ChevronTexaco Corp. (NYSE: CVX) reported net income of $3.2 billion ($1.51 per share - diluted) for the third quarter 2004, compared with net income of $2 billion ($1.01 per share - diluted) in last year's third quarter. The amount in 2004 included special-item gains of $486 million ($0.23 per share - diluted) related to the sale of nonstrategic assets.
For the nine months of 2004, net income was $9.9 billion ($4.65 per share - diluted), compared with $5.5 billion ($2.66 per share - diluted) in the corresponding 2003 period.
Earnings Summary Three Months Nine Months Ended Sept. 30 Ended Sept. 30 Millions of Dollars 2004 2003 2004 2003 Income From Continuing Operations - By Major Operating Area(1,2) Upstream - Exploration and Production $2,324 $1,565 $7,244 $4,783 Downstream - Refining, Marketing and Transportation 490 181 2,174 934 Chemicals 106 29 239 66 All Other 16 186 (82) (143) Total 2,936 1,961 9,575 5,640 Income From Discontinued Operations - Upstream(2) 265 14 313 51 Cumulative Effect of Changes in Accounting Principles -- -- -- (196) Net Income(1,2) $3,201 $1,975 $9,888 $5,495 (1)Includes foreign currency effects $(29) $(31) $(27) $(233) (2)Includes income (charges) from special items: Continuing Operations $234 $14 $764 $(142) Discontinued Operations 252 -- 252 -- Total $486 $14 $1,016 $(142)
"Our strong results in the third quarter build on record earnings for our company in the first half of this year," said Chairman and CEO Dave O'Reilly. "Third quarter profits in our upstream operations benefited from higher prices for crude oil and natural gas than a year ago, while our downstream businesses outside the United States earned higher margins on increased demand for refined products. Partially offsetting these benefits to earnings were the effects of lower margins for refined products in the United States and business disruptions late in the quarter from hurricanes in the Gulf of Mexico and Caribbean areas."
In addition to comments on the quarter's results, O'Reilly noted a number of significant achievements in areas of longer-term strategic focus. "In recent months, we've announced several oil and gas discoveries," O'Reilly said, "and we've upgraded our asset portfolio by selling properties that were not expected to provide significant long-term value for our company. So far this year, proceeds from asset sales have totaled more than $3 billion." O'Reilly said the exploration discoveries occurred in several areas, including the Gulf of Mexico, Western Australia, Venezuela, Nigeria and the offshore area between the Republics of Angola and Congo.
"Other recent milestones in our upstream operations were the completion of the crude oil upgrading facility at our Hamaca project in Venezuela and incremental production from new projects in China's Bohai Bay and the Alba Field in the U.K. North Sea," O'Reilly added.
O'Reilly said that in the downstream business, more than 1,100 retail service stations worldwide had been sold since early 2003 as part of an objective to dispose of about 1,500 sites. Also, approximately 800 Texaco retail sites had been added to the company's southeast U.S. service station network, representing significant progress towards the goal of branding 1,000 Texaco sites by the end of this year.
In summary, O'Reilly said, "We've had much success this year both operationally and strategically. As a result of this year's strong earnings and cash flows, we've continued strengthening our balance sheet and adding value for our stockholders, including a 10 percent increase in our quarterly dividend announced early in the third quarter.
"Through the stock buy-back program initiated in April, we've acquired nearly $1.4 billion of our common shares in the open market, including $750 million in the third quarter," O'Reilly added.
In the first nine months of this year, O'Reilly said the company reduced its debt by $700 million and contributed nearly $1.2 billion to its U.S. employee pension plans, including $600 million in the third quarter. At the end of September, the company's debt ratio was 22 percent, down from 26 percent at the end of 2003.
Relating to upstream results in the third quarter, the company provided information associated with factors contributing to the $2.6 billion of earnings, which included nearly $0.5 billion of gains from nonstrategic asset sales. Average prices for U.S. crude oil and natural gas liquids increased nearly 40 percent from the year-ago period to $36.26 per barrel.
