Chevron Issues Profit Warning

Chevron Corp. on Tuesday warned that second-quarter earnings would be hurt by severance costs and a recent refinery fire, but said rising oil and gas production has it well-positioned over the longer term.

Kenneth Derr, chairman and chief executive of the nation’s third-largest oil company, said a March fire at Chevron’s refinery in Richmond, Calif., and several additional refinery problems would reduce second-quarter operating earnings by about $100 million.

The 240,000-barrel-per-day refinery isn’t expected to be fully operational until the end of the year.

Derr also said that 2,500 job cuts associated with a cost-saving program would result in a $150-million special-item charge against second-quarter earnings.

Chevron was expected to post second-quarter earnings of 78 cents a share, according to a First Call survey of analysts.

Chevron shares fell 56 cents to close at $90.13 on the New York Stock Exchange.

The job cuts, which will reduce the company’s 33,700-member work force by slightly more than 7%, are part of a $500-million cost-savings program unveiled late last year. At the time, the San Francisco-based company said the program would result in fewer than 1,000 job losses.

Even so, Chevron painted a bright picture of the exploration and production side of its business, reaffirming that it would meet its oil and natural-gas output targets. The company has been clear about plans to raise combined crude oil and natural-gas production by 4% to 4.5% each year, which it says would help it achieve a 12% return on capital employed.

Derr also said that the company will restart part of a damaged California refinery unit around Aug. 1 and put the rest back in operation around Dec. 1.

Chevron’s announcements come only weeks after discussions with Texaco Inc. about a possible takeover abruptly fell apart. Texaco said then the offer from its slightly larger rival was “unacceptable in all respects.”

Sources close to the discussions said that Chevron’s all-share offer valued Texaco at about $70 a share, or around $37.5 billion.

Derr would not comment Tuesday on the failed deal, but he said the company remained “on the prowl” for quality assets.

However, he also reiterated past statements that Chevron could compete effectively against the oil powerhouses that have emerged from recent industry mergers, including Exxon Corp.’s planned acquisition of Mobil Corp.

He said the company’s size will allow it to act more quickly and remain more flexible than in an environment of so-called super-major oil companies, arguing Chevron will remain fiercely competitive.

“We’re going to do it the old-fashioned way--by growing our volumes,” he said Tuesday in New York.