ChevronTexaco Posts Profit on High Prices

Fri Jul 30, 2004
By Joseph A. Giannone

NEW YORK (Reuters) - ChevronTexaco Corp. (CVX.N: Quote, Profile, Research) , the No. 2 U.S. oil company, on Friday reported quarterly earnings that more than doubled because of record oil and gasoline prices and several one-time gains.

The San Ramon, California-based company said net income rose to a record $4.1 billion or $3.88 a share in the second quarter from $1.60 billion or $1.50 in the year-ago period.

Even after stripping out such special items as a $585 million gain from Canadian asset sales, $255 million of income tax benefits and income from discontinued operations, the company earned $3.04 per share.

On that basis, the results exceeded the Reuters Estimates average analyst estimate of $2.70 a share by about 12 percent. That makes ChevronTexaco the only major integrated oil company so far to generate a positive earnings surprise this quarter.

"This was by far the strongest performance among the whole group," said Oppenheimer & Co. analyst Fadel Gheit. "They were basically strong across the board. They could not miss this time."

The second quarter was an exceptionally good period for the energy industry, as energy commodity and product prices advanced at the same time consumption worldwide was rising. And with the price of oil more than doubling since January 2002, analysts say prices are not expected to subside any time soon.

For the second straight day, benchmark U.S. oil futures on Friday set a fresh record high. Futures rose as high as $43.60 a barrel, the highest since contract trading began in 1983, amid renewed worries about supply disruptions from Russia and OPEC's ability to make up any shortfalls.

Yet investors this past week were disappointed as ConocoPhillips (COP.N: Quote, Profile, Research) and Exxon Mobil (XOM.N: Quote, Profile, Research) merely matched expectations. Both acknowledged that downtime at various facilities stopped them from taking full advantage of unusually strong energy markets.


ChevronTexaco quarterly sales, affiliate income and other revenue surged 31 percent to $38.3 billion, fueled by record energy prices and asset sale gains.

Exploration and production income more than doubled as energy markets pushed prices of energy commodities to new highs in response to a series of supply disruptions in Iraq, Norway, Nigeria and, most recently, Russia.

As expected, the company's average oil and gas output fell by 4 percent to about 2.58 million barrels per day from last year, mostly due to asset sales.
Meanwhile, soaring prices and demand for gasoline and other refined products yielded blockbuster refining and marketing results. ChevronTexaco's downstream income more than doubled to $1.04 billion amid wider refining profit margins, especially in the U.S. West Coast where the company dominates.

Even a perennial laggard such as the chemicals business contributed $59 million of income, nearly doubling from last year as economic growth supported higher sales volumes.

The standout results come as the company reorganizes its business lines three years after the merger of Chevron and Texaco.

Until recently the merger was widely considered a disappointment as ChevronTexaco announced a series of write-downs, production shortfalls and major losses on its investments in fallen energy trader Dynegy (DYN.N: Quote, Profile, Research) .

A year ago the company announced plans to divest billions of dollars of less productive properties and other assets to boost profitability, though the moves mean falling production in the short term.

Windfall profits helped ChevronTexaco to strengthen its balance sheet by reducing debt and amassing $9 billion in cash and marketable securities. ChevronTexaco's cash hoard has nearly doubled in the past year amid speculation the company is eager to make an acquisition in Russia.

The company also boosted its capital spending by 8.5 percent in the quarter to $3.8 billion, and contributed $600 million to employee pension funds.

ChevronTexaco's shares closed up 17 cents at $95.65 on the New York Stock Exchange.





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