press release

Chevron Reports Second Quarter 1998 Net Income Of $577 Million

  • Lower crude oil prices were the primary cause for a 30 percent drop in net income compared with the 1997 second quarter.
  • Average quarterly U.S. crude oil realizations fell below $12 per barrel, a decline of 33 percent from the 1997 quarter.
  • Operating expenses per barrel continued to decline, falling 6 percent from the 1997 second quarter.

SAN FRANCISCO, July 23, 1998 -- Chevron Corp. today announced second quarter net income of $577 million ($.88 per share), a decrease of 30 percent from the net income of $823 million ($1.25 per share) for the 1997 second quarter. Excluding special items, second quarter operating earnings were $620 million, compared with 1997 second quarter operating earnings of $837 million.

In the 1998 second quarter, net charges for special items represented costs associated with outsourcing the companys U.S. mainframe computer and telecommunications operations, the write-off of certain desktop computer equipment, and a provision for environmental remediation at a U.S. refinery, which were partially offset by favorable prior-year tax adjustments.

Net income for the first six months of 1998 was $1.077 billion ($1.64 per share), down from $1.654 billion ($2.52 per share) for the first half of 1997. Net income for the 1998 and 1997 year-to-date periods included net benefits of $21 million and $13 million from special items, respectively.

Chairman and CEO Ken Derr commented, The collapse in crude oil prices, which began late last year, has seriously eroded our worldwide exploration and production earnings. In June of this year crude oil prices fell to their lowest levels since 1986. Our second quarter average U.S. crude oil realizations were about $5.50 per barrel lower than last years quarter, a drop of 33 percent. For the first half of 1998, these prices were almost $6.50 per barrel lower than the same period last year.

The current quarter did have a brighter side for our downstream activities, Derr said. Our U.S. refining, marketing and transportation operating results improved on higher margins and 6 percent higher Chevron-branded motor gasoline sales volumes than last years quarter. International downstream earnings also increased, as foreign currency gains helped mitigate the impact of deteriorating Asian market conditions for our Caltex affiliate.

Derr noted that the operating results from the companys chemicals business were down in the second quarter 1998 compared with the same quarter of 1997, as lower prices and sales volumes for major petrochemical products more than offset lower feedstock costs and operating expenses.

Derr stressed that the company continues to keep a tight rein on operating expense, which is critically important during this period of low crude oil prices. For the first six months of 1998, our operating expenses were $5.32 per barrel, down about 6 percent from comparable operations in the 1997 first half, helping to soften the effect of declining commodity and product prices, Derr said.

Aside from the drivers of the companys earnings during the quarter, some of the other business highlights during the second quarter included the following:

  • In Angola, the company began production from the Lomba field, located in the Block O concession, offshore Cabinda.
  • Also in Angola, the company announced a third significant discovery, Benguela, in the Chevron-operated Block 14 offshore concession. To date, Chevron has been successful in its Block 14 exploration program, with three major discoveries -- Kuito, Landana and Benguela. Development of Kuito, the first major discovery, which has been characterized as a giant field with recoverable reserves greater than 500 million barrels of oil, is currently moving forward.
  • In Nigeria, production began from the Dibi oil field, the third field brought into production this year in the western Niger Delta area.
  • In Venezuela, Chevron accepted the transfer of responsibility for operations and development of the LL-652 oil field on behalf of an international consortium.
  • Offshore eastern Canada, crude oil production returned to about 60,000 barrels per day at the Hibernia oil project after the completion of a program that began last winter to boost reservoir pressure.
  • In the United States, Chevron Products Co. signed an agreement to purchase Amoco Corporations lubricant business. This acquisition is a key step in positioning Chevron as a leading marketer of heavy duty and industrial oils in North America and significantly strengthens the companys position in the industrial heartland of the United States.
  • Caltex, Chevrons 50-percent owned equity affiliate, announced a major restructuring in response to increased competition in its markets and the economic impact of the Asian economic crisis. The restructuring includes the realignment of global responsibilities from a geographic focus to a primarily functional focus, the elimination of about 170 positions and the redeployment of personnel. When fully implemented, direct savings from the restructuring are expected to be in excess of $50 million annually.

Total revenues for the quarter were $8.0 billion, a decrease of 22 percent from $10.3 billion in last years second quarter. For the six-month period, total revenues were $15.6 billion, down 27 percent from $21.4 billion in the first half of 1997. Except for U.S. natural gas in the second quarter, average sales realizations from refined products, crude oil, and natural gas have declined in 1998 compared with the same periods of 1997. Additionally, about one third of the quarterly decline in revenues, and one fourth of the decline year-to-date, were attributable to the companys exit from the U.K. refining and marketing business in the fourth quarter 1997.

