reuters.com Fri January 31, 2003 12:12 PM ET

LONDON (Reuters) - Oil prices took a breather from the week's gains on Friday amid indications of a further recovery in oil production from strike-ridden Venezuela.

But trading volume was relatively low as dealers were closely monitoring the latest Iraq talks between U.S. and British leaders for any signs of an impending war in Iraq.

U.S. light crude CLc1 was 10 cents lower at $33.75 a barrel while London Brent LCOc1 was up 11 cents at $31.31.

Low global oil stocks and limited spare production capacity to counter the severe reduction in Venezuelan oil exports, and the potential disruption to Iraqi oil sales, have taken crude prices up more than 30 percent since late November.

Analysts see little relief for the time being to high oil costs, which are beginning to percolate into the broader global economy.

But Fimat Banque's Mark Head said on Friday some players were cashing in some front month positions and new Venezuelan figures showing an increase in output was for the moment stopping oil rising higher.

He also noted OPEC's 1.5 million barrels per day (bpd) output increase to take effect February 1 was due to kick in on Saturday, as was a 110,000 bpd hike from non-OPEC Mexico.

"With the increase in Venezuelan exports and output hikes from OPEC and Mexico there's a lot of crude around," Head said.

On Friday, Ali Rodriguez, president of state oil firm Petroleos de Venezuela, said the country's crude production had recovered to over 1.5 million barrels per day, well up from lows of 150,000 in December but still only half normal levels.

He said it could reach 1.8 to 1.9 million bpd by next week as four Orinoco upgrading plants are restarted.

But striking oil workers put crude output at around one million bpd on Thursday.

Envoys from the United States, Brazil, Mexico, Chile, Spain and Portugal gathered in Caracas on Thursday to bolster talks between President Hugo Chavez and his opponents.

The strike has slashed Venezuelan oil sales to the United States, where fuel inventories are hovering close to historic lows. OPEC president Abdullah al-Attiyah said on Thursday that the producers' group had done all it could to control prices.

ALL EYES ON IRAQ

On the Iraq front, British Prime Minister Tony Blair arrived in Washington late on Thursday for talks at Camp David with President Bush on the next step in the showdown with Baghdad.

Ahead of the talks Blair said it was important to press for a new U.N. resolution.

"It is right that we go for a second resolution because that is a way of saying this is an issue that the international community is not going to duck."

But he added: "If the process of disarmament cannot happen through the U.N. inspectors, then it will probably have to happen through force. I believe that is consistent with the U.N. position in (resolution) 1441."

Bush said on Thursday that he would give diplomacy "weeks not months." Secretary of State Colin Powell is due to present evidence on Wednesday to the U.N. Security Council to show that Baghdad is pursuing programs to build biological, chemical or even nuclear weapons.

Washington and its staunchest ally, London, are massing a huge military force in the Gulf, and Bush has vowed to disarm President Saddam Hussein, with or without United Nations backing.

Iraq is eighth in world crude exporter rankings, selling up to two million barrels per day to the international market, and dealers fear an invasion of the country could put a heavy strain on global supplies.

www.smartmoney.com January 31, 2003

SAN FRANCISCO -- ChevronTexaco Corp. (CVX) turned a profit in the fourth quarter after a loss a year earlier, when results were dragged down by charges. Higher crude oil and natural gas prices boosted exploration and production results in the latest period. Even so, results came in well shy of Wall Street's expectations.

The oil giant Friday posted net income of $904 million, or 85 cents a share, compared with a net loss of $2.52 billion, or $2.38 a share, a year earlier.

ChevronTexaco booked charges totaling $53 million related to its 26.5% stake in Dynegy Inc. (DYN) and environmental remediation matters, which were partially offset by a favorable tax adjustment. The company also recorded merger-related expenses of $108 million.

Results in the year-earlier quarter included $3.02 billion in charges and merger costs.

Absent items, ChevronTexaco said it earned $1.07 billion, or $1 a share, compared with $498 million, or 47 cents a share, a year earlier.

Analysts surveyed by Thomson First Call, which excludes items in its estimates, were looking for earnings of $1.28 a share, according to a survey by Thomson First Call.

Revenue increased 26% to $27.06 billion from $21.46 billion a year earlier.

ChevronTexaco, the second-largest U.S. oil company behind Exxon Mobil Corp. (XOM), said higher crude oil and natural gas prices boosted its exploration and production business. Those same price increases, however, resulted in higher feedstock costs and poor margins for the refining and marketing operations, the company noted.

Exploration and production operating earnings more than doubled to $1.23 billion, while the refining, marketing and transportation business swung to a loss of $151 million from a profit of $215 million a year earlier.

The oil sector saw volatile prices in the fourth quarter as prices spiked near the end of the period because of a strike in Venezuela and concern about possible war with Iraq.

ChevronTexaco, created by the October 2001 merger of Chevron Corp. and Texaco Inc., said it expects to meet its goal of carving out annual pretax merger-related savings of $2.2 billion by the end of the first quarter.

