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Chevron Surges Past Estimates

Strength in oil refining offsets lower exploration-and-production profits.

Updated from 9:35 a.m. EDT


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reported that its first-quarter earnings jumped 18% over the same period of 2006, mostly because of higher profits in its refining business.

The company had $4.7 billion in net income during the quarter, or $2.18 a share. The company earned $4 billion, or $1.80 a share, during the same quarter one year ago.

Results for the first three months of the year included a $700 million gain, or 32 cents a share, from the sale of Chevron's minority interest in a refinery in the Netherlands. Excluding that item, Chevron's adjusted profit of $1.86 handedly beat out analysts' $1.67 consensus estimate.

Total revenue slipped to $48.23 billion from $54.62 billion, which Chevron attributed in part to an accounting rule change. At the same time, the company was hit by a decline in crude and natural gas prices.

Shares of Chevron slipped 14 cents, or 0.2%, to $78.04 following the report.

Chevron's global downstream refining and marketing businesses made $923 million in profits in the first quarter of 2007, not counting earnings from the refinery sale. This was a 58% gain over the $580 million made a year ago.

The firm reported that its sales of branded gasoline in the U.S. jumped 5% since the fourth quarter of 2006, which caught some analysts by surprise, because the near-term contract for reformulated gasoline traded in New York has risen 27% since the start of the year.

The increase in gasoline sales was due to the expansion of Chevron's Texaco brand in the Southeast and West Coast of the U.S., according to CFO Steve Crowe, who spoke on a conference call. "This has been a very favorable development from our perspective. We don't see anything to suggest that it will not continue," he said.

Chevron's refining business puts a strong emphasis on reliability, according to Crowe. He warned that the company's program for upgrading its refineries will be particularly busy in 2007, which will likely impact crude oil utilization rates.

The overall reliability of Chevron's refineries has already been vastly improved, according to Irene Melitas, manager of investor relations for Chevron. The number of refinery outages during the last six months was 40% lower than the previous six-month period, she said.

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On the upstream side, Chevron earned $2.9 billion last quarter, 16% less than it made a year ago. The company attributed the decline to "lower prices for crude oil and natural gas and higher operating expenses," according to a press release Friday.

However, Chevron won't be adjusting its exploration activities because of the recent low commodity prices. "We see exploration activity to be on par with last year," Crowe said. "

Our drilling success rate has been industry-leading at 45%."

Chevron's capital expenditures were $4.05 billion last quarter, up 29% from $3.04 billion a year ago. However, its first-quarter capex was down from $4.15 billion in the fourth quarter of 2006. The sequential decline doesn't represent a future trend, Crowe assured analysts and investors. Chevron's "spending tends to be back-end loaded to the second half of the year."

Chevron is making steady progress with various large projects around the globe, including new LNG facilities in Western Australia, Nigeria and Angola. The Aussie plant is expected to be operational after 2010, and will likely go online in 2011. The African projects are still being engineered and will come later.

The company repurchased $1.25 billion in stock and paid out 52 cents a share in dividends during the quarter. The firm announced earlier this week that it will increase its dividend payout to 58 cents a share starting this quarter.

Chevron's earnings release followed announcements by

Exxon Mobil

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earlier this week. Those reports also showed strong results from refining being offset by decreases in profits from oil and gas production.