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The Wall Street Journal: Chevron Profit Slips 26% as Costs Increase

November 3, 2007; Page A3

As the last major oil company to post third-quarter earnings, Chevron Corp. echoed the theme of rising crude prices biting into profits as refining margins fall.

Chevron, the second-largest U.S. oil company by stock-market value, said profit fell 26% in the quarter as it was unable to recover its higher refining costs at the gasoline pump.

“Earnings declined due mainly to weak refining and marketing conditions in the United States,” said Chairman and Chief Executive Dave O’Reilly. “Margins were squeezed as escalating costs for crude-oil feedstocks could not be fully recovered in a U.S. marketplace that was well-supplied with gasoline and other refined products.”

Surging oil prices, which have hit a series of records since early August, haven’t been enough to compensate for plummeting refining margins — the profit from processing crude oil into petroleum products and selling it on — as the price of products such as gasoline has lagged behind the price of crude. The benchmark crude-oil futures price rose to a record $95.93 on Friday on the New York Mercantile Exchange.

Earnings at Chevron’s refining and marketing segment tumbled 74% to $377 million. U.S. operations swung to a loss of $110 million from a year-earlier profit of $831 million.

“The decline was particularly large for the West Cost refining margins,” said Mike Wirth, Chevron’s vice president for global downstream, the industry term for refining and marketing. A significant part of Chevron’s refining business is in California, where gasoline prices stayed comparatively low during much of the summer.

Chevron’s earnings drop follows similar year-on-year declines by Exxon Mobil Corp., ConocoPhillips and BP PLC. Royal Dutch Shell PLC has bucked the tide this quarter, showing a year-on-year jump of 16% as a result of tax gains, positive exchange-rate moves and other factors that helped offset the effects of lower refining margins.

Profits from Chevron’s oil-and-gas-exploration and -production business slipped 2.1% to $3.43 billion on lower output volumes as a result of renegotiated terms in Venezuela, one of the leading proponents of countries taking greater control of natural resources.

Chevron’s results included $400 million, or 19 cents a share, in asset impairments, environmental-remediation costs and other items, while a similar amount was recorded a year ago.

Chevron also said it plans to invest as much as $15 billion in share buybacks in the next three years.

Shares of Chevron fell 56 cents to $88.48 in 4 p.m. New York Stock Exchange composite trading Friday.

–Steve Gelsi contributed to this article.

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