Big Oil, Big Profit, No Big Deal


NEW YORK (TheStreet) -- Chevron (CVX) reported third-quarter earnings of $7.8 billion, or $3.92 per share, well ahead of the Wall Street consensus for earnings of $3.48. Revenue of $64.4 billion was below the top line consensus estimate of $67 billion.

If you look at the headline profit versus the year-ago quarter ($7.8 billion versus $3.8 billion), and the EPS beat, Chevron's results look pretty impressive. However, for those in-the-know in the energy markets, the headline numbers from the Big Oil quarterly reports tend to be a non-event. But with crude oil prices much higher than last year, Big Oil big profit headline numbers persist, even as the exploration and production companies are showing little progress in bumping production. Chevron, likes its peers, said in its earnings that results were helped by higher crude prices and better refining margins.

Chevron pre-reported results earlier this month telling investors to expect flat results versus the previous quarter and a production dip. In the second quarter, Chevron earned $7.7 billion, or $3.85 a share. Chevron already had baked into the earnings expectations a significant contribution from a one-time sale of a refinery during the quarter.

Chevron's worldwide net oil-equivalent production was 2.6 million barrels per day in the third quarter, down from 2.74 million barrels per day in the third quarter last year. Production increases from project ramp-ups in Canada, the United States and Brazil and new volumes stemming from the acquisition of Atlas Energy were more than offset by maintenance-related downtime, normal field declines and an approximate 39,000 barrels per day negative effect of higher prices on volumes produced under cost-recovery and variable-royalty contract provisions, the company said in a release.

"We had another successful quarter," said Chairman and CEO John Watson, "with both strong earnings and cash flow. Current quarter earnings for our upstream operations benefited from higher crude oil prices on world markets. At the same time, gains on asset sales and improved margins for refined petroleum products contributed to increased earnings for our downstream businesses."

Still, investors don't show much love for Big Oil stocks on earnings day saying "show me the production growth" and that doesn't change much quarter to quarter. Take Exxon Mobil ( XOM). It beat estimates and earned $10 billion. But it was one of the market's biggest laggards on Thursday even as almost every single stock rallied.

Exxon Mobil, ConocoPhillips ( COP), and Royal Dutch Shell ( RDS.A) all reported lower production in the third quarter.

Chevron may be better positioned than some peers in terms of production, arguably, because it has more of a liquids-based tilt in its production mix -- more "oily" assets -- meaning its less exposed to low-priced natural gas -- think Exxon Mobil and its $41 billion purchase of XTO Energy, which it is still defending -- but it's not the already known production mix that gets shares moving on expected earnings.

Chevron also announced on Wednesday that it was hiking its dividend 4%, so that's not out there as a catalyst for Friday trading either.

Big Oil earnings have more or less gone according to plan so far: It's company-specific catalysts, and not the big headline profit numbers, that trigger a move in shares.

BP ( BP) announced another $15 billion asset divestiture plan above and beyond its existing $30 billion fire sale, and said it would seek to raise its dividend next year. Its shares, undervalued relative to its peers, rallied. Higher crude prices and better refining margins with crack spreads at historic highs isn't a recipe to get investors too excited about the earnings headlines from the oil majors. It was the same script in the second quarter when it came to Big Oil earnings.

ConocoPhillips reported an adjusted profit beat thanks to higher oil and better refining margins -- a tune being sung by all the majors. But traders don't care. They want to know about its refining and marketing arm spinoff plans, and they are on track, but we won't get the filing with details until later this quarter.

The real E&P earnings trade is in the independent space, where Cabot Oil & Gas ( COG) surged on Thursday after guiding to 50% annual growth in a lower-cost environment. Cabot shares spiked by near 20% on eurozone-euphoria Thursday, and many of the higher beta independent E&P companies, from Apache ( APA) to Anadarko Petroleum ( APC) all rallied sharply as crude oil surged by 4%.

Chevron shares were down at the open on Friday by 1%, as were shares of most of the oil majors.

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