A Review of the Nigerian Energy Industry

Chevron reports second quarter net income of $5.7bn

Chevron-logo01 August 2014,  Chevron Corporation, Friday, reported earnings of $5.7 billion for second quarter 2014, compared with $5.4 billion in the 2013 second quarter. Foreign currency effects decreased earnings in the 2014 quarter by $232 million, compared with an increase of $302 million a year earlier.

Sales and other operating revenues in second quarter 2014 were $56 billion, compared to $55 billion in the year-ago period.

“Our second quarter earnings and cash flow were solid,” said Chairman and CEO John Watson. “Current quarter earnings reflected stronger market conditions for crude oil, although some of these benefits were offset by lower production volumes as a result of planned maintenance activity at Tengizchevroil in Kazakhstan. Gains on asset sales also contributed to our results, as we completed important sales under our three-year divestment programme.”

Watson added, “We continue to make significant progress on our major capital projects which are expected to underpin a 20 percent increase in production by 2017 and enable significant growth in our cash flows. In the deepwater Gulf of Mexico, our production is expected to benefit in the near-term from start-up of the Jack/St. Malo Project later this year and the Big Foot Project in 2015. In Australia, our Gorgon and Wheatstone LNG projects continue to reach important interim milestones. Gorgon remains on track for expected start-up in mid-2015. We are also advancing the development of our liquids-rich, unconventional properties in the United States, Canada and Argentina.”

Recent upstream highlights include:

  • Australia – All Gorgon Train 1 and common modules required for first LNG have been delivered and installed on Barrow Island.

  • Australia – The first deliveries arrived at the Wheatstone Project’s Materials Offloading Facility. Preparations continue for arrival of the first Train 1 process modules anticipated later this year.

  • Chad/Cameroon – Completed the sale of the company’s nonoperated interest in a producing concession in Chad and the related export pipeline interests in Chad and Cameroon for approximately $1.3 billion.

  • Nigeria – Achieved initial production of product at the Escravos Gas-to-Liquids facility.

  • United States – Offshore hookup and commissioning is underway at the Jack/St. Malo Project, which remains on track for expected start-up in fourth quarter 2014.

  • United States – The production platform has been installed offshore at the nonoperated Tubular Bells development, and start-up is expected in third quarter 2014.

“We also completed work on several important downstream growth investments,” said Watson. The company started commercial production at its new premium lubricants base oil facility in Pascagoula, Mississippi, and completed the expansion of its Singapore additives plant. Chevron Phillips Chemical Company LLC, the company’s 50 percent-owned affiliate, achieved start-up of the world’s largest on-purpose 1-hexene plant, with a capacity of 250,000 metric tons per year, at its Cedar Bayou complex in Baytown, Texas.

The company purchased $1.25 billion of its common stock in the second quarter 2014 under its share repurchase program.

UPSTREAM

Worldwide net oil-equivalent production was 2.55 million barrels per day in second quarter 2014, down from 2.58 million barrels per day in the 2013 second quarter. Production increases from project ramp-ups in the United States, Nigeria, Brazil and Argentina were more than offset by price and other production entitlement effects in several locations, normal field declines, and maintenance-related downtime at Tengizchevroil in Kazakhstan.

U.S. upstream earnings of $1.05 billion in second quarter 2014 were down $29 million from a year earlier, as gains on asset sales and stronger crude oil and natural gas realisations were more than offset by additional depreciation, exploration and operating expenses.

The company’s average sales price per barrel of crude oil and natural gas liquids was $92.44 in second quarter 2014, up from $92.25 a year ago. The average sales price of natural gas was $4.09 per thousand cubic feet, compared with $3.78 in last year’s second quarter.

Net oil-equivalent production of 667,000 barrels per day in second quarter 2014 was up 8,000 barrels per day, or 1 percent, from a year earlier. Production increases in the Permian Basin in Texas and New Mexico and the Marcellus Shale in western Pennsylvania were partially offset by normal field declines elsewhere.The net liquids component of oil-equivalent production increased 1 percent in the 2014 second quarter to 460,000 barrels per day, while net natural gas production also increased 1 percent, to 1.24 billion cubic feet per day.

