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No Surprise: ExxonMobil, Chevron, Texaco Earnings Soar

No Surprise: ExxonMobil, Chevron, Texaco Earnings Soar

In news from the "no surprise" department last week, third quarter earnings for three major U.S. oil companies - ExxonMobil, Chevron and Texaco - handily surpassed analysts' expectations on the wave of surging oil and gas prices. ExxonMobil beat predictions by six cents, Texaco beat the estimates by 12 cents and Chevron also soared, rolling over an expected earnings forecast by 54 cents.

Excluding the effects of its merger, ExxonMobil earned a record $4.29 billion in the third quarter, or $1.22 a share - up 96% from $2.19 billion, or 62 cents per share in the third quarter of 1999. Texaco's income before special items rose 80% to $815 million, or $1.49 a share, compared with income of $453 million, or 83 cents a share in the same period last year. And Chevron more than doubled its earnings in the third quarter, rising to $1.65 billion, or $2.53 a diluted share excluding special items. For the third quarter 1999, Chevron had earned $702 million, or $1.07 per diluted share.

While the third quarter earnings skyrocketed, analysts expect even higher earnings in the fourth quarter. Benefiting from continuing high oil and natural gas prices, Fahnestock & Co. analyst Fadel Gheit said that the next quarter now looks to be even "stronger than the third" for the energy industry.

Analysts are questioning, though, how the companies will add to shareholder value since the earnings reports failed to move stocks up. In fact, shares for all three were slightly down at closing yesterday on the New York Stock Exchange.

San Francisco-based Chevron, which unveiled a $35 billion takeover bid for rival Texaco earlier this month (see NGI, Oct. 23), reported revenues rose to $13.6 billion, up from $10.2 billion in 1999. Its U.S. exploration and production business is up to $572 million, up from $264 million in 1999. International E&P also rose, earning $713 million compared with $322 million a year ago.

"Our oil and gas production results continue to reflect the financial benefit of not only higher commodity prices but also increased production - the direct result of our continued strategies to focus on growing the upstream side of the business," said Chevron CEO Dave O'Reilly.

Texaco, headquartered in White Plains, NY, said its third quarter revenues for the quarter rose 38% to $13.4 billion. In third quarter 1999, Texaco posted income of $453 million, or 83 cents a share. Texaco's U.S. E&P income rose to $487 million from $258 million in 1999, and its international E&P income was up to $299 million from $129 a year ago.

While higher commodity prices and E&P helped Texaco's overall earnings, the company's refining and marketing units did not do as well in the third quarter. Low profit margins on fuels sent its income on its U.S. refining and marketing business down to $82 million, compared with $118 million a year ago. International income also dropped.

If Chevron and Texaco's merger passes regulatory muster, Texaco CEO Peter Bijur said the two companies "will create a U.S.-based global enterprise that is highly competitive across all energy sectors."

The new ChevronTexaco Corp. would become the fourth largest oil company in the world; the two companies had $66.5 billion in joint revenue in 1999. Both already are major players in the Gulf of Mexico, and their combined strength would create the region's third largest producer behind BP and ExxonMobil. Worldwide, the new company would have 11.2 billion barrels of oil equivalent reserves (boe) and daily production of 2.7 million boe. One negative, say analysts, is that Texaco may be required to sell some of its West Coast downstream assets before the deal is approved.

ExxonMobil's third quarter report was "obviously pleasing to us," said Chairman Lee R. Raymond in a conference call. The company's revenue jumped to $58.85 billion compared with $48.98 billion a year ago.

Understating the obvious, Raymond said that the company's third quarter earnings "improved substantially from the same period a year ago and were a third consecutive quarterly record." Raymond said the upstream and downstream businesses both "significantly exceeded the same period" in 1999. As in the second quarter of this year, Raymond attributed the company's profits to improvement outside of the United States, and from higher commodity prices.

"These prices, which are the raw material costs for our downstream and chemical businesses, increased at a faster pace than prices in the highly competitive end-user and consumer markets," Raymond said.

Upstream profits were up for the fourth consecutive quarter, standing at $3.1 billion. Downstream profit also was up, although not as much because of product prices that were unable to keep up with rising crude costs, he said.

"While downstream earnings improved versus the depressed levels of last year, they were lower than downstream results achieved in the third quarters of 1997 and 1998," said Raymond.

Carolyn Davis, Houston

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