Chevron Leads Profit Gusher

News of soaring oil prices -- and quarterly profits -- continues to flow from the energy sector.

On Friday, ChevronTexaco ( CVX) became the latest in a string of supermajors to report gushing profits as a result of record-high energy prices. The company posted second-quarter operating profits of $3.09 a share -- up from $1.52 last year -- that blew past the consensus estimate of $2.72. Including special items, the company's quarterly earnings more than doubled to $4.1 billion or $3.88 a share.

ChevronTexaco celebrated its "back-to-back record quarterly earnings" as the price of oil broke Wednesday's 21-year high with a new record of $43.34 a barrel on Friday.

"I am very pleased with our performance in the second quarter both operationally and strategically," CEO Dave O'Reilly stated. "This performance has significantly improved our company's financial strength, and we are in an excellent position to continue creating value for our stockholders."

In the latest quarter, ChevronTexaco's revenue surged 26% due to strong results across all of the company's major business lines. Upstream earnings more than doubled, approaching $3 billion in the quarter, as the company capitalized on high energy prices. Downstream earnings were also "markedly higher," the company said, because of strong demand for refined products. Even profits in the company's smaller chemical division rocketed past year-ago levels.

To be sure, high energy prices helped ChevronTexaco's overall results. During the latest quarter, the company saw crude jump 30% above last year's average price. Natural gas liquids climbed an even higher 35%. And the price of natural gas itself increased 9%.

Thus, ChevronTexaco was able to significantly boost sales and profits even as its production declined by 4%, due, in part, to asset sales. Shareholders are already enjoying the fruits of that success.

"Our financial strength and positive outlook for earnings and cash flows were among the primary drivers for the 10% increase in our quarterly common stock dividend announced earlier this week," O'Reilly reminded on Friday.

For the second quarter ended June 30, the San Ramon, Calif., energy giant posted a continuing operations profit of $4.08 billion, or $3.84 a share. That's up from the year-ago continuing operations profit of $1.58 billion, or $1.48 a share.

The latest quarter included a gain of $585 million, or 55 cents a share, on the sale of upstream assets in western Canada, and a one-time benefit of $255 million, or 24 cents a share, associated with changes in income tax laws for certain international operations.

Revenue surged to $38.3 billion from $29.3 billion a year earlier.

Shares of ChevronTexaco inched 3 cents higher in midday action to $95.51.

Meanwhile, oil prices set another record on fears of a major supply disruption. The market remains jittery about Russian oil giant Yukos, which could find itself unable to operate because of a freeze on its assets. The company currently produces 20% of Russia's oil but has seen its financial health -- and its very future -- threatened by a multibillion-dollar tax bill. Russian officials earlier this week actually threatened to halt much of the company's production but have since backed off a bit.

Still, Russia isn't the only area of concern. Oil production in war-torn Iraq remains a constant risk. Meanwhile, OPEC is already pumping more oil than it has in decades and, some fear, may be unable to compensate for any major disruption in worldwide supplies.

But higher oil prices mean higher profits for companies such as ChevronTexaco. Earlier this week, Exxon Mobil ( XOM) -- ChevronTexaco's largest peer -- also posted record quarterly earnings. Prudential analyst Michael Mayer considers Exxon Mobil "the gold standard" among the supermajors. But even he stops short of recommending the stock because of the risk that oil prices will eventually fall -- as they always have in the past -- and drag the big energy stocks down with them.

"During past oil price declines," he explained, "the majors fell about 60% of the time and underperformed the market about 90% of the time."

For now, however, energy companies -- especially the big producers -- continue to enjoy the ride. On Friday, Anadarko ( APC) became the latest production company to report a jump in both revenue and earnings. There, second-quarter revenue climbed 15% to $1.44 billion -- topping the consensus estimate of $1.36 billion -- while quarterly profits surged 35% to match Wall Street expectations of $1.59 a share. The company readily acknowledged that its "good second-quarter results ... were helped by strong commodity prices."

Anadarko's stock inched up 49 cents to $59.64 following Friday's update.

Meanwhile, fellow producer Cabot ( COG) fell slightly, dropping 10 cents to $43.30, even though it beat the consensus profit estimate by a penny. The company posted second-quarter profits of 59 cents a share instead of the 58 cents Wall Street was expecting. Even so, the company's 8% profit growth looked somewhat modest in the current environment. Moreover, the company reported lower production levels even though it pledged to ramp up production in the second half of the year.

In the meantime, Cabot is hedging more of its production in an effort to capitalize on high energy prices.

"While we don't expect any significant decline in commodity prices," CEO Dan Dinges explained, "we thought it was prudent to protect another layer of production at these levels."

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