UPDATE 2-Chevron sees Q3 profit flat vs Q2, boosted by sale

Tue Oct 11, 2011 7:08pm EDT

* July-Aug oil-equivalent 2.60 mln bpd, vs Q2's 2.69 mln

* U.S. refinery margins down from Q2 peaks, as expected

By Braden Reddall

Oct 11 (Reuters) - Chevron Corp expects third-quarter earnings similar to the previous quarter, with lower oil prices and output offset by a $500 million gain on the sale of its Welsh refinery and British and Irish marketing assets.

The second-largest U.S. oil company reported a $7.7 billion net profit in the second quarter, and analysts had previously been looking for $6.5 billion on average in the third quarter, according to Thomson Reuters I/B/E/S.

But any improvement in near-term profit estimates could be offset by lingering concerns about efforts by leading private-sector oil companies to increase their oil and gas production.

Chevron's international oil-equivalent production fell to 1.93 million barrels per day (bpd) in the first two months of the quarter from 2 million in all of the second quarter, the company said in its quarterly interim update on Tuesday.

Chevron said this drop largely reflected a now-remediated third-party pipeline incident in Thailand and planned work in Kazakhstan and Britain, predicting better production this quarter as these effects disappear and new output is added.

Average U.S. production in July and August fell to 676,000 bpd from 694,000 in the second quarter, it said, blaming that on maintenance work in the Gulf of Mexico.

In total, Chevron reported 2.60 million bpd of oil-equivalent production for the first two months of the quarter, down from 2.69 million in the second quarter.

In July, Chevron trimmed its average 2011 output estimate by 30,000 bpd to 2.76 million, assuming oil at $79 per barrel, or 2.73 million bpd with Brent crude prices assumed at $111. Under production-sharing contracts, pricier oil means Chevron must leave more output in the hands of state-owned partners around the world.

Brent crude averaged $112 per barrel in the quarter, down from $117 in the second quarter but up from $77 a year before.

Chevron switched to using Brent from the U.S. benchmark of West Texas Intermediate earlier this year when calculating production-sharing contract changes.

Chevron, offering the quarter's first big oil company view of last quarter, cited data showing refining margins were mixed overall. They edged higher in Singapore and Europe, while U.S. refining margins came off their second-quarter peaks, which was anticipated by a Chevron executive in May.

As for the one-off $500 million gain for the downstream division, Valero Energy Corp , the largest U.S. company focused solely on refining, closed its $730 million purchase of Chevron's Pembroke refinery in August.

Chevron shares slipped immediately after the interim update, but were last trading just 5 cents lower at $97.55 in after-hours trading on Tuesday.

The San Ramon, California-based company reports its third-quarter results on Oct. 28.

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