For the year, net income plunged 66% to $1.13 billion, or $1.07 a share, from $3.29 billion, or $3.09 a share, in 2001. Excluding items, earnings fell 34% to $4.47 billion, or $4.21 a share, from $6.81 billion, or $6.41 a share. Revenue declined 5.5% to $98.7 billion from $104.41 billion.

Earlier Friday, Dynegy reported a fourth-quarter net loss of $341 million, or $1.15 a share, and announced further restatements to its results from 1999 to 2001 as well as 2002.

-Yolanda E. McBride, Dow Jones Newswires, 609-520-7861

(END) Dow Jones Newswires

cbs.marketwatch.com By Myra P. Saefong, CBS.MarketWatch.com Last Update: 4:29 PM ET Jan. 31, 2003

NEW YORK (CBS.MW) -- Oil futures fell Friday but ended 10 percent higher for the month, with traders still concerned about the state of oil supplies in the face of an ongoing strike in Venezuela and a potential U.S.-led war with Iraq.

On the New York Mercantile Exchange, the benchmark March crude contract closed at $33.51 a barrel, down 34 cents. The contract closed at $30.59 a barrel on Dec. 31.

Meanwhile, gold futures eased back, ending the session nearly dead even with where it closed a week ago but $20 higher for the month. See Metals Stocks.

Thorsten Fischer, an energy economist at Economy.com, believes crude prices will remain high in the run-up to any war, which he expects to begin by March.

Under this scenario, prices will likely peak "when the first shots are fired, assuming everything is going to plan," he said.

And "once there is progress in the campaign, oil prices will come down quickly," he said.

On Friday, President Bush and British Prime Minister Tony Blair discussed possible timetables for diplomacy and war in Iraq. See CBS News for the latest.

Michael Cavanaugh, an analyst at Peak Trading Group in Chicago, said the only amount of uncertainty with relation to petroleum prices surrounds various war scenarios, including the possibility that President Saddam Hussein will destroy Iraq's oil fields or that the U.S. opening the borders for international oil players.

Looking ahead to next week, Cavanaugh said "the market, barring any shocking news, should trade sideways until Powell speaks" on Wednesday at the United Nations.

In a much-anticipated address, Secretary of State Colin Powell is expected to provide intelligence illustrating Washington's assertion that Iraq has been defying U.N. weapons inspectors.

Oil supplies at minimum

U.S. crude inventories remain low at 273 million barrels, and a war with Iraq on top of Venezuela's ongoing oil strike could tighten supplies further.

The low supplies "already led to reduced crude refinery inputs and consequently lower output of refined products," said Fischer.

This week, the American Petroleum Institute and Energy Department reported hefty declines in distillate and gasoline supplies.

Distillate inventories declined by 6.8 million barrels during the week ended Jan. 24, according to the Energy Department, while the API said supplies fell by 7.5 million barrels. Both groups said gasoline stocks fell by 3.3 million barrels. See full story.

At the same time, the strike in Venezuela seeking to topple leftist President Hugo Chavez seems to be "easing" with oil production above 1 million barrels per day, or at about a third of normal output, said Fischer.

But the government has been extracting oil from newer fields, which is easier to pump, he noted.

"Additional increases in production will be hard to come by unless oil workers return to their job," he said, adding that such a scenario is unlikely given that "oil workers are among the fiercest opponents" of Chavez.

In Friday's Nymex action, February unleaded gasoline fell by 1.13 cents to 97.56 cents a gallon, while February heating oil eased back by 2.17 cents to 95.88 cents a gallon.

March became the lead-month contract after the market closed. March unleaded gasoline fell 1.19 cent to 96.6 cents a gallon and March heating oil closed at 93.26 cents a gallon, down 0.94 cent.

In other energy news, March natural gas closed higher by 2.2 cents at $5.605 per million British thermal units, after falling by nearly 5 cents a day earlier.

Natural-gas inventories fell by 247 billion cubic feet to total 1.729 trillion cubic feet in the week ended Jan. 24, the Energy Department said early Thursday.

Over in the equities arena, most oil service stocks closed higher. The Oil Service Index ($OSX: news, chart, profile) climbed 1.6 percent. See Energy Stocks.

The Reuters/CRB Index, a broad-based measure of the commodity futures market, closed at 248.5, up 0.5 percent. Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.

cnews.canoe.ca

FREDERICTON (CP) -- The New Brunswick government has drafted a new corporate plan for the province's power utility, hoping to avoid the kind of deregulation horrors that have haunted places like Ontario and California.

New legislation introduced Friday will split NB Power, the provincial Crown utility, into four subsidiaries to handle generation, transmission, distribution and nuclear power.

The subsidiaries will remain publicly owned, but they are designed to operate at arm's length from the provincial government.

"People in Ontario were not ready for it (deregulation)," said Energy Minister Jeannot Volpe. "We have decided to take a more prudent, step-by-step approach in New Brunswick."

