Chevron 2Q Profit Hits Record High

SAN RAMON, Calif. -- Chevron Corp. said Friday its second-quarter earnings soared to a new high, but that wasn't enough to satisfy investors whose expectations have been raised by the oil industry's recent run of eye-popping profit.

The San Ramon-based company earned $4.35 billion, or $1.97 per share, for the three months ended in June. That represented an 18 percent increase from net income of $3.68 billion, or $1.76 per share, at the same time last year.

It marks the largest three-month profit in Chevron's 127-year history, eclipsing earnings of $4.14 billion registered in last year's final quarter after energy prices spiked in the aftermath of hurricanes Katrina and Rita.

Revenue for the period was $53.5 billion, an 11 percent increase from $48.3 billion last year.

As mammoth as it might appear to motorists weary of $3-per-gallon gas prices, Chevron's profit let down Wall Street. The average earnings estimate among analysts surveyed by Thomson Financial had been $2.21 per share.

"It was still like they were printing money. They just weren't printing as much as everybody thought," said industry analyst Fadel Gheit of Oppenheimer & Co.

The company's shares fell $1.68, or 2.5 percent, to close at $66.05 on the New York Stock Exchange. Chevron's market value has climbed by about $20 billion, or 16 percent so far this year.

Chevron would have come closer to hitting analysts' target if not for a $300 million charge that decreased its earnings by 13 cents per share. The reduction stemmed from the company's uninsured costs for equipment and oil wells ravaged in by last year's hurricanes.

The costs of abandoning other projects shaved another 11 cents per share from Chevron's results, spokesman Don Campbell said. What's more, some oil produced in the second quarter wasn't delivered before July, pushing another 11 cents per share of potential earnings into the third quarter, Campbell said.

Citigroup analyst Doug Leggate thought Chevron's second-quarter performance was better than the bottom line made it appear. If not for certain accounting items, Leggate estimated Chevron would have earned $2.13 per share. In a research note, Leggate concluded Chevron didn't take advantage of higher gasoline pumps as much as Wall Street had anticipated.

The Chevron division that refines and sells gasoline in the United States made $554 million during the second quarter, a 39 percent increase from last year.

Chevron's total profit was the smallest among the world's other major oil companies _ a pecking order that underscores the industry's tremendous moneymaking prowess now that energy prices appear likely to remain at heights that seemed far-fetched as the 21st century began.

Earlier this week, Exxon Mobil Corp., BP PLC, ConocoPhillips and Royal Dutch Shell PLC reported second-quarter profits ranging between $5.18 billion and $10.36 billion.

Combined with Chevron, the companies earned $34.6 billion in the second quarter, 36 percent more than the same period last year. Through the first half of the year, the five companies earned $62.8 billion, putting them 20 percent ahead of their record-setting pace last year.

In July, oil prices have climbed even higher, peaking at $78.40 per barrel. Unless conditions shift dramatically, the third quarter probably will be even more prosperous for the oil companies than the second quarter, Gheit said.

As the profit rises, the political pressure to impose a windfall profit on the industry seems likely to mount with Congressional elections just a few months away.

"There is no question that there is anger and resentment among voters," said Tyson Slocum, who oversees energy issues for Public Citizen, a consumer watchdog group. "It's going to become a variable in the November elections."

The U.S. Senate grilled Chevron Chairman David O'Reilly and his peers last year without taking action against the industry.

In their defense, the executives have repeatedly pointed out that they don't set the price for crude oil, although their bonuses have climbed as their companies reap the benefits of the energy crunch.

In the past year, the industry has been boosting its investment in the search for more oil _ a quest that could help bring down prices by increasing the supply. Chevron, for instance, poured $7.36 billion into its capital and exploratory budget during the first half of the year, a 76 percent increase from last year.

Finally, the oil industry believes its huge sales volume exaggerates how much money it's are making relative to more lucrative fields like technology, which rarely faces political heat for its financial success.

The world's five largest oil companies earned $9.73 for every $100 in second-quarter sales _ a healthy margin that looks puny next to online search engine leader, Google Inc., which made $29.36 on every $100 of second-quarter revenue.

Unlike oil companies, Google doesn't charge consumers for its products. It makes virtually of its money from advertising.

Although they may be upset with current gas prices, motorists don't seem inclined to change their driving habits. Earlier this week, the U.S. Energy Department said nation's gasoline demand this summer was running 2 percent higher than last year.