press release

Chevron Reports First Quarter 1998 Net Income Of $500 Million

  • Average U.S. crude oil realizations declined by 37 percent from the 1997 quarter.
  • Average U.S. natural gas realizations fell by 25 percent.
  • Foreign currency losses of $46 million adversely impacted earnings for the 1998 period.
  • Operational expenses continued to decline, averaging $5.52 per barrel for the quarter, a decrease of 7 percent from the 1997 first quarter.

SAN FRANCISCO, April 23, 1998 -- Chevron Corp. today reported first quarter net income of $500 million ($.77 per share), a decrease of 40 percent from 1997 first quarter net income of $831 million ($1.27 per share). Excluding special items, first quarter operating earnings were $436 million (including a $46 million foreign currency loss), compared with 1997 first quarter operating earnings of $804 million.

Net income for 1998 benefited $64 million from net special items, compared with net benefits of $27 million in last years first quarter. In the 1998 first quarter, favorable prior-year tax adjustments were partially offset by deferred tax effects from an exchange of international exploration and production properties and net environmental remediation provisions in the companys U.S. refining, marketing and transportation operations.

Chairman and CEO Ken Derr commented, "Unfortunately, first quarter 1998 earnings were affected adversely by several major factors -- significantly lower crude oil prices, lower natural gas prices, foreign currency losses and major scheduled maintenance at two of our main U.S. refineries. Weve estimated that these refinery turnarounds adversely impacted earnings by roughly $75 million."

"Chevrons worldwide exploration and production earnings suffered appreciably from the decline in crude oil and natural gas prices since last years first quarter. These lower prices were the primary driver for the decline in earnings," commented Derr. "Our average U.S. crude oil realization per barrel in the first quarter 1998 fell 37 percent to $12.49 compared with $19.86 in the 1997 first quarter, while our average U.S. natural gas realization declined 25 percent to $2.09 per MCF in 1998, compared with $2.77 per MCF in 1997."

"On the positive side, our international liquids production continues to grow. During the first quarter 1998 net international liquids production was up 2 percent from the first quarter of last year to 746,000 barrels per day. As we celebrate this month the 5-year anniversary of the Chevron-operated Tengizchevroil (TCO) joint venture in Kazakhstan, our liquids production from TCOs Tengiz field averaged a record level of 183,000 barrels per day for the first quarter 1998."

Derr added, "Our U.S. refining, marketing and transportation first quarter operating results also declined compared with last year, reflecting narrower sales margins. Despite lower feedstock costs, sales margins were squeezed by lower refined product prices resulting from an abundance of supply. Our international downstream earnings increased compared with the first quarter 1997, mainly in our Caltex and international shipping operations.

"The company continues to focus on costs, which is particularly important during this period of low crude oil prices," continued Derr. "Ongoing operating expenses declined to $5.52 per barrel, down 41 cents from the year-ago quarter and about 3 percent from the full year 1997, helping to mitigate the effect of declining prices on our operations."

"Crude oil prices have remained soft into the second quarter despite the agreement by oil producing countries to cut production," said Derr. "Although were monitoring this crude oil market closely, we havent made any substantive changes to our capital spending plans and expect to move forward with our attractive investment opportunities to grow the company."

"In spite of the low crude prices in the first quarter 1998, "Derr continued, "weve been very active in all areas of our business."

Some of the operational highlights since the beginning of 1998 were:

  • The company announced the discovery of the Viosca Knoll Carbonate Trend in the Gulf of Mexico offshore Mississippi. The exploratory drilling has discovered the first offshore U.S. Gulf natural gas reserves to originate from Lower Cretaceous pay sands. This carbonate trend is contiguous to and lies south of the giant Chevron-operated Norphlet natural gas trend and other offshore production, possibly permitting the tie-in of production from the new trend into existing infrastructure.
  • Chevron signed two new exploration concessions in Qatar and Bahrain.
  • The company announced two crude oil discoveries in the Haute Mer permit area offshore Congo, suspected to be on-trend with Chevrons two 1997 giant discoveries in Block 14 offshore Angola in the Cabinda Concession.
  • Initial liquids production began from 4 new fields -- the Opolo and Gbokoda fields of Nigeria, and the Gobe and Moran fields of Papua New Guinea.
  • Chevron and Sasol, a South African fuels and petrochemicals company, will pool resources to begin the design and engineering of a 20,000 barrel per day gas-to-liquids plant adjacent to Chevrons Escravos Gas Project facilities in Nigeria. Processed gas from the Escravos Gas Project will feed the proposed gas-to-liquids plant for the conversion of natural gas to synthetic crude oil, which will be processed further into petroleum products.
  • The company will build a new pipeline section and reconstruct an existing section of pipeline across the Republic of Georgia to provide a transportation outlet to the Georgian Black Sea port of Batumi for crude oil from the Tengiz field in Kazakhstan.
  • Chevron and Texaco will establish a joint venture of their global marine and industrial fuels and marine lubricant businesses, operating in over 100 countries worldwide.

