Chevron's income up 165 percent

Posted on Sat, May. 03, 2003 By Rick Jurgens CONTRA COSTA TIMES

ChevronTexaco Corp.'s first-quarter net income jumped 165 percent, to $1.92 billion from $725 million a year ago, as high oil prices more than offset a decline in crude oil production and as U.S. refineries returned to profitability with a boost from California motorists.

"In summary, the company had a very strong quarter," Chief Financial Officer John Watson said in a conference call with Wall Street financial analysts.

Shares of ChevronTexaco rose $2.35, or 3.7 percent, Friday to close at $65.35 after the company's early-morning announcement that per-share net income was $1.81 for the three-month period ended March 31, compared with 68 cents a year ago.

Excluding a charge to reflect the cost of an accounting change, ChevronTexaco posted net income of $2.12 billion, or $1.99 a share. That beat the $1.81 a share consensus estimate of 19 analysts surveyed by First Call/Thomson Financial and the 88 cents a share of a year ago.

The latest numbers tasted like a refreshing drink after a long drought for holders of ChevronTexaco shares, which closed at $90.89 on the day of the October 2001 merger that created the company, said Fadel Gheit, an analyst for Fahnestock & Co. Gheit owns ChevronTexaco stock but Fahnestock does not do investment banking business for the oil giant.

Still, questions remain about ChevronTexaco's future prospects, especially its ability to expand oil reserves and boost production, said Tina Vital, a stock analyst for Standard & Poor's, a market information service. Vital does not own the stock.

In January ChevronTexaco shelved its target of an annual growth rate of 2.5 percent to 3 percent for reserves and production, a goal Chief Executive Dave O'Reilly announced in November 2001. The company has begun selling less profitable oil and gas reserves and, according to Vital, begun a review of its reserve and production growth goals. Fred Gorell, a ChevronTexaco spokesman, said the company as a matter of policy would not comment on whether or not an internal review is under way but that there is currently no specific target for growth.

Failure to deliver on earlier growth promises, along with losses from an investment in Dynegy, a troubled energy marketer, put ChevronTexaco's stock "in the penalty box for the last year and a half," Gheit said. But in the first quarter, he added, "higher prices made investors forgive all (the company's) sins."

Those higher prices worked their way through to ChevronTexaco's bottom line. Profits from U.S. crude oil production more than tripled to $1.02 billion, excluding an accounting charge, from $304 million a year ago. Hefty price hikes powered the advance, as the average selling price for a barrel of domestic petroleum liquid was $29.14, compared with $16.90 a year ago. Daily production dropped to 577,000 barrels from 619,000 barrels a year ago, as yields dropped from older wells and storm damage to some Gulf of Mexico wells proved too expensive to repair.

Higher prices produced a smaller profit gain from international exploration and production, to $1.10 billion from $837 million. The average take from a barrel of liquid lifted outside the United States rose to $29.63 a barrel from $19.02. Production slipped to 1.7 million barrels a day from 1.8 million a year ago. Civil unrest in Nigeria and Venezuela and a work project in Angola slowed output, and quirks in a production sharing arrangement in Indonesia lowered output.

California gasoline prices that stayed above $2 a gallon for much of the quarter boosted margins -- the spread between wholesale prices and crude oil costs -- at ChevronTexaco's West Coast refineries, which include large California producers in Richmond and El Segundo. That spread averaged $20.30 a barrel, or 48 cents a gallon, compared with $12.27 a barrel, or 29 cents a gallon, a year ago. West Coast margins were more than double those for ChevronTexaco's other U.S. refineries. Nationwide, daily refinery output declined to 814,000 barrels from 868,000 barrels a year ago. But that was enough to restore profitability, to the tune of $70 million, in a segment that lost $154 million a year ago.

International refining and marketing profits rose to $245 million from $93 million year ago.

Strong sales of jet fuel to the military contributed to higher refined product sales.

Watson said ChevronTexaco has met its merger target of $2.2 billion a year in operating cost reductions but is looking to squeeze out further savings. "The pressure is on to deliver lower operating expenses across all of our businesses," he said.

But Vital, who has a hold rating on the stock, said that until ChevronTexaco shows how it plans to grow output "people are a little cautious" about the company.