Contra Costa Times (Walnut Creek, California)
Walnut Creek, CA — Chevron Corp. powered to record profits in 2007 of more than $18 billion and higher profits for its fourth quarter of last year, bolstered by surging prices of crude oil.
However, the energy giant also reported profit weakness in its refining and retail business. The company also predicted its production output would decline in 2008, primarily due to delays in some crude oil development projects.
During its fourth quarter, San Ramon-based Chevron earned $4.88 billion, or $2.32 a share. For the full year, Chevron‘s profits totaled $18.69 billion, or $8.77 a share. Quarterly profits jumped 29 percent from the year before. The profits in the October-December period were exceeded only by the $5.38 billion Chevron netted in the second quarter.
“Our results capped overall a successful year for our company,” said David O’Reilly, Chevron‘s chairman and chief executive. “We achieved record earnings in 2007.” The results topped Wall Street expectations. But its stock finished down 76 cents, or 0.9 percent, at $82.49.
The company said its upstream, or exploration and production business, benefited from a big increase in crude oil prices. But downstream, consisting mainly of refining and retail operations, suffered a decline in profits because of refinery shutdowns and the inability of gasoline prices to keep up with the record jump in crude oil costs.
Chevron‘s profits provoked criticism from the Foundation for Taxpayer and Consumer Rights, a watchdog group. Judy
Dugan, a research director for the Santa Monica-based foundation, said Chevron‘s profits are cold comfort for motorists who often pay more than $3 a gallon for gasoline in costly markets such as the Bay Area.
“Consumers should be furious about these record profits,” Dugan said. “They are still struggling to pay 50 bucks, 60 bucks for a fill-up. People in colder climates are paying practically double for their necessary heating oil.”
The oil company responded that it does far more than simply harvest its record profits and fatten the wallets of shareholders and executives.
“We are investing $23 billion to develop new energy supplies,” said Don Campbell, a Chevron spokesman. “We are being very aggressive on this front and are moving forward with our growth plans.”
What’s more, the cost of crude oil used at Chevron‘s U.S. refineries has outstripped what the refinery operators can charge for finished products such as gasoline.
The disparity was especially pronounced in the company’s U.S. refining and retail market. This sector, which includes Chevron‘s Richmond refinery, and retail outlets such as Chevron service stations, took a $55 million loss in the final three months of the year.
“It was a difficult quarter for our U.S. downstream operations,” Campbell said. “Energy costs are high for us, too.”
Despite the difficulties in refining and retail, analysts believe Chevron is doing well and has a bright future.
“Refining margins are down compared to several months and a year ago, but that is just a little bit of a shade of gray on an otherwise pretty favorable story today and going into 2008,” said Michael Cuggino, president of Pacific Heights Asset Management, a San Francisco-based investment firm.
Overall, Chevron has been able to offset its problems in one part of its business with strong efforts in others, said Robbert Van Batenburg, New York-based head of global research with Louis Capital, an investment company.
“Whatever Chevron lost on the downstream side, they have been well compensated on the upstream side with high oil prices,” Van Batenburg said.
The company has struggled lately with below-normal replacement rates for the oil and natural-gas reserves it extracts. But the company has major projects coming on line such as a liquefied natural gas field in Angola and an expansion of a big oil field in Kazakhstan, said Bernard Picchi, an analyst with New York-based Wall Street Access, an investment firm. Although the launch of such major projects is not always smooth, that’s the best approach for Chevron.
“Chevron is on the right track,” Picchi said. “It wouldn’t make sense to focus on a minor oil basin. For a company of their size, they have to focus on big projects.”
More challenges await Chevron if the economy continues to soften. Some analysts believe gasoline prices are unlikely to rise much in the coming months and could even slide. And crude oil prices could slump dramatically amid a recession or economic slowdown, said David James, senior vice president with Xenia, Ohio-based James Investment Research.
“While the oil sector appears down a little bit, Chevron looks very good to us,” James said. “Their management has been doing well.”
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George Avalos covers jobs, economic development, commercial real estate, finance and oil. Reach him at 925-977-8477 or [email protected]
