NEW YORK—Chevron's fourth-quarter net income jumped 72 percent as rising fuel demand lifted oil prices and produced a sharp turnaround in its refinery business.
The San Ramon, Calif. company's refining and marketing business earned $742 million in the quarter. A year ago, Chevron announced it would cut 2,000 jobs and reduce spending after the business lost more than $600 million in the last quarter of 2009.
Chevron reported net income of $5.3 billion, or $2.64 per share, for the final three months of 2010. That compares with $3.1 billion, or $1.53 per share, in the same part of 2009. Revenue climbed 11 percent to $54.03 billion.
Analysts had expected earnings of $2.35 per share on revenue of $60 billion, according to FactSet.
Shares fell $1.38 to $93.37.
The refining business slumped in 2009 as refineries paid more for oil but were unable to pass the costs along to customers. Now, demand for gasoline and diesel is healthy enough that refiners can command better prices for their products, helping to offset higher oil prices.
Even with the turnaround, most major oil companies are seeking to downsize in refining. Fuel-efficient vehicles should crimp the use of gasoline and diesel in the U.S. and Europe. Tougher carbon emissions regulations loom, and foreign competition could squeeze margins even further.
Conoco plans to cut refining from 24 to 15 percent of its core business. Marathon Oil is spinning off its refineries. Over the past two years, Valero Corp., the largest independent refiner in the U.S., has shuttered a Delaware refinery and sold another in New Jersey.
Oil companies see refineries as a headache that can be major drag on company earnings, Oppenheimer & Co. analyst Fadel Gheit said. They're hoping smaller companies that want to build market share will be buyers.
"We need refineries -- they provide a basic service that the economy can't do without," Gheit said. "But to survive, they're going to need a high level of refining capacity. It's going to be survival of the fittest."
The strong recent results may serve to attract those buyers. Conoco's refineries earned $207 million in the fourth quarter compared with a loss of $215 million.
Chevron said refining margins increased to 53 percent in the fourth quarter, following a 2 percent rise in world petroleum demand. In the U.S., consumption in the last quarter of 2010 reached levels unseen since 2008.
Valero's profit margin jumped 49 percent. ConocoPhillips' margins increased 88 percent for its international refining business and almost tripled in the U.S.
Meanwhile, Chevron waits to resume operations in the Gulf of Mexico. Months after the U.S. lifted a moratorium on deep water drilling, regulators haven't issued any new deepwater permits.
Chairman and CEO John Watson said the push for new safety standards has effectively shut down drilling in the Gulf.
The drilling ban cost Chevron $100 million in 2010. The company hopes to resume drilling sometime this year, Watson said, "but I can't tell you how fast this is going to proceed."
Chevron's profit from oil exploration and production increased 16 percent to $4.8 billion in the fourth quarter as prices for oil and natural gas liquids rose. Average crude and natural gas liquids prices grew 13 percent in the U.S. to $76 per barrel and 16 percent in international markets to $79 per barrel. Natural gas prices dropped 13.7 percent to $3.65 per 1,000 cubic feet in the U.S. but increased 16 percent to $4.81 per 1,000 cubic feet internationally.
For the full year, Chevron earned $19.14 billion, or $9.48 per share, compared with $10.56 billion, or $5.24 per share, in 2009.
