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    Refining Margins Cause No Worries at Chevron

    Despite issuing a notice of lowered performance, company exec. said long-term margins will by "fairly robust."

    SAN RAMON, Calif. -- Days after major oil company Chevron Corp., headquartered here, issued a quarter update note that warned its profits would be negatively impacted as a result of lower fuel refining margins, a company executive told Dow Jones Newswires the company is not concerned about refining margins.

    While refining margins can fluctuate due to cyclical factors, over the long term Chevron will enjoy healthy margins, Jeet Bindra, head of refining for Chevron, told Dow Jones Newswires. "Over cycles, we believe for the foreseeable future, refining margins will be fairly robust," he said.

    Many U.S. major oil companies have issued warnings that their profits would be impacted from lower refining margins -- including Valero, ConocoPhillips and Marathon Oil.

    CSNews Online reported last week, citing a Los Angeles Times article, that Chevron blamed lower profits from fuel refining for why it expects its third-quarter earnings to be "significantly below" the record $5.4 billion seen in the company's second quarter of this year.

    The company's results also would be hurt by $700 million in net charges for asset impairment, environmental remediation, tax adjustments and other items, the report stated. The company saw lower throughput for its refineries during the quarter due to shutdowns at its refineries in El Segundo and Pascagoula, Miss., CSNews Online reported.

    At the time, CSNews Online reported that the warnings were a sign that the era of record results for major oil companies is ending.

    "We've left the peak earnings behind now, and it is going to be more challenging going forward," Fadel Gheit, an oil analyst at Oppenheimer & Co. who owns Chevron shares, told the LA Times.

    "Most companies will have lower production volumes, higher per-unit costs and sharply lower refining and marketing earnings," he continued. "The only bright spot was higher oil prices, and that was offset by all the other negatives."

    In other Chevron news, diesel fuels derived from soybeans and natural gas will propel a number of the area's buses as part of a test that Chevron and AC Transit are jointly conducting, according to a report by InsideBayArea.com.

    The energy giant and the transit agency want to find out whether the alternative fuels could be a viable alternative that might replace conventional diesel, which is what now goes in the tanks for the vast majority of AC Transit's buses.

    San Ramon-based Chevron said the test is just part of a multi-pronged quest it has undertaken to harvest new sources of alternative and renewable energy, the Web site reported. "There is a gap between energy demand and energy supplies," said Shariq Yosufzai, president, global marketing with Chevron. "Our job is to fill that gap."

    Chevron and AC Transit will test the alternative fuels in 18 buses, said Rajesh Paulose, Chevron's global product line manager for biofuels. The buses primarily will run along major AC Transit routes in the East Bay and on the system's transbay routes across the Bay Bridge. The program is scheduled to be formally unveiled before the end of this month, according to InsideBayArea.com.

    Both of the fuels involved will use a blend of conventional diesel with an alternative fuel. The soybeans in the biodiesel come from the Midwest, and the natural gas for the synthetic diesel are produced by a Chevron joint venture with a South Africa energy company, Paulose said. About 20 percent of the blend will be an alternative fuel.

    Chevron won't specify how much it is spending on the AC Transit test project. From 2002 through 2006, Chevron spent $2 billion, or an average of $400 million a year, on alternative and renewable energy initiatives. Geothermal, hydrogen, biofuels and solar energy are the primary sectors that have caught Chevron's attention, the report said.

    The company projects that it will spend more than $2.5 billion from 2007 to 2009 -- an average of $833 million a year. Chevron officials believe it is important to at least begin the research into the potential upside for a variety of biofuels, the Web site reported.

    "You can sit there and say that this is only marginally better than regular diesel, and say it competes against growing food," Paulose said. "But if you accept all of that and do nothing, you are not going to make any progress."

    The company also maintains that the soybean-based biofuel will definitely benefit the environment. "The bulk of the published literature does indicate that soybean and things such as that are slightly better from a greenhouse gas perspective," Paulose said.

    AC Transit and Chevron have worked previously on an alternative energy project. In 2006, they unveiled a minifleet of buses powered by Chevron-supplied hydrogen fuel.

    "As energy demand in China, India and the United States continues to grow, we need to have the ability to use the entire diversity of fuels," Yosufzai said in the InsideBayArea.com report. "We need to get our hands on every energy molecule that we can."

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