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Cheaper Oil to Hurt Chevron's Fourth Quarter

The Associated Press

HOUSTON -- Chevron(CVX) said the huge drop in crude prices at the end of 2008 will be a big blow to its fourth-quarter earnings, a sharp reversal from the favorable market conditions that fueled record profits earlier in the year.

After peaking above $147 a barrel in July, oil prices spent the remainder of 2008 falling dramatically. When the fourth quarter began Oct. 1, crude was trading at around $100 a barrel. Three months later, on Dec. 31, it settled at $44.60, a decline of nearly 60%.

During the first two months of the fourth quarter, Chevron said its crude oil price averaged $61.70 per barrel, a 45% drop from the $112.22 a barrel it realized for the entire third quarter.

Natural gas prices for the first two months of the fourth quarter also were far lower, averaging $4.98 for 1,000 cubic feet, compared with $8.64 during the third quarter.

The San Ramon, Calif.-based oil giant provided the guidance in an overview of market conditions for the October-December period.

Chevron, the second-largest U.S. oil company, said fourth-quarter earnings at its exploration and production, or upstream, arm are expected to benefit by about $625 million from an asset-exchange transaction. It also expects to incur one-time charges related to last year's hurricanes, though lower than similar charges in the third quarter.

Chevron also noted that margins for refined products such as gasoline declined markedly from the third quarter to the fourth.

With prices swinging downward, Chevron and its rivals simply haven't been making as much money as they did during the spring and summer.

Chevron recorded a third-quarter profit of $7.89 billion -- the most for any three-month period in its 129-year corporate history.

Exxon Mobil(XOM), the world's largest publicly traded oil company, reported income of $14.83 billion for the same period, shattering its own record for the biggest profit from operations by a U.S. corporation.

Although Chevron didn't provide any specific earnings projections for the fourth quarter, Wall Street is expecting its results to be the poorest of 2008. Chevron is scheduled to report fourth-quarter and full-year earnings Jan. 30.

The average earnings estimate among analysts surveyed by Thomson Reuters is $1.78 a share, well off the $3.85 a share Chevron posted in the third quarter and the $2.32 a share it reported in the fourth quarter of 2007.

Shares of Chevron closed up 28 cents on Thursday to close at $74.24.