ChevronTexaco Posts Highest Quarterly Profit Since Merger

TBO ^ | 10/31/03 | Michael Liedtke

[Tumbleweed_Connection]

SAN RAMON, Calif. (AP) - ChevronTexaco Corp. capitalized on a summertime spike in oil and gas prices to generate its largest quarterly profit since the $39 billion merger that formed company 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 said its 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 $2.34, or 3.3 percent, to $74.10 in afternoon trading 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 many motorists around the country.

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.

California gas prices averaged $2.09 per gallon during August compared with a national average of $1.69 per gallon, according to the American Automobile Association.

Prices declined to a September average of $1.86 per gallon in California, but that still remained well above the national average of $1.57 per gallon, according to AAA.

The price hikes apparently were too much for some motorists to swallow. ChevronTexaco's branded U.S. gasoline sales dipped 2 percent from last year to 577,000 barrels per day in the third quarter.

ChevronTexaco did a better job of cashing in on the favorable industry conditions than just about any other major oil company, said analyst Fadel Gheit of Fahnestock & Co., noting that the earnings of other giants like ExxonMobil missed investor expectations.

"All in all, this is a company that looks to be on the right track," Gheit said.

While it's clear oil and gasoline prices are driving the company's profits, ChevronTexaco also believes it is starting to deliver some of the operating advantages that were envisioned when Chevron took control of Texaco in October 2001.

The marriage got off to a rocky start last year, largely because of a drop in oil prices and the plunging fortunes of Dynegy - a downfall that forced ChevronTexaco to recognize huge losses on its investment.

That "perfect storm" of trouble appears to have motivated ChevronTexaco management to work even harder this year to make the merger work, Gheit said.

To appease investors, ChevronTexaco has stepped up its effort to reduce its already shrinking payroll. The company employs slightly less than 52,000 workers today, down from roughly 56,000 workers two years ago.

ChevronTexaco took an $86 million charge in the third quarter to cover severance payments for another 2,000 employees expected lose their jobs as part of an overhaul disclosed three months ago. The streamlining, which is supposed to boost ChevronTexaco's pretax profits by $500 million annually, includes plans to sell 1,450 of the gas stations that the company owns or leases worldwide.

Despite ChevronTexaco's recent strides, the deal still hasn't been a winner for investors. The company's stock has fallen by nearly 20 percent since the marriage's consummation.

For the first nine months of the year, ChevronTexaco earned $5.5 billion, or $5.33 per share, on revenue of $91.3 billion. That compared with net income of $228 million, or 22 cents per share, on revenue of $71.9 billion at the same time last year.

[bmwcyle]

I grew up in the windfall profit tax days of the 1970's. They can loose big also if oil prices climb quickly.

[proxy_user]

Curiously, this has caused the oil stocks that just had disappointing earnings, Royal Dutch and Exxon, to go up slightly. Strange are the ways of the stock market.

[trebb]

Well DUHhhh - if a barrel goes up a nickle and they raise the price of a gallon by a nickle, they can't help but to clean up.

[Uncle Hal]

I own some Chevron stock and the share price has dropped about 20% or so in the last year. To me, this combined with the high gas prices did not make since to me. I guess I must be missing the bigger picture.

[gcruse]

Oddly enough, ConocoPhillips just announced brogdingnagian profits for the last quarter, too. How 'bout them gas prices, eh?