ChevronTexaco Profit Rises 62% on Higher Oil Prices

Chevron profit soars
High prices make refiner $3.2 billion, up 62% from last year

David R. Baker, Chronicle Staff Writer

Saturday, October 30, 2004

ChevronTexaco's Genesis platform in the Gulf of Mexico is... This refinery in Richmond helped ChevronTexaco realize $3...

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The same high oil prices that have rattled economists and horrified commuters gave ChevronTexaco Corp. a huge boost last quarter, driving up profit 62 percent from the same period last year to hit $3.2 billion.

That's not as much money as the San Ramon company made this summer, when quarterly profit reached a record $4.13 billion. Tighter profit margins and a devastating hurricane season in the Gulf of Mexico's oil producing region saw to that.

But with crude oil prices parked above $50 per barrel, ChevronTexaco and the world's other oil giants are reaping substantial profits.

Earlier this week, Royal Dutch/Shell Group reported profit of $5.4 billion, compared with $2.45 billion in the same quarter last year. ExxonMobil made $5.68 billion, up from $3.65 billion last year.

Those high profits may last well into next year. Although crude oil prices have dropped off their $55-plus highs, hitting $51.78 Friday, demand has shown little sign of easing. High prices have, so far, done nothing to stifle the world's thirst for oil.

"The fundamentals are still strong," said Jamal Qureshi, an oil market analyst with the PFC Energy consulting firm. "We haven't seen the actual signs of a slowdown yet."

At ChevronTexaco, sales for the third quarter hit $40.7 billion, a 32- percent jump from last year, the company reported Friday. Profit reached $3.2 billion, or $1.51 per share. Those numbers included $486 million from the sale of underperforming assets, which boosted profit by 23 cents per share.

So far this year, the company has made $9.9 billion, or $4.65 per share. Compare that with the first three quarters of 2003, when ChevronTexaco's profits stood at $5.5 billion, or $2.66 per share.

As impressive as the numbers may seem, they didn't wow Wall Street. ChevronTexaco stock rose 59 cents, or 1.12 percent, to close Friday at $53.06.

The company's results beat the estimates of analysts polled by Thomson First Call, who predicted profit of $1.37 per share. But other oil giants reporting this week performed even better, said analyst Mark Uptigrove with the Morningstar research firm.

"If you look at some of the other majors, some of them came out with blowout quarters," said Uptigrove, who does not own the company's stock. "(Chevron) contrasts with some of the headlines we've been seeing."

Hurricane Ivan dampened the company's earnings. Plowing through the Gulf of Mexico, the storm damaged and temporarily shut oil platforms at sea and a refinery on land. Company officials predicted Friday that problems from the storm will linger into next year, cutting oil production in the current quarter by 50,000 barrels to 60,000 barrels per day.

And while California drivers have fumed for months about rising gasoline prices, the company's refining profits actually decreased in the United States. ChevronTexaco's U.S. refining, marketing and transportation earnings dropped $52 million from the same quarter last year to $96 million, with profit margins particularly tight on the West Coast.

Analyst Jacques Rousseau with Friedman, Billings, Ramsey & Co. said that resistance from consumers limits the amount of increases in crude oil prices that refineries can pass along to drivers. In other words, the full increase in the cost of crude isn't reflected at the pump, even though prices there rose as well.

"As prices run up, it's very hard for the retailers to just pass along their prices to the consumers," he said. "It gets a lot of attention."

That may come as small comfort to commuters.

Prices for unleaded gasoline set records in California and the Bay Area this month. California peaked at $2.45 per gallon on Oct. 21, the day San Francisco set a record of $2.53, according to the AAA of Northern California auto club.

"Since then, prices have been creeping down," AAA spokeswoman Jenny Mack said. "I emphasize 'creeping.' "

California's average Friday stood at $2.43 per gallon, while San Francisco's was $2.52.

Many industry analysts expect some slip in crude oil prices next year, although how much and how soon remain open questions. Rousseau predicts an average cost per barrel of $39 next year. Qureshi says the average will stay closer to $45.

Either way, ChevronTexaco and its competitors should prosper. "If prices pull back to $39, that's still a very strong oil price on a historical basis," Rousseau said.

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