Foreign currency gains of $96 million and $23 million were included in the second quarter net income for 1998 and 1997, respectively. Net income for the first half of 1998 and 1997 included foreign currency gains of $50 million and $5 million, respectively. The foreign exchange effects occurred in many of Caltexs countries of operations, and in Chevrons Australian and Canadian businesses.

Exploration and Production

U.S. exploration and production net earnings for the 1998 second quarter were $85 million, down from $182 million in the 1997 second quarter. There were no special items in the second quarter 1998; however, 1997 earnings included special charges of $11 million. Excluding the effects of special items, quarterly operating earnings declined by 56 percent from the 1997 earnings of $193 million.

The companys average 1998 second quarter U.S. crude oil realizations of $11.35 per barrel declined by $5.51, or 33 percent, compared with the second quarter 1997. Average second quarter U.S. natural gas realizations of $2.08 per thousand cubic feet were 13 cents higher than in the second quarter of last year.

Net U.S. liquids production in the second quarter decreased slightly to 337,000 barrels per day from 340,000 barrels per day in the prior-year second quarter. Net second quarter 1998 U.S. natural gas production of 1.8 billion cubic feet per day declined from 1.9 billion cubic feet per day for the 1997 second quarter. The declines in U.S. production of liquids and natural gas were primarily attributable to property sales.

International exploration and production net earnings for the second quarter 1998 were $211 million, down from $357 million in the 1997 second quarter. Net earnings for the 1998 quarter included benefits of $21 million from prior-year income tax adjustments; the 1997 quarter included net benefits of $59 million from special items. Excluding the effect of the special items, quarterly operating earnings of $190 million were $108 million lower than last years quarter. The decline in operating earnings reflected lower crude oil prices combined with lower liftings when compared with the year-ago quarter.

Net international liquids production for the second quarter 1998 of 764,000 barrels per day increased 30,000 barrels per day compared with last years quarter, primarily due to new or increased production in Canada, Indonesia and West Africa areas. These increases were partially offset by lower net liquids production in the United Kingdom due to field declines and property dispositions. Net natural gas production for the 1998 quarter increased 3 percent to 559 million cubic feet per day, reflecting higher production in Indonesia, Australia and Nigeria, partially offset by lower production in Canada due to normal field declines.

Foreign currency gains, primarily in the companys Australian, Canadian and U.K. operations, in the second quarter 1998 were $38 million compared with gains of $12 million in the 1997 quarter.

Refining, Marketing and Transportation

U.S. refining, marketing and transportation 1998 second quarter net earnings were $225 million compared with $182 million in the second quarter 1997. Operating earnings were $233 million, an increase of 7 percent from the $217 million reported in last years second quarter, after excluding special charges of $8 million and $35 million from the 1998 and 1997 results, respectively. The improvement in earnings primarily resulted from stronger margins and higher Chevron-branded motor gasoline sales volumes.

Total refined product sales volumes were 1.31 million barrels per day in the second quarter 1998, up 10 percent from the comparable quarter last year. Chevron-branded motor gasoline sales improved by 6 percent over last years quarter, while other refined products sales volumes increased by 12 percent.

International refining, marketing and transportation net earnings were $115 million, up from $92 million reported for the second quarter of 1997. In the Caltex areas of operations, foreign currency gains offset declines in sales margins in most of the Asian markets. The regions economic problems have resulted in reduced refined products demand, primarily in Korea and Thailand where Caltex operates, combined with oversupply conditions. A larger portion of sales by Asian marketers is occurring in the highly competitive export market, where lower prices are reducing sales margins.

Total refined products sales volumes declined by 10 percent in the second quarter of 1998, primarily the effect of the companys exit from the U.K. refining and marketing business in the fourth quarter of 1997.

Foreign currency gains in the second quarter 1998 were $59 million, compared with gains of $13 million in 1997.

Chemicals

Chemicals net earnings were $47 million in the 1998 quarter, compared with net earnings of $77 million in last years second quarter. Net income for the second quarter of 1997 included a charge of $9 million from special items. The decrease in operating earnings was the result of declines in prices and sales volumes for the companys major chemical products, reflecting excess industry capacity and the effects of the Asian economic crisis. Also contributing to the decline were lower earnings from equity affiliates, due to 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 increased by $3 million in the second quarter 1998 to $9 million. Net income for the 1997 quarter included a special item charge of $2 million.

Corporate and Other

Corporate and other incurred net charges of $115 million in the second quarter 1998, compared with net charges of $73 million in the comparable prior-year quarter. The second quarter 1998 included net special charges of $56 million. Costs of outsourcing the companys mainframe computer and telecommunications operations and the write-off of certain desktop computer equipment were partially offset by favorable prior-year income tax adjustments. The 1997 quarter included net charges of $13 million from special items. Excluding the effects of special items, net corporate and other charges were essentially flat.

