press release

Chevron Reports Third Quarter 1998 Net Income Of $461 Million

  • Significantly lower crude oil prices were the primary cause for the drop in net income.
  • U.S. crude oil realizations fell to $11.31 per barrel for the quarter, $5.43 below the 1997 quarter.
  • September hurricanes reduced net income by approximately $50 million, including 70,000 barrels per day of lower oil and equivalent gas production.
  • Operating expenses per barrel declined 5 percent compared with last years third quarter.
  • International liquids production increased by about 7 percent to 768,000 barrels per day compared with the third quarter of 1997.

SAN FRANCISCO, Oct. 22, 1998 -- Chevron Corp. today announced third quarter net income of $461 million ($.70 per share), a decrease of 37 percent from net income of $727 million ($1.10 per share) for the 1997 third quarter. Foreign currency losses of $26 million were included in the third quarter net income for 1998, compared with gains of $36 million in the 1997 quarter.

Third quarter 1998 net income included net benefits of $75 million from special items, compared with net charges of $5 million in the 1997 quarter. In the 1998 quarter, the company received proceeds from several insurance settlements related to environmental cost recovery claims and recognized a gain from the sale of a U.S. oil and gas property. These items were offset partially by the companys share of the costs associated with the reorganization of the management and administrative functions of Caltex, its 50 percent-owned equity affiliate, and an environmental remediation provision for certain U.S. chemical facilities.

Net income for the first nine months of 1998 was $1.538 billion ($2.34 per share), down from $2.381 billion ($3.62 per share) for the first nine months of 1997. Net income for the 1998 and 1997 year-to-date periods included net benefits of $96 million and $8 million from special items, respectively. For the first nine months of 1998 and 1997, net income included foreign currency gains of $24 million and $41 million, respectively.

We had disappointing results in the third quarter due primarily to weak crude oil prices and several hurricanes in the Gulf of Mexico that severely impacted operations, Chairman and CEO Ken Derr commented. Earnings continue to suffer from the depressed crude oil prices that have plagued our industry for the past year. The year-to-date average West Texas Intermediate spot price for 1998 is the lowest since 1986. Our third quarter average U.S. crude oil realizations of $11.31 per barrel were $5.43 lower than last years quarter, a drop of 32 percent. For the first nine months of 1998, our U.S. crude oil realizations were about $6 per barrel lower than the same period last year.

The September hurricanes in the U.S. Gulf of Mexico hurt us, Derr said. Four shut-ins of producing operations and the evacuations of personnel during the month curtailed our offshore oil and gas producing activities. Hurricane Georges also hit our refining, chemical and pipeline operations hard at the end of September, with the Pascagoula, Miss., refinery suffering major water damage. Partial operations at the refinery are not expected to resume until late November.

Derr noted that third quarter 1998 earnings were reduced by roughly $50 million from the September storm-related impacts of 70,000 barrels per day of lower oil and equivalent gas production and higher costs, including insurance deductibles. He indicated that the full earnings effect from the storms would not be known until a final determination of losses and the effect of business interruption insurance are made during the fourth quarter.

In todays low crude oil price environment, our focus on lowering costs is key, Derr continued. Operating expenses of $5.21 per barrel in the third quarter represented a decline of 5 percent compared with last year, despite additional expenses attributable to the September storms and the associated curtailments in U.S. crude oil and natural gas production. We are very encouraged to see that our employees continue to find ways to help get us through these tough times by cutting costs and improving operating processes.

In the international refining and marketing sector, he continued, conditions deteriorated in the Asia-Pacific areas of operations due to lower margins associated with the regions economic crisis. Quarterly international downstream earnings, excluding special items, declined by $85 million compared with last years quarter. The 1998 third quarter included foreign currency losses of $26 million, compared with foreign currency gains of $19 million for the 1997 quarter.

Derr said operating results from the companys chemicals business continued to suffer as margins for ethylene and polyethylene declined. Worldwide overcapacity and declines in demand have exerted downward price pressure on the commodity chemicals industry.

