Chevron Takes Hit in 2009 After Worldwide Decline in Demand

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Researched by Industrial Info Resources (Sugar Land, Texas)--Oil and gas titan Chevron Corporation (NYSE:CVX) (San Ramon, California) reported lower earnings for fourth-quarter and full year 2009, as a weak global economy resulted in lower prices, weak demand and excess supply worldwide, in particular a decline in refined product sales margins. Net income was $3.07 billion for the fourth quarter, a 37.3% drop year-over-year, and $10.48 billion for the full year, a 56.2% decrease from 2008.

Total revenues for 2009 were $153.11 billion, a 33.4% drop from 2008. However, matters improved in the fourth quarter, when revenues reached $48.68 billion, a 7.68% improvement year-over-year. This is reflected in Chevron's upstream business, where full-year earnings were $10.43 billion, a 52% drop from 2008, but reached $4 billion in the fourth quarter, a 30% improvement year-over-year. Upstream business includes exploration and production.

Chevron's chemicals sector saw dramatic improvement, reaching $409 million for the full year, a 124.73% improvement from 2008, and $98 million for the fourth quarter, a 250% improvement year-over-year.

However, the downstream business, which includes refining, marketing and transportation, saw dramatic declines. Full-year earnings were $565 million, an 83.5% drop from 2008. The fourth quarter actually saw a loss of $613 million, compared to earnings of $2.08 billion in the same period last year.

A segment consisting of all other businesses, including mining operations, power generation, worldwide cash management and debt financing, insurance, real estate, alternative fuels, and technology, saw losses of $922 million for the full year, a 33.7% improvement from losses in 2008, and $418 million in the fourth quarter, a 14.5% drop from losses in the same period last year.

John Watson, the chairman and chief executive officer of Chevron, said low margins on gasoline sales and other refined products negatively affected the company's downstream business. In the U.S., weak demand for jet fuels and gas oils proved problematic. New projects in the U.S. and Nigeria drove gains in Chevron's upstream business. High margins on the sales of lubricant and fuel additives, as well as lower utility and manufacturing costs, helped the chemicals sector.

Capital and exploratory expenditures for all sectors in Chevron slightly declined. Costs were $22.24 billion for the year, a 2.36% drop from 2008, and $6.23 billion for the quarter, an 11% decline year-over-year.

Watson said that aggressive cost-management efforts resulted in declines in operating, selling, general and administrative expenses of 10% year-over-year for the quarter, and 15% for the full-year.

In a conference call, Watson said Chevron's 2010 plans are to continue worldwide developments in its upstream business and target excess in its downstream business. "We're certainly not satisfied with our downstream results in 2009," Watson said. "We are shifting to a simpler and less costly organization to improve returns and remain competitive in this environment."

Industrial Info is tracking more than 60 new and active Chevron projects in the U.S. that are worth more than $2.7 billion, including the $500 million addition of a continuous catalytic reformer unit at the refinery in Pascagoula, Mississippi. For more information, visit Industrial Info's North American Industrial Database.

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