UPDATE 3-Chevron profit drops on cheaper oil, slim refining margins

Fri Aug 2, 2013 1:11pm EDT

By Braden Reddall
    Aug 2 (Reuters) - Chevron Corp posted on Friday a
steeper-than-expected 26 percent drop in quarterly profit on
softer oil prices and thinner refining margins.
    Shares of the second-largest U.S. oil company slipped 2
percent as quarterly oil and gas volumes weakened to a level
well below Chevron's full-year target.
    Achieving increased production from oil wells has been a
struggle for Chevron and larger rival Exxon Mobil Corp,
which reported disappointing results on Thursday along with
Royal Dutch Shell Plc. 
    Chevron's second-quarter net income fell to $5.37 billion,
or $2.77 per share, from $7.21 billion, or $3.66 per share, a
year earlier. Analysts, on average, expected $2.96 per share,
according to Thomson Reuters I/B/E/S.  
    Chevron produced 2.58 million barrels of oil equivalent per
day, down from 2.62 million bpd a year earlier. The company is
targeting 2.65 million bpd for this year, and reiterated that
goal on Friday, with output then expected to grow by 25 percent
by 2017. 
    A big chunk of that growth will be from its huge Australian
liquefied natural gas projects, Gorgon and Wheatstone. Once they
are complete, Chevron will see a "flattening" of annual capital
spending, Vice Chairman George Kirkland said, after the budget
ballooned by $7 billion in two years to $36.7 billion in 2013.
    In British Columbia, Chevron is marketing LNG from the
Kitimat project to Asian buyers and will not make a final
investment decision on that until it has sold between 60 percent
and 70 percent of the LNG, with equity stakes on the table to
sweeten the deal for buyers. 
    So a final decision on Kitimat is unlikely until next year,
Kirkland said on a call with analysts, while acknowledging the
competition within Chevron to sell the expected output of both
Kitimat and Gorgon.
    "There is a little bit of a horse race between them at this
point in our own shop," he said, adding that he believed both
had a timing advantage over competing LNG capacity from East
Africa.
    
    OIL PRICE HIT
    In the second quarter, non-U.S. exploration and production
earnings fell 10 percent to $3.87 billion, with costs up and the
average sale price for liquids down to $94 per barrel from $99 a
year before. Output also declined, by 42,000 bpd. 
    U.S. upstream earnings dropped 18 percent to $1.08 billion,
while U.S. refining and marketing earnings tumbled 83 percent as
refinery crude input fell 114,000 bpd to 814,000 bpd, mainly due
to the fire at its plant in Richmond, California, last August. 
    Lower margins hit all U.S. refiners, with the discount they
enjoyed from cheaper U.S. crude narrower than before.
 
    Shares of Chevron, based in San Ramon, California, were down
2.3 percent at $123.51 on Friday.
    The stock has comfortably outperformed peers in 2013, rising
15 percent, compared with 6 percent for Exxon. Chevron's market
capitalization of $240 billion is now larger than PetroChina
 - making it the world's second-largest publicly
traded oil company.
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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