Certain significant operating and strategic events occurred during the third quarter, Derr noted:

  • In Angola, the company made a fourth significant discovery, Belize, in the Chevron-operated Block 14 offshore concession. To date, Chevron has been successful in its Block 14-exploration program, with four major discoveries -- Kuito, Landana, Benguela and Belize. Development of Kuito, the first major discovery, is currently moving forward with first production expected by the second half of 1999. Kuito will be Angolas first deep-water, zero-flare field. Gas produced in association with crude oil will be re-injected into the reservoir.
  • In the United Kingdom, production began from the Britannia gas condensate field, located 130 miles northeast of Aberdeen in the North Sea. Britannia, in which Chevron has a 30.2 percent interest, is expected to reach its full daily capacity of 740 million cubic feet of gas and over 50,000 barrels of condensate by year-end 1998.
  • Chevron announced the intent to sell The Pittsburg & Midway Coal Mining Co. (P&M), a subsidiary that owns and operates five coal mines in four states. P&Ms principal customers are electric utilities and industrial concerns in Alabama, Arizona, Idaho, Kentucky, Texas, Wisconsin and Wyoming.

The fourth quarter will be a difficult one, Derr added. Our results will continue to be affected negatively by low crude oil prices and low margins on refined products and chemicals, since we do not foresee any significant near-term improvement in these areas. In addition, storm-related repairs to our Pascagoula refinery, a scheduled shutdown at our Cedar Bayou chemical plant and a start-up of our new additives plant in Singapore will have further negative impacts on the fourth quarter. However, because of the improvements weve made in our cost structure over the past several years, the company is better able to absorb the adverse effects of the low price and low margin environment, as well as the costs of projects under way at some of our manufacturing facilities.

Total revenues for the quarter were $7.7 billion, a decrease of 25 percent from $10.3 billion in last years third quarter. For the nine-month period, total revenues were $23.3 billion, down 26 percent from $31.7 billion in comparable period of 1997. Average sales realizations from refined products, crude oil, and natural gas have declined in 1998 compared with the same periods of 1997. Approximately 25 percent of the quarterly and year-to-date declines in revenues was attributable to the companys exit from the U.K. refining and marketing business in the fourth quarter 1997.

Exploration and Production

U.S. exploration and production earnings for the 1998 third quarter were $102 million, down from $193 million in the 1997 third quarter. Net income for the 1998 third quarter included an $18 million gain from the sale of an oil and gas property in the U.S. Gulf of Mexico. There were no special items for the 1997 quarter. Excluding the effects of special items, quarterly operating earnings declined by 56 percent from the 1997 quarter, due primarily to lower crude oil and natural gas prices.

The companys average 1998 third quarter U.S. crude oil realizations of $11.31 per barrel declined by $5.43, or 32 percent, compared with the third quarter 1997. Average third quarter U.S. natural gas realizations of $1.92 per thousand cubic feet were 28 cents, or 13 percent, lower than in the third quarter of last year.

Net U.S. liquids production in the third quarter decreased about 6 percent to 323,000 barrels per day from 343,000 barrels per day in the prior-year third quarter. Net third quarter 1998 U.S. natural gas production of 1.7 billion cubic feet per day declined from 1.8 billion cubic feet per day for the 1997 third quarter. The declines in U.S. production of liquids and natural gas were primarily attributable to property sales and curtailments resulting from weather-related shutdowns in the Gulf of Mexico in September 1998.

International exploration and production net income for the third quarter 1998 was $160 million, down from $287 million in the 1997 third quarter. The decline in earnings reflected lower crude oil prices compared with the year-ago quarter.

Net international liquids production for the third quarter 1998 of 768,000 barrels per day increased 49,000 barrels per day compared with last years quarter. Increased production in Canada, Indonesia and Kazakhstan was partially offset by lower net liquids production in Nigeria, following government-mandated curtailments. Net natural gas production for the 1998 quarter increased 10 percent to 636 million cubic feet per day, reflecting higher production in the North Sea, as the Britannia field began producing in the third quarter 1998, and in Indonesia, Australia and Nigeria. These increases were partially offset by lower production in western Canada due to normal field declines.

Foreign currency gains, primarily in the companys Australian and Canadian operations, were $8 million in the third quarter 1998, compared with gains of $17 million in the 1997 quarter.

