By
David Lee Smith
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August 4, 2008
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OK, Fools, say it with me: "(Blank) increased its income in the quarter, based on higher crude prices that gave a real boost to upstream income, which was offset somewhat by lower refinery margins." Now let's go back, and instead of "blank," we'll insert Chevron (NYSE: CVX ) .
That's pretty much the way it is. As with other members of the Big Oil contingent -- such as ExxonMobil (NYSE: XOM ) , ConocoPhillips (NYSE: COP ) , BP (NYSE: BP ) , and Royal Dutch Shell (NYSE: RDS-A ) -- Chevron earned $6.0 billion, or $2.90 a share, which was up from $5.4 billion, or $2.52 a share, a year ago. But notice that the jump wasn't quite as steep as that turned in by the others.
Here's why: While all the majors have reported squeezed downstream results, Chevron managed to go from earnings of $1.3 billion in the sector to a loss of $734 million. Most of that loss came from U.S. operations and resulted from a combination of those reduced margins we've talked so much about and downtime at some refineries. All this resulted in the somewhat strange circumstance of upstream earnings exceeding total net income.
And then there was the seemingly obligatory production decline. In Chevron's case, output fell slightly from a year ago, but the company was quick to point out that, if higher prices hadn't lowered recoverable volumes under some international production sharing and royalty contracts, overall volumes would have "increased slightly."
As some Fools know by now, my feeling is that it's time to give the majors a rest. Indeed, I think we're all much better off with service stocks, such as Schlumberger (NYSE: SLB ) and its peers, or with the likes independent giant Chesapeake (NYSE: CHK ) , which is getting crushed today. Stocks of that ilk excuse us from the majors' upstream-downstream dance.
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