"Based on unaudited results for the year to 31 May, 2002 and current assumptions relating to crude prices and refiner margins, the company expects to make an after tax profit for the half year ending 30 June, 2002 within a range of $125 million to $140 million," Caltex told the stock exchange.

Australia's only listed oil refiner said included in this result is approximately $95 million of inventory gains (before tax) so replacement cost profit after income tax should be in the range of $60-70 million compared with $4-5 million for the corresponding period last year.

Caltex said marketing margins, while reduced from the highs of 2001, are still tracking above levels achieved in 2000 and 1999. "Competition remains intense in all markets but the company's margin improvement initiatives have produced stable earnings over the first half," the company said.

Caltex added its earnings were also heavily influenced by movements in regional crude prices and refiner margins. "Since December 2001 crude prices have risen by approximately US$5 a barrel and are expected to remain at current levels for the immediate term," Caltex said.

"Refiner margins, which averaged US$1.61 a barrel in 2001, have improved to average US$2.60 a barrel for the year to date."

In order to create a strong balance sheet, Caltex also told the market it intends to make debt reduction a top priority. It said the target is to reduce gearing to less than 50% by 31 December, 2003 (from 61% at 31 December 2001), cutting debt from almost $1.3 billion as at 31 December, 2001 to $1,075 million by 31 December, 2002 and to $950 million by 31 December, 2003.