Will Total SA and Chevron Do Better in the Second Quarter?

During the first quarter, leading oil companies such as Total SA (NYSE: TOT) and Chevron (NYSE: CVX) haven’t performed well as their revenue dropped. But will these companies do better in the second quarter? Let’s see what has caused these companies to report lower revenues in the first quarter, and see if the circumstances changed to benefit their bottom line in the second quarter.

Will production rally?

In 2014, Chevron expects a rise in production; during the first quarter, however, its earnings reached only 53,265 million — nearly 6% lower than in the parallel quarter in 2013. One of the reasons for this fall is the 2.3% decline in the company’s global net oil-equivalent production. Its production increased in Nigeria, Angola and the United States, but their rally was offset by weather-related and unplanned downtime mainly in Kazakhstan. I.e. most of the decline in production was weather related. Since the weather conditions have improved in the past several months this factor is less likely to impede Chevron’s growth in production in the coming quarters.

Much like Chevron, Total’s first quarter results showed a 5.4% drop in revenue mainly due to a 6% fall in its production — specifically, its liquids production segment plummeted by 14%. The lower production in Total’s Africa, Middle East and South America regions more than offset the rise in production in Europe and Asia.

In the second quarter, Total expects its production to be adversely impacted by seasonal maintenance in UK, Norway and Thailand. Thus, Total’s investors are likely to see little or no growth in production in the second quarter.

Nonetheless, the company expects to augment its operations in the following years so that its production in the upstream segment, which accounts for the majority of its revenue, will reach 3 Mboe by 2017 — nearly 30% higher than in 2013.  Moreover, the company’s asset sales generated $13 billion in the past couple of years and are expected to generate $7 billion this year. This divestment program could allow the company to allocate more funds towards new projects and higher growth in production in the coming years.

Improved oil and natural gas prices

Another (obvious) factor that plays in favor of these oil companies is the progress in oil and natural gas prices. During the first quarter, Total’s average realized oil prices were 102.1 per barrel — nearly 4% lower than in the first quarter in 2013. Chevron hasn’t done much better; its U.S average realized price of oil and natural gas liquids was $91 during the previous quarter — more than 3% below last year’s price. The company’s international realized crude oil and natural gas liquids price was also 3% lower than in the same quarter in 2013.

 

During the second quarter (up to date), however, the price of Brent oil reached $108.5 per barrel — roughly 5% higher, year over year; the price of WTI oil is set at $101.8 per barrel, which is 8% above last year’s price. Natural gas prices also reached higher than normal levels. Despite their fall in the past couple of months, they are still well above last year’s prices. These higher energy prices are likely to reflect in these companies’ revenue.

 

Foolish bottom line

On a yearly scale both Chevron and Total expect to show a rise in their operations but in the second quarter only Chevron is likely to augment its production. Both companies, however, are likely to benefit from the modest rise in oil and gas prices in recent months.

 

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Disclaimer: The author holds no positions in stocks mentioned and does not plan to initiate positions within 120 hours of the posting of this article. This article is to be used for educational, research and informational purposes only and does not constitute investment advice. There are no guarantees, expressed or implied, of future positive returns in regards to the subject matter contained herein. Understand the risks inherent in investing before making the decision to invest or consult an investment professional for more information. Reasonable due diligence has been performed in regards to the information in this article. However, the author expressly disclaims any liability for accidental omissions of information or errors in fact