Internationally, the average liquids price was up about 43 percent to $37.75. The average sales price for U.S. natural gas increased 14 percent to $5.28 per thousand cubic feet, while internationally the average price of $2.59 increased 2 percent from a year ago. Worldwide oil-equivalent production, including volumes produced from oil sands and production under an operating service agreement, declined about 6 percent from the 2003 third quarter. About two-thirds of the decline was associated with properties sold since last year's second quarter. Most of the decline otherwise was associated with the shut-down of producing operations in the Gulf of Mexico as a result of hurricanes and the effect of higher prices on certain production-sharing contracts for calculation of cost-recovery volumes.
Sales and other operating revenues in the third quarter 2004, excluding those associated with discontinued operations, were $40 billion, up 32 percent from the year-ago quarter. For the nine months, comparable sales and other operating revenues of $109 billion increased 22 percent from the corresponding period in 2003. The increase in both periods reflected higher sales prices for refined products and crude oil worldwide and higher prices for natural gas in the United States.
EXPLORATION AND PRODUCTION U.S. Exploration and Production Three Months Nine Months Ended Sept. 30 Ended Sept. 30 Millions of Dollars 2004 2003 2004 2003 Income From Continuing Operations* $1,106 $779 $2,890 $2,426 Income From Discontinued Operations* 58 9 89 36 Cumulative Effect of Accounting Change -- -- -- (350) Segment Income* $1,164 $788 $2,979 $2,112 *Includes income (charges) from special items: Continuing Operations $234 $9 $179 $(49) Discontinued Operations 45 -- 45 -- Total Special Items $279 $9 $224 $(49)
U.S. exploration and production income of $1.2 billion in the third quarter increased $376 million from the 2003 period, due mainly to higher prices for crude oil and natural gas and special-item gains of $279 million related to the sale of nonstrategic assets. Partially offsetting these benefits to earnings was the effect of lower production than in the year-ago quarter, the effects of mark-to-market adjustments for contracts accounted for as derivatives and the establishment of reserves for litigation matters.
Net oil-equivalent production declined 13 percent, or 116,000 barrels per day, from the 2003 quarter. The net liquids component of production was down 11 percent to 499,000 barrels per day. Net natural gas production averaged 1.8 billion cubic feet per day, down 15 percent. Excluding the lower production attributable to properties sold since the third quarter of 2003 and the effect of hurricanes, net oil-equivalent production otherwise declined about 7 percent. This decrease resulted mainly from normal field declines, the effects of which were only partially offset by new or increased production in certain fields. On this basis, net liquids and net natural gas production declined 6 percent and 9 percent, respectively.
Damages from Hurricane Ivan in September 2004 are expected to restrict production in the fourth quarter by approximately 50,000 to 60,000 barrels per day.
International Exploration and Production Three Months Nine Months Ended Sept. 30 Ended Sept. 30 Millions of Dollars 2004 2003 2004 2003 Income From Continuing Operations(1,2) $1,218 $786 $4,354 $2,357 Income from Discontinued Operations(2) 207 5 224 15 Cumulative Effect of Accounting Change -- -- -- 145 Segment Income(1,2) $1,425 $791 $4,578 $2,517 (1)Includes foreign currency effects $(57) $(24) $(55) $(187) (2)Includes income (charges) from special items: Continuing Operations $-- $(10) $585 $(23) Discontinued Operations 207 -- 207 -- Total Special Items $207 $(10) $792 $(23)
International exploration and production income of $1.4 billion increased $634 million from the third quarter 2003, primarily the result of higher prices for crude oil and special-item gains from asset sales.
Net oil-equivalent production, including volumes produced from oil sands and production under an operating service agreement, declined 2 percent, or 29,000 barrels per day, from the year-ago period. The net liquids component declined 22,000 barrels per day to 1,323,000, while natural gas production was down 2 percent to 1.9 billion cubic feet per day.
Excluding the lower production associated with properties sold since last year's third quarter and reduced volumes connected with cost-recovery provisions of certain production sharing agreements, net oil-equivalent production increased nearly 4 percent. On this basis, liquids production increased 49,000 barrels per day and natural gas production rose 81 million cubic feet per day. The increase in liquids production resulted primarily from higher production from Chad and Kazakhstan. Natural gas production was higher in a number of countries, including Denmark, Colombia and Trinidad and Tobago. Countries with lower production included Canada, the United Kingdom and the Philippines.
