Chevron Corporation has reported net income of $3.7 billion ($1.75 per share - diluted) for the third quarter 2007, compared with $5 billion ($2.29 per share - diluted) in the year-ago period.
Results for the 2007 quarter included approximately $400 million ($0.19 per share) of net charges associated with nonrecurring items, about the same amount recorded for such items a year ago.
For the first nine months of 2007, net income was $13.8 billion ($6.45 per share - diluted), compared with $13.4 billion ($6.06 per share - diluted) in the corresponding 2006 period.
"Earnings declined due mainly to weak refining and marketing conditions in the United States," said Chairman and CEO Dave O'Reilly. "Margins were squeezed as escalating costs for crude-oil feedstocks could not be fully recovered in a U.S. marketplace that was well-supplied with gasoline and other refined products."
In the upstream business, O'Reilly said earnings declined slightly from last year's third quarter. Although prices for crude oil increased between periods, this benefit to earnings was more than offset by the impacts of lower sales volumes due to the timing of crude-oil cargo liftings and higher operating and depreciation expenses.
"Capital and exploratory expenditures during the third quarter totaled $5.2 billion, up more than a billion dollars from a year earlier," O'Reilly added. "We also retired approximately $2 billion of debt during this year's third quarter and purchased $2 billion of Chevron common stock in the open market. We have now completed the $5 billion common stock buyback program that began last December and have initiated a new program to acquire up to $15 billion of our common shares over the next three years."
In additional comments on the upstream and geothermal businesses, O'Reilly cited recent milestones and achievements in a number of countries that included:
• Thailand - Reached agreement with Ministry of Energy on 10-year lease extensions to 2022 on four Gulf of Thailand production blocks in which Chevron has working interests ranging between 70 percent and 80 percent.
• Australia - Received government environmental approvals for development of the 50 percent-owned and operated Gorgon natural gas development project.
• Angola - Discovered crude oil at the 31 percent-owned and operated Malange-1 well located in Angola's Block 14.
• Indonesia - Commenced commercial operation of the Darajat III geothermal power plant in Garut, West Java, Indonesia.
O'Reilly also noted recent events in the company's downstream business connected with upgrades to the refining network and the disposition of marketing assets not in the company's areas of market strength:
• South Korea - Completed construction and began a phased commissioning of new facilities associated with a $1.5 billion upgrade of the company's 50 percent-owned GS Caltex Yeosu Refinery.
• United States - Approved plans at the company's refinery in Pascagoula, Mississippi, for the construction of the $500 million Continuous Catalyst Regeneration project, which is expected to increase gasoline production by 10 percent, or 600,000 gallons per day, by mid-2010.
• Europe - Completed the sale of the company's fuels marketing business in Belgium, Luxembourg and the Netherlands.
UPSTREAM - EXPLORATION AND PRODUCTION
Worldwide oil-equivalent production was approximately 2.6 million barrels per day in the third quarter 2007, a decline of about 100,000 barrels per day from the corresponding 2006 period, due mainly to the effect of the conversion of operating service agreements in Venezuela to joint-stock companies.
U.S. upstream income of $1.14 billion in the third quarter 2007 decreased $134 million from the same period last year. The decline was mainly associated with charges of approximately $100 million for adjustments to asset retirement obligations that have been retained after properties were sold. The benefit of higher average prices between periods was more than offset by the impact of lower production and higher operating expenses.
The average sales price per barrel of crude oil and natural gas liquids was approximately $67 in the third quarter 2007, an increase of about $5 from the corresponding 2006 period. The average sales price of natural gas decreased about 50 cents per thousand cubic feet to $5.43.
Net oil-equivalent production of 741,000 barrels per day declined 4 percent from the 2006 quarter. The net liquids component of production was about 1 percent lower at 458,000 barrels per day. Net natural gas production was down 8 percent to approximately 1.7 billion cubic feet per day, due mainly to normal field declines.
International upstream earnings of $2.30 billion increased from $2.23 billion in the 2006 quarter. A benefit to income from higher sales prices for liquids and natural gas in the 2007 quarter was largely offset by lower sales volumes due to the timing of certain cargo liftings and higher operating and depreciation expenses. Included in the 2007 quarter were nonrecurring charges of approximately $250 million related to asset write-downs and income tax items, compared with charges for income tax items in the year-ago quarter of about $300 million.
