulf of Mexico exploration and several mega-liquefied natural gas projects.

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It is also the most established integrated company in Asia, banking on growing Asian energy demand.

“The company has a huge Asian position, which will likely represent the fastest growing energy market globally of the 21st century,” wrote Deutsche Bank in its report. “Combined with its West Coast exposure, Chevron can lay claim to the title of Pacific Rim Super Major.”

This strategy includes betting heavily on international liquefied natural gas, but the company has faced challenges meeting project and cost schedules.

Chevron has struggled with its huge $37 billion Gorgon LNG project in Northwest Australia, but still hopes for investment first gas in 2014, Chevron said.

There have also been delays at several of its projects, including further development its joint venture Tengiz oilfield in Kazakhstan, its Excravos gas-to-liquids project in Nigeria and its Tahiti project in the deepwater Gulf of Mexico.

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