Falling below Wall Street’s expectations, San Ramon oil company posts record results that spur outcry from consumer advocates

THE SAN FRANCISCO CHRONICLE

Chevron Corp. reported Friday a record $4.4 billion profit in its most recent quarter, a 19 percent jump propelled by high oil prices and strong margins at the company’s gasoline refineries in the United States.

That profit, equaling $1.97 per share, prompted renewed complaints of price-gouging from politicians and consumer advocates. At the same time though, Wall Street deemed Chevron‘s results insufficient, pushing down the company’s stock. Every other oil giant that reported profits this week — including Exxon Mobil Corp., BP Plc and Royal Dutch Shell Plc — made more.

San Ramon’s Chevron brought in $53.5 billion in revenue during the three months ending June 30, a $5.2 billion increase from the same period last year. So far this year, Chevron has made $8.3 billion in profit, placing the company on track to top its $14.1 billion annual record, set last year.

Roughly 75 percent of Chevron‘s profit in the most recent quarter came from finding and pumping crude oil. Crude prices have been stuck near or above $70 per barrel for months, the result of strong global demand, speculative investors pouring money into the market, and fears that conflict in the Middle East and Africa could disrupt supplies.

About 12 percent of Chevron‘s quarterly profit came from refining and marketing operations in the United States, where regular unleaded gas prices now average $3 per gallon.

Chevron, like other oil companies, does not reveal exact profit margins for its gasoline refineries. But the company’s earnings release noted that the margin for gasoline refined on the West Coast by all companies rose about 58.6 percent between the first and second quarters of this year to $29.06 per barrel. Compared to the second quarter of 2005, the margin rose about 39.6 percent.

The margin Chevron reports represents the price difference between Alaska North Slope crude oil, widely used in California refineries, and the price of the gasoline refiners sell. The figure does not include many costs.

The jump in refinery margins occurred because the price of gasoline rose faster than the cost of crude oil in the second quarter.

That drew the attention of California officials examining the state’s gasoline market. In April, Attorney General Bill Lockyer opened an investigation into refinery profit margins while California experienced a sudden gas price spike that economists were unable to easily explain. Chevron controls about 25 percent of the state’s refining capacity.

“The numbers provide further evidence of the need for the investigation the attorney general launched earlier this year,” said Lockyer spokesman Tom Dresslar. “We need to get some answers about the steadily increasing margins that California refiners enjoy.”

Judy Dugan, research director for the Foundation for Taxpayer and Consumer Rights, saw the refinery margins as evidence of gouging.

“There is no reason, aside from greed, for them to be making this kind of money on the backs of California motorists,” she said.

Chevron maintains that the prices it receives, both for crude oil and refined gasoline, are set by the market.

“While we empathize with consumers who are feeling the pinch from high prices at the pump, any suggestions that we manipulate the California market to drive up prices are absolutely false,” said Chevron spokesman Don Campbell.

Sen. Dianne Feinstein, D-Calif., called the oil company profits reported this week “unconscionable” and said the government should eliminate the industry’s subsidies and incentives.

“The time has come to shine some light on the oil industry,” she said, in an e-mailed statement.

Although Chevron‘s profits set a record, they underwhelmed investors. Wall Street analysts polled by Thomson Financial had expected earnings per share of $2.21.

Chevron‘s stock dropped $1.68, or 2.48 percent, to hit $66.05.

“On the whole, their performance was a little weaker than their peers,” said Edward Jones oil analyst Lanny Pendill.

Earlier in the week Exxon Mobil reported a $10.4 billion profit for the second quarter. BP made $7.27 billion, while Shell scored $7.32 billion.

Pendill was pleased to see Chevron‘s refining margins improve, saying that used to be a weak spot for the company. Other analysts said Chevron appears to be on the right track, even if the company’s results missed expectations.

“They’re not making birdies out there, but they’re not making bogeys,” said analyst Justin Perucki, with the Morningstar research company. “Oil prices are still high, refining margins are through the roof, and they’re still making money.”
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Rising oil income

Share earnings:   $1.97 —– $1.76