Figure is highest since Texaco merger; ‘profiteering at its worst,’ group decries

Ventura County Star (California)

ChevronTexaco Corp. capitalized on a summertime spike in oil and gasoline prices to generate its largest quarterly profit since the company was formed through a $39 billion merger two years ago.

The San Ramon-based company said Friday that it earned $1.98 billion, or $2.02 per share, in its third quarter, in contrast to a loss of $904 million, or 85 cents per share, at the same time last year.

ChevronTexaco’s revenue totaled $31 billion, a 22 percent improvement from $25.4 billion last year.

The company’s earnings per share in this year’s July-September quarter would have been $1.86 per share if not for an accounting benefit related to its investment in Houston energy merchant Dynegy Inc.

The results topped the consensus estimate of $1.62 among analysts surveyed by Thomson First Call.

Investors seemed impressed with the quarter as ChevronTexaco’s shares gained $2.54 to close at $74.30 on the New York Stock Exchange.

ChevronTexaco chairman David O’Reilly credited the strong performance largely to higher prices for oil and gasoline during the summer — a source of frustration for motorists around the country.

“This is profiteering at its worst. It happens every summer and no one is stopping them,” said Jamie Court, president of Foundation for Taxpayer & Consumer Rights, a nonprofit consumer group in Santa Monica. “This is all about them limiting inventory so prices go up. There wouldn’t be this profit unless there was a radical mark-up.”

Companies have been able to avoid violating anti-trust laws, he said, but the government is “just turning a blind eye” to the issue by not seeking creative ways to pursue the industry.

He noted that the reasons oil companies cited for increasing gasoline prices — several refinery problems, a broken pipeline in Arizona, reformulation of summer fuel and the war in Iraq –didn’t drive up production costs enough to dilute profits.

Even though the peak summer driving season is over, the price for a gallon of regular unleaded gasoline still is high in Ventura County, an average of $1.72 as of Monday, according to The Star’s weekly survey of 10 stations. That’s down from the county’s peak average price of $2.15 in March, but up from $1.53 in January.

In comparison, this week’s national average is $1.59, the weighted average of retail gasoline for all grades, according to the Lundberg Survey, a national industry report.

“Zone pricing by the major oil companies had the effect of seeing the street price of gasoline shoot up like a rocket whenever there is an unplanned glitch in the supply stream,” said Bob van der Valk, a bulk fuels manager for Santa Fe Springs-based Cosby Oil Co. “The major oil companies survey each other’s street prices daily and only make gasoline price adjustments downward when necessary, thereby causing ‘the drift down like a feather’ effect.”

The good news is gasoline prices should stabilize for the winter, he said. For motorists, the best prices can be found in communities where independent unbranded dealers compete with major oil company branded stations.

Costco has been encroaching into the gasoline retail market by opening up gasoline stations in various locations, said van der Valk, adding that its closest competitors are Arco and Valero stations, which usually have the lowest street prices of major oil companies operating branded stations.

As for its earnings, ChevronTexaco charged an average of $26 per barrel for crude oil and natural gas liquids in the third quarter, an increase of $2.75 per barrel, or 12 percent from last year.

The average price of ChevronTexaco’s refined U.S. products climbed by just 4 percent from last year to $40.43 per barrel, but the company’s profit margins were much higher.

The division that sells ChevronTexaco’s gasoline in the United States registered a $148 million profit in the quarter, reversing a $79 million loss last year. This year’s profit would have been even higher, if not for a $146 million charge that was absorbed to pay for a previously announced
reorganization of the division.

Summer gas prices were particularly high in California, one of ChevronTexaco’s main markets.