Contra Costa Times (California)
April 28, 2007
by George Avalos, MEDIANEWS STAFF
Record profits rev up Chevron;
Earnings of $4.72 billion up 18% in 1st qtr despite dip in revenues and $150 million Richmond refinery outage.
Chevron Corp.’s first-quarter earnings rocketed 18 percent higher, propelled by handsome refining and gasoline profits, along with an asset sale, the energy giant reported Friday.
Profits soared to $4.72 billion, or $2.18 a share, for the three months that ended March 31. That compared with year-before profits of $4 billion, or $1.80 a share. Revenue slumped 12 percent primarily because of an accounting change, the company said.
San Ramon-based Chevron’s profits beat Wall Street’s expectations by a wide margin. The upside surprise came even after excluding the one-time $700 million gain from Chevron’s sale of its stake in a refinery in the Netherlands.
"These are very solid profits," said Robbert Van Batenburg, head of research at Louis Capital Markets. "They literally took people by surprise."
Excluding the effect of the profits from the Netherlands sale, Chevron earned $1.86 a share. That was 18 cents higher than the average estimate of analysts surveyed by Bloomberg.
Chevron was able to ride a wave of improved margins at refineries, even in the face of the outage of its Richmond refinery, analysts said.
"Refining margins literally soared in the first quarter," Batenburg said. "That benefited many of the major oil companies, including Chevron."
Chevron has a number of other refineries throughout the country including in El Segundo.
According to Bloomberg, profit margins for refining crude oil into gasoline, diesel and other fuels jumped 59 percent to $28.76 a barrel during the first quarter.
Separately, California Energy Commission data show that the cost of crude oil shipped to California fell 5.5 percent during the year that ended on April 23.
Over the same 12 months, a MediaNews analysis shows that the price of branded retail gasoline, excluding government-imposed taxes, rose 9.3 percent.
The profit and refinery margin trends provoked criticism from an activist group, the Foundation for Taxpayer and Consumer Rights.
"A company that seems barely able to keep its refineries running, and saw oil prices dip from last year, took advantage of an uncompetitive market to make up its losses with spiking gasoline prices," said Judy Dugan, research director with the consumer foundation.
Chevron said the refinery outage cost it $150 million. That was a combination of lost revenue and expenses from the repairs needed to bring the Richmond factory back on line, Chevron spokesman Don Campbell said.
Yet the actual profits from Chevron’s downstream business, which includes refinery operations and marketing, turned out to be only a fraction of the company’s total profits. The $350 million in downstream profits amount to 7.4 percent of the $4.7 billion Chevron earned in the first quarter.
Moreover, Chevron spent $4.1 billion in capital expenditures related to exploration and other projects during the first three months of 2007, Campbell said.
"We are reinvesting aggressively to develop new energy supplies for consumers and the international market," Campbell said. "This year, we will spend almost $20 billion to develop new oil and gas supplies."
Chevron and other energy companies could continue to benefit in the coming months from a rising demand for gasoline — some of it seasonal related to the summer travel season, analysts said.
"Gasoline demand continues at a fairly good pace," said Bernard Picchi, an analyst with Wall Street Access, an investment firm.
Chevron increased its branded sales of gasoline by about 5 percent compared with a year ago, Picchi said. The industry average was about 1 to 2 percent during the year, he estimated.
"Chevron is gaining market share from someone," Picchi said.
Refinery margins in the first quarter were even stronger than they were last summer, said John Leiviska, a debt portfolio manager with Advantus Capital Management.
"The key factor is refinery spreads were very strong in the first quarter, even stronger than they were last summer," Leiviska said. "That is a harbinger of greater demand for fuel going forward. Refinery output is pretty much running full out."
Chevron shares fell 10 cents to $78.08 in New York Stock Exchange trading Friday.
Contact George Avalos at (925) 977-8477 or email@example.com