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1999 average second quarter U.S. crude oil realizations of $14.29 per barrel improved $2.94, or 26 percent, compared with the second quarter 1998. Average second quarter U.S. natural gas realizations of $2.06 per thousand cubic feet were about flat with the second quarter of last year. On a year-to-date basis, 1999 crude oil realizations were $12.16 per barrel, about 2 percent higher than the $11.92 per barrel obtained in 1998; and natural gas prices were $1.85 per thousand cubic feet, a decline of 11 percent from $2.08 per thousand cubic feet last year.
Earnings for the 1999 second quarter also benefited from lower exploration and operating expenses.
INTERNATIONAL EXPLORATION AND PRODUCTION net income for the second quarter 1999 was $221 million, up from $211 million in the prior year's quarter. Net income for the 1999 second quarter included no net effect from special items, as charges for staff reductions and other restructuring costs were completely offset by a gain from the sale of Canadian seismic data. Earnings for the 1998 second quarter, excluding special prior-year tax benefits of $21 million, were $190 million. The increase in earnings reflected higher crude oil prices and increased crude oil liftings compared with the year-ago quarter.
Net income of $337 million in the first six months of 1999 was about flat with the $344 million earned in the 1998 first half. There were no net effects from special items in the 1999 period. The six-month results in 1998 were reduced a net $3 million by a first quarter loss of $56 million on asset dispositions, partially offset by a $32 million favorable cumulative effect from the change of accounting for certain Canadian deferred income taxes, in addition to the second quarter special items.
Net international liquids production of 796,000 barrels per day for the second quarter 1999 increased 32,000 barrels per day compared with last year's quarter, primarily due to new or increased production in Angola, Kazakhstan and offshore eastern Canada (Hibernia). These increases were partially offset by lower net liquids production in Australia, Indonesia, Nigeria and the Republic of Congo. Lower production from these areas was primarily the result of field maintenance activities and OPEC-related curtailments. Year-to-date 1999 production was 803,000 barrels per day, a 6 percent increase from 756,000 barrels per day produced in 1998.
Net natural gas production increased about 50 percent to 837 million cubic feet per day, reflecting production from the Britannia Field in the U.K. North Sea - which began production in August 1998 - and higher production in western Canada. Year-to-date natural gas production was 835 million cubic feet per day, up 39 percent from last year.
The company's average international crude oil realizations of $14.86 per barrel in the 1999 second quarter improved $2.48, or 20 percent, compared with the second quarter of 1998. Average 1999 international natural gas realizations of $1.77 per thousand cubic feet were 4 cents lower than in the second quarter of last year. On a year-to-date basis, 1999 crude oil realizations were $12.81 per barrel, 13 cents higher than the $12.68 per barrel obtained in 1998. Natural gas prices were $1.80 per thousand cubic feet, a decline of 5 percent from $1.89 per thousand cubic feet last year.
Net income in the 1999 second quarter and six months included foreign currency losses of $12 million and $28 million, respectively, compared with gains of $38 million and $23 million in the comparable periods in 1998. Effects in both years were primarily in the company's Australian and Canadian operations.
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WORLDWIDE REFINING, MARKETING AND TRANSPORTATION operations reported earnings of $170 million in the 1999 second quarter, about half the $341 million earned in last year's second quarter. The 1999 first-half earnings were $339 million, a 27 percent decrease from the corresponding 1998 period. U.S. REFINING, MARKETING AND TRANSPORTATION net income was $109 million in the second quarter, compared with $225 million in the second quarter of 1998. In the 1999 quarter, a $75 million gain from the sale of the company's interest in a pipeline affiliate was partially offset by net charges of $40 million for environmental remediation and a $24 million provision for staff reductions and other restructuring costs. A net special environmental remediation charge of $8 million was recorded in the 1998 second quarter. Excluding special items, earnings were $98 million compared with $233 million in last year's second quarter.
Six-month earnings for 1999 were $191 million compared with $270 million in the comparable 1998 period. Special charges reduced earnings $4 million and $13 million, respectively in the 1999 and 1998 first half. In addition to the second quarter special items, both six months periods included additional provisions for environmental remediation - $15 million in 1999 and $5 million in 1998. Excluding special items, year-to-date earnings were $195 million compared with $283 million in the 1998 first half.
Refined products sales realizations increased over last year's quarter, primarily reflecting stronger West Coast prices. However, due to operating problems at Chevron's California refineries, these improved market conditions did not lead to higher earnings for the company. Consequently, second quarter and six-month 1999 earnings suffered by about $100 million, mainly the result of substituting higher priced third-party refined products purchases for the company's own production to meet marketplace demand. The purchase of third-party products continues into the third quarter, as Chevron's gasoline production capability at the Richmond, California, refinery remains restricted while repairs are under way.
