ChevronTexaco’s Profit Plunges 81%
ChevronTexaco Corp. reported Tuesday that second-quarter net income fell 81% because of lower oil and gasoline prices as well as the San Francisco oil giant’s soured investment in Dynegy Inc.
Net income fell to $407 million, or 39 cents a share, compared with the combined $2.11 billion, or $1.99 a share, that Chevron and Texaco earned in the same quarter last year. Second-quarter revenue fell 13% to $25.2 billion.
Chevron and Texaco completed their merger in October, and although costs from the deal contributed to the earnings decline, the company said it is on track to attain pretax savings targets of $2.2 billion by early next year.
Excluding special charges and merger expenses, ChevronTexaco’s operating earnings were $1.23 billion, or $1.16 a share, compared with $2.14 billion, or $2.01 a share.
“I feel good about the post-merger integration of all of our businesses and I’m very optimistic about the outlook for the company,” ChevronTexaco Chief Executive Dave O’Reilly told analysts during a conference call.
Dynegy separately reported a second-quarter loss of $328 million, or 92 cents a share, and predicted it will break even for the rest of the year. In the second quarter of last year, Dynegy earned $146 million, or 43 cents a share. Revenue fell 8% to $9.9 billion.
The Houston-based energy trader and marketer has seen its credit rating slashed to “junk” but was able to sell its biggest pipeline, Northern Natural Gas Co., for $928 million in cash.
On the New York Stock Exchange, ChevronTexaco’s shares fell $1.38 to $73. Shares of Dynegy rose 54 cents to $1.74.
The biggest hit to ChevronTexaco’s earnings came from $631 million in special charges related to Dynegy, in which ChevronTexaco owns nearly 27% of the common stock. Of those charges, $531 million was a write-down of the value of ChevronTexaco’s investment in Dynegy’s common and preferred stock to its fair market value as of June 30, and an additional $100 million represented ChevronTexaco’s share of Dynegy’s losses.
Some had expected ChevronTexaco, the second-largest U.S. oil company, to completely write off its investment in Dynegy. Instead, O’Reilly said his company is encouraged by Dynegy’s recent efforts to raise cash and restore investor confidence “and to be a viable player as the sector continues to go through transition.”
O’Reilly acknowledged that a $1.5-billion investment into Dynegy in November as the company tried to buy failing Enron Corp.--a merger that disintegrated when the depths to Enron’s troubles became apparent--”has not worked out well to date.”
“We did not foresee the collapse of the entire sector. Had we known late last year what we know now, we certainly would not have moved forward with that additional investment,” O’Reilly said. ChevronTexaco received preferred stock for its money.
ChevronTexaco’s 6-year-old investment in Dynegy, which markets the company’s significant natural gas production in the United States, had been “a net positive” until late last year, O’Reilly said. “Going forward, despite the uncertainty, we still see a need for the functions that this sector provides” in energy trading and marketing, he said.
But analysts said the Dynegy drama has been a drain on ChevronTexaco management, which played a behind-the-scenes role in ousting Dynegy’s chairman and chief executive, Chuck Watson, in May. Glenn Tilton, ChevronTexaco’s vice chairman, is serving as acting chairman of Dynegy, which is being probed by the Securities and Exchange Commission and the Justice Department over company finances and trading practices.
Like others in the oil patch, ChevronTexaco has felt the effects of lower oil prices and sluggish demand for gasoline. The company’s earnings from exploration and production dropped 27% to $1.25 billion while earnings from refining, marketing and transportation plunged 85% to $104 million.
Another major oil company, BP, which owns the Arco chain, said Tuesday that second-quarter net income fell 26% to $2.04 billion, or 9 cents a share. Excluding one-time items, BP would have earnings of $2.18 billion. Revenue slipped 9.5% to $44.1 billion.
In other energy earnings Tuesday:
* Mirant Corp. reported a second-quarter net loss of $151 million, or 38 cents, compared with a profit of $124 million, or 36 cents, a year ago.
The company also said an accounting review had found errors in its 2001 financial statements, including an $85-million overstatement of a gas inventory asset, a $100-million overstatement of an accounts payable liability and a potential $68-million overstatement of an accounts receivable asset.
* Valero Energy Corp.,said second-quarter profit plunged 96% to fall to $11.3 million, or 10 cents a share, because of declining demand for diesel fuel and heating oil and rising expenses.
The oil refiner’s sales rose 46% to $6.55 billion, reflecting its purchase of rival Ultramar Diamond Shamrock Corp.
* El Paso Energy Partners, a publicly traded partnership controlled by El Paso Corp., said second-quarter earnings more than doubled to $28.7 million, or 33 cents a unit, from $11.8 million, or 4 cents, a year ago, with the addition of natural-gas pipelines in Texas and New Mexico.
Revenue almost tripled to $120.5 million from $45 million.
Reuters and Bloomberg News were used in compiling this report.