Refining, Marketing and Transportation

U.S. refining, marketing and transportation 1998 third quarter net income was $188 million, almost the same as $193 million earned in the third quarter 1997. Refined products margins declined in the U.S. Gulf Coast and in the Southern California regions. In addition, the 1998 third quarter included after-tax expenses of approximately $13 million, representing insurance deductible costs for damages associated with Hurricane Georges to manufacturing and pipeline facilities.

Total refined product sales volumes were 1.3 million barrels per day in the third quarter 1998, up 6 percent from the comparable quarter last year. Chevron-branded motor gasoline sales improved by 5 percent over last years quarter, while other refined products sales volumes increased by 6 percent.

International refining, marketing and transportation incurred a net loss of $45 million in the third quarter 1998, including a restructuring charge and foreign currency losses, compared with net income of $11 million reported for the year-ago quarter. Net income for the third quarter 1998 included the companys $43 million share of costs associated with the reorganization of its Caltex affiliates management and administrative functions. In the 1997 quarter, net income included a charge of $72 million for the 1997 disposition or closure of certain U.K. marketing and refining assets. The 1998 third quarter included foreign currency losses of $26 million, compared with foreign currency gains of $19 million in the 1997 quarter, primarily in the Caltex areas of operation.

Caltex earnings have suffered from the economic problems of the Asia-Pacific region. While Caltex sales volumes have increased in 1998, the regions overall lower demand for refined products and its excess refining capacity have depressed product margins. Also, a larger portion of sales by Asian marketers continues to take place in the highly competitive export market, where lower prices reduce sales margins.

Total refined products sales volumes increased by 4 percent in the third quarter of 1998, excluding the effect of the companys exit from the U.K. refining and marketing business in the fourth quarter of 1997.

Chemicals

Chemicals net income was $14 million in the 1998 quarter, compared with net earnings of $25 million in last years third quarter. Net income for the third quarters of 1998 and 1997 included charges of $5 million and $9 million, respectively, for environmental remediation reserves. The decrease in operating earnings was the result of declines in prices and margins for the companys major chemical products, reflecting excess industry capacity and the effects of the Asian economic crisis on demand. 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 income increased by $4 million in the third quarter 1998 to $20 million. Stronger sales, improved mining operating conditions and lower repair expenses contributed to the higher earnings.

Corporate and Other

Corporate and other contributed $22 million to net income in the third quarter 1998, compared with $2 million in the comparable prior-year quarter. The third quarter 1998 included net special gains of approximately $100 million, reflecting proceeds from several insurance settlements related to environmental cost recovery claims. The 1997 quarter included a special net gain of $76 million for prior-year income tax adjustments offset partially by a charge for the write-off of certain telecommunications equipment. Excluding the effects of special items, net corporate and other charges were up about $9 million.

Capital and Exploratory Expenditures

Capital and exploratory expenditures, including the companys share of affiliates expenditures, were $1.492 billion in the 1998 third quarter, compared with $1.556 billion in the third quarter 1997. Expenditures for the first nine months of 1998 were $3.815 billion, about the same as expenditures of $3.801 billion in the comparable period of 1997.


Cautionary Statement Relevant to Forward-Looking Information for the Purpose of Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995

Some of the items discussed in this earnings release are forward-looking statements relating to Chevrons operations that are based on managements current expectations, estimates and projections about the petroleum, chemical and other industries, in which the company operates. The statements included in this release are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. These include potential changes in crude oil, natural gas and other commodity prices and potential delays or other changes in work and repairs schedule. Actual results could differ materially from managements estimates.


CHEVRON CORPORATION - FINANCIAL REVIEW
(MILLIONS OF DOLLARS EXCEPT PER-SHARE AMOUNTS)

CONSOLIDATED STATEMENT OF INCOME
(unaudited)

Third Quarter

Nine Months
Ended September 30,


REVENUES:
1998


1997


1998


1997

Sales and Other Operating Revenues (1) $7,561 $10,130 $22,779 $30,871
Income from Equity Affiliates 13 164 319 535
Other Income 104

