Chevron Reports Second Quarter 1999 Net Income Of $350 Million
CHEVRON REPORTS SECOND QUARTER 1999 NET INCOME OF $350 MILLION; EARNINGS WERE $484 MILLION BEFORE SPECIAL ITEMS
- Exploration and production operational earnings up strongly relative to second quarter
- Average crude oil prices rose 20 percent
- Net international liquids production increased 4 percent to 796,000 barrels per day
- Refining, marketing and transportation results off sharply
- Refinery problems persist in California
- International operations hurt by continued weakness in the Asian economies
- Special charge of $146 million recorded for the previously announced staff reductions and other restructuring costs
SAN FRANCISCO, July 23, 1999 -- Chevron Corp. today announced second quarter 1999 net income of $350 million ($0.53 per share - diluted), a decrease of 39 percent from net income of $577 million ($0.88 per share - diluted) for the 1998 second quarter.
After adjustment for special items in both periods, earnings showed a decline of 22 percent. Earnings were $484 million ($0.73 per share - diluted) in the second quarter 1999, after excluding net charges for special items of $134 million. Special items for the quarter included a charge of $146 million for previously announced staff reductions and other restructuring costs. Earnings impacts from other special items in the quarter were largely offsetting. Adjusting for net special charges of $43 million in the 1998 second quarter, earnings were $620 million ($0.94 per share - diluted).
Net income for the first six months of 1999 was $679 million ($1.03 per share - diluted), down 37 percent from $1.084 billion ($1.65 per share - diluted) for the first half of 1998. Net income for the 1999 six-month period included net charges of $86 million for special items, while the 1998 first half included net benefits of $28 million.
Second quarter 1999 net income included foreign currency losses of $32 million, compared with gains of $96 million in the year-ago quarter. Changes between periods occurred primarily in Caltex's operations and in Chevron's Australian and Canadian businesses. For the six-month periods, foreign currency losses were $41 million in 1999, compared with gains of $50 million in the 1998 first half.
"The long-awaited recovery in crude oil prices gave our exploration and production operations a boost in the second quarter," Chairman and CEO Ken Derr said. "The average spot price for West Texas Intermediate, a benchmark crude oil, was $17.66 per barrel for the quarter -- the highest level since the fourth quarter of 1997 and 20 percent higher than last year's second quarter. Unfortunately, operational problems at our California refineries prevented us from realizing the benefits of a strengthened refined products market on the West Coast. We have estimated that these refinery upsets reduced second quarter earnings by about $100 million. Likewise, earnings from our international refining, marketing and transportation businesses declined sharply, as Caltex operations in the Far East continued to suffer from weak refined product margins."
Commenting on continued efforts to reduce costs, Derr said, "So far this year, our operating expenses, excluding special items, have averaged $5.12 per barrel, down about 6 percent from comparable operations in the 1998 first half. Operating expense reductions through the first half of this year totaled about $100 million. Excluding the costs associated with our growth components -- international exploration and production and international chemicals -- we're about $200 million below last year. This represents tremendous progress toward achieving our 1999 goal to reduce the company's cost structure by $500 million. We expect the cost savings to gain momentum in the second half of the year, as the effects of our restructurings and reorganizations take hold."
Derr noted other business highlights since the end of the first quarter, which included the following:
- Production of natural gas and condensate began from the subsea system at the Gemini project, located in about 3,400 feet of water in the Gulf of Mexico, about 90 miles southeast of New Orleans. Chevron holds a 40 percent interest in the project, which is expected to produce at peak rates of 150-200 million cubic feet per day of natural gas and 2,000-3,000 barrels of condensate per day by the end of 1999.
- A significant natural gas discovery was made 16 miles northwest of Fort Liard, Northwest Territories, Canada. Based on the well-test data, expected production of raw gas may reach 70-100 million cubic feet per day. Plans are being developed for the construction of production and transportation facilities and additional wells to permit first production by May 2000.
- Total liquids production from the Tengiz Field in Kazakhstan averaged 211,000 barrels per day during the first half of 1999, up 20 percent compared with last year's first half, and reached a new monthly record of 221,000 barrels per day in June 1999.
