Chevron profit soars, fueled by summer surge in oil prices

Chevron Corp. on Friday announced earnings of $7.9 billion in the third quarter, capping a week of historic profits for some of the world’s major oil companies.

Net income at the San Ramon, Calif.-based oil giant more than doubled compared with the year-earlier period, to $3.78 a share, fueled by soaring crude prices that shot past $145 a barrel in July. The nation’s No. 2 oil company would have reaped even fatter profits if not for hurricanes Ike and Gustav.

Storm-related shutdowns at Chevron’s operation in the Gulf of Mexico helped push down oil and gas production to 2.443 million barrels a day in the third quarter, a decline of 3.7% from the second quarter, which ended in June.

Through the first nine months of the year, Chevron earned $19 billion. It ended the quarter with $10.6 billion in cash on its balance sheet.

“Earnings . . . benefited from prices for crude oil that were significantly higher,” said David O’Reilly, Chevron’s chairman and chief executive.

Chevron shares rose 42 cents to $74.60.

Chevron’s performance was just the latest in a string of eye-popping earnings reports in recent days from some of the industry’s biggest publicly traded oil companies. Exxon Mobil, Royal Dutch Shell, BP and Westwood-based Occidental Petroleum all reported enormous profits -- a marked contrast to the recession fears, mass layoffs and lousy earnings reports reverberating through much of the rest of the U.S. economy.

Consumer advocates have complained that oil firms aren’t investing enough to develop new sources of supply, preferring to hold their windfalls in cash or use them to buy back their own shares.

The so-called Big Five -- Exxon, BP, Shell, Chevron and ConocoPhillips -- devoted $38 billion to purchases of their company stock through the first nine months of the year, according to a report released Friday by the Consumer Federation of America, a nonprofit advocacy group.

“That money comes out of the consumer’s pocket,” said Mark Cooper, the group’s research director. “The system is literally redistributing wealth from average American consumers to oil company stockholders.”

Other critics were quick to jump on the Halloween timing of Chevron’s earnings release.

“These profits show the extent of the oil industry’s vampire attack on a weakened economy,” said Judy Dugan, research director of the nonprofit group Consumer Watchdog. “Fuel and energy prices bled away the reserves of family budgets and corporate treasuries. Energy inflation deepened the effect of the financial markets’ meltdown.”

Despite this week’s heady earning numbers, oil industry executives and analysts have turned cautious about the near future.

Petroleum prices have plunged since their peak in July. Crude for December delivery on Friday closed at $67.81 a barrel on the New York Mercantile Exchange. A slumping world economy is curbing demand for oil.

Lower crude prices are already making some oil companies reconsider expensive new investments. Shell this week said it was postponing the expansion of a big oil sands project in Canada. Some smaller operators are having trouble getting financing.

“You put the credit crunch together with lower oil prices, and a lot of these projects start to look borderline,” said Sean Brodrick, natural resource analyst with MoneyAndMarkets.com.

Still, the sudden price drop also creates opportunities. Brodrick said cash-rich oil firms such as Chevron were smart to sit tight and wait for the opportunity to snap up assets from struggling companies at bargain prices.

Phil Flynn, senior analyst at Alaron Trading Corp. in Chicago, said oil companies make easy villains for frustrated American consumers who have responded enthusiastically to the idea floating around Capitol Hill to slap a windfall profits tax on hefty earnings.

But he said the tax could end up undermining U.S. energy security by making it harder for U.S. companies to compete for untapped reserves of oil, which are getting harder to find.

“Big U.S. oil companies are not the enemy,” Flynn said. “At the end of the day, we should be pleased that oil companies are making money. If they’re making money, they can bring us supply.”

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marla.dickerson@latimes.com