For the first half of 2007, net income was $10.1 billion ($4.70 per share - diluted), a 21 percent increase from $8.3 billion ($3.77 per share - diluted) in 2006. Earnings Summary Three Months Six Months Ended June 30 Ended June 30 Millions of Dollars 2007 2006 2007 2006 Income by Business Segment Upstream - Exploration and Production $3,639 $3,272 $6,546 $6,730 Downstream - Refining, Marketing and 1,298 998 2,921 1,578 Transportation Chemicals 104 94 224 247 All Other 339 (11) 404 (206) Net Income* $5,380 $4,353 $10,095 $8,349 * Includes foreign currency effects $(138) $(56) $(258) $(164)
"Earnings and cash flows were strong in the second quarter," said Chairman and CEO Dave O'Reilly. "Upstream profits increased approximately $400 million, mainly reflecting the absence of charges recorded in the 2006 period for uninsured costs associated with hurricane damages. Downstream earnings improved $300 million on higher margins for refined products.
"We continued to make progress during the quarter in executing our key strategies," O'Reilly added. "Capital and exploratory expenditures totaled $4.5 billion and included downstream investments to upgrade our refinery network.
"Construction continued during the quarter at our El Segundo, California, refinery to enable processing of heavier crudes into light products such as gasoline and diesel," O'Reilly said. "A similar project is under way at our 50 percent-owned refinery in South Korea, and both of these upgrades are expected to be completed by the end of this year."
While these types of selective downstream investments are being made in areas of market strength, O'Reilly said the company is exiting certain other markets. Following the first-quarter sale of Chevron's interest in a Netherlands refinery, the company announced an agreement to sell its fuels marketing businesses in Belgium, the Netherlands and Luxembourg and completed the sale of its fuels marketing business in Uruguay.
Also during the second quarter, the company announced a common stock dividend increase of 11.5 percent and bought back $1.75 billion of its common shares.
UPSTREAM - EXPLORATION AND PRODUCTION
Worldwide oil-equivalent production was 2.63 million barrels per day in the second quarter 2007, a decline of about 1 percent from the corresponding period in 2006, due mainly to the effect of the conversion of operating service agreements in Venezuela to joint-stock companies and lower production in the United States. Production increased between periods in Bangladesh, Angola, Azerbaijan and the United Kingdom.
U.S. Upstream Three Months Six Months Ended June 30 Ended June 30 Millions of Dollars 2007 2006 2007 2006 Income $1,223 $901 $2,019 $2,115
U.S. upstream income of $1.2 billion in the 2007 second quarter increased by $322 million compared to a year-ago. The 2006 second quarter included approximately $300 million of charges related to uninsured costs of damages from 2005 hurricanes in the Gulf of Mexico. Earnings in the 2007 second quarter benefited from gains on asset sales, but these were offset by an increase in operating and depreciation expenses.
The average sales price per barrel of crude oil and natural gas liquids was $57 in the second quarter 2007, a decrease of about $3 from the corresponding 2006 period. The average sales price of natural gas increased approximately 11 percent to $6.56 per thousand cubic feet.
Net oil-equivalent production of 752,000 barrels per day decreased by 2 percent from the 2006 quarter. The net liquids component of production was up 1 percent to 468,000 barrels per day. Net natural gas production decreased 7 percent to approximately 1.7 billion cubic feet per day due mainly to normal field declines. International Upstream Three Months Six Months Ended June 30 Ended June 30 Millions of Dollars 2007 2006 2007 2006 Income* $2,416 $2,371 $4,527 $4,615 * Includes foreign currency effects $ (111) $ (96) $ (230) $ (219)
International upstream earnings of approximately $2.4 billion were up 2 percent from the 2006 quarter. Although oil-equivalent production decreased from the year-ago period, sales volumes were higher due to the timing of cargo liftings in certain producing regions. Higher operating expenses and an increase in depreciation expense mostly offset the benefit to earnings from this increase in liftings, largely asset write-down related.
The average sales price for crude oil and natural gas liquids in the 2007 quarter decreased by less than $1 from a year earlier to $61 per barrel, while the average price of natural gas was 5 percent lower at $3.64 per thousand cubic feet.