34

202

289


7,678

10,328

23,300

31,695

COSTS AND OTHER DEDUCTIONS:
Purchased Crude Oil and Products 3,494 5,027 10,678 15,624
Operating Expenses 1,274 1,355 3,835 3,977
Selling and Administrative Expenses 206 301 735 1,037
Exploration Expenses 126 109 361 288
Depreciation, Depletion and Amortization 563 548 1,674 1,643
Taxes Other Than on Income (1) 1,145 1,670 3,296 4,795
Interest and Debt Expense 103

69

296

227


6,911

9,079

20,875

27,591

Income Before Income Tax Expense 767 1,249 2,425 4,104
Income Tax Expense 306

522

887

1,723

NET INCOME $ 461

$ 727

$1,538

$2,381


PER SHARE AMOUNTS
EARNINGS - BASIC (2) $ .70 $1.11 $2.35 $3.64
EARNINGS - DILUTED (2) $ .70 $1.10 $2.34 $3.62
DIVIDENDS $ .61 $ .58 $1.83 $1.70

Average Common Shares Outstanding (000's)
- Basic

655,297 655,651
- Diluted

657,534 657,587

NET INCOME BY MAJOR OPERATING AREA
(unaudited)

Third Quarter

Nine Months
Ended September 30,




1998


1997


1998


1997

Exploration and Production
United States $ 102 $ 193 $ 293 $ 736
International 160

287

470

991

Total Exploration and Production 262

480

763

1,727

Refining, Marketing and Transportation
United States 188 193 458 445
International (45)

11

171

159

Total Refining, Marketing and Transportation 143

204

629

604

Total Petroleum Operations 405 684 1,392 2,331
Chemicals 14 25 124 165
Coal and Other Minerals 20 16 40 37
Corporate and Other (3) 22

2

(18)

(152)

NET INCOME $ 461

$ 727

$1,538

$2,381


(1) Includes consumer excise taxes $ 973 $1,487 $2,813 $4,248
(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)

Third Quarter

Nine Months
Ended September 30,




1998


1997


1998


1997

U. S. Exploration and Production $ 18 $ - $ 18 $ 32
International Exploration and Production - - (35) 59
U. S. Refining, Marketing and Transportation - - (13) (43)
International Refining, Marketing and Transportation (43) (72) (43) (75)
Chemicals (5) (9) (5) (18)
Coal and Other Minerals - - - (2)
Corporate and Other * 105

76

174

55

Total Special Items $ 75

$ (5)

$ 96

$ 8



SUMMARY OF SPECIAL ITEMS
(unaudited)

Third Quarter

Nine Months
Ended September 30,




1998


1997


1998


1997

Asset Dispositions $ 18 $(72) $(38) $ 27
Asset Write-offs & Revaluations - (8) (68) (8)
Environmental Remediation Provisions (5) (9) (18) (35)
Prior-Year Tax Adjustments - 84 158 98
Restructurings & Reorganizations (43) - (43) -
Other, Net 105

-

105

(74)

Total Special Items $ 75

$ (5)

$ 96

$ 8


FOREIGN EXCHANGE GAINS (LOSSES) $ (26) $ 36 $ 24 $ 41

EARNINGS BY MAJOR OPERATING AREA
EXCLUDING SPECIAL ITEMS
(unaudited)

Third Quarter

Nine Months
Ended September 30,




1998


1997


1998


1997

Exploration and Production
United States $ 84 $ 193 $ 275 $ 704
International 160

287

505

932

Total Exploration and Production 244

480

780

1,636

Refining, Marketing and Transportation
United States 188 193 471 488
International (2)

83

214

234

Total Refining, Marketing and Transportation 186

276

685

722

Total Petroleum Operations 430 756 1,465 2,358
Chemicals 19 34 129 183
Coal and Other Minerals 20 16 40 39
Corporate and Other * (83)

(74)

(192)

(207)

Earnings Excluding Special Items 386 732 1,442 2,373

Special Items 75

(5)

96

8

Net Income $ 461

$ 727

$1,538

$2,381


* "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

September 30,
1998


(unaudited)
December 31,
1997(1)


ASSETS:
Cash and Cash Equivalents $1,152 $1,015
Other Current Assets 5,687

5,991

Total Current Assets 6,839 7,006
Investments and Advances 4,612 4,496
Properties, Plant and Equipment-Net 23,515 22,671
Other 1,604

