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THE WALL STREET JOURNAL: Chevron's Profit Tumbles by 11% As Unocal's Soars: Monday 1 August 2005

 

By RUSSELL GOLD
Staff Reporter of THE WALL STREET JOURNAL
August 1, 2005; Page B2

Chevron Corp., in the midst of a battle to acquire Unocal Corp., reported that its profit slid 11% as a subpar refinery performance and lower oil and natural-gas production kept a lid on income.

The second-largest U.S. oil company, behind Exxon Mobil Corp., said net income was $3.68 billion, compared with $4.13 billion a year ago when profit was lifted by $800 million of one-time gains related to asset sales and a tax-law change.

Still, high oil and gas prices helped Chevron add $1.6 billion in cash to a growing hoard that now totals $13.5 billion, which could be valuable if a bidding war for Unocal breaks out. China's Cnooc Ltd. also has made an offer for the company, but the Unocal board favors Chevron. A vote on the Chevron merger is scheduled for Aug. 10.

When asked if Chevron would consider increasing its bid, if necessary, Chief Financial Officer Steve Crowe said, "The deal is still quite attractive to us."

Chevron's earnings, combined with a general slump in the oil sector, sent the company's stock down 1.6% at 4 p.m. Friday to $58.01 in composite trading on the New York Stock Exchange. Since Chevron's bid for Unocal is largely stock, this slide also drove down the value of the offer by $160 million, to $17.5 billion.

Unocal, which also reported results Friday, said second-quarter net income rose 39% to $475 million, or $1.73 a share, from $341 million, or $1.25 a share, a year earlier. The company said production shot up 14%, mostly because of increased oil and gas production in Asia and the Gulf of Mexico.

Excluding the effects of the special items in the year-earlier period, Chevron's profit rose 11%, significantly less than current-quarter performances turned in last week by Exxon Mobil, Royal Dutch Shell PLC, ConocoPhillips and BP PLC.

Like its peers, Chevron was helped by high oil and gas prices, but its production of oil and gas slid 6% from a year earlier because of asset sales, storm-related halts in operations, natural field declines and other factors. Earnings at its refining operations were also hampered by unexpected maintenance at two plants and lower margins in the key U.S. West Coast market. This was partially offset by higher margins at its overseas refineries.

Revenue at the San Ramon, Calif., company was up 26% to $48.34 billion. The company said it earned $1.76 a share in the quarter, down from $1.94 a year ago.

Unocal, based in El Segundo, Calif., said revenue was up 19% to $2.21 billion. Charles R. Williamson, Unocal's chairman and chief executive officer, credited the beginning of two projects -- one in the Gulf of Mexico and the other in Thailand -- for the strong showing.

Unocal's Asian and Gulf of Mexico assets as well as its growth potential have attracted both Chevron and Cnooc. Cnooc, a majority state-owned firm, has bid $18.5 billion. Unocal is siding with Chevron's cash-and-stock bid in part because it is concerned that a Cnooc deal would face tough U.S. scrutiny.

Write to Russell Gold at russell.gold@wsj.com

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