Rising fuel prices boost Chevron's profits

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Rising fuel prices boost Chevron profits

Chevron profits up 53 percent

George Raine, Chronicle Staff Writer

Thursday, April 26, 2001, 2001 San Francisco Chronicle

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/04/26/BU96533.DTL&type=news

Chevron Corp., the beneficiary of natural gas prices that have more than tripled and rising profits from oil refining, reported record first-quarter net income of $1.6 billion yesterday, a 53 percent increase over the first quarter of 2000.

Chevron said the earnings amounted to $2.49 per share, considerably above the $2.21 per share that a consensus of Wall Street analysts had projected.

The record quarter comes on the heels of a banner 2000, in which San Francisco's Chevron said it had net income of $5.2 billion, the highest in its 121-year history. "We've started off the year on a very high note," Dave O'Reilly, the chairman and chief executive officer of Chevron, said yesterday.

"There's nothing on the horizon to derail Chevron, given the fact that the price of anything that burns just keeps going up," said Brian Eisenbarth, co- manager of the Golden Gate Fund in Larkspur.

It was a good day for Chevron at the New York Stock Exchange, too. Its shares rose $1.02 to close at $95.32. The stock is up 13 percent this year.

The quarterly earnings compared with the $1.044 billion ($1.59) Chevron reported in the first quarter of 2000. Excluding net charges of $62 million for special items in the 2000 quarter, first-quarter earnings were up 45 percent.

The company said earnings in exploration and production (collectively referred to as "upstream" in the oil industry) were $1.4 billion in the quarter, up 38 percent from 2000. O'Reilly said that driving this improvement was higher natural gas prices in the United States, where Chevron's average sales realization increased from $2.40 to $7.57 per thousand cubic feet. The average price Chevron got for its crude oil, however, dropped 6 percent to about $24.50 per barrel.

Of "downstream," or refining, marketing and transportation operations, O'Reilly said, "Both our domestic and international downstream business recovered from the depressed earnings of a year ago." He said margins strengthened this year, with higher product prices helping to offset costs of fuel and utilities in refining operations. Also contributing to profits, he said, was higher refinery production.

O'Reilly said he believed the "excellent first-quarter performance and ever stronger financial position" made Chevron "well positioned to complete the pending merger with Texaco once we obtain the necessary regulatory and stockholder approval."

The Federal Trade Commission has been reviewing the proposed merger since October, and analysts believe it will be approved during the summer months. If approved, the new company, called ChevronTexaco, will have $78 billion in assets and, in California, nearly 40 percent of the state's refining capacity.

Consumer activists have long complained about the concentration of the oil industry in California among a handful of major players, and the FTC as well as California Attorney General Bill Lockyer are investigating gasoline pricing in California. The nation's highest pump prices are found in the Bay Area and Honolulu.

At the company's annual shareholders meeting yesterday in Los Angeles, shareholders expressed no guilt about reaping the benefits of higher prices at the pumps. "I'd like to see gas at $5 a gallon," shareholder Al Lorimer of Oceanside (San Diego County) told the Associated Press. "Anyone who complains about gas prices, tell them to get rid of their SUV, or buy shares in Chevron."

On the other hand, Claudia Chandler, the assistant executive director of the California Energy Commission, said: "Consumers this winter paid astronomical prices for natural gas to heat their homes. And this summer, the price of natural gas will be a contributing factor to the higher wholesale electricity costs. So, clearly, we need to bring competition back to these marketplaces, because the California economy is going to suffer the consequences of runaway energy costs."

Chevron said total revenues for the quarter were up 5 percent to $12.5 billion. Chevron attributed the increase to higher sales of natural gas (it increased natural gas production by 6 percent and thus took advantage of high prices) and refined products.

O'Reilly added that during the quarter there were production gains in Kazakstan and the U.S. Gulf of Mexico and a discovery in the Gulf of Thailand. This month, Chevron and its partners were awarded rights to explore an offshore tract in Bangladesh. Also, Chevron said it will participate in a liquefied gas project in Western Australia.

U.S. exploration and production operating earnings were $720 million, nearly double those of the first quarter of 2000, the company said. "Earnings rose on sharply higher natural gas prices and increased natural gas production and sales," the company said.

Chevron benefited from the macro fundamentals in the energy business, said analyst Eugene Nowak at ABN AMRO in New York, just as its earnings have fallen in downturns in the cyclical industry. "The high natural gas prices in California are a result of a failure to build energy facilities, largely for environmental reasons. The state made itself vulnerable to outside prices and they're having to pay that price. The conditions are quite favorable to those who generate natural gas," said Nowak.

Harry Snyder, senior advocate at Consumers Union in San Francisco, had this view: "This is the dark side of the market system that allows price gouging, and today's ethics and morals encourage maximizing profits at the expense of society. This is a demonstration how the free market does not always work."

E-mail George Raine at graine@sfchronicle.com.

2001 San Francisco Chronicle Page E - 1

-- Swissrose (cellier3@mindspring.com), April 26, 2001

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