Chevron Profit Soars, Fueled By Summer Surge In Oil Prices
The energy giant nets $7.9 billion in the third quarter, the latest in the industry to post eye-popping earnings.
Net income at the San Ramon, Calif.-based oil giant more than doubled
compared with the year-earlier period, to $3.78 a share, fueled by
soaring crude prices that shot past $145 a barrel in July. The nation’s
No. 2 oil company would have reaped even fatter profits if not for
hurricanes Ike and Gustav.
Storm-related shutdowns at Chevron’s operation in the Gulf of Mexico
helped push down oil and gas production to 2.443 million barrels a day
in the third quarter, a decline of 3.7% from the second quarter, which
ended in June.
Through the first nine months of the year, Chevron earned $19 billion.
It ended the quarter with $10.6 billion in cash on its balance sheet.
"Earnings… benefited from prices for crude oil that were
significantly higher," said David O’Reilly, Chevron’s chairman and
chief executive.
Chevron shares rose 42 cents to $74.60.
Chevron’s performance was just the latest in a string of eye-popping
earnings reports in recent days from some of the industry’s biggest
publicly traded oil companies. Exxon Mobil, Royal Dutch Shell, BP and
Westwood-based Occidental Petroleum all reported enormous profits — a
marked contrast to the recession fears, mass layoffs and lousy earnings
reports reverberating through much of the rest of the U.S. economy.
Consumer advocates have complained that oil firms aren’t investing
enough to develop new sources of supply, preferring to hold their
windfalls in cash or use them to buy back their own shares.
The so-called Big Five — Exxon, BP, Shell, Chevron and ConocoPhillips
— devoted $38 billion to purchases of their company stock through the
first nine months of the year, according to a report released Friday by
the Consumer Federation of America, a nonprofit advocacy group.
"That money comes out of the consumer’s pocket," said Mark Cooper, the
group’s research director. "The system is literally redistributing
wealth from average American consumers to oil company stockholders."
Other critics were quick to jump on the Halloween timing of Chevron’s earnings release.
"These profits show the extent of the oil industry’s vampire attack on
a weakened economy," said Judy Dugan, research director of the
nonprofit group Consumer Watchdog. "Fuel and energy prices bled away
the reserves of family budgets and corporate treasuries. Energy
inflation deepened the effect of the financial markets’ meltdown."
Despite this week’s heady earning numbers, oil industry executives and analysts have turned cautious about the near future.
Petroleum prices have plunged since their peak in July. Crude for
December delivery on Friday closed at $67.81 a barrel on the New York
Mercantile Exchange. A slumping world economy is curbing demand for oil.
Lower crude prices are already making some oil companies reconsider
expensive new investments. Shell this week said it was postponing the
expansion of a big oil sands project in Canada. Some smaller operators
are having trouble getting financing.
"You put the credit crunch together with lower oil prices, and a lot of
these projects start to look borderline," said Sean Brodrick, natural
resource analyst with MoneyAndMarkets.com.
Still, the sudden price drop also creates opportunities. Brodrick said
cash-rich oil firms such as Chevron were smart to sit tight and wait
for the opportunity to snap up assets from struggling companies at
bargain prices.
Phil Flynn, senior analyst at Alaron Trading Corp. in Chicago, said oil
companies make easy villains for frustrated American consumers who have
responded enthusiastically to the idea floating around Capitol Hill to
slap a windfall profits tax on hefty earnings.
But he said the tax could end up undermining U.S. energy security by
making it harder for U.S. companies to compete for untapped reserves of
oil, which are getting harder to find.
"Big U.S. oil companies are not the enemy," Flynn said. "At the end of
the day, we should be pleased that oil companies are making money. If
they’re making money, they can bring us supply."
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