Thread: Big Oil's enormous profits ignite suspicion of gouging

http://www.denverpost.com/business/ci_4105814

Article Launched: 7/28/2006 01:00 AM

business
Big Oil's enormous profits ignite suspicion of gouging

By Andy Vuong
Denver Post Staff Writer
DenverPost.com

As motorists continue to pay more at the gas pump, two of the nation's largest oil companies on Thursday reported second-quarter profits of nearly $18 billion.

The huge profits come at a time when refiners are marking up wholesale gas prices to levels seen during the weeks after Hurricane Katrina, reigniting concerns about the possibility of price gouging.

Exxon Mobil Corp. said Thursday that its second-quarter profits increased 36 percent to $10.36 billion, the second-largest quarterly profit ever for a U.S. publicly traded company.

Royal Dutch Shell, which operates 155 gas stations in Colorado, reported earnings of $7.32 billion, up 40 percent from a year ago.

Including earnings from BP and ConocoPhillips, which reported earlier this week, four of the nation's five largest oil companies netted more than $30 billion in profit during the second quarter amid record crude oil prices. Chevron reports its earnings today. Those five companies own more than 40 percent of U.S. refining.

National gross profit margins for refiners have hovered around $21 a barrel this week, compared with about $12 a barrel a year ago, according to information compiled by Bryant Gimlin, an analyst with Fort Lupton- based Gray Oil Co.

Gross refining margins - calculated by subtracting refiners' crude-oil purchase price from their wholesale gasoline selling price - hit a record high of $31.71 a barrel on Sept. 1 shortly after Hurricane Katrina, which knocked out refineries and pipelines.

The profit margins, which aren't publicly reported by the companies, represent the amount of money refiners make from selling gasoline and other products, minus their costs for crude oil. The refiners' net profits are lower than gross margins because of additional costs such as operating expenses, payroll, marketing and taxes.

Amid outcry from lawmakers about its profits, the oil industry this week paid for advertisements in 14 newspapers - including The Denver Post, The New York Times and The Washington Post - that insist oil companies' earnings are not exorbitant.

"The oil and natural gas industry is really not out of line with other industries," said Jim Craig, a spokesman for the American Petroleum Institute, an industry trade group based in Washington. "With gasoline prices what they are and the price of crude what it is, I know we're top of mind for consumers. That's understandable."

The national average price of regular unleaded gasoline is $3 a gallon this week, according to AAA.

The price would be about $2.60 a gallon, factoring in taxes and transportation and other costs, if the refiners' gross profit margin had remained at the same levels from a year ago, according to Gimlin's figures.

Rep. Diana DeGette, D-Colo., on Thursday renewed her calls for stronger price-gouging laws.

"We have such weak price- gouging laws; nobody's investigating the practice," Degette said. "I'm not going to say there is price gouging on, but I do think we need laws that let us have thorough investigations and prosecutions."

The huge profits this week spurred outrage from other lawmakers.

"The big oil companies are taking in record profits, while the American people are" being taken advantage of, said Rep. Mark Udall, D-Colo. "We need a real energy policy that relieves consumers' pain at the pump and that puts our country on a path to energy independence."

Udall and DeGette are calling for legislation that would increase investments in alternate fuels and energy-efficient technologies using renewable energy sources such as wind, solar and biofuels.

Others lawmakers, including Rep. Edward Markey, D-Mass, are calling for a tax to redistribute some of the Big Oil profits to small businesses and the poor.

Exxon Mobil spokesman Kenneth Cohen said some politicians are using high energy prices as an election issue.

Crude oil prices hit a record high of $78.40 on July 14 and have stayed above $70 a barrel since then.

Bloomberg News contributed to this report.

Staff writer Andy Vuong can be reached at 303-820-1209 or avuong@denverpost.com.

http://www.suntimes.com/output/business ... xon28.html

Oil companies pump up profits

July 28, 2006


DALLAS -- Exxon Mobil Corp. Thursday reported second-quarter profits of $10.36 billion -- $1,318 per second -- and the second largest quarterly profit ever recorded by a publicly traded U.S. company.

The earnings figure rose 36 percent above the profit it reported a year ago. High oil prices helped boost the company's revenue by 12 percent to $99 billion, just short of a quarterly record $100.72 billion -- which stands as record revenue generated by any U.S. public company ever in a single quarter.

Shares of Exxon Mobil inched up 13 cents to close at $66.47. The stock, which has climbed 20 percent this year, has 18 buy and seven hold ratings from analysts.

''Earnings have just been spectacular,'' said Barry James, who manages $1.7 billion, including 54,500 Exxon Mobil shares, at James Investment Research in Xenia, Ohio. ''Cash flow is going gangbusters.''

