Hurricanes Katrina, Rita and Dennis cut right into the heart of Chevron Corp's Gulf Coast operations in the third quarter, resulting in a $600 million cut in profits, and the carryover effects on fourth quarter results are expected to be even more significant, CEO Dave O'Reilly said Friday. The storms reduced 3Q2005 oil and natural gas production by about 90,000 boe/d and are expected to curtail more output in the final quarter.
Chevron reported net income of $3.6 billion ($1.64/share), compared with $3.2 billion ($1.51) for the same period a year ago. Earnings in 2005 included results for two months from the former Unocal operations. There were no special items in the third quarter, while 3Q2004 net income included a special-item gain of $0.5 billion ($0.23/share) related to asset sales. Sales and other operating revenues in the third quarter were $53 billion, up from $40 billion.
"Katrina and Rita hit us right in the core of our operations," said O'Reilly, who spoke to analysts during a conference call on Friday. "The effect of the storms will be felt for some time." As the largest producer on the Gulf of Mexico shelf, and with extensive deepwater operations, O'Reilly said the company also suffered from Hurricane Dennis, which struck in July.
Two-thirds of the $600 million loss to storms in the quarter was on "lost opportunities," said O'Reilly, which included the loss of oil and gas production offshore as well as the 40-day shut down of the Pascagoula, MS refinery. Not included in the financial statements was another factor, he noted; almost 700 of Chevron's employees either "lost their homes or had their homes severely damaged" in the storms.
O'Reilly said the major influences on earnings in both 3Q2005 and 4Q2005 are from a reduction in production and reduced output at the Pascagoula refinery. Other detrimental effects include repair and maintenance costs for both offshore and onshore facilities, asset write-offs and expenses for other uninsured storm-related items. He predicted recovery of Gulf region operations "will take several months," and will depend on recovery by third party operations.
Worldwide oil-equivalent production, including volumes produced from oilsands in Canada and production under an operating service agreement in Venezuela, increased 105,000 boe/d from a year earlier to 2.548 billion boe/d. Included was production from the former Unocal operations of 425,000 boe/d for two months, or an average of 282,000 boe/d for the period. Excluding the additional volumes from Unocal operations, production otherwise declined from 3Q2004 because of the hurricanes, asset sales since mid-2004 and the effect of higher prices on the cost-recovery and variable-royalty provisions of certain production sharing agreements.
U.S. exploration and production income was up 4% to $1.2 billion. Domestic net oil-equivalent production was 735,000/boe/d , a drop of 8%, or 66,000 boe/d from 3Q2004. Domestic output from the Unocal unit 76,000 boe/d. Absent the Unocal volumes for two months, curtailed production due to storms and the effect of property sales since mid-2004, the underlying net oil-equivalent production in quarter declined about 6% from 3Q2004.
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