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- Don D., California
A Fly In Chevron’s Ointment
Chevron Corp. (CVX) has reported first-quarter share net of $2.27, compared to the year-earlier tally of $0.92 and our $1.85 estimate. The better-than-expected figure was thanks to higher prices for crude oil, natural gas, and refined products, as well as a gain of about $400 million on the sale of downstream assets. The stock traded higher following the news, suggesting investors believe that petroleum prices and global energy demand will continue to rise. International downstream operations are liable to reap notable benefits as refined products demand in emerging countries, such as India and China, gathers steam.
One fly in the ointment may be the imposition of higher costs stemming from enhanced safeguards on Chevron's offshore drilling projects. The company is very active in the Gulf of Mexico, and after the recent BP (BP) oil spill, there will probably be far greater governmental vigilance, which is apt to include increased expenses for upgraded equipment and back-up devices for leak prevention. These costs will invariably increase Chevron's extraction costs and may crimp margin growth. These expenses, however, will probably be imposed on all offshore drillers, meaning Chevron should be no less competitive than its peers.
The government has also indicated that it would put certain limits on new oil and gas drilling projects in the Gulf in the near term until the cause of the Deepwater Horizon blast is determined. The rig blew up on April 20th and sank soon after. The well it was drilling began gushing crude oil, which started washing onto the Louisiana shore. The environmental damage probably will be sizable as a result.