Total revenues for the quarter were $7.7 billion, a decrease of 31 percent from $11.1 billion in last years first quarter. Average sales realizations from refined products, crude oil, and natural gas have declined in the first quarter 1998 compared with the same quarter 1997. Nearly 25 percent of the decrease in revenues is attributable to the companys exit from the U. K refining and marketing business in the fourth quarter 1997.

Foreign currency effects reduced net income by $46 million and $18 million in the first quarters of 1998 and 1997, respectively. The adverse change primarily reflects higher foreign currency losses from the companys and Caltexs operations in Australia, Thailand and the Philippines.

Exploration and Production

U.S. exploration and production net earnings were $106 million, down from $361 million in the 1997 first quarter. There were no special items in the first quarter 1998; however, 1997 results included gains of $49 million from the sales of two producing properties offset by charges of $6 million for environmental remediation provisions. Excluding the effects of special items, operating earnings declined by 67 percent from the 1997 operating earnings of $318 million.

The companys average 1998 U.S. crude oil and natural gas realizations declined by 37 percent and 25 percent, respectively, compared with the first quarter 1997. Average U.S. crude oil realizations of $12.49 per barrel were down $7.37 from the 1997 first quarter. Average U.S. natural gas realizations of $2.09 per thousand cubic feet were 68 cents lower than in the first quarter of last year.

Net U.S. liquids production decreased to 336,000 barrels per day from 347,000 barrels per day in the prior-year first quarter. Net U.S. natural gas production of 1.8 billion cubic feet per day declined from 1.9 billion cubic feet per day compared with the 1997 first quarter. The declines in the production of liquids and natural gas were primarily attributable to property sales and 1998 weather-related shut-ins of liquids production in California.

International exploration and production net earnings were $99 million, down from $347 million in the 1997 first quarter. Net earnings for the 1998 quarter included a loss of $56 million from deferred tax effects of a swap of certain U.K. North Sea producing properties for properties in the Norwegian North Sea. Excluding the effect of this special item, 1998 operating earnings of $155 million decreased by $192 million compared with last years quarter. The decline in operating earnings reflected lower crude oil prices, offset partially by higher liftings when compared with the year-ago quarter.

Net international liquids production increased 17,000 barrels per day to 746,000 barrels per day, mostly due to increased production in Canada, Indonesia and West Africa areas. These increases were partially offset by declines in the United Kingdom and Papua New Guinea. Natural gas production increased 4 percent to 644 million cubic feet per day, reflecting higher production in Indonesia and Nigeria that was partially offset by production declines in Canada and Kazakhstan.

Foreign currency losses in the first quarter 1998 were $15 million compared with gains of $5 million in the 1997 quarter, primarily in the companys Australian and U.K. operations.

Refining, Marketing and Transportation

U.S. refining, marketing and transportation 1998 net earnings were $45 million compared with $70 million in the first quarter 1997. Operating earnings were $50 million, a decline of 36 percent from the $78 million reported in last years first quarter, after excluding special charges of $5 million and $8 million from the 1998 and 1997 results, respectively.

U.S. refined product sales margins decreased in the 1998 first quarter, as the deterioration in sales realizations outpaced the decline in feedstock costs. Unfavorable effects of refinery downtime for scheduled maintenance were comparable in the 1998 and 1997 periods.

Total refined product sales volumes were 1.13 million barrels per day, down 3 percent from the comparable quarter last year. While most refined products sales volumes decreased, gasoline sales increased 2 percent to 599,000 barrels per day, and jet fuel sales also rose by about 3 percent.

International refining, marketing and transportation net earnings were $101 million, up from $56 million reported for the first quarter of 1997. In the Caltex areas of operations, refined product sales margins improved as crude oil prices declined. The companys international shipping results improved as freight rates rose.

Sales volumes declined by 11 percent in the first quarter of 1998, primarily the effect of the companys exit from the U.K. refining and marketing business in the fourth quarter of 1997. For the remaining operations, increased sales volumes for Caltex more than offset sales volume declines by the companys other international downstream businesses.

