JANUARY 28, 2011, 4:09 P.M. ET.

Chevron Profit Climbs 72%


By ISABEL ORDONEZ

Chevron Corp.'s fourth-quarter earnings surged 72% on strong oil prices, improved refining margins and a gain on the sale of an interest in a U.S. pipeline company.

The company's once hard-hit refining business returned to profitability and the price received for the oil it pumped rose about 13% in the U.S. and 16% internationally, compared with a year ago, a sign of the handsome benefits from the global economic rebound.

However, the second-largest U.S. oil company by market value after Exxon Mobil Corp. said Friday fourth-quarter production edged up 0.4 percent to 2.79 million barrels of oil equivalent a day compared to a year ago. For the full year, it booked new reserves equal to just 24% of its production, a worrisome sign for future output.

Chief Executive John Watson called on the U.S. government to resume issuing drilling permits for the deep water region of the Gulf of Mexico. He warned the company may have to reduce its forecast for a 1% increase in its oil production this year if a de facto moratorium continues.

"Fundamentally, the moratorium is up but they are not issuing permits," Mr. Watson said. He warned that deep water oil fields represent a sizeable chunk of the spare capacity needed in the future. "It is time to get back to work," he said.

Chevron reported a profit of $5.3 billion, or $2.64 a share, up from $3.07 billion, or $1.53 a share, a year earlier. The latest period included a $400 million gain from the sale of an interest in U.S. pipeline operator Colonial Pipeline Co. Revenue jumped 11% to $54.03 billion.

A big contributor to results was a turnaround in refining and marketing operations. That business posted a profit of $742 million compared to a prior-year loss of $673 million, driven by significantly better international results and divestiture gains.

The weak reserve-booking figure weighed on shares, which fell 1.5% to $93.37 in afternoon trading on the New York Stock Exchange. Credit Suisse said the disappointing reserve bookings might been seen by some investors as an indication that Chevron could soon embark on acquisitions similar to its $4.3 billion purchase of natural gas producer Atlas Energy to boost reserves.

Chevron added about 240 million barrels of net oil-equivalent reserves in 2010, less than a quarter of its production. Oil and gas companies try to replace 100% of their annual production by booking reserves from new projects, but doing so has become more difficult with more accessible reserves under the control of state-owned oil companies and others in hard to access locations.

Mr. Watson said Chevron's current inability to book reserves from large projects in the Gulf of Mexico is part of the reason for the low reserve-replacement figure. Another reason is production-sharing contracts with national oil companies that restrict reserve booking when prices are high. Excluding the two factors, its reserve replacement would have been 38% of production, he said.

The oil industry has already improved its safety standards in the wake of the BP PLC spill in the U.S. Gulf of Mexico, Mr. Watson said. He warned estimates that the oil industry has lost Gulf production of 300,000 barrels a day as a result of the spill and resulting moratorium could grow if new deep water drilling permits aren't soon issued.

Chevron's results echoed those of other energy companies reporting higher profits from by rising crude oil prices and improved refining margins. ConocoPhillips reported Wednesday a 60% surge on earnings while independent producer Occidental Petroleum Corp.'s fourth-quarter earnings rose 29%. Exxon Mobil is scheduled to report quarterly results Monday.

Chevron said its average price a barrel of crude oil in the U.S. was about $76 in the fourth quarter, compared with $67 a year earlier. The average price of natural gas was $3.65 per thousand cubic feet, down from $4.23 in last year's fourth quarter. Internationally, the average realized price for a barrel of oil was $79, compared with $68 a year earlier. The average price of natural gas was $4.81 a thousand cubic feet, up from $4.15 in last year's fourth quarter.

The company said it plans to spend $750 million this quarter to repurchase shares, the same amount it spent on buybacks in the fourth quarter.

—Tess Styles
contributed to this article.
Write to Isabel Ordonez at isabel.ordonez@dowjones.com

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