"Earnings and cash flows were strong in the first quarter, despite a decline in upstream profits from a year ago due to lower prices for crude oil and natural gas," said Chairman and CEO Dave O'Reilly. "In our downstream business, earnings benefited from the sale of refining assets in Europe and higher margins for refined products worldwide."
O'Reilly said the strong cash flows enabled investment in the company's extensive queue of projects, including the Bibiyana natural gas field in Bangladesh, which began operations in March. And building on the company's successful exploration program, Chevron and partners in recent weeks announced the discovery of additional crude oil in the Moho-Bilondo permit offshore Republic of the Congo.
The company reported capital and exploratory expenditures of $4.1 billion and common stock buybacks of $1.25 billion for the quarter, and earlier this week announced an 11.5 percent increase in the quarterly dividend on its common stock.
UPSTREAM - EXPLORATION AND PRODUCTION
Worldwide oil-equivalent production was 2.64 million barrels per day in the first quarter 2007, essentially the same as in the corresponding 2006 period. Production increases in Kazakhstan, Angola and Azerbaijan were offset by a reduction in reported volumes associated with the conversion of operating service agreements in Venezuela to joint-stock companies.
U.S. upstream earned $796 million in the first quarter 2007, a decline of 34 percent from the 2006 period due mainly to lower prices for crude oil and natural gas and higher operating expenses.
The average sales price per barrel of crude oil and natural gas liquids was approximately $50 in the first quarter 2007, a decline of about $4 from a year ago. The average sales price of natural gas decreased 14 percent to $6.40 per thousand cubic feet.
Net oil-equivalent production of 749,000 barrels per day in 2007 was about the same as the 2006 quarter. Production increased in the Gulf of Mexico between periods, reflecting the restoration of volumes that were shut-in following the hurricanes of 2005. However, this increase was essentially offset by the effect of normal field declines. The net liquids component of production increased 2 percent to 462,000 barrels per day in 2007. Net natural gas production was 3 percent lower at approximately 1.7 billion cubic feet per day.
International upstream earnings of $2.1 billion decreased $133 million from the first quarter 2006, due mainly to lower prices for crude oil and an increase in operating and depreciation expenses. Partially offsetting these effects was the benefit of higher sales volumes associated with the timing of cargo liftings in certain producing regions.
The average sales price per barrel of crude oil and natural gas liquids was $51 in the 2007 first quarter, a decline of about $4 from a year earlier. The average price of natural gas was 2 percent higher at $3.85 per thousand cubic feet.
Net oil-equivalent production of 1,894,000 barrels per day was flat between periods. In Venezuela, the conversion of operating service agreements to joint-stock companies resulted in a decline of about 90,000 barrels per day. Elsewhere, production was higher in Kazakhstan, Angola and Azerbaijan. The net liquids component of production was 1,349,000 barrels per day in 2007, down 17,000 from a year ago. Net natural gas production was 3.3 billion cubic feet per day, up more than 100 million from the 2006 first quarter.
U.S. downstream earnings of $350 million increased $140 million from the 2006 quarter, mainly as a result of higher margins for refined products. This benefit to earnings was partially offset by the effect of a major turnaround that lasted most of the quarter at the company's refinery in Richmond, California. The turnaround was extended to make repairs to the crude-oil processing unit following a fire that occurred during shut-down.
Refined-product sales volumes decreased 6 percent to 1,447,000 barrels per day in 2007. The decline was associated with an accounting standard effective in April 2006 that requires certain purchase and sale contracts with the same counterparty to be netted for reporting. These types of transactions were previously reported separately as a purchase and a sale. Excluding the impact of this standard, refined-product sales volumes increased 1 percent between periods. Branded gasoline sales of 622,000 barrels per day increased 5 percent between quarters.
International downstream income of nearly $1.3 billion increased about $900 million from the 2006 quarter. The 2007 earnings included a $700 million gain on the sale of the company's interest in refining and related assets in the Netherlands and a benefit from higher average margins for refined products.
Total refined-product sales volumes of 2,064,000 barrels per day were 9 percent lower than last year's quarter. Excluding the effects of the accounting standard for purchase and sale contracts with the same counterparty, sales volumes were down 5 percent on lower fuel-oil sales in Europe.
Chemical operations earned $120 million in the first quarter 2007, a decline of $33 million from the year-earlier period. The decrease was largely due to lower margins on sales of commodity chemicals by the company's 50 percent owned Chevron Phillips Chemical Company LLC. Margins on sales of lubricant and fuel additives by the company's Oronite subsidiary were higher between periods.
All Other consists of the company's interest in Dynegy, 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.
Income in the first quarter 2007 was $65 million, compared with charges of $195 million in the year-ago period. The variance between quarters was largely due to favorable corporate tax items, lower interest expense and higher interest income.
SALES AND OTHER OPERATING REVENUES
Sales and other operating revenues in the first quarter 2007 were $46 billion, down from $54 billion a year earlier. Most of the decline was associated with the impact of the accounting-rule change that requires certain purchase and sale contracts with the same counterparty to be netted for reporting.
CAPITAL AND EXPLORATORY EXPENDITURES
Capital and exploratory expenditures for the first quarter 2007 were $4.1 billion, compared with $3 billion in the corresponding 2006 period. The amounts included approximately $500 million and $300 million, respectively, for the company's share of expenditures by affiliates, which did not require cash outlays by the company. Expenditures for upstream projects represented 78 percent of the companywide total in 2007.
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