Chevron profit falls 1.6% in 3rd quarter

Exploration costs lead to decrease

— Chevron Corp. posted an unexpected drop in net income, bucking the trend of bigger profits among the largest oil companies, after costs from exploration failures erased gains from higher crude prices and record production.

Third-quarter profit fell 1.6 percent to $3.77 billion, or $1.87 a share, from $3.83 billion, or $1.92, a year earlier, San Ramon, Calif.-based Chevron said in a prepared statement Friday. That’s 28 cents less than the average of 15 analysts’ estimates compiled by Bloomberg.

Exploration expensessoared 74 percent during the quarter as the company took “significant” write-offs on wells in Turkey and Canada, Chief Financial Officer Patricia Yarrington said during an investor conference call. Higher costs wiped out the benefit of a 12 percent climb in oil prices and the most third-quarter crude and gas production in company history.

“They are coming up short in the upstream business at a time when everyone else in the industry is reporting healthy earnings with the improvement in the crudepricing environment,” said Gianna Bern, president ofBrookshire Advisory and Research Inc., a Chicago-based risk-management adviser to oil producers.

Chevron, the second-biggest U.S. energy company, was the biggest drag on the Standard & Poor’s 500 Index, falling $1.84, or 2.2 percent, to $82.60 in trading on the New York Stock Exchange on Friday.

Sales rose 6.6 percent to $49.7 billion from $46.6 billion in the third quarter of 2009, Chevron said. Profit from oil and gas sales, which account for 95 percent of Chevron’s net income, declined 4.6 percent.

Chevron plans to spend $750 million to buy its own stock during the current quarter, Jeanette Ourada, general manager of investor relations, said during the call. The company last made buybacks in the final three months of 2008.

Chevron Chief Executive Officer John Watson last week announced the company would move forward with a $7.5 billion project in deep-water oil fields in the Gulf. It’s the largest investment since the Obama administration ended the drilling ban imposed after the Deepwater Horizon blast at BP Plc’s Macondo well caused the biggest offshore oil leak in U.S. history.

Watson, 53, disclosed plans in March to shrink the company’s refining work force and sell Chevron’s only remaining European refinery because of thin profit margins.

Watson, who succeeded David O’Reilly as chief executive Jan. 1, is focusing investment on oil exploration in the Gulf and West Africa and building liquefied natural gas facilities to handle recent discoveries off the coast of Australia.

Yarrington said on the call that the company is engaged in “pure wildcatting” in someexploration regions. Wildcatting is slang for drilling the riskiest prospects in virtually unmapped geological formations.

Yarrington didn’t provide any details about the well writedowns in Turkey and Canada. The company has a joint venture with the Turkish state oil company, Turkiye Petrolleri AO, to explore the Black Sea.

Exxon Mobil Corp., the biggest U.S. oil company, said Thursday that its third-quarter net income rose 55 percent to $7.35 billion, buoyed by a rise in oil prices. ConocoPhillips, the third-biggest U.S. energy company, said Wednesday that its third-quarter profit more than doubled.

France-based Total SA on Friday reported a 32 percent rise in profit for the quarter. Royal Dutch Shell Plc on Thursday beat analysts’ estimates and posted a 6.5 percent increase in net income.

Business, Pages 35 on 10/30/2010

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