Higher commodity prices and the acquisition of Unocal Corp. pushed Chevron Corp.’s 4Q2005 net income 21% higher and the company’s reported earnings to $4.1 billion ($1.86/share) from $3.4 billion ($1.63) in 4Q2004. However, with new projects still under development, the San Ramon, CA-based major booked almost no additional organic reserves in 2005.

CEO Dave O’Reilly, who presided over a conference call with CFO Steve Crowe, touted the company’s ability to revamp following the storms that plagued the Gulf of Mexico in the third quarter and pointed to the acquisition of Unocal as a major highlight of the year. However, during a question and answer period with energy analysts, O’Reilly was quizzed about the lack of organic reserves booked in 2005, which one analyst estimated at zero.

“That figure [zero] is close to being on the mark,” said O’Reilly. “We had no significant write-offs. Our basic organic growth comes from major projects, and we had no major projects come on last year.” Most of Chevron’s total reserve replacements in 2005 — which were up an estimated 175% — came from the Unocal acquisition. However, he said several “big” projects worldwide remain under development, which will “significantly” impact organic growth.

“The big ones will be booked when they are ready and fully ready for booking,” O’Reilly said. “We have a strong view of projects, and we will book substantial reserves on new projects. There will be a swing toward more organic in the next couple of years.” Included in Chevron’s future bookings, said O’Reilly, is the Gorgon project in Australia, along with new ventures in Angola, Nigeria and in the deepwater Gulf.

High prices also impacted organic growth in 2006, said the CEO. With crude and natural gas prices rising dramatically over the year, O’Reilly said a “rough house estimate is that if you were to exclude sales and purchases and exclude price effects, the actual organic replacement ratio is in the 40-50% range.” Chevron received about $52/bbl for oil in the United States in the final quarter, up from $38. U.S. gas sales prices increased 69% to top $10/Mcf, and outside the United States, prices rose 21% to $3.50.

Assisted by the Unocal purchase, Chevron overcame storm losses and pushed up U.S. gas production 20% in the final quarter to 1.638 Bcf/d from 1.618 Bcf/d in 4Q2004. In Canada, 4Q2005 gas production fell to 7 MMcf/d from 10 MMcf/d a year earlier.

Pre-Hurricane Katrina, the company’s production in the Gulf was approximately 300,000 boe/d. Daily production in 4Q2005 averaged about 160,000. This year, with some output lost, Chevron expects Gulf production to average about 200,000 boe/d, with a slightly higher rate occurring in the first half of this year.

“We would have had an actual decline [in 2006] in any event in the Gulf of Mexico,” O’Reilly said. “If the storms hadn’t occurred, by this year, we would be down in the 250-260,000 [boe/d] range by the end of 2006. We’re never going to get back to 300,0000 on this existing set of assets [in the Gulf],” he said. “We would have normal field declines, and the question is always, how much can we get back on the decline curve.” He estimated a “permanent loss” from Gulf operations of 10,000-20,000 boe.

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