Chevron profits hit new record of $7.89 billion
By George Avalos
Article Launched: 10/31/2008 07:48:35 AM PDT
SAN RAMON — Chevron Corp.'s earnings soared to a new quarterly record of $7.89 billion, but analysts warned that an economy that has sagged could cap record-setting profit gushers for the East Bay energy giant in the coming quarters.
The company's profits during its third quarter jumped 112 percent — more than double the $3.72 billion in profits for Chevron in the year-ago quarter. In the most recent quarter, Chevron earned $3.85 a share, which easily topped Wall Street predictions of $3.25 a share.
Revenues totaled $76 billion, up 41 percent from revenues of $54 billion in the third quarter of 2007.
San Ramon-based Chevron also noted strong results for its upstream operations — production, development and exploration — and its downstream activities— refinery operations and retail sales.
"Earnings for our upstream operations benefited from prices for crude oil that were significantly higher than in last year's third quarter," said David O'Reilly, chairman and chief executive of San Ramon-based Chevron.
Those upstream earnings were up 80 percent from the year before. However, the improvement was tempered by the effects of the hurricanes during September in the Gulf of Mexico, O'Reilly noted.
"Earnings for our downstream operations also increased from a year ago, due mainly to improved margins on the sale of refined products," O'Reilly said.
U.S. refining and retail operations earned $1.01 billion during the third quarter. That reversed a loss of $110 million a year ago.
"Chevron is reporting great numbers," said Robbert Van Batenburg, head of research with New York-based Louis Capital Management.
Skyrocketing profits could fade in the fourth quarter. The economy's tumble has curbed energy demand.
"It will be tougher for Chevron to set records," said Severin Borenstein, director of the UC Berkeley Energy Institute. "The price of oil has tanked."
During the third quarter, oil prices averaged about $118 a barrel. Friday, oil prices finished at around $68 a barrel.
"Fourth quarter earnings for Chevron should be down significantly from the quarters they posted this year, but they should still be better than last year's fourth quarter," said Allen Good, an equity analyst with Morningstar Investment Services in Chicago.
Profits also could erode in Chevron's refinery and retail operations.
"The weaker economy definitely will be a challenge on the refining side," Good said. "They may be seeing lower volumes in refining because of economic sluggishness. Gasoline demand is tied to disposable income."
The wider problems facing Chevron and other oil companies spring from crude oil demand that has diminished steadily after oil and gasoline prices zoomed to record levels.
U.S. demand for crude oil is down 8 percent, which is about 1.5 million barrels a day, Van Batenburg said. Europe's oil demand has fallen by about 1 million barrels daily. Japan crude oil demand has slumped by 500,000 barrels a day.
"China's demand will also drop," Van Batenburg said.
Plus, several oil companies have launched more production facilities. Chevron on Friday noted that it has completed the second phase of a major expansion at its Tengiz field in Kazakhstan, begun production at the offshore Agbami Field in Nigeria, started production at a liquefied natural gas field in western Australia and struck a deal to produce heavy in Canada.
"Crude oil prices are dropping just when all of these projects are coming on line," Van Batenburg said.
If the company posts profits below the record levels, the company will still be in very strong shape, analysts said.
"Chevron will still make plenty of money," Borenstein said. "But it's a lot less than they would be making at $120 or $140 a barrel."