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Chevron Quarterly Profit: Soaring crude prices are pumping up profits to astronomical levels

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The Wall Street Journal: Chevron Quarterly Profit 
Rises 9.6% on Oil Prices

May 3, 2008; Page A7

Chevron Corp. reported a 9.6% rise in first-quarter profit, echoing a theme set earlier in the week by other international oil companies: Soaring crude prices are pumping up profits to astronomical levels.

The second-largest U.S. oil company by market value after Exxon Mobil Corp. was the third major oil company to beat analysts’ expectations in the week. Chevron posted net income of $5.17 billion, topping analysts mean estimates by $219 million, despite narrower refining margins and a tough comparison from a big year-ago gain from an asset sale. BP PLC and Royal Dutch Shell PLC also topped analyst expectations.

Exxon delivered an enormous profit, among the highest in corporate history, but saw its stock fall Thursday as it came up $600 million short of what analysts hoped for. All of the companies are facing a tough refining environment, but record-setting crude oil prices are generating exceptionally strong overall profits. They also face rising criticism from U.S. politicians angry about rising gasoline prices.

Chevron’s production of oil and natural gas dropped by 1.7%, but the company said that production rose excluding effects from foreign contracts, which reduce Chevron’s share of barrels on some projects as prices rise.

Earnings at Chevron’s oil-and-gas production segment, or so-called upstream business, surged 76% to $5.13 billion amid a doubling of profits in the U.S. and a 67% jump internationally. World-wide daily production eased 0.2%. The average sales price of crude-oil and natural-gas liquids rose 67% in the quarter, and 25% for natural gas.

The San Ramon, Calif., company’s refining segment saw earnings drop 84% to $252 million. Record oil prices have become a double-edged sword for companies that both produce and refine oil. U.S. operations essentially broke even as the company reported a $4 million profit, down from $350 million a year earlier. The company said it was unable to fully pass the high cost of crude oil feedstocks on to customers purchasing its refined fuels. Internationally, profits fell 81% on the year-earlier asset sale and lower margins.




“As far as our cash management, I think under the current conditions you can expect a buyback pace comparable to what you have seen in the first quarter. We have had a $2 billion per quarter buyback pace in the third and fourth quarters of last year and now again in the first quarter of 2008” — Steve Crowe, Chevron CFO
Read the full transcript of Chevron’s conference call, provided by Thomson StreetEvents ( (Adobe Acrobat Required.)

Soaring energy prices are also turning up political heat from consumers. At a time when finding new supplies is proving a vexing challenge, Chevron and other energy giants face calls to increase production and invest in renewable-energy sources.

Meanwhile, Chevron is fighting a lawsuit in Ecuador for alleged contamination in the Amazon region. An Ecuador independent expert recently submitted a court report recommending Chevron pay at least $8.3 billion — or as much as $16 billion — in compensation for environmental damages. Charles James, Chevron’s general counsel, has said his company does “not intend to succumb to extortion.” The company plans to seek international arbitration should it lose in Ecuador’s courts.

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