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Chevron warning on fourth quarter earnings

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By Sheila McNulty in Houston

Published: January 9 2009 01:27 | Last updated: January 9 2009 01:27

Chevron, the second biggest US oil company, on Thursday warned that the $50 per barrel drop in crude oil prices in the first two months of the fourth quarter have set the stage for “significantly lower” quarterly earnings.

Crude oil prices in December were lower still than the average for October and November, and that will figure into Chevron’s fourth quarter results on Jan 30.

The warning in Chevron’s interim update underlined that even the world’s biggest oil companies are feeling the effects of the economic slowdown. Chevron already has curtailed some development plans.

Besides lower prices, Chevron was hit by the September hurricanes in the Gulf of Mexico, which shut down production for weeks, and even months in some cases. Total US oil-equivalent production during the first two months of the fourth quarter was 39,000 barrels per day lower than in the third quarter, due mainly to the hurricanes.

In addition, the fall in natural gas prices hit Chevron, with US natural gas realizations decreasing $3.66 to $4.98 per thousand cubic feet during the first two months of the fourth quarter, while average international natural gas realisations were “off slightly’’ to $5.30 per thousand cubic feet.

Yet Rex Tillerson, chairman and chief executive officer of ExxonMobil, the world’s biggest oil company, said global energy demand is expected to be 35 per cent higher in 2030 than it was in 2005, despite the economic slowdown, efficiency improvements and growth in alternative energies, such as wind and solar.

Americans understand there is no single answer to the world’s energy, efficiency and environmental needs, as illustrated by public support and Congressional action in favor of lifting the moratorium on developing the US’ vast offshore oil and natural gas resources, Mr Tillerson said.

“Opening up US supplies of oil and natural gas would boost our economy by simultaneously lowering the cost of energy, increasing employment and providing a new source of government revenue,’’ Mr Tillerson said.

Against the backdrop of such fossil fuel development, Mr Tillerson noted the policy challenge about whether a cap-and-trade system or a carbon tax would be more effective for reducing carbon dioxide emissions.

A cap-and-trade system, which allows businesses to trade emissions allowances set by government, has problems with verification and accountability and requires new market infrastructure – “a Wall Street of emissions brokers” – as well as a costly and substantial expansion of regulatory and administrative oversight, he said.

“A carbon tax strikes us as a more direct, transparent and effective approach,” Mr Tillerson said.


In depth: Oil – Dec-11

Lex: Volatile vertigo – Jan-02

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