Nigerian Unrest May Affect ChevronTexaco Earnings
<a href=www.smartmoney.com>Dow Jones Newswires March 24, 2003 By David Bogoslaw
NEW YORK -- With few options to make up for production lost from the shuttering of oil and natural gas facilities in the Niger Delta, ChevronTexaco Corp.'s (CVX) second-quarter earnings could take a hit of as much as 20 cents a share.
"Every 3% of their volume that is up or down impacts quarterly earnings by nine cents per share," said Tyler Dann, an analyst at Banc of America Securities.
Chevron Nigeria Limited, a unit of the San Ramon, Calif., integrated oil company, said Sunday it was relocating workers and had shut in 440,000 barrels of oil a day in production in the Western Nigeria Delta in response to ethnic tension in the country.
Amid civil unrest between rival ethnic groups, the Ijaws and Itsekiri, leading up to April parliamentary and presidential elections, the Ijaws threatened to blow up multinational oil installations they said they'd captured in retaliation for government military raids, the New York Times reported Monday.
"We aren't anticipating any sizable new field additions in the second quarter," Mr. Dann said. "Most of that production lost won't be regained until this conflict is resolved."
But he said he wouldn't revise earnings estimates for the quarter until he had a better idea of how long the shut-in would last. While he doesn't own stock in the company, he said Banc of America does investment banking for ChevronTexaco.
The company will potentially face a double whammy in the second quarter, however, from reduced production volume and significantly lower oil prices now that the war with Iraq has begun, warned Fadel Gheit, an analyst at Fahnestock & Co.
But he said it's "highly unlikely this will last long enough to have a meaningful impact on the earnings of any of (the) companies" active in the Niger Delta.
Shell Development Petroleum Co., a unit of Royal Dutch/Shell (RD) in Nigeria, has shut in 370,000 barrels a day, and French oil producer TotalFinaElf SA (TOT) closed down 7,500 barrels a day from its Nigerian operations, the companies said Monday.
The sole bright spot in the second quarter will be the downstream segment, where an increase in refining margins of $1 a barrel would more than offset the financial impact of lost production in Nigeria, Mr. Gheit predicted.
Mr. Gheit said that while he owns Chevron shares, Fahnestock has no investment-banking relationship with the company.
The shut-in of 440,000 barrels of day includes ChevronTexaco's deepwater platforms that feed into the Escravos export terminal and storage facility, said Fred Gorell, a company spokesman. The Escravos terminal is one of the installations threatened by Ijaws.
But Mr. Gorell said he wouldn't speculate on the potential impact on earnings or how much of the lost production ChevronTexaco could offset with increases at its other facilities.
Shell's shut-in affects only the swamp regions, not its one deepwater platform, according to Simon Buerk, a group spokesman for the Royal Dutch/Shell Group.
Mr. Buerk anticipates a rapid return to normalcy, contingent on the safety of Shell's staff and contractors.
If the Nigerian operations were to be shut-in for a full 90 days, ChevronTexaco would likely lose between $75 million and $100 million in pretax operating earnings, based on an average price of $27 a barrel for the year, said Mr. Gheit, the Fahnestock analyst.
ChevronTexaco's exposure in Nigeria is limited to its 40% stake in the delta's production facilities under a production-sharing agreement with the Nigerian National Petroleum Corp.
"The fact that the government has a stake makes it likely to be resolved. This is their lifeblood," Mr. Gheit said.
Mr. Dann, the Banc of America analyst, agreed that the Nigerian government has a significant interest in facilities being reopened as quickly as possible.
Still, Nigeria is more vulnerable to ongoing production disruptions than Venezuela, for example, due to long-standing ethnic and religious conflicts in the country, which aren't likely to disappear, he added.
ChevronTexaco recently said it would scale back its production growth expectation to 1.2% for 2003 from a previous target between 2% and 3%.
Although the potential bite into earnings is something of a red flag for investors, it's less significant than if it were the company's own doing, Mr. Dann said. However, investors might become less forgiving the longer the disruption lasts, he added.
The Organization of Petroleum Exporting Countries said it would make up the shortfall from Nigeria, one of its members. With most other OPEC members at or approaching maximum production capacity, it would probably fall to Saudi Arabia to raise its output, Mr. Dann said.
- David Bogoslaw, Dow Jones Newswires; 201-938-5289 (END) Dow Jones Newswires 03-24-03 1308ET