Premier Bernard Lord stressed he is not privatizing the power utility.

However, opposition politicians attacked the Conservative government for giving away control of the province's largest public asset.

"This legislation will wipe out any kind of clear, public capacity to make significant decisions about our energy future," charged NDP leader Elizabeth Weir.

Lord denied the accusation.

"This is like a bad episode from Fear Factor," Lord told the legislature, referring to a TV show that forces contestants into risky competitions.

"What we're doing is re-regulation... We want to maintain fair, affordable rates for ratepayers and, at the same time, limit the risk to taxpayers."

The International Brotherhood of Electrical Workers, which represents 2,800 workers at NB Power, warned the province is following a risky path.

"We fear this is simply a longer stroll toward the same road other jursidications have followed, without success," said union spokesman Ross Galbraith, referring to Ontario and several U.S. states.

Ontario recently reversed its decision to sell Hydro One, its huge electrical-transmission utility, under pressure from deregulation opponents.

Facing a consumer revolt, Premier Ernie Eves capped retail electricity prices last November after deregulation of the generation market led to soaring power bills.

Lord said that despite the problems in other jurisdictions, New Brunswick cannot maintain the status quo.

NB Power's $3-billion debt will be divided between the subsidiaries, but the people of New Brunswick are still on the hook for the money.

Nevertheless, divvying up the debt between the new corporations will improve the province's bottom line, the energy minister said.

"This has a direct bearing on our credit rating, which in turn has an impact on the province's cost of borrowing funds in the capital markets," Volpe said.

The average New Brunswicker won't notice any change in the operations of the utility, the government said.

Only the three municipal power companies in Saint John, Perth Andover and Edmundston, and 42 large industrial customers will have a choice of who they buy power from, or generate their own.

However, they'll be hit with an exit fee if they unplug from NB Power.

Lord said the province will not sell the Point Lepreau generating station, Atlantic Canada's only nuclear power plant, although it's looking for private investors to help with a possible modernization of the Candu reactor located on the Bay of Fundy shore.

"It's a nuclear power plant," Lord said, adding that for regulatory and safety reasons, it should remain publicly owned. "We could lease it, if conditions are right."

Still, the province is willing to sell the Coleson Cove generating plant near Saint John, N.B., and is currently negotiating with a potential buyer.

Lord would not say whether the talks are aimed at full or partial sale of the oil-burning plant, the largest single generating station in New Brunswick.

www.theobserver.ca GLENN OGILVIE The Canadian Press and The Observer Friday, January 31, 2003 - 09:00

Chemical Valley at dusk on a cold winter's night. Three Chemical Valley giants were among Canadian oil companies that nearly tripled their fourth-quarter profits in 2002.

Higher oil, natural gas prices contributed to gains

Local News - Four of Canada's biggest integrated oil companies – including three with plants in the Chemical Valley – nearly tripled their fourth-quarter profits to $1.3 billion thanks to higher oil and gas prices, but analysts say there won't likely be a repeat performance in 2003.

For Imperial Oil, Petro-Canada, Shell Canada and Suncor Energy, the fourth quarter in particular and 2002 overall was a bonanza as the threat of a U.S. war with Iraq and a major strike in Venezuela pushed oil prices above $30 US a barrel by year end.

Higher prices for oil and natural gas helped make 2002 a stellar year for the industry leaders.

But Gord Currie, an analyst with Canaccord Capital, said it's "unlikely" that 2003 will be as strong as 2002 for Canada's big oil companies because prices are likely to dip as the Iraq situation is resolved.

"Whenever oil and gas prices are as high as they are today, the balance of probabilities is that they're going to be lower," he said. "I think it's just a question of time — is it the second quarter or a year from now, we don't know. But it would be very difficult for 2003 to measure up."

The financial results released so far by four of Canada's biggest oil producers, refiners and gasoline marketers show they're reaping the benefits of those higher prices while they have that option.

Shell Canada's earnings report Thursday rose to $247 million in the fourth quarter from $170 million a year ago. However, full-year profits fell to $561 million from just over $1 billion a year ago, a period of extraordinarily high natural gas prices.

Last week, Suncor Energy reported that fourth-quarter profits soared nearly tenfold to $258 million from $26 million. For 2002, profits of $761 million were nearly double the year earlier.

Crude oil prices in the fourth quarter were a major reason for Imperial's 2002 performance, coupled with higher profits on petroleum products like those made in Sarnia. Net earnings from petroleum products were $128 million in the fourth quarter, compared to $75 million for the same quarter in 2001.

For the full year, the company earned a profit of $1.2 billion compared with $1.24 billion in 2001.

Last year started with reasonable oil prices but then U.S. President George Bush identified Iraq as a possible target and "oil prices started a long gradual climb to $30 US and then, with a little help from Venezuela, pushed right through the $30 US level," Currie said.

The Venezuelan strike continues but production from the world's fifth-largest oil producer has recently gained ground, though it's still below the three million barrels per day it pumped prior to the start of the strike on Dec. 2.