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Bloomberg: Chevron Profit Rises on Divestiture, Gasoline Prices (Update3)

By Joe Carroll
 
David O’Reilly, CEO of Chevron Corp. July 27 (Bloomberg) — Chevron Corp., the second-largest U.S. oil producer, posted its highest quarterly earnings ever after gasoline prices rose to a record and the company sold its stake in Dynegy Inc. at a profit.

Second-quarter net income climbed to $5.38 billion, or $2.52 a share, from $4.35 billion, or $1.97, a year earlier, San Ramon, California-based Chevron said today in a statement. The profit increase, at 24 percent, was the biggest among the world’s five largest investor-owned oil companies.

A $680 million gain on the Dynegy sale made up for lower oil prices and a decline in output, factors that caused Chevron’s bigger rival, Exxon Mobil Corp., to report a drop in profit. Chevron’s third-largest refinery resumed production after being repaired, allowing Chief Executive Officer David O’Reilly to take advantage of record profit margins on gasoline and diesel.

“We’ve seen quite a pickup in gasoline margins,” said John Escario, who helps manage $15 billion, including Chevron shares, at Rydex Investments in Rockville, Maryland. “We’ll need to see some economic growth for those to remain fairly strong.”

Revenue rose 4.8 percent to $56.1 billion, Chevron said.

The company’s shares climbed 3 cents to $87.49 at 9:40 a.m. in New York Stock Exchange composite trading. The stock has risen 19 percent this year, outperforming shares of Exxon Mobil and ConocoPhillips.

Dynegy Sale

Chevron sold its 12 percent stake in Dynegy, a Houston- based power producer, in May. Excluding the divestiture and costs for early debt redemption, profit was about $2.28 a share, matching the average of 16 analyst estimates compiled by Bloomberg.

O’Reilly, 60, is expanding in Russia, India, Angola and the Gulf of Mexico to compensate for declining oil output from old fields in California and Indonesia, the company’s two largest sources of crude.

Profit from oil and natural-gas sales rose 11 percent to $3.64 billion as higher U.S. gas prices made up for a 1.5 percent drop in output from the company’s wells.

Refining profit rose 30 percent to $1.3 billion amid record second-quarter gasoline demand in the U.S. Retail gasoline prices jumped to an all-time high of $3.22 a gallon in May as refinery breakdowns reduced fuel supplies.

Chemicals Profit Rises

Chemicals earnings rose 11 percent to $104 million as profit margins on lubricants widened, the company said.

Chevron postponed two Gulf of Mexico oil projects valued at $6.5 billion last month. Shackles needed to connect the production platform to the seafloor were found to be faulty, forcing the company to delay its Tahiti project, which had been scheduled to begin pumping oil and gas next year. The Jack project in the Gulf is delayed by a shortage of drilling rigs.

Chevron’s report comes a day after Irving, Texas-based Exxon Mobil, the world’s biggest oil company, posted a 1 percent decline in second-quarter profit, to $10.3 billion, falling short of analyst estimates. Earlier this week, ConocoPhillips, the third-biggest U.S. oil company, said its net income plunged 94 percent to $301 million.

Royal Dutch Shell Plc, Europe’s biggest oil producer, yesterday announced an 18 percent gain in profit, to $8.67 billion. Also this week, the U.K.’s BP Plc said its net income rose 1.5 percent to $7.38 billion.

Spending Plans

Chevron’s O’Reilly, a Dublin-born chemical engineer, in March set a goal of raising oil and gas production by 3 percent or more annually through 2010. Toward that end, the company plans to spend $19.6 billion this year on new wells, refinery expansions and liquefied natural-gas projects.

Rising rig rents and labor costs probably will inflate Chevron’s exploration spending by 8 percent this year to $17.53 per barrel of production from $16.29 in 2006, according to William Featherston, an analyst at UBS Securities LLC in New York. That’s equal to the increase expected for Exxon Mobil and more than the 5 percent rise anticipated for ConocoPhillips.

U.S. oil futures averaged $65.02 a barrel during the second quarter, down 8.1 percent from a year earlier, as equipment failures, power outages and fires shut some refineries, causing stockpiles of unused oil to accumulate.

Benchmark gas futures in New York averaged $7.655 per million British thermal units, 15 percent higher than a year earlier, amid concern that hot summer weather would stoke demand for power from gas-fueled generators to run air conditioners.

To contact the reporter on this story: Joe Carroll in Houston at [email protected] .

Last Updated: July 27, 2007 09:53 EDT

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