Chevron’s net income drops 37% in fourth quarter
Chevron Corp., the nation’s No. 2 oil company, said Friday 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 slump; Valero Energy Corp., the nation’s largest refiner, this week posted a net loss of $1.4 billion in the fourth quarter.
“As we enter 2010, in the downstream, we continue to see challenged economic conditions. We’re certainly not satisfied with our downstream results in 2009,” Chevron Chief Executive John Watson said. “We are shifting to a simpler and less costly organization to improve returns and remain competitive in this difficult environment.”
The numbers offered a window into the reasons behind the San Ramon, Calif., company’s announcement Jan. 19 that it would restructure its refinery business to make it “a leaner operation with fewer positions and fewer employees,” a Chevron spokesman said.
Cutting costs is the only way for Chevron to respond to the problem, analysts said. 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,” Gheit said. “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 had resulted in about a 15% decrease in operating, selling, general and administrative expenses in 2009 compared with the previous year.
The bad news for Chevron, Gheit said, was the fact that downstream results were “significantly worse than expected.” The good news, he added, was impressive results in adding new production.
The company’s other segments showed stronger results.
Chevron reported fourth-quarter net income of $3.07 billion, or $1.53 a share, a drop of about 37% from the $4.9 billion, or $2.44, it posted a year earlier.
Revenue increased 11.6% to $48 billion. For the year, revenue fell 37% to $167 billion.
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.
Its relatively small chemicals segment saw profit soar to $98 million in the fourth quarter, up from $28 million.
For the year, Chevron’s net income fell to $10.5 billion from $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 year earlier.
In New York futures trading, crude oil for March delivery fell 75 cents to $72.89 a barrel Friday.
Chevron’s worldwide production of oil and other products increased to 2.78 million barrels a day in the fourth quarter from 2.54 million barrels in the year-earlier quarter. Full-year production averaged 2.7 million barrels a day, an increase of 7%.
Chevron shares fell $1.12, or 1.5%, to $72.12 on Friday.