Total refined product sales volumes were 1.368 million barrels per day in the second quarter 1999, up 5 percent from the comparable quarter last year. Chevron-branded motor gasoline sales improved by 4 percent over last year's quarter to 553,000 barrels per day. Year to date, sales volumes were up about 5 percent to 1.278 million barrels per day.
The company's average refined product prices were $25.79 per barrel in the 1999 second quarter compared with $22.75 in the 1998 quarter. Average refined product prices were $23.25 and $23.17 in the first halves of 1999 and 1998, respectively.
INTERNATIONAL REFINING, MARKETING AND TRANSPORTATION net earnings were $61 million and $148 million in the 1999 second quarter and six months, respectively, compared with $116 million and $192 million in the comparable periods last year. Results for the 1999 quarter and six months included net benefits of $30 million from special items. These net benefits were comprised of favorable Korean tax adjustments that were partially offset by restructuring charges attributable to both Caltex and Chevron operations. Results for the 1998 six months included a special charge of $25 million for the company's share of the cumulative effect from Caltex's adoption of a new accounting standard. Net income included foreign currency losses of $21 million in the second quarter of 1999, compared with gains of $59 million in the 1998 quarter. In the first half of 1999, foreign currency effects resulted in losses of $16 million, compared with gains of $28 million in the 1998 first half.
Earnings from Caltex operations, after excluding the effects of foreign currency losses of $19 million and net special gains of $35 million in the second quarter 1999, and foreign currency gains of $56 million in the second quarter of 1998, were $25 million in second quarter 1999, compared with $30 million in the second quarter of 1998. The 1999 quarter included a benefit of $34 million for the company's share of Caltex's lower-of-cost-or-market inventory valuation adjustment. For the six-month periods, after excluding foreign currency losses of $12 million and net special gains of $35 million in 1999, and foreign currency gains of $27 million and a net special charge of $25 million in 1998, earnings for Caltex operations were $92 million in 1999, compared with $134 million in 1998. The 1999 period included a benefit of about $64 million for the company's share of Caltex's lower-of-cost-or-market inventory valuation adjustment, while the 1998 period included benefits of about $25 million from the reversal of certain deferred income tax valuation allowances
After excluding the benefits from inventory valuation and deferred income tax adjustments and special items in all periods, earnings from Caltex operations have declined in both 1999 periods, despite increased sales volumes. This was primarily due to depressed refined products sales margins in the Asia-Pacific region. In particular, results from
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Caltex's Korean operations suffered from lower refined products sales prices in the second quarter and first half of 1999, compared with the corresponding year-ago periods. The Asia-Pacific market continues to experience competitive price discounting and has failed to recover rising crude oil costs in the prices for refined products. We do not anticipate any immediate recovery in sales margins, as the Asia-Pacific markets continue to experience surplus manufacturing capacity and related oversupply conditions.
Total refined products sales volumes increased by 11 percent to 895,000 barrels per day in the second quarter of 1999 and 902,000 barrels per day, year to date, compared with the same periods last year. The increase occurred primarily in the Caltex areas of operation and in the company's fuel and marine lubricants affiliate that was formed in late 1998.
CHEMICALS recorded a net loss of $40 million in the 1999 second quarter, compared with net earnings of $47 million in last year's second quarter. Results in the first half of 1999 were $10 million compared with $110 million in 1998. Net income for the second quarter and six months of 1999 included special charges of $43 million for asset write-downs, $28 million for environmental remediation, and $20 million for staff reductions and other restructuring costs. There were no special items in the 1998 periods. Excluding special items, earnings were $51 million and $101 million in the 1999 second quarter and six months, respectively, compared with $47 million and $110 million in the comparable periods last year. Operating earnings for the quarter and year to date remained depressed because of prolonged unfavorable market conditions for commodity chemicals and additives for lubricants and fuels. In addition, prices have not increased sufficiently to offset rising feedstock costs.
ALL OTHER includes interest expense, interest income on cash and marketable securities, coal operations, corporate center costs and real estate and insurance operations. These activities incurred net charges of $99 million in the second quarter of 1999, compared with net charges of $107 million in the comparable prior-year quarter. The 1999 second quarter results included special charges of $29 million for employee termination benefits. Special charges of $56 million in the 1998 quarter consisted of $68 million of asset write-offs, partially offset by $12 million of favorable prior-year tax adjustments. Year-to-date charges were $152 million in 1999, compared with $23 million in last year's first half. Net special items of $31 million in the 1999 first half included gains from asset sales of $60 million partially offset by the second quarter charges for employee termination benefits. The 1998 year-to-date results included favorable prior-year income tax related adjustments of $125 million in addition to the second quarter special charge.