- Site preparation is under way at the Caspian Pipeline Consortium's (CPC) marine terminal at the Russian port of Novorossiysk. When completed in 2001, the 900-mile CPC crude oil pipeline will provide a vital crude oil transportation link from the Tengiz Field in western Kazakhstan to the Black Sea. The pipeline is a key transportation element in the goal to expand crude oil production from the Tengiz Field to 700,000 barrels per day by 2010.
- Chevron and Sasol Ltd., a South African operator of gas-to-liquid (GTL) processing facilities, signed an agreement to create a global joint venture to utilize GTL technology that converts natural gas into synthetic crude oil for further processing into commercial products. The global joint venture will participate in the operation of the previously announced wholly owned Chevron GTL facility in Nigeria, which is expected to come on-stream in 2003.
- Dynegy Inc., 28 percent owned by Chevron, announced an agreement to merge with Illinova Corp., an energy services holding company in Illinois. Chevron intends to invest an additional $200-$240 million to maintain a comparable percentage stake in the combined company. The merger, which will accelerate Dynegy's growth in the power generation and marketing business, is expected to be completed by the end of the first quarter 2000.
Total revenues for the quarter were $8.7 billion, an increase of 9 percent from $8.0 billion in last year's second quarter. Higher realizations for refined products and crude oil sales primarily drove the improvement. For the six-month period, total revenues were $15.4 billion, about the same as the first half of 1998.
Exploration and Production
U.S. exploration and production net income for the 1999 second quarter was $98 million, up from $85 million in the 1998 second quarter. Earnings for the 1999 quarter were $153 million after excluding special charges of $55 million for staff reductions, other restructuring costs, a regulatory issue and environmental remediation. There were no special items in the second quarter 1998.
The company's average 1999 second quarter U.S. crude oil realizations of $14.29 per barrel increased by $2.94, or 26 percent, over the second quarter 1998. Average second quarter U.S. natural gas realizations of $2.06 per thousand cubic feet were about flat with last year's quarter.
Net liquids production decreased to 312,000 barrels per day from 337,000 barrels per day in the prior-year second quarter. Natural gas production of 1.6 billion cubic feet per day declined from 1.8 billion cubic feet per day in the year-ago period. The drop-off in both oil and gas production was primarily attributable to normal field declines and property sales. New natural gas production of 18 million cubic feet per day from the Genesis and Gemini projects in the Gulf of Mexico was included in the 1999 second quarter results.
Earnings for the 1999 second quarter also benefited from lower exploration and operating expenses.
International exploration and production net income for the second quarter 1999 was $221 million, up from $211 million in the prior year's quarter. Net income for the 1999 second quarter included no net effect from special items, as charges for staff reductions and other restructuring costs were completely offset by a gain from the sale of Canadian seismic data. Earnings for the 1998 second quarter, excluding special benefits of $21 million, were $190 million. The increase in earnings reflected higher crude oil prices and increased crude oil liftings compared with the year-ago quarter.
Net international liquids production of 796,000 barrels per day for the second quarter 1999 increased 32,000 barrels per day compared with last year's quarter, primarily due to new or increased production in Angola, Kazakhstan and offshore eastern Canada. These increases were partially offset by lower net liquids production in Australia, Indonesia, Nigeria and the Republic of Congo. Lower production from these areas was partly the result of field maintenance activities and OPEC-related curtailments. Net natural gas production increased about 50 percent to 837 million cubic feet per day, reflecting production from the Britannia Field in the U.K. North Sea -- which began production in August 1998 -- and higher production in western Canada.
Net income in the 1999 second quarter included foreign currency losses of $12 million, compared with gains of $38 million in the second quarter 1998. Effects in both periods were primarily in the company's Australian and Canadian operations.
Refining, Marketing and Transportation
U.S. refining, marketing and transportation net income was $109 million, compared with $225 million in the second quarter 1998. Net special gains of $11 million were recorded in the second quarter 1999, while a special charge of $8 million was recorded in the 1998 quarter. In the 1999 quarter, a gain from the sale of the company's interest in a pipeline affiliate was partially offset by charges for environmental remediation, staff reductions and other restructuring costs.
