Chevron reports record earnings

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The Los Angeles Times

Chevron Corp. joined the oil industry’s record-earnings club for 2006, posting annual profit of $17.1 billion, but fourth-quarter income sagged with energy prices.

David O’Reilly, chief executive of the San Ramon, Calif.-based company, said that oil and natural gas production, which was little changed from 2005, would fall in 2007. Contributing to the decline is Venezuela, where Chevron‘s output plunged after President Hugo Chavez’s government assumed bigger stakes in two major oil fields.

Analysts were generally upbeat about Chevron‘s prospects for the year, but they said the company’s next challenge was getting production out of existing discoveries.

“Where do they invest? Venezuela? They don’t want to invest in Nigeria, a very unsafe place to be. Iraq is almost radioactive. You are not allowed to go to Iran. You can’t go to Russia. And Saudi Arabia is absolutely not open for business. So they play in the very risky deep geological situation in the Gulf of Mexico,” said Fadel Gheit, senior energy analyst for Oppenheimer & Co.

Gheit was referring to Chevron‘s discovery, announced in September, of a potentially huge source of oil in the Gulf of Mexico. Chevron also has had problems getting approval for its $8.2-billion Gorgon liquefied natural gas project in Australia.

“They have a great exploration culture, but how well they turn these potential resources into reserves is the key,” said Bernie Picchi, an energy analyst for Wall Street Access. The gulf project will be “enormously expensive to produce” and the depth of the oil “is beyond anything that has been done before,” he said.

O’Reilly also said natural gas production would drop in 2007 because of a labor dispute in Kazakhstan that has delayed construction of the $5.6-billion Tengiz gas-injection project. O’Reilly said output would fall from the equivalent of about 2.7 million barrels of oil a day to about 2.6 million barrels a day.

O’Reilly called 2006 “a year of record earnings, the attainment of several significant milestones, the completion of the integration of the former Unocal operations, improved operating performance and excellent shareholder returns.” Chevron acquired Unocal Corp. in 2005.

Chevron‘s third straight year of record profit came on the heels of other remarkable earnings for the industry, driven by soaring energy prices. Exxon Mobil Corp. on Thursday posted 2006 profit of $39.5 billion, the largest ever recorded by a public company. Oil-company earnings have been slammed as outrageous by consumer advocates.

“Congress, and particularly the members from California, should be furious at this level of profiteering, even as Chevron and the rest of Big Oil resist Congress’ attempt to recover royalties that the companies have been evading for years,” said Jamie Court, president of the Foundation for Taxpayer and Consumer Rights.

Chevron posted fourth-quarter net income of $3.8 billion, or $1.74 a share, down from $4.1 billion, or $1.86 a share, in the year-earlier quarter. Fourth-quarter revenue fell to $47.7 billion from $53.8 billion a year earlier.

The $17.1 billion the company earned for the year was 21% above the $14.1 billion it made in 2005. Revenue hit $210.1 billion in 2006, up 6% from $198.2 billion a year earlier.

Chevron shares fell 43 cents to $74.04.
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