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Forbes: Slimmer Chevron Beats The Street

Joshua Lipton, 04.27.07, 4:10 PM ET
 
Breaking up might be hard to do, as the song goes. But it can also boost profits in the short run and allow a company to concentrate on its core business, longer term. Both factors came into play for Chevron in the first quarter.

For the quarter ended March 31, the company told investors that it earned $4.7 billion, or $2.18 per share, up 17.5% from $4.0 billion, or $1.80 per share, for the similar period a year ago.

Revenue for the oil company actually dropped 12%, to $48.2 billion.

Chevron decided to sell its 31% interest in the Nerefco Refinery and related assets in the Netherlands during the latest period.

The 2007 earnings included a $700 million gain on the sale of the company’s stake in refining and related assets in the Netherlands. Chevron said it would have earned $1.80 per share, if not for that one-time gain. Those numbers were enough to beat the Street: analysts had projected operating earnings of $1.67 per share.

In late trading on Friday, shares of Chevron (nyse: CVX – news – people ) edged up 0.1%, or five cents, to $78.08.

ConocoPhillips (nyse: COP – news – people )similarly made good money by selling some money-making assets. On Wednesday, the company announced that income climbed 7.7%, to $3.6 billion, or $2.12 a share. But assets sales, led by Canadian and European properties, and accounted for 29 cents, or $355 million, of first-quarter profits. (See: “ConocoPhillips Masks Weakness With Asset Sales.”)

Chevron’s results also benefited from the U.S. refining, marketing, and transportation division, where profit of $350 million increased $140 million for the 2006 quarter, primarily, the company said, as a result of higher margins for refined products.

Rival Exxon can relate. That company said that net income increased to 10.7%, to $9.3 billion, or $1.62 per share, handily beating the Wall Street consensus of $1.52 per share, thanks to its downstream results. The company noted that refining and marketing income rose 50% year-over-year, to $1.9 billion. Chemicals earnings increased 30%, to $1.2 billion. (See: “Exxon Discovers Profits Downstream.” )

The suits at Chevron demonstrated an adventurous spirit earlier this year, when the oil behemoth announced it was starting to dig for the black gold in Russia, a challenging environment for energy companies, which might find themselves dismembered, as was Yukos. Russia also effectively strong-armed Royal Dutch Shell Mitsubishi (other-otc: MSBHY – news – people ) and Mitsui (other-otc: MITSF – news – people) into giving up big portions of their stakes in the massive Sakhalin 2 oil field project. (See: “Russia Shows Sakhalin Partners Who The Boss Is”)

Undeterred, Chevron has agreed to a joint venture with a Gazprom subsidiary where the companies will focus on the development of the Yamal region in northwestern Siberia. Chevron will finance all upfront costs of exploration. If the hard work pays off and discoveries are made, the Gazprom subsidiary’s stake increases to 50%, but Chevron will take 100% of the cash flow until it’s compensated for laying out Gazprom’s share of the cost. (See: “It Beats Iraq.” )

The Associated Press contributed to this article.

The mentioned related article…

FORBES: Russia Shows Sakhalin Partners Who The Boss Is

Chris Noon, 12.28.06, 3:58 PM ET 
 
It sounds as though Royal Dutch/Shell, Mitsui and Mitsubishi the three companies developing the Sakhalin-2 energy site in the eastern part of Russia, have been thoroughly humiliated by the Kremlin.

The companies will have to shoulder $3.6 billion in new costs to develop the Sakhalin-2 oil and gas project, the world’s largest energy development, thereby lowering the amount state-run Gazprom (other-otc: OGZPY – news – people ) will have to spend to join the project and speeding royalty payments to Russia. That’s $3.6 billion that the oil companies will never see again.

Sakhalin-2’s stage two budget may be approved at $19.4 billion, less than Royal Dutch/Shell (nyse: RDSA – news – people ) had originally sought, Deputy Energy Minister Andrei Dementiev told the Moscow-based Vedomosti newspaper Thursday. The amount includes the $3.6 billion the foreign shareholders will have to spend. Thus Gazprom will reap the rewards from the additional investment without participating in it. A bit like hosting a party and asking everybody to bring a bottle, but not providing any liquor yourself.

The companies have already completed the first stage of the project at a cost of about $2 billion and invested $12 billion in the second stage, scheduled for completion in 2014.

Last week, Gazprom wrested a majority stake from Shell and its partners for $7.45 billion in a deal that consolidates the Kremlin’s command of Russia’s energy resources. Shell saw its 55% stake trimmed to 27.5%, while Mitsui (other-otc: MITSF – news – people ) and Mitsubishi (other-otc: MSBHY – news – people ), had their interests halved, to 12.5% and 10%, respectively.

Sakhalin-2 was, once upon a time, typical of other massive energy projects being developed by foreign oil companies under production-sharing agreements signed during the 1990s, a time when oil prices were low and Russia was thirsty for foreign investment to develop its energy reserves. The idea was the oil companies would invest in the project but get their money back from the initial production; profits thereafter would be shared with the government.

The stakeholders in Sakhalin-2 announced last year the doubling of the cost of the project, which was initially set at $10 billion. This angered the Russian government, as it would delay the payment of its share of the profits. Moscow then threw all manner of roadblocks in the way of the foreign companies trying to develop Sakhalin. In September, it accused Shell of violating worker safety rules a week after pulling environmental authorization for the project.

AFX News contributed to this article.

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