Capital and Exploratory Expenditures

Capital and exploratory expenditures, including the companys share of affiliates expenditures, were $1.351 billion in the 1998 second quarter, compared with $1.304 billion in the second quarter 1997. Expenditures for the first half of 1998 were $2.323 billion, an increase of 3 percent over expenditures of $2.245 billion in the first half of 1997.


CHEVRON CORPORATION - FINANCIAL REVIEW
(MILLIONS OF DOLLARS)

CONSOLIDATED STATEMENT OF INCOME
(unaudited)


Second Quarter

Six Months
Ended June 30,

REVENUES: 1998

1997

1998

1997

Sales and Other Operating Revenues (1) $ 7,754 $ 9,947 $ 15,218 $ 20,741
Income from Equity Affiliates 155 193 306 371
Other Income 60

134

98

255


7,969

10,274

15,622

21,367

COSTS AND OTHER DEDUCTIONS:
Purchased Crude Oil and Products 3,549 4,887 7,184 10,597
Operating Expenses 1,355 1,247 2,561 2,622
Selling and Administrative Expenses 276 391 529 736
Exploration Expenses 134 98 235 179
Depreciation, Depletion and Amortization 557 549 1,111 1,095
Taxes Other Than on Income (1) 1,140 1,630 2,151 3,125
Interest and Debt Expense 99

76

193

158


7,110

8,878

13,964

18,512

Income Before Income Tax Expense 859 1,396 1,658 2,855
Income Tax Expense 282

573

581

1,201

NET INCOME $ 577

$ 823

$ 1,077

$ 1,654

PER-SHARE AMOUNTS
Earnings - Basic (2) $ .88 $ 1.26 $ 1.65 $ 2.53
Earnings - Diluted (2) $ .88 $ 1.25 $ 1.64 $ 2.52
Dividends $ .61 $ .58 $ 1.22 $ 1.12
Average Common Shares Outstanding (000's)
- Basic
655,167 654,819
- Diluted
657,503 656,424

EARNINGS BY MAJOR OPERATING AREA


Second Quarter

Six Months
Ended June 30,


1998

1997

1998

1997

Exploration and Production
United States $ 85 $ 182 $ 191 $ 543
International 211

357

310

704

Total Exploration and Production 296

539

501

1,247

Refining, Marketing and Transportation
United States 225 182 270 252
International 115

92

216

148

Total Refining, Marketing and Transportation 340

274

486

400

Total Petroleum Operations 636 813 987 1,647
Chemicals 47 77 110 140
Coal and Other Minerals 9 6 20 21
Corporate and Other (3) (115)

(73)

(40)

(154)

NET INCOME $ 577

$ 823

$ 1,077

$ 1,654


(1) Includes consumer excise taxes $ 988 $ 1,447 $ 1,840 $ 2,761
(2) Current quarter earnings per share calculated by subtracting prior quarter year-to-date from year-to-date.
(3) "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)


Second Quarter

Six Months
Ended June 30,


1998

1997

1998

1997

U. S. Exploration and Production $ - $ (11) $ - $ 32
International Exploration and Production 21 59 (35) 59
U. S. Refining, Marketing and Transportation (8) (35) (13) (43)
International Refining, Marketing and Transportation - (3) - (3)
Chemicals - (9) - (9)
Coal and Other Minerals - (2) - (2)
Corporate and Other * (56)

(13)

69

(21)

Total Special Items $ (43)

$ (14)

$ 21

$ 13


SUMMARY OF SPECIAL ITEMS
(unaudited)


Second Quarter

Six Months
Ended June 30,


1998

1997

1998

1997

Asset Dispositions $ - $ 50 $ (56) $ 99
Asset Write-offs and Revaluations (68) - (68) -
Environmental Remediation Provisions (8) (12) (13) (26)
Prior-Year Tax Adjustments 33 14 158 14
Other, Net -

(66)

-

(74)

Total Special Items $ (43)

$ (14)

$ 21

$ 13

FOREIGN EXCHANGE GAINS $ 96 $ 23 $ 50 $ 5

EARNINGS BY MAJOR OPERATING AREA
EXCLUDING SPECIAL ITEMS



Second Quarter

Six Months
Ended June 30,


1998

1997

1998

1997

Exploration and Production
United States $ 85 $ 193 $ 191 $ 511
International 190

298

345

645

Total Exploration and Production 275

491

536

1,156

Refining, Marketing and Transportation
United States 233 217 283 295
International 115

95

216

151

Total Refining, Marketing and Transportation 348

312

499

446

Total Petroleum Operations 623 803 1,035 1,602
Chemicals 47 86 110 149
Coal and Other Minerals 9 8 20 23
Corporate and Other * (59)

(60)

(109)

(133)

Earnings Excluding Special Items 620 837 1,056 1,641

Special Items (43)

(14)

21

13

Net Income $ 577

$ 823

$ 1,077

$ 1,654


* "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 June 30,
1998


December 31,
1997 (1)