Foreign currency losses in the first quarter 1998 were $31 million compared with losses of $29 million in 1997.

Chemicals

Chemicals net earnings were $63 million in the 1998 quarter, the same earned in last years first quarter. Higher sales volumes and improved sales margins for additives were offset primarily by lower earnings from equity affiliates, a result of the sale of the companys interest in a U.K. affiliate in the fourth quarter of 1997.

Coal and Other Minerals

Coal and other minerals net earnings declined by $4 million in the first quarter 1998 to $11 million. Higher operating expenses at one of the companys mines offset higher overall sales of coal and additional earnings from equity affiliates.

Corporate and Other

Corporate and other provided net earnings of $75 million in the first quarter 1998, compared with net charges of $81 million in the comparable prior-year quarter. After excluding a favorable prior-year tax adjustment of $125 million in 1998 and a special charge of $8 million for environmental remediation in 1997, net charges declined to $50 million in 1998 from $73 million in 1997. The decline in net charges was due primarily to recoveries of certain prior-year claims and lower costs of variable components of employee compensation plans.

Capital and Exploratory Expenditures

Capital and exploratory expenditures, including the companys share of affiliates expenditures, were $972 million in the 1998 first quarter, compared with $941 million in the first quarter 1997. Expenditures for international exploration and production projects were $422 million, or 43 percent of total expenditures, reflecting the companys continued emphasis on increasing international oil and gas production.

CHEVRON CORPORATION - FINANCIAL REVIEW
(MILLIONS OF DOLLARS)

CONSOLIDATED STATEMENT OF INCOME
(unaudited)

Three Months

REVENUES: 1998

1997

Sales and Other Operating Revenues (1) $7,464 $10,794
Equity in Net Income of Affiliated Companies 151 178
Other Income 38

121


7,653

11,093

COSTS AND OTHER DEDUCTIONS:
Purchased Crude Oil and Products 3,635 5,710
Operating Expenses 1,206 1,375
Selling and Administrative Expenses 253 345
Exploration Expenses 101 81
Depreciation, Depletion and Amortization 554 546
Taxes Other Than on Income (1) 1,011 1,495
Interest and Debt Expense 94

82


6,854

9,634

Income Before Income Tax Expense 799 1,459
Income Tax Expense 299

628

NET INCOME $ 500

$ 831


PER SHARE AMOUNTS
EARNINGS - Basic $ .77 $ 1.27
EARNINGS - Diluted $ .76 $ 1.27
DIVIDENDS $ .61 $ .54

Average Common Shares Outstanding (000's) 653,678 653,323

EARNINGS BY MAJOR OPERATING AREA
(unaudited)

First Quarter


1998

1997

Exploration and Production
United States $ 106 $ 361
International 99

347

  Total Exploration and Production 205

708

Refining, Marketing and Transportation
United States 45 70
International 101

56

  Total Refining, Marketing and Transportation 146

126

  Total Petroleum Operations 351 834
Chemicals 63 63
Coal 11 15
Corporate and Other (2) 75

(81)

NET INCOME $500

$831


(1) Includes consumer excise taxes $852 $1,314
(2) "Corporate and Other" includes interest expense, interest income on cash and marketable securities, corporate center costs, and real estate and insurance activities.


SPECIAL ITEMS BY MAJOR OPERATING AREA
(unaudited)

First Quarter


1998

1997

U. S. Exploration and Production $ - $ 43
International Exploration and Production (56) -
U. S. Refining, Marketing and Transportation (5) (8)
Corporate and Other * 125

(8)

Total Special Items $ 64

$ 27



SUMMARY OF SPECIAL ITEMS
(unaudited)

First Quarter


1998

1997

Asset Sales $(56) $ 49
Environmental Remediation Provisions (5) (14)
Prior-Year Tax Adjustments 125 -
Other, Net -

(8)

Total Special Items $ 64

$ 27


FOREIGN CURRENCY LOSSES $(46) $(18)

EARNINGS BY MAJOR OPERATING AREA
EXCLUDING SPECIAL ITEMS
(unaudited)

First Quarter


1998

1997

Exploration and Production
United States $ 106 $ 318
International 155

347

Total Exploration and Production 261

665

Refining, Marketing and Transportation
United States 50 78
International 101

56

Total Refining, Marketing and Transportation 151

134

Total Petroleum Operations 412 799
Chemicals 63 63
Coal 11 15
Corporate and Other * (50)

(73)

Earnings Excluding Special Items 436 804

Special Items 64

27

Net Income $500

$831


* "Corporate and Other" includes interest expense, interest income on cash and marketable securities, corporate center costs, and real estate and insurance activities.