1,300

TOTAL ASSETS $36,570

$35,473

LIABILITIES:
Short-Term Debt $2,867 $1,637
Other Current Liabilities 4,797

5,309

Total Current Liabilities 7,664 6,946
Long-Term Debt and Capital Lease Obligations 4,309 4,431
Deferred Income Taxes 3,605 3,215
Reserves For Employee Benefit Plans 1,718 1,664
Deferred Credits and Other Noncurrent Obligations 1,684

1,745

TOTAL LIABILITIES 18,980 18,001
STOCKHOLDERS' EQUITY 17,590

17,472

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $36,570

$35,473



CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)

Nine Months Ended September 30,



1998


1997

OPERATING ACTIVITIES
Net Income $1,538 $2,381
Adjustments
Depreciation, depletion and amortization $1,674 $1,643
Dry hole expense related to prior years' expenditures 38 25
Distributions less than income from equity affiliates (2) (145) (271)
Net before-tax (gains) losses on asset retirements and sales 54 (178)
Net currency translation gains (23) (23)
Net increase in operating working capital (324) (20)
Deferred income tax provision 409 300
Other(2) (383)

(330)

Net cash provided by operating activities 2,838

3,527

INVESTING ACTIVITIES
Capital expenditures (2,779) (2,669)
Proceeds from asset sales 210 379
Proceeds from repayment of loan 155

-

Net sales of marketable securities 47

181

Net cash used for investing activities (2,367)

(2,109)

FINANCING ACTIVITIES
Net payments of short-term obligations 1,339 (54)
Proceeds from issuance of long-term debt 176 11
Repayments of long-term debt and other financing obligations (353) (377)
Cash dividends paid (1,198) (1,111)
Net (purchases) sales of treasury shares(2) (298)

240

Net cash used for financing activities (334)

(1,291)


EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS -

(28)


NET CHANGE IN CASH AND CASH EQUIVALENTS 137 99
CASH AND CASH EQUIVALENTS AT JANUARY 1, 1998 AND 1997 1,015

892

CASH AND CASH EQUIVALENTS AT September 30, 1998 AND 1997 $1,152

$991

(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)

Third Quarter

Nine Months
Ended September 30,




1998


1997


1998


1997

United States
Exploration and Production $ 336 $ 584 $ 984 $1,274
Refining, Marketing and Transportation 219 102 475 254
Chemicals 134 123 270 350
Other 49

22

167

75

Total United States 738

831

1,896

1,953


International
Exploration and Production 479 499 1,369 1,285
Refining, Marketing and Transportation 74 119 226 388
Chemicals 189 72 296 130
Other 12

35

28

45

Total International 754

725

1,919

1,848

Worldwide $1,492

$1,556

$3,815

$3,801


OPERATING STATISTICS (1)
NET LIQUIDS PRODUCTION (MB/D):
United States 323 343 332 343
International 768

719

759

727

Worldwide 1,091

1,062

1,091

1,070


NET NATURAL GAS PRODUCTION (MMCF/D):
United States 1,703 1,796 1,765 1,872
International 636

580

613

580

Worldwide 2,339

2,376

2,378

2,452


SALES OF NATURAL GAS (MMCF/D):(2)
United States 3,233 2,889 3,354 3,324
International 1,587

1,417

1,439

1,145

Worldwide 4,820

4,306

4,793

4,469


SALES OF NATURAL GAS LIQUIDS (MB/D):(2)
United States 113 134 126 130
International 57

74

58

65

Worldwide 170

208

184

195


SALES OF REFINED PRODUCTS (MB/D):
United States 1,319 1,244 1,254 1,202
International 784

863

794

886

Worldwide 2,103

2,107

2,048

2,088


REFINERY INPUT (MB/D):
United States 1,022 972 926 933
International 455

544

475

568

Worldwide 1,477

1,516

1,401

1,501


CHEMICALS SALES & OTHER OPERATING
REVENUES (millions of dollars) (3)
United States $ 648 $ 753 $ 1,988 $ 2,303
International 150

148

435

433

Worldwide $ 798

$ 901

$2,423

$2,736


(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: October 1998