ASSETS: (unaudited)
Cash and Cash Equivalents $ 1,185 $ 1,015
Other Current Assets 5,694

5,991

Total Current Assets 6,879 7,006
Investments and Advances 4,733 4,496
Properties, Plant and Equipment-Net 23,104 22,671
Other 1,460

1,300

TOTAL ASSETS $ 36,176

$ 35,473


LIABILITIES:
Short-Term Debt $ 2,914 $ 1,637
Other Current Liabilities 4,391

5,309

Total Current Liabilities 7,305 6,946
Long-Term Debt and Capital Lease Obligations 4,349 4,431
Deferred Income Taxes 3,460 3,215
Reserves For Employee Benefit Plans 1,698 1,664
Deferred Credits and Other Noncurrent Obligations 1,690

1,745

TOTAL LIABILITIES 18,502 18,001
STOCKHOLDERS' EQUITY 17,674

17,472

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 36,176

$ 35,473


CONSOLIDATED STATEMENT OF CASH FLOWS Six Months Ended June 30,

(unaudited) June 30,
1998


1997

OPERATING ACTIVITIES
Net Income $ 1,077 $ 1,654
Adjustments
Depreciation, depletion and amortization 1,111 1,095
Dry hole expense related to prior years' expenditures 33 18
Distributions less than income from equity affiliates (2) (177) (174)
Net before-tax losses (gains) on asset retirements and sales 105 (187)
Net foreign exchange gains (23) (15)
Net increase in operating working capital (831) (203)
Deferred income tax provision 263 190
Other (2) (222)

(5)

Net cash provided by operating activities 1,336

2,373

INVESTING ACTIVITIES
Capital expenditures (1,705) (1,660)
Proceeds from asset sales 94 298
Net sales of marketable securities 130

306

Net cash used for investing activities (1,481)

(1,056)

FINANCING ACTIVITIES
Net borrowings of short-term obligations 1,421 8
Proceeds from issuance of long-term debt 118 8
Repayments of long-term debt and other financing obligations (284) (202)
Cash dividends paid (798) (732)
Net purchases of treasury shares (139)

(4)

Net cash used for financing activities 318

(922)


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

(7)

NET CHANGE IN CASH AND CASH EQUIVALENTS 170 388
CASH AND CASH EQUIVALENTS AT JANUARY 1, 1998 AND 1997 1,015

892

CASH AND CASH EQUIVALENTS AT JUNE 30, 1998 AND 1997 $ 1,185

$ 1,280


(1) Condensed from the audited 1997 balance sheet
(2) Certain amounts in 1997 have been reclassified to conform with the 1998 presentation


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

Six Months
Ended June 30,


1998

1997

1998

1997

United States
Exploration and Production $ 374 $ 392 $ 648 $ 690
Refining, Marketing and Transportation 156 89 256 152
Chemicals 94 135 136 227
Other 82

23

118

53

Total United States 706

639

1,158

1,122

International
Exploration and Production 468 447 890 786
Refining, Marketing and Transportation 80 178 152 269
Chemicals 85 33 107 58
Other 12

7

16

10

Total International 645

665

1,165

1,123

Worldwide $ 1,351

$ 1,304

$ 2,323

$ 2,245


OPERATING STATISTICS (1)
NET LIQUIDS PRODUCTION (MB/D):
United States 337 340 336 344
International 764

734

756

731

Worldwide 1,101

1,074

1,092

1,075

NET NATURAL GAS PRODUCTION (MMCF/D):
United States 1,786 1,896 1,796 1,911
International 559

543

602

580

Worldwide 2,345

2,439

2,398

2,491

SALES OF NATURAL GAS (MMCF/D): (2)
United States 3,336 3,324 3,416 3,545
International 1,398

1,226

1,363

1,007

Worldwide 4,734

4,550

4,779

4,552

SALES OF NATURAL GAS LIQUIDS (MB/D): (2)
United States 127 100 134 128
International 60

68

58

61

Worldwide 187

168

192

189

SALES OF REFINED PRODUCTS (MB/D):
United States 1,307 1,192 1,220 1,181
International 791

882

800

897

Worldwide 2,098

2,074

2,020

2,078

REFINERY INPUT (MB/D):
United States 996 979 877 913
International 478

588

485

581

Worldwide 1,474

1,567

1,362

1,494

CHEMICALS SALES & OTHER OPERATING REVENUES (millions of dollars) (3)
United States $ 659 $ 798 $ 1,340 $ 1,550
International 140

151

285

285

Worldwide $ 799

$ 949

$ 1,625

$ 1,835


(1) Includes interest in affiliates.
(2) Certain amounts in 1997 have been reclassified to conform with the 1998 presentation.
(3) Includes sales to other Chevron companies.

Updated: July 1998