Bloomberg News

Chevron Posts Biggest Profit Drop in Two Years on Refining

January 31, 2012

(Adds size of daily refining losses in third paragraph, comments from analysts in fourth, penultimate paragraphs.)

Jan. 27 (Bloomberg) -- Chevron Corp., the second-largest U.S. energy company, reported its biggest decline in quarterly earnings in two years after refining losses undercut gains from record fourth-quarter crude prices.

Net income fell to $5.1 billion, or $2.58 a share, from $5.3 billion, or $2.64, a year earlier, San Ramon, California- based Chevron said in a statement today. Per-share profit was 32 cents below the average of five analysts’ estimates compiled by Bloomberg.

Chief Executive Officer John Watson has been selling oil refineries and filling stations in Europe and Africa to focus on higher-profit crude production and natural-gas liquefaction projects. The company’s U.S. refineries lost an average $2.2 million a day during the final three months of 2011 as crude- processing margins shrank and maintenance work at a California plant curbed fuel output.

“They were hit by a huge drop-off in refining margins at the same time they had a very large maintenance project at a California refinery,” Gianna Bern, president of Brookshire Advisory & Research in Chicago, said today in a telephone interview. “We’re going to see a lot more of this to come as refining margins come under continued pressure all over the globe.”

Chevron fell 2.6 percent to $103.80 at 9:43 a.m. in New York. Oil and gas production from Chevron’s wells declined 5.2 percent to the equivalent of 2.64 million barrels of crude a day.

Record 2011

Sales rose 11 percent to $60 billion during the quarter. For the full year, net income climbed 41 percent to a company record of $26.9 billion.

Chevron added the equivalent of 1.67 billion barrels in reserves last year, enough to replace 171 percent of the oil and gas the company pumped last year, according to today’s statement. That was the best reserves performance since 2005.

Brent oil futures, the benchmark for two-thirds of the world’s crude, climbed 25 percent to a record fourth-quarter average of $109.02 a barrel. Chevron gets 74 percent of its oil outside the U.S.

Declining Gas Price

Natural-gas futures traded in New York dropped 13 percent from a year earlier to average $3.48 per million British thermal units, the lowest fourth-quarter average since 2001. Intensive drilling techniques that enabled explorers to tap shale formations helped boost total U.S. gas production by 7.4 percent in 2011, swelling supplies and depressing prices, according to Energy Department figures.

Rising labor and raw material costs eroded some of Chevron’s gains from higher crude prices during the fourth quarter, Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis, said today in an interview. Chevron’s oil and gas business earned $23.62 per barrel of output, down from $25.94 during the July-to-October period, he said.

Exxon Mobil Corp., based in Irving, Texas, is the largest U.S. energy company. Exxon Mobil will report its fourth-quarter results Jan. 31.

(Chevron is scheduled to hold an earnings conference call for investors and analysts, starting at 11 a.m. New York time. To listen, access a broadcast at LIVE <GO>.)

--Editors: Susan Warren, Jessica Resnick-Ault

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net


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