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After the market closes today Chevron (NYSE:CVX) is releasing its interim update for the third quarter of 2008. Typically these updates paint a pretty accurate picture of what investors can expect from the coming earnings release. The company has made some changes during the quarter that will have both one-time and long-term effects on earnings.
Chevron shed all its West African and Nigerian fuels marketing operations for an undisclosed amount, and received around $730 million for its Brazilian marketing operations. The company also nearly doubled production capacity at the Tengiz oil field in the Caspian Sea, put its new LNG train in Australia into operation, and signed a new 30-year deal with Saudi Arabia to continue to produce oil and natural gas in the Kingdom.
Profits on crude oil and natural gas will probably show a slight downturn from the astronomical to the merely outrageous, and refining margins are likely to show improvement. Yesterday we noted the improvement in refining margins at Marathon (NYSE:MRO), and we expect similar results for both Exxon (NYSE:XOM) and ConocoPhillips (NYSE:COP).
All this good news probably won't do much to help the share price though. The forces now driving the market are bigger even than the major integrated oil companies. Chevron reported about $8 billion in cash at the end of the second quarter and Exxon reported about $40 billion. All that cash helps insulate the companies from the credit market freeze, but analysts and investors worry anyway. The share price for Chevron is off 32% from its 52-week high, and Exxon is off 34% from its high.
Crude prices below $90/b have pushed down the value of barrels of oil in the ground, and lower gasoline consumption in the US is beginning to look like real demand destruction. Consumers stopped buying gasoline when it hit about $4/gallon and haven't come back. They could be getting used to conserving or, more likely, the bad economic news is simply keeping people from driving so they'll have more money to pay the mortgage and buy food.
There isn't much positive that Chevron can say today that will change any of that.
Paul Ausick
October 9, 2008




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