Chevron says its earnings will take a hit
Sharply lower profit from making fuel took a big bite out of Chevron Corp.’s third-quarter earnings, which the oil company said Tuesday would be “significantly below” the record $5.4 billion it earned during this year’s second quarter.
The announcement by the nation’s second-largest oil company wasn’t a surprise but is nonetheless one of the strongest signals yet that industrywide, record-setting results have come to an end and that oil companies are going to be posting smaller profits in the quarters to come.
San Ramon, Calif.-based Chevron didn’t provide financial details Tuesday but said the results also would be hurt by $700 million in net charges for asset impairment, environmental remediation, tax adjustments and other items. The interim report, which covers only a portion of the three-month period that ended Sept. 30, is a preview of the earnings report the company will issue Nov. 2.
“We’ve left the peak earnings behind now, and it is going to be more challenging going forward,” said Fadel Gheit, an oil analyst at Oppenheimer & Co. who owns Chevron shares. “Most companies will have lower production volumes, higher per-unit costs and sharply lower refining and marketing earnings. The only bright spot was higher oil prices, and that was offset by all the other negatives.”
Gheit said refining and marketing margins -- the profit a company makes from producing and selling fuel -- peaked around mid-May and then plummeted. Refiners bought oil at record-high prices but couldn’t pass on the extra cost because gasoline prices fell and gasoline demand started to ease, he said.
For much of the last two years, refining operations continued to collect record profits in the face of soaring oil prices. The oil companies more than recouped the higher oil expense by charging more at the pump, and the prices stuck because a strong economy bolstered fuel demand from consumers and industry.
Chevron said it ran less crude oil through its refineries during the quarter because of planned and unplanned shutdowns at its refineries in El Segundo and Pascagoula, Miss. On Tuesday, the company illustrated the changes to refining profit using industry benchmarks -- figures that are considered a rough indicator of profit.
On the West Coast, where Chevron is among the largest fuel suppliers and retailers, industry refining margins were a record $30.28 a barrel in the second quarter but fell to less than half of that -- $14.11 a barrel -- in the third quarter. West Coast marketing margins dropped sharply too, falling to $2.42 a barrel of fuel sold in the third quarter, from $5.12 a barrel in the second quarter, Chevron said.
Last week, ConocoPhillips said its third-quarter refining profit was dragged substantially lower than in previous quarters, and on Tuesday, Marathon Oil Corp. issued a similar message.
In Tuesday’s report, Chevron said its worldwide production of oil and natural gas fell during the first two months of the third quarter to the equivalent of 2.6 million barrels of oil a day, down 1% from second-quarter production of 2.63 million daily barrels. The company said that it benefited from selling its oil at sharply higher prices, but that the gains were mostly offset by lower natural gas prices, lower oil production and other factors.
Last month, Chevron said it would spend $15 billion over the next three years to buy back shares of its stock. The company spent $15 billion to repurchase shares from 2005 to last month.
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