Royal Dutch Shell PLC said Thursday that second-quarter earnings jumped 40 percent to $7.32 billion as high oil prices offset production difficulties in Nigeria and the Gulf of Mexico. Other oil companies reported big numbers for the quarter this week as well. BP reported its quarterly profit rose 30 percent to $7.3 billion and ConocoPhillips said its earnings rose 65 percent to $5.18 billion. Chevron Corp. will round the field of five majors when it reports its second-quarter performance today.

These five were expected to earn an estimated $33.6 billion, or a 32 percent boost, according to analysts surveyed by Thomson Financial. Already the first four have reported earning $30.16 billion.

Exxon Mobil, the world's largest oil company by market capitalization, said earnings were $1.72 per share in the April-June quarter compared with a profit of $7.64 billion, or $1.20 per share, a year ago.

The results topped Wall Street expectations, but came in behind Exxon Mobil's record profit of $10.71 billion set in the fourth quarter of 2005.

I got a good laugh out of this one.

http://www.tradingmarkets.com/tm.site/n ... RY/323535/

Chevron Q2 Profit Rises 18%, Misses Expectations; Shares Fall - Update

Friday, July 28, 2006; Posted: 11:48 AM


RTTNews) - On Friday, Chevron Corp. (CVX | charts | news | PowerRating) announced financial results for its second quarter, reporting that profit rose 18% on higher prices for crude oil and refined products. Chevron said sales and other operating revenues were up by $5 billion from last year. The earnings marked Chevron's highest profit for any three-month period, eclipsing the $4.14 billion in net income that the company made during the final three months of last year when energy prices increased in the aftermath of hurricanes Katrina and Rita. However, the company's earnings fell short of expectations and the stock fell in premarket trading. Chevron would have come closer to hitting that target if not for a $300 million charge that decreased its earnings by $0.13 per share. The reduction reflected the company's uninsured costs for equipment ravaged in by last year's hurricanes. Earlier this week, Exxon Mobil Corp. (XOM | charts | news | PowerRating), BP PLC (BP | charts | news | PowerRating), ConocoPhillips (COP | charts | news | PowerRating), and Royal Dutch Shell PLC (RDSA | charts | news | PowerRating) reported a combined profit of $30.2 billion.

SECOND QUARTER RESULTS

The San Ramon, California-based Oil exploration and refining company reported net income for the quarter of $4.4 billion or $1.97 per share, compared with net income of $3.7 billion or $1.76 per share in the year-ago period. On an average, twenty-one analysts polled by First Call/ Thomson Financial expected the company to report earnings of $2.21 per share for the second quarter.

Sales and other operating revenues in the quarter were $52 billion, up $5 billion from $47 billion in the same period of 2005. The increase was mainly attributable to higher prices for crude oil and refined products and the inclusion of revenues related to the former Unocal operations acquired in August 2005.

Partially offsetting these effects in the 2006 period was the impact of an accounting-rule change beginning in the second quarter for certain purchase and sale contracts, Chevron said.

Total revenue climbed 10.7% to $53.53 billion, including about $1.4 billion of income from equity affiliates and other income, from revenue of $48.34 billion in the comparable prior-year period.

"The earnings improvement in the second quarter was driven mainly by our upstream business outside the United States. Worldwide upstream results in this year's quarter benefited from both higher prices for crude oil and a 10% increase in oil-equivalent production," said Chairman and CEO Dave O'Reilly.

SIX-MONTH RESULTS

For the first six months of 2006, Chevron reported net income of $8.3 billion or $3.77 per share, compared with net income of $6.4 billion or $3.04 per share in the 2005 first half.

Six-month 2006 sales and other operating revenues were $106 billion, up from $88 billion in the 2005 first half. Total revenues for the period rose to $108 billion from $89 billion last year.

Capital and exploratory expenditures in the first six months of 2006 were $7.4 billion, compared with $4.2 billion in the corresponding 2005 period.

Included in these expenditures were approximately $800 million and $700 million for the company's share of equity affiliate expenditures in 2006 and 2005, respectively. Upstream expenditures represented 77% of the companywide total in 2006.

Chevron is the latest oil major to report higher quarterly earnings as oil prices stay at unusually high levels. Oil prices hit a record high of $78.40 a barrel about two weeks ago over worries of violence spreading in the Middle East.

SEGMENTS

Upstream - Exploration And Production

Worldwide net oil-equivalent production, including volumes produced from oil sands and production under an operating service agreement, was 2,669,000 barrels per day in the second quarter 2006, an increase of 10% from the corresponding period in 2005. The increase was associated with the production from the former Unocal operations.

Average U.S. prices for crude oil and natural gas liquids in the second quarter 2006 increased by $16 to $60 per barrel. Outside the United States, prices were up by more than $17 per barrel to $62.

