On the good-news side of the ledger, production increased 11% from last year, thanks entirely to the Unocal deal, and natural-gas production rose by 32%. Pricing was once again quite strong, as oil prices climbed almost 37% on average in the U.S. and the average selling price for natural gas rose by 69%. That, then, all led to earnings from the so-called upstream operations increasing by 46% for the quarter.
On the bad-news side, we have the refining and marketing business. Earnings here were down a quarter on the one-two punch of lower production volumes and lower margins. Sales of refined products fell 2.5% from last year's fourth quarter, and while U.S. margins were higher, the international margins were quite a bit lower.
Chevron will be busy in 2006. The company expects to boost production by another 10% and will spend about a third more on capital investments than it did in 2005. Of course, what's true for Chevron is also true for large players like ExxonMobil
Though oil stocks trade in tune with oil prices, that's not exactly the way it works from a business standpoint. There are lag times between changes in energy prices and their impact on the operations and finances of a company like Chevron. But that could also work to a patient Fool's advantage. While I wouldn't be a very enthusiastic buyer of Chevron today, I'm sure oil prices will slide again for a few days or weeks at some point, and they'll take the oil producers, drillers, and servicers with them. At that point, a patient Fool might be able to buy in with a better margin of safety.
For more petro-Foolishness:
- Lots of Riches and Little Pain at Helmerich & Payne
- This COP Still on Duty
- The Math Behind BJ Services
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).