Refined products sales realizations increased over last year's quarter, primarily reflecting stronger West Coast prices. However, due to operating problems at Chevron's California refineries, these improved market conditions did not translate into higher earnings for the company. Consequently, second quarter 1999 earnings suffered by roughly $100 million, mainly the result of substituting higher priced third-party gasoline purchases for the company's own production to meet marketplace demand. The purchase of third-party products continues into the third quarter, as Chevron's gasoline production capability at the Richmond, Calif., refinery remains restricted while repairs are under way.
Total refined product sales volumes were 1.37 million barrels per day in the second quarter 1999, up 5 percent from the comparable quarter last year. Chevron-branded motor gasoline sales improved by 4 percent over last year's quarter to 553,000 barrels per day.
International refining, marketing and transportation net income was $61 million, down from $116 million reported for the second quarter of 1998. Earnings in the 1999 quarter were $31 million after excluding net benefits from special items of $30 million. These net benefits were comprised of favorable Korean tax adjustments that were partially offset by restructuring charges attributable to both Caltex and Chevron operations. There were no special items in the second quarter 1998. Foreign currency losses in the second quarter 1999 were $21 million, compared with gains of $59 million in the 1998 quarter. Net income for the 1999 quarter also included a favorable inventory adjustment of $34 million for Caltex's operations.
The underlying decline in earnings occurred primarily in Caltex's Korean operations, where sales margins have fallen as a result of rising crude oil prices and competitive price discounting.
Total international refined products sales volumes of 911,000 barrels per day increased by nearly 15 percent in the second quarter of 1999, reflecting higher Caltex trading sales volumes.
Chemicals recorded a net loss of $40 million in the 1999 quarter, compared with net earnings of $47 million in last year's second quarter. Earnings for the second quarter of 1999 were $51 million after excluding special charges of $91 million for asset write-downs, environmental remediation, staff reductions and other restructuring costs. Net income for the 1998 quarter included no special charges.
Operating earnings for the quarter remained depressed because of prolonged unfavorable market conditions for commodity chemicals and additives for lubricants and fuels.
All Other incurred net charges of $99 million in the second quarter 1999, compared with net charges of $107 million in the prior-year quarter. Results for the second quarter 1999 included special charges of $29 million for staff reductions and other restructuring costs, while the second quarter 1998 included net special charges of $56 million. Excluding special items, net charges of $70 million were $19 million higher in the 1999 quarter.
Earnings from the company's coal operations for the 1999 quarter, which included a charge for the planned disposition of the company's remaining coal assets, fell by $5 million. The company's exit from the coal business will be substantially complete by the end of the third quarter 1999.
Other net charges increased by $14 million compared with last year's second quarter, reflecting higher interest expense on higher debt levels
Capital and Exploratory Expenditures
Capital and exploratory expenditures, including the company's share of affiliates' expenditures, were $1.184 billion in the 1999 second quarter, down 12 percent compared with $1.351 billion in the second quarter 1998. Expenditures for the first half of 1999 were $2.609 billion, including approximately $500 million in the first quarter for the acquisition of a 52 percent interest in Block B8/32 offshore Thailand. This represents an increase of 12 percent over expenditures of $2.323 billion in the first half of 1998.
