Earnings at Oxy, Refiner Valero Soar on Higher Fuel Costs
Two oil companies kicked off another round of record quarterly profit reports Tuesday as President Bush announced an investigation into possible price gouging and motorists fumed over how much money they were spending on gasoline.
Westwood-based Occidental Petroleum Corp. said its first-quarter profit soared to $1.2 billion. That’s a 45% increase from a year earlier and nearly three times the profit it reported in the 2004 first quarter.
Earnings at San Antonio-based Valero Energy Corp., the nation’s biggest independent oil refiner, rose at an even faster pace, up 59% for the quarter and 242% over the same period two years ago.
“A rising tide raises all ships,” said Fadel Gheit, senior energy analyst at Oppenheimer & Co. “Companies don’t have to try real hard to make money when they are riding a wave like this.”
The high prices companies are collecting for oil result from a growing world demand and tightening supply, Gheit said.
Geopolitical tensions -- terrorist bombings in Egypt, insurgency in Iraq and nuclear tensions with Iran -- are adding $10 to $15 to the price of a barrel of oil, he estimated. Speculators are bidding up crude on the expectation that an international crisis could limit output.
“About the only thing that could help at this point would be President Bush having Iranian President Mahmoud Ahmadinejad to his ranch in Crawford, Texas, for a barbecue,” Gheit said.
To the contrary, Iran threatened Tuesday to hide its nuclear program if Western nations take “harsh measures” against it.
International politics, however, isn’t all good news for the oil giants.
Jacques Rousseau, an analyst at Friedman, Billings, Ramsey & Co. in Arlington, Va., recently downgraded his investment rating on Occidental to “market perform” in part because of concern that tax changes in Ecuador would reduce the profitability of oil production there, which he estimated would account for about 6% of the company’s 2006 total.
In its report Tuesday, Oxy said first-quarter profit amounted to $2.86 a share, compared with $2.08 a year earlier. Revenue rose 38% to $4.57 billion.
Valero said its profit rose to $849 million, or $1.32 a share, as revenue rose 39%, to $20.9 billion.
In a conference call with investors Tuesday, Occidental Executive Vice President John Morgan said the oil company was evaluating whether to take legal action against the government of Ecuador, which enacted legislation last week that requires companies to pay the government 50% of revenue from oil production above a benchmark price.
“We’re quite disappointed by this latest development in a country where we think there is significant oil potential and has potential under the right circumstances to benefit from additional investments from international companies like Oxy,” Morgan said. “Our view at the moment is this law violates the U.S.-Ecuador bilateral investment treaty and the terms of our participation contract.”
Otherwise, it was an outstanding quarter. Oxy posted daily oil production of 636,000 barrels in the quarter ended March 31, a 13% gain from a year earlier and “the highest quarterly production in Oxy’s history,” said President and Chief Executive Ray Irani. He said second-quarter production would be another record.
Occidental’s oil and gas earnings hit a record $2 billion, a 48% increase from a year earlier. Irani said the results reflected a $700-million improvement from the effect of higher oil and gas prices and a $198-million increase from higher production totals. The company’s chemical business earned $248 million, a 16% gain from a year earlier.
Nonetheless, Oxy’s shares fell $1.03, or 1%, to $104.52. Analysts said the decline was a result of falling oil prices for the day, as well as Bush’s plan to curtail some tax breaks for oil companies and to suspend crude purchase for the U.S. emergency stockpile. Valero shares fell 4%, or $2.80, to $66.30.
Only BP broke the pattern of record earnings. The London-based oil company was dragged down by oil platforms that have been closed since last year’s big hurricane season and a Texas refinery shutdown. BP said first-quarter profit fell 15% to $5.6 billion on a 22% gain in revenue to $67.9 billion. BP’s stock slipped 94 cents to $74.88.
Still, industry executives continued to predict good times ahead for their companies and shareholders.
“The second quarter is off to an outstanding start,” said Bill Klesse, Valero’s chief executive. “Gulf Coast gasoline and diesel margins are at record levels for April. The forward curve is showing these record margins continuing through the summer.”