The average U.S. natural gas sales price decreased about 7% to $5.90 per thousand cubic feet, while outside the United States the average natural gas price of $3.80 per thousand cubic feet was 27% higher than a year earlier.

U.S. upstream income of $901 million in the second quarter decreased 7% from the 2005 period. Net charges of approximately $300 million were recorded in the 2006 quarter for additional uninsured costs related to the dismantlement or repair of wells and facilities that were damaged in last year's hurricanes in the Gulf of Mexico.

Other operating expenses were also higher in this year's quarter. These effects were partially offset by the benefits of higher prices for crude oil and higher oil-equivalent production between periods.

Net oil-equivalent production increased 4% to 768,000 barrels per day in the 2006 quarter due to volumes added from the former Unocal operations. The net liquids component of production was down about 1% to 463,000 barrels per day. Net natural gas production averaged 1.8 billion cubic feet per day, up 13%.

International Upstream

International upstream income of $2.4 billion increased from $1.8 billion in the second quarter 2005. The improvement was due mainly to higher average prices for crude oil and natural gas and increased oil-equivalent production.

Foreign currency effects reduced earnings by $96 million in the 2006 quarter, compared with a $57 million benefit to income in the year-ago period.

Net oil-equivalent production, including volumes produced from oil sands and production under an operating service agreement, increased 13% to 1,901,000 barrels per day in the 2006 quarter.

The net liquids component increased 3% to 1,362,000 barrels per day, due to volumes added from former-Unocal operations. This production increase was partially offset by the effects of maintenance activities at the Captain Field in the UK and the Athabasca oil sands project in Canada, as well as lower cost-oil recovery volumes in Indonesia.

Natural gas production was up 50% to 3.2 billion cubic feet per day due to the added Unocal-related volumes.

Downstream - Refining, Marketing And Transportation

U.S. downstream earnings of $554 million increased $156 million from the 2005 quarter, mainly because of higher refined-product margins and increased refinery utilization.

Sales volumes for refined products decreased 3% to 1,468,000 barrels per day in the 2006 quarter due to a change in accounting beginning April 1 related to certain purchase and sale contracts.

Excluding the impact of this new accounting rule, sales of refined products were about 2% higher in the 2006 quarter.

International Downstream

International downstream earnings of $444 million decreased $134 million from the year-ago period, as the benefits of higher refined-product margins and improved refinery utilization were more than offset by the effect of higher average income tax rates and an increase in operating expenses.

Chemicals

Chemical operations earned $94 million, up 12% from the 2005 quarter. Earnings improved for both the 50%-owned Chevron Phillips Chemical Company LLC affiliate and the company's Oronite subsidiary.

All Other

All Other consists of the company's interest in Dynegy, mining operations of coal and other minerals, power generation businesses, worldwide cash management and debt financing activities, corporate administrative functions, insurance operations, real estate activities and technology companies.

Net charges were $11 million in the second quarter 2006, compared with net charges of $148 million in the corresponding 2005 period.

PAST PERFORMANCE

For its first quarter, Chevron said profit soared 49% to $4 billion. Chevron's first quarter net income translated into $1.80 per share. It compared to a profit of $2.7 billion or $1.28 per share, in the same January-March period last year. Revenue totalled $54.6 billion, a 31% increase from $41.6 billion last year.

COMPETITION

Soaring energy prices catapulted Exxon Mobil to a second quarter profit of more than $10 billion and promise to ignite industry wide growth all year.

Royal Dutch Shell came close to matching Exxon Mobil's 36% quarterly earnings boost on Thursday, posting net income of $7.3 billion, an increase of 40% from the year before.

The oil and gas industry's prolific profits come as motorists in the U.S. pay an average of $3-a-gallon at the pump and as Washington lawmakers consider opening to drilling areas of the Gulf of Mexico currently off-limits, both of which have generated political backlash.

Other oil companies reported big numbers for the quarter this week as well. BP PLC reported its quarterly profit rose 30% to $7.3 billion and ConocoPhillips said its earnings rose 65% to $5.18 billion.

Exxon Mobil, the world's largest publicly traded oil company, said earnings amounted to $1.72 per share in the April-June quarter compared with a profit of $7.64 billion or $1.20 per share, a year ago.

The results topped Wall Street expectations but came in behind Exxon Mobil's record profit of $10.71 billion set in the fourth quarter of 2005. Analysts expected the company to earn $1.64 per share.

Revenue rose to $99.03 billion from $88.57 billion in the prior-year quarter. That was short of Exxon Mobil's record third quarter revenue of $100.72 billion, which also stands as record revenue generated by any U.S. public company in a quarter.

THE STOCK

Chevron closed at $67.73 on Thursday. In premarket trading Friday, the stock lost $1.93, or 2.9%, to $65.80.

Currently, CVX is trading $65.90, down $1.83 or 2.70%.