By and large, if you're in the business of pumping, refining, and selling oil, it's generally not going to be a good thing when your production levels and refining margins slip. That's what happened at ChevronTexaco
Starting with the upstream operations, worldwide production (on an oil-equivalent basis) was down about 7% and unchanged sequentially. U.S. production was down about 18%, while international production slipped 2%. Adjusting those numbers for property sales, weather issues, and other items makes the results look less bad, but still not good. On this adjusted basis, U.S. production was down 8% and international production was up 3%.
Despite the lower production levels, pricing was still strong for both oil and natural gas. Consequently, exploration and production income from the U.S. fell 10% while international income rose 44% -- leading to an overall 21% increase in consolidated exploration and production earnings.
The refining and marketing business was even worse. Lower margins here and abroad coupled with higher downtime at refineries led total refining and marketing income to drop by about 36% from last year.
While the company's chemicals business performed well (up 85%), it's a tiny portion of the company's overall operations.
Certainly it's not all bad news at ChevronTexaco. Cash flow remains pretty robust and the company managed to repurchase over $700 million of stock.
Given yesterday's report from ExxonMobil
With that in mind, then, ChevronTexaco's buyout of Unocal
On the brighter side, even if the majors can't increase their production levels much, existing production (even if it dwindles slowly) should be enough to continue to fund dividends and buybacks so long as energy prices stay relatively high. So while investors looking for growth in the energy sector need to look in the direction of small producers like Ultra Petroleum
Of course, should the price of oil and natural gas decline precipitously, all bets are off with respect to any of these companies.
For other recent articles on the energy sector:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).