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Chevron Profit Soars

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By Debora Vrana

LA Times
July 31, 2004

Driven by record-high gasoline prices and the sale of oil and natural gas fields in Canada, profit at ChevronTexaco Corp. more than doubled during the second quarter, the San Ramon, Calif.-based refiner said Friday.


ChevronTexaco's financial performance echoed the strong quarterly results reported by other major U.S. oil refiners this week as increased demand for gasoline and uncertain supplies have kept pump prices high nationwide.

"Oil companies are printing money. I don't see anything that will slow this down anytime soon," said Fadel Gheit of Oppenheimer & Co. in New York. "There was improvement in every category of Chevron's business. It was really strong - the best in class."

ChevronTexaco, the nation's second-largest oil company, reported net income of $4.1 billion, or $3.88 a share, in the three months ended June 30, up from $1.6 billion, or $1.50, in the second quarter of 2003. The results handily beat the consensus Wall Street forecast of $3.09 a share. Sales rose 31% to $38.3 billion.

Investors pushed ChevronTexaco's stock up 17 cents to a three-year high of $95.65 a share on the New York Stock Exchange. "We're proud of the progress we've made," Chief Executive Dave O'Reilly said. The quarter continued the profitable results ChevronTexaco posted in the first three months of the year as oil prices began rising to record highs, pushing gasoline prices above $2 a gallon in many areas.

During the second quarter, pump prices averaged $1.92 nationwide, a 26% increase from the same period in 2003. In California, a major market for ChevronTexaco, prices peaked at $2.33 a gallon on May 31.

Although gas prices have dipped in recent weeks, oil continues to hit new highs. On Friday, the price of oil on the New York Mercantile Exchange rose $1.05 a barrel to $43.80. "Earnings are expected to be exceptionally strong, near term," as oil and gas prices remain high, A.G. Edwards & Sons Inc. oil analyst Bruce Lanni wrote.

Indeed, the Iraq war is helping to fuel the continued high prices for oil as possible disruptions in supply because of political uncertainly drive prices up, analysts said. Consumer advocates and critics have claimed the oil giants are using the Iraq war and supply concerns as "scapegoats" for high prices that are actually due to market manipulation.

High profits "are generated by companies keeping their refineries running on low inventory, particularly in California and manipulation of the commodity market that sets the price for gasoline," said Jamie Court, president of the Foundation for Taxpayer and Consumer Rights, a Santa Monica group that has accused oil companies of gouging motorists. "The price at the pump bears no relation to the cost of production. The proof is in these record profits," he said.

Earlier this year, consumer advocates and public officials began accusing the oil companies in California of price gouging, and the Federal Trade Commission began to examine the market after U.S. Sen. Barbara Boxer (D-Calif.) asked the agency to look into it.

The oil industry has claimed it has little control over gas prices.

"Gasoline prices are determined not by us but by market forces of demand, supply and competition," said Stan Luckoski, a spokesman at ChevronTexaco. "We have very little control over those factors."

ChevronTexaco's quarterly profit included a $585-million, one-time gain from the sale of some Canadian assets and a $255-million benefit from changes in income tax laws governing some of its international operations. ChevronTexaco expects to sell $3 billion of assets this year, eventually reducing its oil fields to 450 from 1,400 while reducing production by 10%, analysts said.

As it pursues some bigger and more profitable projects in areas such as Asia and Australia, ChevronTexaco has sought to shed some of its U.S. fields, especially those nearing the end of production. In May, the company sold natural gas and oil properties in Texas, New Mexico and five others states for $1.1 billion.

During the quarter, the first cargo of oil from ChevronTexaco's new field in Kazakhstan was delivered, and that along with the "ramp-up in volumes from Chad and Venezuela are expected to fuel near-term growth," Lanni reported.

Oil and natural gas production was off just slightly in the second quarter, driven mostly by sales of refineries. ChevronTexaco does not break out production figures for California, a spokesman said.


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