CHEVRON CORPORATION - FINANCIAL REVIEW (Millions of Dollars Except Per-Share Amounts) CONSOLIDATED STATEMENT OF INCOME (unaudited) Three Months Six Months Ended June 30, Ended June 30, REVENUES: 1999 1998 1999 1998(d) Sales and Other Operating Revenues(a) $8,473 $7,754 $14,872 $15,218 Income from Equity Affiliates 133 155 277 281 Other Income 135 60 281 98 Total Revenues 8,741 7,969 15,430 15,597 COSTS AND OTHER DEDUCTIONS: Purchased Crude Oil and Products 4,286 3,549 7,067 7,184 Operating Expenses 1,444 1,355 2,604 2,561 Selling, General and Administrative Expenses 449 276 846 529 Exploration Expenses 96 134 184 235 Depreciation, Depletion and Amortization 633 557 1,199 1,111 Taxes Other Than on Income(a) 1,143 1,140 2,221 2,151 Interest and Debt Expense 113 99 218 193 Total Costs and Other Deductions 8,164 7,110 14,339 13,964 Income Before Income Tax Expense 577 859 1,091 1,633 Income Tax Expense 227 282 412 549 NET INCOME $350 $ 577 $679 $1,084 PER-SHARE AMOUNTS Earnings - Basic(b) $.54 $.88 $1.04 $1.66 Earnings - Diluted(b) $.53 $.88 $1.03 $1.65 Dividends $.61 $.61 $1.22 $1.22 Average Common Shares Outstanding (000's) - Basic 656,910 655,459 655,800 655,167 - Diluted 660,033 657,762 658,770 657,503 NET INCOME BY MAJOR OPERATING AREA Three Months Six Months (unaudited) Ended June 30, Ended June 30, 1999 1998 1999 1998(d) Exploration and Production United States $98 $85 $145 $191 International 221 211 337 344 Total Exploration and Production 319 296 482 535 Refining, Marketing and Transportation United States 109 225 191 270 International 61 116 148 192 Total Refining, Marketing and Transportation 170 341 339 462 Chemicals (40) 47 10 110 All Other(c) (99) (107) (152) (23) NET INCOME $350 $ 577 $679 $1,084 (a) Includes consumer excise taxes $ 986 $988 $1,898 $ 1,840 (b) Current quarter earnings per share calculated by subtracting prior quarter year-to-date from year-to-date. (c) Includes coal operations, interest expense, interest income on cash and marketable securities, corporate center costs, and real estate and insurance activities. (d) Restated for accounting changes effective January 1, 1998, the net effect of which was immaterial.
CHEVRON CORPORATION - FINANCIAL REVIEW (MILLIONS OF DOLLARS) Three Months Six Months SPECIAL ITEMS BY MAJOR OPERATING AREA Ended June 30, Ended June 30, (unaudited) 1999 1998 1999 1998(a) U. S. Exploration and Production $(55) $-- $(52) $ -- International Exploration and Production -- 21 -- (3) U. S. Refining, Marketing and Transportation 11 (8) (4) (13) International Refining, Marketing and Transportation 30 -- 30 (25) Chemicals (91) -- (91) -- All Other (b) (29) (56) 31 69 Total Special Items $ (134) $(43) $(86) $28 Three Months Six Months SUMMARY OF SPECIAL ITEMS Ended June 30, Ended June 30, (unaudited) 1999 1998 1999 1998(a) Asset Dispositions $92 $-- $152 $(56) Asset Write-offs and Revaluations (43) (68) (43) (68) Environmental Remediation Provisions (74) (8) (86) (13) Prior-Year Tax Adjustments 60 33 60 190 Restructurings and Reorganizations (146) -- (146) -- Other, Net (23) -- (23) (25) Total Special Items $ (134) $(43) $(86) $28 FOREIGN EXCHANGE (LOSSES) GAINS $(32) $96 $(41) $50 EARNINGS BY MAJOR OPERATING AREA EXCLUDING SPECIAL ITEMS Three Months Six Months (unaudited) Ended June 30, Ended June 30, 1999 1998 1999 1998(a) Exploration and Production United States $153 $85 $197 $191 International 221 190 337 347 Total Exploration and Production 374 275 534 538 Refining, Marketing and Transportation United States 98 233 195 283 International 31 116 118 217 Total Refining, Marketing and Transportation 129 349 313 500 Chemicals 51 47 101 110 All Other(b) (70) (51) (183) (92) Earnings Excluding Special Items 484 620 765 1,056 Special Items (134) (43) (86) 28 Net Income $350 $577 $679 $ 1,084 (a) Restated for accounting changes effective January 1, 1998, the net effect of which was immaterial. (b) Includes coal operations, interest expense, interest income on cash and marketable securities, corporate center costs, and real estate and insurance activities.
