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Chevron Earnings Soar on Price Hikes

The oil company swings to a profit after a run-up at the pump in August. Its stock surges.

November 01, 2003|Elizabeth Douglass | Times Staff Writer

ChevronTexaco Corp. shares jumped Friday as the nation's No. 2 oil company unveiled its largest quarterly profit in two years, boosted mostly by higher prices for oil and West Coast gasoline.

The San Ramon, Calif.-based company said third-quarter net income totaled $1.98 billion, or $2.02 a share, contrasted with a loss of $904 million, or 85 cents, in the write-off-plagued third quarter of 2002.

Setting aside special charges and gains, ChevronTexaco's profit amounted to $1.86 a share for the three months ended Sept. 30, well above analysts' average estimate of $1.62 a share, according to a survey by Thomson First Call.

Third-quarter revenue rose 22% to $31 billion.

The earnings report, released before the start of Friday trading, sent ChevronTexaco shares up $2.54, or 3.5%, to $74.30 on the New York Stock Exchange.

"They had a very good quarter," said Jacques Rousseau at Friedman Billings Ramsey, who rates the company's stock "underperform" and does not own any. "They've got very good exposure to refining in California ... and that was a very good number this quarter."

Indeed, ChevronTexaco was among the biggest beneficiaries of a sharp price increase in mid-August, when California pump prices rose 35.8 cents a gallon in 14 days. The company is one of the dominant gasoline retailers here, and its two California refineries together produce more than 25% of the fuel made in the state.

After subtracting the cost of the raw crude oil, ChevronTexaco said it received an average of $26.41 for every barrel of gasoline it produced in the West, up 61% from $16.36 in the year-earlier period.

Experts attribute the August price run-up to a tightness in supply that was exacerbated by several refinery outages and a broken fuel pipeline in Arizona. Still, high prices remained long after those factors were erased, and it took nine weeks for retail prices to recede to the levels from before the run-up.

Worldwide production of natural gas and oil, however, dipped more than 4%. ChevronTexaco said some of the decline was due to the loss of production at operations that had been sold or discontinued.

ChevronTexaco Chairman and Chief Executive Dave O'Reilly said the company -- along with the rest of the industry -- benefited from higher market prices for crude oil and natural gas. Compared with the third quarter last year, the company's average U.S. sale price for crude oil was up 10%, and the price for natural gas jumped 67%.

During the quarter, ChevronTexaco embarked on a worldwide reorganization of its refining and retail sales operations and took its first steps in a plan to sell about $2 billion in assets over the next few years. Those moves are intended to further streamline operations after the merger of Chevron Corp. and Texaco Inc. in October 2001.

The company sold its El Paso refinery and its interest in projects in Papua New Guinea, Bangladesh and Kazakhstan. Executives also said the company would convert a refinery in the Philippines to an import terminal and sell its interests in about 400 producing properties in North America.

Special items in the third quarter included large charges that were offset by gains for a net positive of $14 million. The charges included a $215-million write-down on assets sold or prepared for sale; $132 million for environmental cleanup costs; and $86 million in severance and other costs associated with laying off 2,000 employees and reorganizing its refining and marketing business.

The company posted a gain of $365 million from exchanging $1.5 billion in Dynegy Inc. preferred shares into cash and other Dynegy securities, as well as an $82-million gain on the sale of some assets.

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