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Chevron’s Net to Set Tone for Industry

THE WALL STREET JOURNAL

Chevron Corp. is expected to give investors a peek into the finances of the major oil companies Thursday when it releases its interim third-quarter earnings, including a broad overview of oil prices and refining profits. Expect big profits — and maybe even record profits, energy analysts say.

Don’t expect any surprises from Chevron or its peers, though; oil companies’ profits will be predictably large. But these days, a lack of surprises is a good thing, because it sends a message to investors that these companies are built to weather the current financial storm and are doing just fine.

Petroleum prices, which are up 57% from the third quarter a year ago, will be an obvious contributor to Big Oil’s strong profits. So will refinery margins, which have rebounded in recent months. They will outweigh any problems caused by the Gulf Coast hurricanes that forced the companies to delay production and close refineries during the quarter.

The underlying message this quarter from Chevron, Exxon Mobil Corp., BP PLC and Royal Dutch Shell PLC may well be that they are the corporate equivalent of giant ocean tankers: big, durable and built to withstand oil-price volatility. They maintain capital discipline, investing in projects that make financial sense over a span of decades.

And they have the money to do that. At the end of the second quarter, Chevron had $8.18 billion of cash and $6.66 billion of debt. The San Ramon, Calif., company has been snapping up its own shares at the rate of about $2 billion a quarter.

If there is a surprise in the oil companies’ reports this quarter, it could be a modest pullback in capital spending. But don’t mistake this as a sign of weakness, because it isn’t.

If Big Oil does cut its spending, it will be to send a message to the overheated oil-field-services market, where drilling-rig rates have shot up in recent quarters. The message: “Guess what? Things have changed,” said Fadel Gheit, an energy analyst at Oppenheimer & Co. “You had better be realistic in your charges going forward or we will cut our spending.”

Write to Russell Gold at [email protected]

http://online.wsj.com/article/SB122324424960205855.html

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