Chevron’s net income drops 37% in fourth quarter
Chevron Corp., the nation’s No. 2 oil company, said today that its fourth-quarter net income fell by more than a third compared with a year earlier.
The decline was driven almost entirely by a huge reversal in the company’s downstream segment, including its refineries, which swung from a fourth-quarter profit of more than $2 billion in 2008to a loss of more than $600 million in 2009.
If not for the refining, marketing and transportation segment, Chevron would have posted a gain in net income of about $800 million compared with the same quarter in 2008. Chevron’s refinery problems reflect an industrywide collapse; Valero Energy Corp., the nation’s biggest refiner, this week posted a net loss of $1.4 billion in the fourth quarter alone.
“In our downstream business, our operated refineries continued to run reliably during the fourth quarter. However, this operational success did not offset the effects of low margins on the sale of gasoline and other refined products due to weak demand and excess supply worldwide,” said Chevron Chairman and Chief Executive John Watson.
The numbers offered a more detailed window into the reasons behind the San Ramon, Calif., company’s announcement on Jan. 19 that it would restructure its refinery business to make it “a leaner operation with fewer positions and fewer employees,” according to a Chevron spokesman.
Analysts said that cutting costs was the only way for Chevron to respond to the problem. Fadel Gheit, senior energy analyst for Oppenheimer & Co., credited Chevron for doing exactly that.
“This is the only way to do it. You can’t sell anything right now. No one in this market is interested in low-quality assets, said Gheit, later adding, “The only way to be proactive is to reduce costs. The major players can make more money selling crude oil, so they must cut their losses on the downstream.”
Watson said the company was already making big strides in cutting costs. He said ongoing efforts companywide had resulted in about a 15% decrease in operating, selling, general and administrative expenses in 2009 compared with the previous year.
The company’s other segments showed stronger results.
Chevron netted earnings of $3.07 billion in the fourth quarter, or $1.53 per diluted share, a drop of about 37% from the $4.9 billion, or $2.44 per diluted share, it posted a year earlier. The company’s oil and exploration segment rose to more than $4 billion in the fourth quarter, up from $3.2 billion a year earlier.
The company’s relatively small chemicals segment saw a profit increase to $98 million in the fourth quarter, up from $28 million.
For the year, Chevron’s net income fell by more than half, to $10.5 billion from more than $23.5 billion in 2008, when oil soared above $147 a barrel.
The company’s average sales price per barrel of crude oil and natural gas liquids was about $67 in the fourth quarter, compared with $49 a barrel a year earlier.
Chevron’s worldwide net oil-equivalent production was 2.78 million barrels per day in the fourth quarter, up 238,000 from 2.54 million barrels in the 2008 fourth quarter. Full-year production averaged 2.7 million barrels per day, an increase of 7% from 2008’s 2.53 million barrels.
The company expected more gains in production, recently announcing its 37.5% share of a partnership to develop the offshore Papa-Terra Field in Brazil, where production is expected by 2013.
In other oil industry news this week, Occidental Petroleum more than doubled its fourth-quarter profit to $938 million. ConocoPhillips posted a fourth-quarter profit of $1.2 billion, but its refinery segment lost $215 million.
