Chevron Notches Record First-Quarter Profit

The same high oil prices that are taking a
bite out of the economy brought Chevron Corp. its biggest first-quarter
profit ever, a $5.17 billion record that will likely add to the public
outcry over fuel costs.

San Ramon’s Chevron reported Friday that its profit jumped nearly 10
percent compared with the same period last year, driven higher by oil
prices that smashed decades-old records and kept climbing. The
company’s sales rose 37 percent to $65.9 billion.

Chevron’s financial report capped a week in which the largest
international oil companies all announced soaring profits: $10.9
billion for Exxon Mobil, $9.08 billion for Shell and $7.6 billion for
BP.

Most of that profit came from pumping and selling crude oil, not gasoline.

As hard as it is for drivers to believe, the prices they pay at the
gas pump have not risen as far or as fast as crude oil. Chevron made $4
million refining and selling gasoline in the United States during the
first quarter, down almost 99 percent from the same period last year.
During the previous two quarters, the company actually lost money
making gas.

But that fact hasn’t blunted public anger toward oil companies at a
time when gas costs an average of $3.62 per gallon nationwide and $3.92
in California. Politicians and consumer advocates seized on this week’s
profit reports to call for increasing taxes on oil companies or
revoking tax breaks they received in the past.

"President Bush and Congress must act immediately and take the
obvious steps to end the crisis that threatens not only every consumer
but our entire economy," said John Simpson, a consumer advocate with
the nonprofit group Consumer Watchdog, which frequently criticizes oil
companies.

Chevron spokesman Don Campbell said additional taxes wouldn’t lower
oil prices. He noted that the company spent $5 billion during the first
quarter on finding and developing new oil fields – almost as much money
as the company’s profit.

"Increasing taxes at a time when more supplies are needed in the
marketplace will take money away from those projects," he said. "We
think it’s bad policy."

Indeed, Chevron and all the major oil companies are struggling to
increase the amount of oil and natural gas they pump. Chevron’s
production slipped about 1.7 percent during the year’s first quarter,
in part because many of the company’s oil field development contracts
in foreign countries give those countries a greater share of the oil
whenever prices rise.

"At higher oil prices, more goes to the national oil companies,"
said Justin Perucki, an analyst with the Morningstar financial research
firm. "If you just look at the quantity it looks bad, but remember,
they’re getting more money for the barrels they do keep."

Oil prices, however, have been rising so quickly that gasoline prices haven’t quite kept up.

Drivers have been cutting back on the amount they buy, with U.S.
sales of Chevron gasoline falling 3 percent in the first quarter. That
makes it hard for the company to pass along the full increase in the
cost of crude oil. Profit margins at gasoline refineries have shriveled
as a result, falling by roughly a third on the West Coast compared with
the first quarter of 2007.

But that situation won’t last forever. Analysts say that if oil
prices stabilize, Chevron should be able to increase its profit margin
on gasoline by slowly raising gas prices, making drivers pay more than
they already do. That process will be easier if gasoline demand
increases this summer the way it usually does, as Americans drive off
on vacation.

Chevron also could start making bigger profits from gasoline if the
price of oil drops dramatically. But that hasn’t happened in months.

"Either gas prices will have to go up, or oil prices will have to go
down," said Philip Weiss, an analyst at Argus Research. "It’s got to be
one or the other."

E-mail David R. Baker at [email protected].