Earnings jump 18% at San Ramon company even as crude oil prices slump in 1st quarter

The San Francisco Chronicle

Soaring gasoline prices and the sale of a Netherlands refinery helped drive Chevron Corp. profits up 18 percent to $4.7 billion in the year’s first quarter, the San Ramon company reported Friday.

Chevron saw its profit surge despite a dip in the price of crude oil, the company’s main source of income. The sale of the Nerefco refinery in the Netherlands brought in $700 million and helped make up the slack.

But so did gas prices. Profit margins at the company’s gasoline refineries jumped, as gasoline prices rose relentlessly across the country. California’s average for a gallon of regular will likely set a new record today, topping the previous high of $3.38. San Francisco’s average for regular reached $3.50 Friday for the first time.

Other oil companies this week have reported similar results, making less money than before on oil and more on gasoline.

Consumer advocates seized on the news as further evidence that drivers are being gouged. Politicians renewed calls for a windfall-profits tax, an idea that the oil industry and the White House have staunchly and successfully opposed.

Chevron‘s refining and marketing operations in the United States brought in $350 million in the first quarter, 66.7 percent more than during the same period last year. And yet, the company’s domestic refineries actually processed 22 percent less crude oil than before.

In other words, prices were high enough that refineries made more money while producing less gasoline. Margins for all refineries on the West Coast, not just Chevron‘s, rose 45.7 percent in the quarter.

“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 for the Foundation for Taxpayer and Consumer Rights.

Mechanical problems at refineries in California and throughout the country have borne much of the blame for this year’s jump in gasoline prices, making refinery production a touchy topic for the industry. Oil company critics accuse refiners of intentionally scaling back gasoline production to squeeze the market and boost prices. Oil companies have countered that the refinery problems have been real, not a ploy, and have cost them money as they repair equipment and buy replacement gas supplies on the open market.

Chevron executives said Friday that a fire at its Richmond refinery cost $150 million, both for repairs and lost profit. The refinery, which was about to undergo annual maintenance when the fire broke out, was closed a month longer than planned.

Chevron spokesman Don Campbell added that profit from refining and marketing in the United States accounted for just 7 percent of the company’s overall profit, despite the increases. The company now spends almost as much money — $300 million — every week on finding and pumping more oil, he said.

“California consumers need to know that the majority of our profit comes from doing work around the world,” Campbell said.

Chevron‘s results easily topped Wall Street’s expectations. Analysts polled by Thomson Financial had expected an average profit of $1.67 per share, well below the $2.18 per share reported Friday. Still, Chevron‘s profit had almost no effect on its stock price, which slid 10 cents to close at $78.08.

Analyst Lanny Pendill with Edward Jones said the quarter showed solid performance by the company. He, too, is keeping an eye on Chevron‘s refineries, saying the ability to keep those refineries running at or near their capacity will help determine how well Chevron performs compared to its peers.

“That’s what’s really making the difference between the companies right now,” Pendill said. He said, however, that some mechanical problems will occur, since the refineries are being asked to produce more gasoline now than they did when they were built.

“You’re running them hard, and they’re breaking down,” he said.
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E-mail David R. Baker at [email protected]