International upstream earnings of $4.21 billion increased $344 million from second quarter 2013. The increase between quarters was primarily due to a gain on the sale of interests in Chad and Cameroon and higher realisations and sales volumes for crude oil, partially offset by higher exploration and depreciation expenses. Foreign currency effects decreased earnings by $147 million in the 2014 quarter, compared with an increase of $275 million a year earlier.

The average sales price for crude oil and natural gas liquids in second quarter 2014 was $101.15 per barrel, up from $93.71 a year earlier. The average price of natural gas was $5.98 per thousand cubic feet, compared with $5.93 in last year’s second quarter.

Net oil-equivalent production of 1.88 million barrels per day in second quarter 2014 was down 45,000 barrels per day, or 2 percent, from a year ago. Production increases from project ramp-ups in Nigeria, Brazil and Argentina were more than offset by price and other production entitlement effects in several locations and greater maintenance and turnaround downtime at Tengizchevroil in Kazakhstan. The negative effect of price and other production entitlement effects and planned maintenance was approximately 55,000 barrels per day. The net liquids component of oil-equivalent production decreased 2 percent to 1.23 million barrels per day, while net natural gas production decreased 3 percent to 3.86 billion cubic feet per day.

U.S. downstream operations earned $517 million in second quarter 2014 compared with earnings of $138 million a year earlier. The increase was mainly due to higher earnings from the 50 percent-owned Chevron Phillips Chemical Company LLC and stronger margins on refined product sales. Higher gains from asset sales also contributed to the increase.

Refinery crude oil input of 761,000 barrels per day in second quarter 2014 decreased 53,000 barrels per day from the year-ago period. The decrease was primarily due to a significant planned turnaround at the refinery in El Segundo, California in the current quarter, partly offset by higher volumes at the refinery in Richmond, California reflecting re-start of the crude unit during the prior-year period. Refined product sales of 1.19 million barrels per day were down 25,000 barrels per day from second quarter 2013, mainly as a result of the turnaround in El Segundo. Branded gasoline sales were essentially flat with the comparative period at 525,000 barrels per day.

International downstream operations earned $204 million in second quarter 2014 compared with $628 million a year earlier. The decrease was mainly due to lower margins on refined product sales and an unfavorable change in effects on derivative instruments. Foreign currency effects decreased earnings by $84 million in the 2014 quarter, compared with an increase of $30 million a year earlier.

Refinery crude oil input of 844,000 barrels per day in second quarter 2014 decreased 28,000 barrels per day from the year-ago period. Total refined product sales of 1.55 million barrels per day in the 2014 second quarter were essentially flat with the year-ago period.

All Other consists of mining activities, power and energy services, worldwide cash management and debt financing activities, corporate administrative functions, insurance operations, real estate activities and technology companies.

Net charges in second quarter 2014 were $320 million, compared with $350 million in the year-ago period. The change between periods was mainly due to the absence of the 2013 impairment of a power-related equity affiliate and lower corporate charges. This decrease was largely offset by higher corporate tax items.

CASH FLOW FROM OPERATIONS

Cash flow from operations in the first six months of 2014 was $16.3 billion, compared with $14.2 billion in the corresponding 2013 period. Excluding working capital effects, cash flow from operations in 2014 was $17.0 billion, compared with $16.7 billion in 2013.

CAPITAL AND EXPLORATORY EXPENDITURES

Capital and exploratory expenditures in the first six months of 2014 were $19.6 billion, compared with $18.3 billion in the corresponding 2013 period. The amounts included $1.5 billion in 2014 and $1.1 billion in 2013 for the company’s share of expenditures by affiliates, which did not require cash outlays by the company. Work progressed during 2014 on a number of major capital projects, including the Gorgon and Wheatstone LNG projects in Australia and the Jack/St. Malo and Big Foot projects in the deepwater Gulf of Mexico. Expenditures for upstream represented 93 percent of the companywide total in the first six months of 2014.

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