The average sales price for crude oil and natural gas liquids in the 2007 quarter increased more than $5 from a year earlier to $67 per barrel, while the average price of natural gas was up 12 cents to $3.78 per thousand cubic feet.
Net oil-equivalent production of 1,850,000 barrels per day decreased 4 percent from the year-ago period due to the effect on liquids production of the October 2006 conversion of operating service agreements to joint-stock companies in Venezuela. The net liquids component of production declined about 8 percent from a year ago to 1,302,000 barrels per day, while net natural gas production increased 5 percent to 3.3 billion cubic feet per day.
DOWNSTREAM - REFINING, MARKETING AND TRANSPORTATION
U.S. downstream incurred a loss of $110 million in the third quarter 2007, compared with income of $831 million a year earlier. The decline was mainly the result of weaker margins for refined products and refinery downtime. Results for the 2007 quarter included approximately $50 million of charges primarily associated with environmental remediation costs.
Refined products sales volumes were 1,450,000 barrels per day in the third quarter 2007, down 3 percent from a year earlier primarily on a decline in sales of gas oil and jet fuel. Branded gasoline sales volumes of 645,000 barrels per day increased 3 percent between periods. Refinery crude input was down 168,000 barrels per day, primarily due to the effects of a planned crude unit shutdown at the company's refinery in El Segundo, California, and a mid- August fire at the refinery in Pascagoula, Mississippi. The crude unit damaged in the fire is expected to be out of service until the first quarter of next year.
International Downstream
International downstream earned $487 million in the 2007 quarter, a decrease of $123 million from the year-ago period. Earnings in 2007 included a $265 million gain on the sale of the company's fuels marketing business in the Benelux countries, which was partially offset by about $100 million of charges
for asset write-downs and employee termination benefits. Otherwise, refined- product margins declined significantly between periods.
Total refined-product sales volumes of 2,038,000 barrels per day were 4 percent lower than last year's quarter. Excluding the impact of the sale of the company's assets in the Benelux countries, sales volumes were flat between quarters. Refinery crude input was essentially unchanged between periods, as the effect of the sale of the company's interest in the Nerefco Refinery in March 2007 was substantially offset by higher crude input at most of the company's other refineries.
CHEMICALS
Chemical operations earned $103 million in the 2007 third quarter, compared with $168 million a year ago. Results for 2007 included an approximate $40 million charge for the cost of environmental remediation. Margins were lower on the sale of commodity chemicals by the company's 50 percent-owned Chevron Phillips Chemical Company LLC, and operating expenses were higher at the company's Oronite subsidiary.
ALL OTHER
All Other includes the company's interest in Dynegy prior to its sale in May 2007, mining operations, power generation businesses, worldwide cash management and debt financing activities, corporate administrative functions, insurance operations, real estate activities, alternative fuels and technology companies.
Net charges in the third quarter 2007 were $193 million, up $98 million from the year-ago period due mainly to an increase in various corporate expenses, including income taxes. Results in 2007 included approximately $100 million of charges for environmental remediation costs and asset write-downs. The year-ago quarter included charges of about $100 million for environmental remediation.
SALES AND OTHER OPERATING REVENUES
Sales and other operating revenues in the third quarter 2007 were $53 billion, essentially unchanged from a year earlier. For the first nine months of 2007, sales and other operating revenues were $154 billion, down from $159 billion in the year-ago period. The decline for the first nine months was associated with the impact of an accounting-rule change beginning in the second quarter 2006 that requires certain purchase and sale contracts with the same counterparty to be netted for reporting.
CAPITAL AND EXPLORATORY EXPENDITURES
Capital and exploratory expenditures in the first nine months of 2007 were $13.8 billion, compared with $11.5 billion in the corresponding 2006 period. The amounts included approximately $1.7 billion and $1.3 billion, respectively, for the company's share of expenditures by affiliates, which did not require cash outlays by the company. Expenditures for upstream projects represented about 80 percent of the companywide total in 2007.
