Third quarter earnings for the three largest U.S. oil companies— ExxonMobil, Chevron and Texaco — handily surpassed analysts’expectations on the wave of surging oil and gas prices. ExxonMobilbeat predictions by six cents, Texaco beat the estimates by 12cents and Chevron also soared, rolling over an expected earningsforecast by 54 cents. All three released their quarterly statementsyesterday.

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 of1999. Texaco’s income before special items rose 80% to $815million, or $1.49 a share, compared with income of $453 million, or83 cents a share in the same period last year. And Chevron morethan doubled its earnings in the third quarter, rising to $1.65billion, or $2.53 a diluted share excluding special items. For thethird quarter 1999, Chevron had earned $702 million, or $1.07 perdiluted share.

While the third quarter earnings skyrocketed, analysts expecteven higher earnings in the fourth quarter. Benefiting fromcontinuing 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 toshareholder value since the earnings reports failed to move stocksup. In fact, shares for all three were slightly down at closingyesterday on the New York Stock Exchange.

San Francisco-based Chevron, which unveiled a $35 billion takeoverbid for rival Texaco earlier this month (see Daily GPI, Oct. 17), reported revenues rose to $13.6billion, up from $10.2 billion in 1999. Its U.S. exploration andproduction business is up to $572 million, up from $264 million in1999. International E&P also rose, earning $713 million comparedwith $322 million a year ago.

“Our oil and gas production results continue to reflect thefinancial benefit of not only higher commodity prices but alsoincreased production — the direct result of our continuedstrategies to focus on growing the upstream side of the business,”said Chevron CEO Dave O’Reilly.

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

While higher commodity prices and E&P helped Texaco’soverall earnings, the company’s refining and marketing units didnot do as well in the third quarter. Low profit margins on fuelssent its income on its U.S. refining and marketing business down to$82 million, compared with $118 million a year ago. Internationalincome also dropped.

If Chevron and Texaco’s merger passes regulatory muster, TexacoCEO Peter Bijur said the two companies “will create a U.S.-basedglobal enterprise that is highly competitive across all energysectors.”

The new ChevronTexaco Corp. would become the fourth largest oilcompany in the world; the two companies had $66.5 billion in jointrevenue in 1999. Both already are major players in the Gulf ofMexico, and their combined strength would create the region’s thirdlargest producer behind BP and ExxonMobil. Worldwide, the newcompany would have 11.2 billion barrels of oil equivalent reserves(boe) and daily production of 2.7 million boe. One negative, sayanalysts, is that Texaco may be required to sell some of its WestCoast downstream assets before the deal is approved.

ExxonMobil’s third quarter report was “obviously pleasing tous,” said Chairman Lee R. Raymond in a conference call. Thecompany’s revenue jumped to $58.85 billion compared with $48.98billion a year ago.

Understating the obvious, Raymond said that the company’s thirdquarter earnings “improved substantially from the same period ayear ago and were a third consecutive quarterly record.” Raymondsaid the upstream and downstream businesses both “significantlyexceeded the same period” in 1999. As in the second quarter of thisyear, Raymond attributed the company’s profits to improvementoutside of the United States, and from higher commodity prices.

“These prices, which are the raw material costs for ourdownstream and chemical businesses, increased at a faster pace thanprices 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, althoughnot as much because of product prices that were unable to keep upwith rising crude costs, he said.

“While downstream earnings improved versus the depressed levelsof last year, they were lower than downstream results achieved inthe third quarters of 1997 and 1998,” said Raymond.

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