Net oil-equivalent production of 1,878,000 barrels per day decreased 1 percent from the year-ago period, mainly as a result of the October 2006 conversion of operating service agreements to joint-stock companies in Venezuela. Production increased in Bangladesh, Azerbaijan, Angola and the United Kingdom. The net liquids component of production has decreased by 36,000 barrels per day to 1,326,000. Natural gas production was 3.3 billion cubic feet per day in the 2007 period, an increase of about 80 million from a year earlier.
DOWNSTREAM - REFINING, MARKETING AND TRANSPORTATION U.S. Downstream Three Months Six Months Ended June 30 Ended June 30 Millions of Dollars 2007 2006 2007 2006 Income $781 $554 $1,131 $764
U.S. downstream earnings of $781 million increased $227 million from the 2006 quarter, due mainly to improved margins for refined products. This benefit was partially offset by an increase in costs for environmental remediation.
Sales volumes for refined products increased 3 percent from the year-ago period to 1,506,000 barrels per day, primarily the result of stronger branded sales. Branded gasoline sales volumes of 630,000 barrels per day increased 3 percent between quarters. Refinery crude input was down 54,000 barrels per day, associated mainly with a planned crude-unit shutdown that started June 1 at the company's El Segundo, California, refinery.
International Downstream Three Months Six Months Ended June 30 Ended June 30 Millions of Dollars 2007 2006 2007 2006 Income* $517 $444 $1,790 $814 *Includes foreign currency effects $(35) $14 $(30) $23
International downstream earned $517 million in the 2007 quarter, an increase of $73 million from the year-ago period. The increase resulted mainly from improved margins for refined products, partially offset by higher operating expenses. Foreign exchange effects reduced earnings by $35 million in the 2007 period, vs. a $14 million benefit to income a year earlier.
Total refined-product sales volumes of 1,956,000 barrels per day were 3 percent lower than last year's second quarter, due mainly to the sale in March 2007 of the company's interest in refining and related assets in the Netherlands. Refinery crude input was down 121,000 barrels per day, also related primarily to the sale of these refining assets.
CHEMICALS Three Months Six Months Ended June 30 Ended June 30 Millions of Dollars 2007 2006 2007 2006 Income* $104 $94 $224 $247 *Includes foreign currency effects $ - $(5) $(1) $(11)
Chemical operations earned $104 million, compared with $94 million in the year-ago quarter. Earnings benefited from improved margins on sales of lubricant and fuel additives by the company's Oronite subsidiary. This benefit was partially offset by lower margins on sales by the company's 50 percent-owned Chevron Phillips Chemical Company LLC.
ALL OTHER Three Months Six Months Ended June 30 Ended June 30 Millions of Dollars 2007 2006 2007 2006 Income (Charges) - Net* $339 $(11) $404 $(206) *Includes foreign currency effects $8 $31 $3 $43
All other consists of the company's mining operations and power generation businesses, worldwide cash management and debt financing activities, corporate administrative functions, insurance operations, real estate activities, alternative fuels and technology companies. Also included are results from the company's investment in Dynegy Inc. until the time of its sale in May 2007.
Income in the second quarter 2007 was $339 million, compared with net charges of $11 million in the year-ago period. This year's quarter included a gain of $680 million related to sale of the company's investment in Dynegy Inc. common stock, partially offset by a loss of $160 million related to the early redemption of Texaco Capital Inc. bonds and an increase in environmental remediation expenses for legacy-Texaco and -Unocal sites that had been closed or sold. The 2006 period included a gain from the redemption of Unocal debt.
SALES AND OTHER OPERATING REVENUES
Sales and other operating revenues in the second quarter were $54 billion, up from $52 billion a year earlier. First-half 2007 sales and other operating revenues were $101 billion, down from $106 billion in the year-ago period. The decline for the first six 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 six months of 2007 were $8.6 billion, compared with $7.4 billion in the corresponding 2006 period. The amounts included approximately $1.1 billion and $800 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 company wide total in 2007.
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