CONSOLIDATED BALANCE SHEET
(unaudited)

March 31,
1998


December 31,
1997


ASSETS:
Cash and Cash Equivalents $1,265 $1,015
Other Current Assets 5,799

5,991

   Total Current Assets 7,064 7,006
Investments and Advances 4,618 4,496
Properties, Plant and Equipment-Net 22,813 22,671
Other 1,355

1,300

   TOTAL ASSETS $35,850

$35,473

LIABILITIES:
Short-Term Debt $2,707 $1,637
Other Current Liabilities 4,523

5,309

   Total Current Liabilities 7,230 6,946
Long-Term Debt and Capital Lease Obligations 4,362 4,431
Deferred Income Taxes 3,390 3,215
Reserves For Employee Benefit Plans 1,685 1,664
Deferred Credits and Other Noncurrent Obligations 1,706

1,745

   TOTAL LIABILITIES 18,373 18,001
STOCKHOLDERS' EQUITY 17,477

17,472

   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $35,850

$35,473



CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)

Three Months


1998

1997

OPERATING ACTIVITIES
Net Income $ 500 831
Adjustments
 Depreciation, depletion and amortization 554 546
 Dry hole expense related to prior years' expenditures 22 13
 Distributions less than equity in affiliates' income (99) (88)
 Net before-tax losses (gains) on asset retirements and sales 8 (67)
 Net currency translation losses (gains) 16 (7)
 Net increase in operating working capital (760) (315)
 Deferred income tax provision 165 168
 Other (86)

(51)

       Net cash provided by operating activities 320

1,030

INVESTING ACTIVITIES
Capital expenditures (730) (712)
Proceeds from asset sales 12 58
Net sales of marketable securities 153

328

       Net cash used for investing activities (565)

(326)

FINANCING ACTIVITIES
Net borrowings (payments) of short-term obligations 1,059 304
Proceeds from issuance of long-term debt 9 5
Repayments of long-term debt and other financing obligations (7) (156)
Cash dividends paid (399) (353)
Purchases of treasury shares (164)

(2)

       Net cash used for financing activities 498

(202)


EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS (3)

(9)


NET CHANGE IN CASH AND CASH EQUIVALENTS 250 493
CASH AND CASH EQUIVALENTS AT JANUARY 1, 1998 AND 1997 1,015

892

CASH AND CASH EQUIVALENTS AT MARCH 31, 1998 AND 1997 $1,265

$1,385


CAPITAL AND EXPLORATORY EXPENDITURES (1)
(millions of dollars)

First Quarter


1998

1997

United States
   Exploration and Production $ 274 $ 298
   Refining, Marketing and Transportation 100 63
   Chemicals 42 92
   Other 36

30

     Total United States 452

483


International
   Exploration and Production 422 339
   Refining, Marketing and Transportation 72 91
   Chemicals 22 26
   Other 4

2

     Total International 520

458

     Worldwide $ 972

$ 941


OPERATING STATISTICS (1)
NET LIQUIDS PRODUCTION (MB/D):
   United States 336 347
   International 746

729

     Worldwide 1,082

1,076


NET NATURAL GAS PRODUCTION (MMCF/D):
   United States 1,808 1,927
   International 644

617

     Worldwide 2,452

2,544


SALES OF NATURAL GAS (MMCF/D):
   United States 3,497 3,767 (2)
   International 1,329

786

(2)
     Worldwide 4,826

4,553


SALES OF NATURAL GAS LIQUIDS (MB/D):
   United States 141 143 (2)
   International 56

53

(2)
     Worldwide 197

196


SALES OF REFINED PRODUCTS (MB/D):
   United States 1,133 1,170
   International 809

912

     Worldwide 1,942

2,082


REFINERY INPUT (MB/D):
   United States 757 846
   International 491

573

     Worldwide 1,248

1,419


CHEMICALS SALES & OTHER OPERATING
REVENUES (millions of dollars) (3)
   United States $ 681 $ 752
   International 145

134

     Worldwide $ 826

$ 886


(1) Includes interest in affiliates.
(2) Restated to conform with 1998 presentation
(3) Includes sales to other Chevron companies.

Updated: April 1998