CHEVRON CORPORATION - FINANCIAL REVIEW (MILLIONS OF DOLLARS) CONSOLIDATED BALANCE SHEET June 30, December 31, 1999 1998 ASSETS: (unaudited) Cash and Cash Equivalents $752 $569 Other Current Assets 6,405 5,728 Total Current Assets 7,157 6,297 Investments and Advances 4,916 4,604 Properties, Plant and Equipment-Net 24,430 23,729 Other 1,899 1,910 TOTAL ASSETS $38,402 $36,540 LIABILITIES: Short-Term Debt $3,801 $ 3,165 Other Current Liabilities 5,546 4,001 Total Current Liabilities 9,347 7,166 Long-Term Debt and Capital Lease Obligations 4,319 4,393 Noncurrent Deferred Income Taxes 4,080 3,645 Reserves For Employee Benefit Plans 1,775 1,742 Deferred Credits and Other Noncurrent Obligations 1,735 2,560 TOTAL LIABILITIES 21,256 19,506 STOCKHOLDERS' EQUITY 17,146 17,034 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $38,402 $36,540 CONSOLIDATED STATEMENT OF CASH FLOWS Six Months Ended June 30, (unaudited) 1999 1998 OPERATING ACTIVITIES Net Income $679 $1,084 Adjustments Depreciation, depletion and amortization 1,199 1,111 Dry hole expense related to prior years' expenditures 24 33 Distributions less than equity in affiliates' income (164) (152) Net before-tax (gains) losses on asset retirements and sales (250) 105 Net currency translation losses (gains) 28 (23) Net decrease (increase) in operating working capital 1,254 (826) Deferred income tax provision (58) 231 Other (722) (101) Net cash provided by operating activities 1,990 1,462 INVESTING ACTIVITIES Capital expenditures (1,641) (1,705) Proceeds from asset sales 361 94 Other investing cash flows, net 54 (126) Net (purchases) sales of marketable securities (121) 130 Net cash used for investing activities (1,347) (1,607) FINANCING ACTIVITIES Net borrowings of short-term obligations 631 1,421 Proceeds from issuance of long-term debt 48 118 Repayments of long-term debt and other financing obligations (433) (284) Cash dividends paid (800) (798) Net Sales (Purchases) of treasury shares 95 (139) Net cash used for financing activities (459) 318 EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS (1) (3) NET CHANGE IN CASH AND CASH EQUIVALENTS 183 170 CASH AND CASH EQUIVALENTS AT JANUARY 1, 1999 AND 1998 569 1,015 CASH AND CASH EQUIVALENTS AT JUNE 30, 1999 AND 1998 $752 $1,185
CHEVRON CORPORATION - FINANCIAL REVIEW (MILLIONS OF DOLLARS) Three Months Six Months CAPITAL AND EXPLORATORY EXPENDITURES(A) Ended June 30, Ended June 30, (millions of dollars) 1999 1998 1999 1998 United States Exploration and Production $321 $374 $574 $648 Refining, Marketing and Transportation 97 156 210 256 Chemicals 72 94 173 136 Other 17 82 37 118 Total United States 507 706 994 1,158 International Exploration and Production 558 468 1,418 890 Refining, Marketing and Transportation 89 80 142 152 Chemicals 30 85 55 107 Other -- 12 -- 16 Total International 677 645 1,615 1,165 Worldwide $1,184 $1,351 $2,609 $2,323 OPERATING STATISTICS (A) NET LIQUIDS PRODUCTION (MB/D): United States 312 337 309 336 International 796 764 803 756 Worldwide 1,108 1,101 1,112 1,092 NET NATURAL GAS PRODUCTION (MMCF/D): United States 1,638 1,786 1,657 1,796 International 837 559 835 602 Worldwide 2,475 2,345 2,492 2,398 SALES OF NATURAL GAS (MMCF/D): United States 3,265 3,336 3,312 3,416 International 1,679 1,398 1,793 1,363 Worldwide 4,944 4,734 5,105 4,779 SALES OF NATURAL GAS LIQUIDS (MB/D): United States 109 127 128 134 International 51 60 51 58 Worldwide 160 187 179 192 SALES OF REFINED PRODUCTS (MB/D): United States 1,368 1,307 1,278 1,220 International 911 791 900 800 Worldwide 2,279 2,098 2,178 2,020 REFINERY INPUT (MB/D): United States 969 996 946 877 International 475 478 485 485 Worldwide 1,444 1,474 1,431 1,362 CHEMICALS SALES & OTHER OPERATING REVENUES (millions of dollars) (B) United States $720 $659 $1,347 $1,340 International 191 140 368 285 Worldwide $911 $799 $1,715 $1,625 (A) Includes interest in affiliates (B) Includes sales to other Chevron companies.
Updated: July 1999