Refinery business is a drag on Chevron earnings


There are still many billions of dollars to be made in the old oil patch, even with the world far more focused on alternative and renewable sources of energy. But the business of refining that oil into various fuels is still a hard way to make a buck.

That’s one of the lessons investors might draw from Chevron Corp.'s fourth-quarter earnings report, released Friday. The San Ramon, Calif.-based oil giant raked in a net profit of $5.12 billion, or $2.58 a share. But losses in its refinery business during the period meant its profit fell below both its 2010 fourth-quarter performance and Wall Street expectations.

“If you are in the upstream part of the business, drilling for oil, you are making money,” said James L. Williams, an energy economist and owner of WTRG Economics, based in London, Ark. “If you are downstream, in refining, you are losing.”


Chevron’s results left it 3.2% short of the $5.3 billion, or $2.64 a share, it earned during the final three months of 2010, even though the price of oil in the fourth quarter of 2011 was substantially higher than it had been a year earlier. Wall Street analysts had been expecting something between $2.84 to $2.88 a share.

The difference: Chevron’s downstream refinery business lost $204 million in the fourth quarter, compared with a profit of $475 million a year earlier. The losses were occurring even as several U.S. refiners scrambled to find overseas customers, logging record U.S. export totals.

But Chevron isn’t struggling overall, as its executives emphasized.

“Chevron had an outstanding year financially, with record earnings and cash flow. This reflects our exceptionally strong upstream portfolio, as well as higher 2011 crude prices,” said the company’s chief executive, John Watson.

“We also had an outstanding year in terms of oil and gas reserves replacement,” he added later.

Fourth-quarter sales climbed to $58 billion, compared with $52 billion a year earlier.

For the full 2011 year, Chevron had a net profit of $26.9 billion, or $13.44 per diluted share, up 41% from $19.0 billion, or $9.48 per diluted share in 2010.

Fourth-quarter oil production declined, to 2.64 million barrels per day from 2.79 million barrels a day a year earlier, but Watson said the company was well positioned for the future, adding 1.67 billion barrels of net oil reserves during 2011.

Chevron is the smallest of the world’s five “super major” oil conglomerates, and the second-biggest based in the U.S. Its current size is the result of a 2001 merger with Texaco and its acquisition of Unocal in 2005.

Chevron stock was down $3.11 to $103.49 during trading on the New York Stock Exchange.


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