Earnings from the company's coal operations for the 1999 second quarter fell $5 million to $3 million and included a charge for the planned disposition of the company's remaining coal assets. Net income in the 1999 six months was $82 million compared with $20 million last year. Results for the 1999 six months included a $60 million gain from the sale of the company's equity interest in a coal mining affiliate. Excluding the special gain, earnings were about flat at $22 million. The company's exit from the coal business, which has experienced unforeseen delays is expected to be substantially complete by the end of the third quarter of 1999.
Excluding special items, ongoing charges from other activities in the second quarter of 1999 were $73 million, compared with $59 million last year. Charges for six months were $205 million compared with $112 million last year. Higher charges in the 1999 periods were primarily the result of higher interest expense on higher debt levels.
Liquidity and Capital Resources ------------------------------- Cash and cash equivalents totaled $752 million at June 30, 1999 - a $183 million increase from year-end 1998. In addition to cash from operations, an increase in short-term debt was required to fund the company's capital expenditures and dividend payments to shareholders.
On July 28, 1999, Chevron declared a quarterly dividend of 61 cents per share, unchanged from the preceding quarter.
In March 1999, Chevron purchased the Rutherford-Moran Oil Corporation and another interest in Block 8/32, offshore Thailand, for approximately 1.1 million shares of its treasury stock, $57 million in cash and the assumption of outstanding debt of $341 million. Concurrent with the purchase, $202 million of that debt was retired and the remaining $139 million was called and retired in April 1999. The company financed these retirements through an increase in short-term debt.
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The company's debt and capital lease obligations totaled $8.120 billion at June 30, 1999, up $562 million or 7 percent from $7.558 billion at year-end 1998. The increase was primarily from net additions of $636 million in short-term debt, primarily commercial paper, and newly issued long-term obligations of $70 million. Partially offsetting these increases were scheduled and unscheduled long-term debt repayments of $74 million and a scheduled non-cash retirement in January of ESOP debt of $70 million. These changes in long-term debt exclude the assumption and retirement of long-term debt included in the Rutherford-Moran transaction.
Although the company benefits from lower interest rates on short-term debt, its proportionately large amount of short-term debt has kept Chevron's ratio of current assets to current liabilities at relatively low levels. This ratio was .77 at June 30, 1999, down from .88 at year-end 1998. This reduction is primarily due to an increase in current liabilities of $2.181 billion. This increase is primarily due to the June 1999 reclassification from noncurrent to current of a $964 million accrual established in 1998 for the Cities Service litigation and the increase in short-term debt. Interest will continue to accrue on the amount of judgment in this case until the matter is resolved. The company continues to pursue the Cities Service matter in the courts.
The company's short-term debt, consisting primarily of commercial paper and the current portion of long-term debt, totaled $6.526 billion at June 30, 1999. This amount includes $2.725 billion that was reclassified as long-term since the company has both the intent and ability, as evidenced by revolving credit agreements, to refinance it on a long-term basis. The company's practice has been to continually refinance its commercial paper, maintaining levels it believes to be economically attractive.
The company's debt ratio (total debt : total debt plus stockholders' equity) was 32 percent at June 30, 1999, about the same as at year-end 1998. The company continually monitors its spending level, market conditions and related interest rates to maintain what it believes to be reasonable debt levels to fund its operating and capital expenditure activities.
In December 1997, Chevron's Board of Directors approved the repurchase of up to $2 billion of its outstanding common stock for use in its employee stock option programs. To date, the company has purchased 6.4 million shares at a cost of about $484 million under the repurchase program. There has been no activity under that program in 1999.
In July, the company's Employee Stock Ownership Plan (ESOP) issued $620 million of long-term debt at an average rate of 7.42%, guaranteed by Chevron Corporation. The proceeds from the issuance of debt were paid to Chevron Corporation in exchange for Chevron's assumption of the existing ESOP 8.11% long-term debt of $620 million. Chevron used the proceeds to reduce existing short-term debt, primarily commercial paper. These transactions will be reflected in the company's third quarter 1999 financial statements.
WORLDWIDE CAPITAL AND EXPLORATORY EXPENDITURES for the first half of 1999, including the company's share of affiliates' expenditures, totaled $2.609 billion, up 12 percent from $2.323 billion spent in the 1998 first half. Expenditures for international exploration and production activities in the 1999 period were $1.418 billion or about 54 percent of total expenditures, reflecting the company's continued emphasis on increasing international oil and gas production. This amount included about $500 million in the first quarter of 1999 for the acquisition of the Rutherford-Moran Oil Corporation and another interest in Block 8/32 offshore Thailand. The company's other segments have incurred lower expenditures in 1999, compared with 1998 as the company restricts spending in these areas to fund its international exploration and production prospects. Spending outside the United States accounted for 62 percent of total expenditures in 1999 compared with 50 percent in 1998. The actual C&E expenditures for the full year 1999 in the international exploration and production segment will be dependent upon, among other factors, the ability of our partners, some of which are national petroleum companies, to fund their share of project expenditures.
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