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The New York Times: Chevron 3Q Profit Plunges 26 Percent

Published: November 3, 2007
Filed at 2:06 a.m. ET

SAN RAMON, Calif. (AP) — Chevron Corp. third-quarter profit slid 26 percent, the steepest decline in five years as the energy market’s unpredictable pendulum swung against the second-largest U.S. oil company and most of its peers.

The San Ramon-based company said Friday that it made $3.72 billion, or $1.75 per share, in the three months ended in September, down from net income of $5.02 billion, or $2.29 per share, at the same time last year.

Analysts were bracing for a lower profit, but the erosion was far worse than their average earnings estimate of $2.07 per share, based on a survey by Thomson Financial.

Revenue growth also was lackluster during the quarter, edging up just 2 percent to $55.2 billion.

The results weighed on Chevron stock, which fell 56 cents Friday to finish at $88.48. The shares still have gained 20 percent so far this year.

Chevron’s performance hasn’t deteriorated this much since the company suffered a loss of $904 million loss in the third quarter of 2002 after posting a $1.27 billion profit in the previous year. The 2002 loss stemmed from a soured investment.

In the latest quarter, higher oil prices pinched Chevron instead of providing the lift that has typified the past few years of record profits.

With fewer refineries out of commission and more motorists cutting back on driving in an apparent attempt to save money, the United States had an ample supply of gasoline through most of the summer.

That made it more difficult for Chevron and its biggest rivals to recover their higher oil costs at the gasoline pump.

As a result, the combined third-quarter profit of Chevron, Exxon Mobil Corp., ConocoPhillips, BP PLC and Royal Dutch Shell PLC fell 11 percent to $28.1 billion.

Royal Dutch Shell was the only company to post a higher third-quarter profit, but its management said its refining margins were weaker than it appeared.

The third-quarter conditions shifted so dramatically that Chevron wound up with a $110 million loss in its U.S. division that refines and sells gasoline. Chevron earned $831 million in the same ”downstream” operations in last year’s third quarter.

Management attributed much of the third-quarter setback to unusually low gasoline prices on the West Coast, where Chevron is a market leader.

While most of the industry’s refineries were humming along, Chevron ran into some problems that exacerbated its earnings downturn. Besides shutting down part of its El Segundo, Calif. refinery for planned maintenance, Chevron lost some production after a mid-August fire at its Mississippi refinery. Chevron doesn’t expect to fully repair the Mississippi refinery until next year.

With crude oil prices now above $90 per barrel, the fourth quarter looks like it will be even worse than the third quarter when prices mostly hovered between $60 and $70 per barrel, said Oppenheimer & Co. analyst Fadel Gheit.

Although gas prices have been climbing in recent weeks, Gheit thinks it’s unlikely oil companies will be able to pass on all of their higher costs because doing so would risk weakening demand even further by causing motorists to drive even less and bogging down an already slowing economy.

”It’s going to be bleak for refiners,” Gheit said.

The outlook could change, though, if an unusually cold winter fuels greater energy demand or more refineries break down.

For now, Chevron remains on pace to produce a record annual profit for the fourth consecutive year. Through the first nine months of the year, Chevron had earned $13.81 billion, 3 percent ahead of a $13.37 billion profit last year.

As usual, Chevron made most of its money from oil production in the third quarter, but not as much as it did last year. The company’s worldwide profit in its so-called ”upstream” operations slipped 2 percent to $3.43 billion, a downturn that management attributed to lower production and higher operating expenses during the quarter.

Chevron produced an average of 2.6 million barrels of oil per day, down by about 100,000 barrels per day from last year. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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