Saturday, July 28, 2007


Jul. 28, 2007 (McClatchy-Tribune Regional News delivered by Newstex) --
Powered by hefty income from refinery margins and gasoline sales, Chevron Corp. (NYSE:CVX) tapped a gusher of second-quarter profit and posted financial results that dazzled Wall Street and outstripped its rivals.

San Ramon-based Chevron earned $5.38 billion in its second quarter, a 24 percent increase from the year before. The $2.52 per share that Chevron earned was far ahead of analyst estimates of $2.28 a share that were compiled by Bloomberg.

'Earnings and cash flows were strong in the second quarter,' David O'Reilly, Chevron's chairman and chief executive, said of the results released Friday.

Chevron's profit made it the oil industry's star performer in the second quarter. The East Bay company topped the year-to-year earnings gains of rivals such as Exxon Mobil Corp. (NYSE:XOM) , Royal Dutch Shell, BP (TSX:BP'U) and ConocoPhillips. (NYSE:COP)

'They are raking it in,' said Severin Borenstein, director of the Berkeley-based University of California Energy Institute.

The closest to Chevron was Shell, which posted an 18 percent increase in profit. BP eked out a 2 percent gain. Exxon and Conoco suffered a year-to-year earnings decline.

'Chevron had a very strong quarter, especially if you back it up with what Exxon reported (Thursday),' said Ron Oster, an analyst with investment firm A.G. Edwards. (NYSE:AGE) 'We were very pleased with the results.'

The worldwide rise in crude oil is only part of Chevron's success. Perhaps an even bigger factor is the primary locations of Chevron's refineries.

'Chevron is focused on the West Coast, in Asia and in the Pacific with its refineries,' Oster said. 'Those are very high margin environments.'

California is the location of sky-high gasoline prices. Asia and the Pacific Rim are home to China and India, whose fast-growing economies thirst for energy.

'Refining operations are a very strong part of Chevron's performance, and refining will remain strong,' said Peter Dunay, investment strategist with Leeb Capital Management.

Plus, Chevron is one of the biggest players in the western refinery arena. Borenstein estimated Chevron accounts for at least 20 percent of the refinery capacity in California. That means the company could influence gasoline prices in the state.

'Is Chevron big enough to exercise market power? They probably are big enough,' Borenstein said. 'That is unlikely to be the major explanation for what is going on with gasoline prices. But it could be part of it.'

Borenstein said he worries the West Coast refinery market is so concentrated that relatively few oil companies could move prices.

'But there is no evidence they have done that,' Borenstein said. 'And even if they have moved the market, they have done nothing illegal, as long as they did it without colluding.'

Chevron's downstream operations, which include refining, marketing, retail sales and transportation, produced $1.3 billion in income, a 30 percent increase from the year before.

Income gains from Chevron's downstream activities in the United States were far more robust. Those totaled $781 million, a jump of 41 percent. Retail gasoline prices in the nation surged to an all-time high of $3.22 a gallon in May as refinery breakdowns cut fuel supplies.

East Bay motorists offered mixed views about Chevron's profit and the high gasoline prices.

'It just cost me $75 to fill up my car,' said Cecilia Swain, a Concord resident who was fueling her sport utility vehicle at a Chevron station. 'I don't like it. But that's the price for driving this kind of vehicle. We have a choice of what to drive.'

'Chevron is charging an exorbitant amount of money for gasoline, but it is driven by world oil prices,' said Dave, a Walnut Creek resident interviewed while he was fueling his vehicle. 'But oil companies should have to pay a tax on their excess profits.'

Still, Chevron must navigate past some significant shoals in the coming months and years. Bernie Picchi, an analyst with investment firm Wall Street Access, said the company must develop new oil and gas fields. It also must confront rising expenses with a liquefied natural gas project in Australia.

'They are facing some huge problems with the cost of the Gorgon project' in Australia, Picchi said.

Other analysts said investors can expect more sizzling results from Chevron. Analysts say gasoline and oil prices will remain relatively high.

'Chevron remains one of our favorite stocks to hold on to into the second half of the year,' Daniel Barcelo, an analyst with Bank of America (NYSE:BAC PRZ) (NYSE:BAC PRA) (NYSE:IKR) (NYSE:IKM) (NYSE:IKL) (NYSE:IKJ) (NYSE:BAC) , wrote in a research note.

Reach George Avalos at 925-977-8477 or  gavalos@cctimes.com.

Newstex ID: KRTB-0036-18490322


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