Chevron Hawaii
profit stayed while
mainland fell

When the Gulf War hammered
its consumer profits, the isles kept
making money for Chevron

---

By Tim Ruel
truel@starbulletin.com

In 1991, while the United States was at war in the Persian Gulf, Chevron Corp.'s profit from the sale of consumer oil products in Hawaii was $9.5 million, the company said in recently unsealed court documents.

At the same time, around the rest of the country, Chevron said it had a marginal loss of $148 million on consumer product sales.

The figures show the profitability of the marketing segment of Chevron. In Hawaii, marketing includes any money Chevron makes from the point that consumer-oriented products leave its refinery. Those products include the gas that fuels cars and the jet fuel used by the airlines.

To petroleum analyst Tim Hamilton, the figures appear to confirm the huge profits he says Chevron has made in Hawaii over the years compared with the mainland. Chances are, in a better year, Chevron would make an even higher marketing profit in Hawaii, Hamilton said.

But Chevron marketing manager Ken G. Smith said comparisons between Hawaii and the mainland are not valid in this case because Hawaii has unique market characteristics. The demand for gasoline in Hawaii tends to react less when prices go up or down, Smith said. As such, 1991 may well have been a normal profit year for Hawaii, but a totally skewed year for the mainland.

The demand for jet fuel alone tends to be the same in Hawaii as the mainland.

Smith said there was also a possibility that the line between Chevron's budget for marketing and refining could be drawn differently in Hawaii than on the mainland.

The numbers, reported in a federal court document, provide the first internal glimpse of the finances of Chevron, Hawaii's long-time market leader. Figures from other years were not cited. The information became available yesterday amid an avalanche of papers unsealed for public scrutiny in the state's antitrust lawsuit against the major oil companies. The state, which was seeking $2 billion from the five companies, has settled the case for $20 million.

In the same document, Chevron said it was citing the figures to discount the state's allegation that Hawaii was producing 100 percent of Chevron's national gas sales profitability. Chevron said the $9.5 million profit figure was not "remarkably" high.

Hamilton notes that the figures cited represent only a portion of Chevron's overall profits as a company. During conflicts in the Middle East or other events that affect supply, Chevron's profits from the production of crude oil tends to spike immediately if the price per barrel skyrockets, because Chevron produces the crude and can sell the oil to itself internally at a higher price. "They set world profits in 1991," Hamilton said. At the same time, the marketing segment tends to suffer, because the price at the pump typically wouldn't rise as fast as the price per barrel.

Chevron likes that effect, Hamilton said, because taxes on the crude production side of the business are more favorable than taxes on marketing profits, he said.

The profitability of Chevron's marketing in 1991 shows that Hawaii was so strong for the company that Chevron still made money in the state, even as the production side of the firm was sucking profits from marketing, Hamilton said.

"Even the Texas accounting firms couldn't hide that money," Hamilton said. "They made so much money in Hawaii they couldn't show the loss." Smith took issue with those statements. "I have no reason to believe we're trying hide profits from taxation by the way we account for it. We don't work like that," Smith said.

Smith maintained that marketing profitability is not a true reflection of Chevron's bottom line in Hawaii. Last year, when West Coast prices at the pump soared to about $2 a gallon, Hawaii's prices remained on a level par, Smith said. "They just react differently," Smith said.