profits up, page-2

http://www.bloomberg.com/apps/news?pid=20601081&sid=aV7tcEDP8Eos&refer=australia

Caltex Australia May Decide to Cut Output on Margins (Update1)

By Angela Macdonald-Smith

April 24 (Bloomberg) -- Caltex Australia Ltd., the nation's biggest oil refiner, said it may decide to cut output should margins on the production of fuels weaken so much that they fall below the costs of running its plants.

Profits from producing gasoline may fall in the second half of the year as new refineries start up in Asia and global demand growth softens should the U.S. go into recession, Managing Director Des King said today in an address to shareholders. The Sydney-based company will ``optimize the trade-off'' between costs and the benefits from increasing output, he said.

Gains in the Australian dollar are reducing U.S. dollar profits from refining crude oil, with local-currency refining margins falling in the first quarter, Caltex said. The shutdown of the Kurnell refinery near Sydney in February and March reduced first-quarter output, while unplanned shutdowns at plants late last year and early 2008 cut quarterly earnings.

``Our stated guidance for production to be in line with 2007 is still achievable, however we may consciously choose to reduce production should margins not outweigh the working capital costs,'' King said in the address, a copy of which was sent to the Australian Stock Exchange. ``We still anticipate production volumes to be strong relative to recent years.''

Caltex Australia dropped as much as 59 cents, or 4.4 percent, to A$12.72 in Sydney trading on the exchange, the biggest drop in two weeks. The shares were at A$12.83 at 10:45 a.m. local time.

First-quarter earnings before interest and tax fell 34 percent in the three months ended March 31 to A$131 million ($124 million) because of the stronger Australian currency and lower production, King said.