Refinery Damage Puts Dent in Chevron Income
Chevron Corp. reported a 39% drop in net income because of problems at its Northern California refinery that impaired gasoline production and contributed to fuel price run-ups across the state.
The No. 4 U.S. oil company said Friday that damage to its refinery in Richmond, caused by a fire and explosion in March, may not be fixed for months, suggesting that earnings from its refining and marketing businesses will continue to suffer although it will benefit from sharply higher crude oil prices.
The San Francisco-based company’s second-quarter net income fell to $350 million, or 53 cents a share, from $577 million, or 88 cents a share, a year ago. Second-quarter revenue rose 9% to $8.7 billion.
Its chief rival in the California gasoline retail market, Los Angeles-based Atlantic Richfield Co., is expected to report higher second-quarter earnings Monday because its refineries have been running smoothly. Wall Street analysts are estimating a 30% or better jump.
“The long-awaited recovery in crude oil prices gave our exploration and production operations a boost in the second quarter,” said Kenneth Derr, chairman and chief executive of Chevron.
“Unfortunately, operational problems at our California refineries prevented us from realizing the benefits of a strengthened refined-products market on the West Coast,” Derr said, adding that income was reduced by about $100 million because of the refinery problems, which forced Chevron to buy more expensive gasoline on the spot market.
Earnings from refining and gasoline sales will probably not improve in the third quarter, analysts said, because of continuing problems at the Richmond refinery, including another explosion July 9 that left the plant’s gasoline production at 30% of normal.
“It couldn’t get much worse than the second quarter,” said Fadel Gheit, senior energy analyst with Fahnestock & Co.
Chevron last week was granted a temporary variance to sell gasoline in Northern and Central California that does not meet the strict air quality standards set by the California Air Resources Board.
Chevron must pay a 15-cent fee on each of the up to 147 million gallons of variance gasoline it is allowed to sell. But so far, the company has been able to find enough California-grade gasoline on the spot market, spokeswoman Dawn Soper said.
“We are hopeful we’ll be able to get through this without selling any of the non-CARB gas,” Soper said.
Chevron reported operating earnings of $484 million, or 73 cents a share, excluding net charges of $134 million. Second-quarter charges included $146 million for job cuts and restructuring.
Chevron was expected to earn 70 cents a share, according to analysts surveyed by First Call Corp. Chevron shares closed at $93.81 a share, up 19 cents, on the New York Stock Exchange.
Separately, Mobil Corp. reported nearly flat but better-than-forecast operating profit of $650 million, or 81 cents a share, for the second quarter, as rising profit from oil sales nearly offset steep drops in returns from gasoline production. Cost-cutting also helped the company beat analyst expectations of 73 cents. Mobil had operating profit of $655 million, or 81 cents, a year ago. Sales rose 7.7% to $14.25 billion.
