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Chevron earnings surge to a record

The oil company posts a profit of $5 billion, boosted by strong sales at the gasoline pump.

October 28, 2006|Ronald D. White | Times Staff Writer

Chevron Corp. said Friday that its third-quarter profit rose to a record $5 billion as crude prices soared to a fresh peak in July and the company registered strong gains at the gasoline pump.

Contributing to the better-than-expected earnings at the second-largest U.S. oil company was a sharp increase in profit from Chevron's refineries and service stations compared with the year-earlier quarter, when the company was forced to shut down its largest U.S. refinery after Hurricane Katrina.

But it was the size of the service-station profits by San Ramon, Calif.-based Chevron and other oil giants that really surprised analysts.

Chevron's quarterly profit from refining oil and selling gasoline nearly tripled to $1.4 billion from $573 million in the same period last year. Wholesale gasoline prices on the spot market fell much more quickly than did retail gasoline prices, especially on the West Coast, Chevron executives told analysts and investors in a conference call.

"It seems to be a theme running across the sector: earning more at the pump. As the refinery margins came down a lot, the marketing part of their business did very well. That has been their source of strength," said Phil Weiss, an analyst for Argus Research Corp. in New York.

The earnings drew sharp criticism from consumer advocates.

During the summer's gasoline-price surge, California motorists paid as much as 50 cents more than the national per-gallon average, a difference that the Foundation for Taxpayer & Consumer Rights dubbed the "Chevron tax."

The Santa Monica-based consumer group estimated that the company was amassing as much as $5 million extra a day in California because of the state's higher fuel prices.

State residents "should remember that this summer Chevron charged Californians hundreds of millions of dollars more for gasoline than other drivers around the country -- and picked our pockets to bank their largest quarterly profits," spokeswoman Judy Dugan said.

Some analysts said Chevron, as a publicly traded company, was just doing what it was supposed to do: maximize profit.

"They are in the business of making money for their shareholders," said Fadel Gheit, senior energy analyst with Oppenheimer & Co. in New York.

Still the profits are likely to fuel the debate in California over Proposition 87, which will appear on the November ballot and would impose a tax of as much as 6% on oil produced in the state to finance alternative fuel research.

Chevron, a financial backer of the No on 87 campaign, said Friday that the measure would cost the company an estimated $200 million before taxes annually if passed.

Dugan said that estimated annual cost amounted to a tiny fraction of Chevron profit and wouldn't cause the company to pump less oil in the state -- something that opponents of the measure have warned.

Chevron's third-quarter net income of $5.02 billion, or $2.29 a share, represented a 39% increase compared with $3.6 billion, or $1.64, a year earlier.

The performance walloped the average estimate of $2.03 a share among analysts surveyed by Thomson Financial.

Chevron shares rose 18 cents to $67.68.

Chevron sales declined slightly over the quarter, to $54.2 billion from $54.5 billion a year earlier.

Three record quarters of earnings have left the company in prime shape for significant investment in new production projects, Chevron Chairman and Chief Executive Dave O'Reilly said in a statement.

Chevron announced on Thursday that it would help develop the Great White, Tobago and Silvertip oil fields in the Gulf of Mexico and participate in the first phase of expansion of the Athabasca Oil Sands in Alberta, Canada.

"Our strong performance this year has allowed us to invest $11.5 billion in our excellent queue of projects, which are targeted to increase energy supplies," O'Reilly said.

Exxon Mobil Corp. on Thursday joined other top oil companies in beating analyst projections, posting third-quarter earnings of $10.5 billion, the second-highest quarterly earnings ever by a publicly traded company.

But no one grew faster than Chevron, whose production capabilities have been greatly boosted by its $17.3-billion acquisition of Unocal last year, a deal that some critics said was too costly.

"Oil prices have been supportive of the price they paid, and a lot of these new prospects and potential developments are really former Unocal assets. They made out pretty well," said Nicole Dekker, an analyst at Bear Stearns & Co. in New York.

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