80 per cent increase in refining returns helps Chevron top profit estimates

An 80 per cent increase in oil refinery returns has helped Chevron top the highest profit estimate from analysts, who lowered estimates because of falling oil prices.

Chevron has revealed that second-quarter net income fell to $7.21 billion, or $3.66 a share, from $7.73 billion, or $3.85, a year earlier. However, these results are 35 cents more than the average of four analysts’ estimates compiled by Bloomberg, which ranged from $3.10 to $3.47.

The increased profits were largely down to Chevron's oil refineries and filling stations, which managed to earn $1.88 billion as refining margins climbed to a second-quarter record average of $28.98 a barrel when crude costs fell faster than gasoline prices.

Brent crude is down seven per cent from a year earlier amid concern over slowing growth in China and the ongoing debt crisis in Europe. However, refining margins have helped to stem these losses, as Allen Good, an analyst at Morningstar Investment Service in Chicago told Bloomberg.

He said: "In contrast to some of their competitors, Chevron’s heavier exposure to oil and minimal exposure to low natural-gas prices helped keep the upstream afloat."

Refining profit at Chevron also represented 200 million in proceeds from the sale of a power business in South Korea and other assets. Income from oil and gas wells fell 18 per cent. Brian Youngberg, an analyst at Edward Jones in St. Louis, told Bloomberg: "I view them as the core energy holding investors should have.

"They’re more profitable per barrel, they have way more cash than debt and they pay a good dividend."

Production was down, primarily because of a temporary shutdown of the Frade field in Brazil after oil seeps on the sea floor angered government regulators. There was also maintenance work carried out at the company's Tengiz project in Kazakhstan.

Chevron will now be focussing on exploration in Iraq’s Kurdistan region, as well as a recently announced deal to buy Reliance Industries' stakes in two Kurdistan blocks.

Posted by Joseph Hutton