Warm Southern Breeze

"… there is no such thing as nothing."

Oil prices crashed and Chevron still made nearly $24 a barrel

Posted by Warm Southern Breeze on Saturday, July 28, 2012

Must be something to what those kooky Occupy Wall Street type folks, and the evil Democrats are saying.

Oil prices crashed and Chevron still made nearly $24 a barrel

By Ronald D. White; July 27, 2012, 1:32 p.m.

Take just about any business situation in which the value of a company’s primary product suddenly falls by more than 29% and it could be time to panic. Then there is the oil patch, where billions of dollars in profits are possible even after that kind of collapse in crude prices. Chevron Corp. of San Ramon, Calif., is just such an example.

Even with the sharp drop in oil prices that began in the first quarter and ran through the end of the second quarter — a decline from $109.41 a barrel to $77.69 a barrel — Chevron had a positive margin of $23.53 on every barrel of crude it produced, according to analysts. Chevron said its margin was actually $26 a barrel.

Chevron Announces 7.2 Billion Dollar Quarterly Profit

SAN RAFAEL, CA – JULY 27: A sign is posted at a Chevron gas station on July 27, 2012 in San Rafael, California. Chevron reported a 6.8 percent decline in second quarter earnings with profits of $7.21 billion compared to $7.73 billion one year ago. (Photo by Justin Sullivan/Getty Images)

The second-biggest U.S. oil firm and the fourth of the global industry’s five super major companies to report second-quarter earnings said it had a net profit of $7.21 billion, or $3.66 per share. That was a drop of less than 7% from the $7.73 billion, or $3.85 a share it made during the same period of 2011. Sales in the second quarter were also down, but only by 9%, to $62.6 billion.

The $23.53 a barrel was “the highest in the industry,” said Fadel Gheit, senior energy analyst for Oppenheimer and Co. “They also have the highest cash balance of anyone in the industry of more than $20 billion. This is a company that has plenty of room to maneuver.”

There are also other ways in which a sharp and steep drop in crude prices can have a positive effect in another part of an oil company that operates in both of the so-called upstream and downstream parts of the business. The upstream is oil exploration and production and the downstream is refining and marketing.

Chevron is a refiner and seller of gasoline, and gasoline prices did not fall nearly as far or as fast as the oil prices, as most motorists already know all too well. So, while Chevron’s upstream was down, it’s downstream was up.

“International downstream earnings were $734 million higher this quarter,” said Jeanette Ourada, Chevron’s general manager for investor relations, during an earnings teleconference with Wall Street analysts. “Refining and marketing margins rose, increasing earnings by $305 million.”

Chevron also said that it was well positioned for future production increases and that its biggest projects were on schedule.

“2012 is all about execution for us,” said Patricia E. Yarrington, Chevron’s vice president and chief financial officer, “We know that and we’re executing well.”

But it’s what they do with some of those profits that most irks industry critics.

“Chevron has already spent over $5 million on lobbying in 2012, coming in as the fourth highest spender of the oil and gas industry,” said Noreen Nielsen, energy communications director for the Center for American Progress. “Collectively, the oil and gas industry has already spent nearly $70 million on lobbying this year.”

The Center said Chevron should be spending less of its billions in profits on buying back shares of its own stock and more on developing renewable energy.


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