REFINING, MARKETING AND TRANSPORTATION U.S. Refining, Marketing and Transportation Three Months Nine Months Ended Sept. 30 Ended Sept. 30 Millions of Dollars 2004 2003 2004 2003 Segment Income* $96 $148 $889 $405 *Includes charges from special items $-- $(146) $-- $(146)
U.S. refining, marketing and transportation earnings of $96 million declined $52 million from the 2003 quarter. Excluding the effect of special items, earnings declined by $198 million, as a result of lower margins for refined products, mainly on the West Coast, charges for environmental remediation and higher refinery fuel costs. Additionally, lower U.S. margins also reflected the shutdown of the company's refinery in Pascagoula, Mississippi, late in the quarter as a result of Hurricane Ivan, which required additional third-party purchases to fulfill sales requirements.
Sales volumes for refined products increased 3 percent to 1,553,000 barrels per day on higher demand for gasolines and fuel oil. Branded gasoline sales volumes of 588,000 barrels per day increased 2 percent between quarters. The sales-volume increase partially reflected the reintroduction of the Texaco brand in the Southeast.
International Refining, Marketing and Transportation Three Months Nine Months Ended Sept. 30 Ended Sept. 30 Millions of Dollars 2004 2003 2004 2003 Segment Income(1,2) $394 $33 $1,285 $529 (1)Includes foreign currency effects $10 $(9) $12 $(87) (2)Includes charges from special items $-- $(104) $-- $(189)
International refining, marketing and transportation earned $394 million in the 2004 quarter, an increase of $361 million from the year-ago period. Excluding the effect of special items, earnings increased $257 million. The improvement resulted mainly from higher margins for refined products in most of the company's operating areas, higher sales volumes and higher income from equity affiliates.
Total refined-product sales volumes of 2,386,000 barrels per day were 6 percent higher than last year's quarter. The higher sales volume was the result of higher demand for jet fuel, increased trading sales of gasolines and the company's increased ownership in Singapore Refining Company.
CHEMICALS Three Months Nine Months Ended Sept. 30 Ended Sept. 30 Millions of Dollars 2004 2003 2004 2003 Segment Income* $106 $29 $239 $66 *Includes foreign currency effects $2 $3 $(2) $ 13Chemical operations earned $106 million, up $77 million compared with the 2003 quarter. Results for the company's Oronite subsidiary improved on higher overall sales volumes. Earnings for the 50 percent-owned Chevron Phillips Chemical Company LLC also increased, primarily as the result of increased commodity chemical products sales volumes and product margins and higher equity-affiliate income.
ALL OTHER Three Months Nine Months Ended Sept. 30 Ended Sept. 30 Millions of Dollars 2004 2003 2004 2003 Net Income (Charges) Before Cumulative Effect(1,2) of Changes in Accounting Principles $16 $186 $(82) $(143) Cumulative Effect of Accounting Changes -- -- -- 9 Segment Income (Charges)(1,2) $16 $186 $(82) $(134) (1)Includes foreign currency effects $16 $(1) $18 $28 (2)Includes income from special items $-- $265 $-- $265All Other consists of the company's interest in Dynegy, coal mining operations, power and gasification businesses, worldwide cash management and debt financing activities, corporate administrative functions, insurance operations, real estate activities, and technology companies.
Net segment income was $16 million in the third quarter 2004, a $170 million decline compared with the corresponding 2003 period. Excluding the effect of special items in 2003, segment results were $95 million higher in the 2004 quarter. Benefits in the 2004 period related primarily to corporate consolidated tax effects, higher interest income and lower interest expense. These benefits were partially offset by an additional impairment charge associated with Dynegy's sale of Illinois Power Company assets in September, environmental charges in the 2004 period and an increase in other corporate charges.
CAPITAL AND EXPLORATORY EXPENDITURES
Capital and exploratory expenditures in the first nine months of 2004 were $5.7 billion, compared with $5.1 billion in the corresponding 2003 period. The company's share of equity affiliates' expenditures were about $300 million higher in 2004 than in the 2003 period. About 80 percent of the total 2004 expenditures were for exploration and production projects, reflecting the company's continued emphasis on profitably growing its upstream businesses.
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