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Chevron puts land-based natural gas drilling on hold


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POSTED: Saturday, August 01, 2009

NEW YORK » Chevron said yesterday that its second-quarter profit fell 71 percent, and the second-largest U.S. oil company put its entire land-based natural gas drilling operation on hold, citing dismal demand.

“;By the end of the year, we will not have a single gas land-rig running,”; George Kirkland, Chevron's executive vice president for global upstream and gas, said in a conference call.

With natural gas plunging to about a quarter of its value last year, “;it really doesn't make sense right now to be drilling those gas wells,”; he said.

Chevron, which operates one of the two refineries in Hawaii, said its net income amounted to $1.75 billion, or 87 cents a share, for the three-month period that ended June 30. That compared with $5.98 billion, or $2.90 a share, in the same period last year.

The company said its net income suffered from a weak U.S. dollar, amounting to $453 million in reduced earnings. That compares with an income benefit of $126 million in the same period last year.

Analysts surveyed by Thomson Reuters expected earnings of 95 cents a share. Those estimates typically exclude one-time items.

San Ramon, Calif.-based Chevron says total revenue fell 51 percent to $40 billion from $81 billion a year ago.

“;The demand for refined products remained generally weak,”; Chairman and CEO Dave O'Reilly said in a statement.

Raymond James analyst Pavel Molchanov said he still considers Chevron stock a strong buy, despite the weak earnings report.

Like Exxon Mobil, Chevron has spread its refining operations around the world and doesn't depend on American consumers to make money.

“;Petroleum demand in the United States is the weakest of any major economy,”; Molchanov said. “;They're particularly focused in Asia, where the economy is relatively decent.”;

The company said a barrel for crude oil and natural gas liquids fetched $53 in the second quarter, compared with $110 in the second quarter of 2008.

Chevron's production numbers, however, stood out when compared with other major oil companies reporting earnings this week.

Chevron boosted net oil-equivalent production by 5 percent. On Thursday, Royal Dutch Shell, Europe's biggest oil company, said its production declined 6 percent. Exxon Mobil, the world's biggest publicly traded oil company, said its production fell 3 percent.

During the quarter, Chevron's subsidiaries started drawing crude and natural gas from deep-water production facilities in the Gulf of Mexico and off the coasts of Angola and Brazil.

The company also boosted capital and exploratory operations, spending $11.4 billion in the first half of the year, compared with $10.3 billion in the first six months of 2008.

Company shares rose $1.06 to $68.76 yesterday.