Chevron fails to cash in on high oil prices;

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Third-quarter profit takes a 26% hit. The firm blames sharply lower profit margins on the West Coast.

Los Angeles Times

Anyone who filled a gas tank this summer might be surprised by what Chevron Corp. reported Friday: For the first time in years, Chevron lost money making and selling fuel in the U.S.

A decline in pump prices was partly to blame for the company’s 26% drop in third-quarter profit, which was bigger than Wall Street had expected. Still, the average price in California was above $3 for a gallon of self-serve regular gasoline during nearly half of the quarter.

The San Ramon, Calif.-based oil giant posted net income of $3.7 billion, or $1.75 a share, for the three months ended Sept. 30, down from $5 billion, or $2.29 a share, a year earlier.

Chevron‘s results were lower across the board compared with the third quarter of 2006, a year that saw record-high profits in much of the industry. Exxon Mobil Corp., BP and many other major oil companies reported quarterly earnings that also fell short of the year-earlier quarter.

Even after lowering expectations for the quarter, analysts were surprised by Chevron‘s results. The company’s net income, which included $400 million in charges, came in more than 30 cents below the average estimate of $2.07 a share, according to a survey by Thomson Financial.

“No one outside of Wall Street can weep for Chevron or any of the other major oil companies,” said Judy Dugan, research director at Santa Monica-based Foundation for Taxpayer & Consumer Rights. “The outlandish profits of recent years, almost entirely on the backs of motorists, allowed them to ignore the long-term sustainability of their core business.”

Dugan said that investments in renewable energy projects by Chevron and others were dwarfed by what they spent buying back company stock. Chevron, which recently completed three $5-billion share-buyback campaigns, launched a $15-billion share repurchase program in September.

As a group, companies with U.S. refineries suffered a nationwide pullback in gasoline prices at a time when the cost of crude oil was heading higher. The gap between retail fuel prices and the cost of oil was largest on the West Coast, a reversal of fortune for refiners operating in the normally lucrative California market.

Chevron, which has two refineries in California, said profit at its worldwide refining and marketing operations fell to $377 million for the third quarter, down about 74% from the $1.4-billion profit Chevron collected in the year-earlier period. In the United States, Chevron‘s refining and marketing operations lost $110 million in the quarter, compared with profit of $831 million in the third quarter of 2006.

The company blamed the U.S. loss on sharply lower profit margins on the West Coast, a situation exacerbated by expensive oil imports and a lengthy upgrade project at its plant in El Segundo.

Chevron also tacked on a $50-million charge for environmental costs and produced less fuel because of a fire at its Pascagoula, Miss., refinery.

Net income at Chevron‘s flagship business of producing and selling oil and natural gas fell 2% to $3.4 billion. Worldwide production was the equivalent of 2.6 million barrels a day of oil, a 4% decline attributed in part to revised operating terms in Venezuela.

Chevron shares fell 56 cents to $88.48 on Friday.
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