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Spokane, Washington  Est. May 19, 1883

Chevron loses $1.47 billion as slump in oil prices persists

By George Avalos Tribune News Service

SAN RAMON, Calif. – Battered by a protracted slump in worldwide oil prices, Chevron suffered a second-quarter loss, its third straight quarter of red ink, the company said Friday.

The energy giant lost $1.47 billion during the quarter that ended in June, compared with a profit of $571 million for the year-ago second quarter.

“The second quarter results reflected lower oil prices and our ongoing adjustment to a lower oil price world,” John Watson, Chevron’s chief executive officer, said in a prepared release.

Besides low oil prices, a one-time write-off of certain money-losing operations at Chevron fueled the red ink for the second quarter. The impaired assets in Chevron’s upstream business for exploration, development and production aren’t expected to ever produce enough revenue to cover their costs.

All told, Chevron recorded write-offs and other non-cash charges that totaled $2.8 billion.

Chevron’s weakening pace of oil and gas production has become a front burner concern for analysts.

“There are things beyond Chevron’s control, but one that is controllable is production, and production was a disappointment,” said Pavel Molchanov, an analyst with investment firm Raymond James.

Chevron produced 2.53 million barrels of oil during the second quarter, down 2.7 percent from the 2.6 million barrels the company produced a year ago.

The company hopes that ramped-up energy delivery from big oil and gas fields around the world will boost production levels.

“Our long-anticipated queue of projects is now coming online,” Jay Johnson, executive vice president of upstream, told analysts during a conference call Friday to discuss the results.

Chevron’s Gorgon liquefied natural gas project in Australia, a natural gas project in the Chuandongbei area of southwest China, two major energy fields in Angola, the Alder oil and gas field in the North Sea, and the Bangka natural gas field in Indonesia are the major projects in that production portfolio that are starting energy deliveries this year.

Some Chevron operations, however, brought robust profits to the company’s bottom line.

“Our downstream business continued to perform well,” Watson said, citing the company’s refinery and retail operations that include the giant plant in Richmond, a city north of Oakland.

Chevron in recent years has focused its business on the upstream operations for development and production of oil and gas. But the protracted slump in oil prices has undermined that strategy. Chevron also suffered a start to the Gorgon project that was bedeviled by mechanical and construction mishaps, delaying.

“This type of mega-project tends to have growing pains,” Molchanov said. “That’s not a criticism of Chevron, that’s what you tend to see.”

Chevron realized an average sale price per barrel of crude oil and natural gas liquids of $36 during the second quarter, which was down 28 percent from the $50 price per barrel in the year-ago second quarter.

Chevron’s upstream business of exploration, development and production lost $2.46 billion, while the downstream units of refining and retail earned $1.28 billion.

Chevron’s refinery and retail operations in the United States earned $537 million, but that was down 26.5 percent from a year-ago profit of $731 million.

Investors first were queasy about the results and sent Chevron’s shares lower by 1 percent in the early part of Friday’s trading. But the company’s stock rallied after that and gained 0.7 percent to close at $ 102.48.

San Ramon-based Chevron has slashed its capital spending and instituted far-reaching job cuts to help offset its revenue weakness. Layoffs in Chevron’s worldwide workforce that began in 2015 will run through the end of 2016 and eventually total 8,000 job cuts.

“We are committed to delivering on our spending reductions,” Patricia Yarrington, Chevron’s chief financial officer, told the analysts.