US loss suppresses Chevron earnings

Chevron on Friday became the latest big oil producer to unveil sharp falls in first-quarter net income as a result of losses in North America production and recent months' sharp oil price declines.

Net earnings for the quarter fell 43 per cent to $2.57bn, on revenue down 37 per cent to $32.3bn, after the average crude oil price for the quarter fell to $43 per barrel, compared with $91 in the first quarter of 2014.

As with other oil majors reporting this week, the decline was particularly strong in capital-intensive US upstream operations, which includes exploration and production activities. The company suffered a $460m net loss for the quarter in the division, against a $912m profit for last year's first quarter.

Earnings held up much better in international upstream operations. Earnings declined 41 per cent to $2.02bn. Sharp falls in earnings per barrel were offset by lower tax, including a reduction in tax in the UK North Sea, higher gains on asset sales and lower operating costs. Earnings received a $522m boost for the quarter from the strength of the dollar, against a $53m negative effect last time.

John Watson, Chevron chief executive, said that while the upstream operations suffered from the low oil price, downstream operations had been strong. They had benefited from lower feedstock costs and improved refinery reliability.

Net earnings in downstream more than doubled from $710m to $1.42bn. US downstream earnings rose 67 per cent to $706m, boosted by higher margins but offset by the effects of a pipeline asset sale in last year's first quarter.

International downstream earnings nearly tripled to $717m from $288m, helped by better profit margins and the strength of the dollar.

"We're responding to the current price environment by capturing cost reductions, pacing new project approvals and further streamlining our portfolio as planned," Mr Watson said. "We're taking a number of deliberate actions to lower our cost structure, and I expect these efforts to increasingly show through in our financial results as the year progresses."

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However, capital spending and exploration costs fell in reaction to the oil price fall, from $9.4bn in the first three months of 2014 to $8.6bn this time.

Nevertheless, the company still made progress in the quarter on some significant long-term projects. It started the first gas turbine at the huge Gorgon liquefied natural gas plant in Western Australia and also installed the top of the production platform for the Wheatstone LNG project, also off Western Australia.

"We remain on track to deliver significant cash flow and production growth by 2017," Mr Watson said.

Diluted earnings per share fell 42 per cent to $1.37. The shares were up 0.31 per cent in premarket trading in New York, at $110.72.

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