Oct. 31--Chevron Corp.'s profits slumped by 51 percent because of weaker oil prices, but the earnings beat Wall Street's estimates and the company's oil production surged.

San Ramon-based Chevron earned $3.83 billion, or $1.92 a share in the third quarter, compared with year-ago profits of $7.89 billion, or $3.85 a share, the company said Friday.

The company's shares, caught up in a stock market rout on Friday, tumbled $1.41, or 1.8 percent, to finish at $76.54. Still, Chevron's stock declined considerably less than its peers. Exxon Mobil, for example, plunged 3.1 percent.

Earnings for Chevron's exploration, development and production operations totaled $3.64 billion and fell 41 percent because of prices for crude oil and natural gas that faltered.

The company's earnings for refinery, retail and transportation operations totaled $194 million and plunged 89 percent.

Production of oil and natural gas, measured by barrels of oil, was sturdy because several key fields came on line and began to ramp up their output, said David O'Reilly, Chevron chairman and chief executive officer. O'Reilly retires at the end of the year in a planned succession.

"Our net oil-equivalent production this quarter was nearly 11 percent higher than the same quarter a year ago," O'Reilly said. "This operational success helped mitigate a decline in earnings that was driven by sharply lower prices for crude oil and natural gas."

Chevron's oil and natural gas

production in the third quarter totaled just over 2.7 million barrels, up 10.6 percent from the 2.44 million barrels the company produced in the third quarter of 2008.

Profits from refinery and retail operations, also known as the downstream business, faltered amid feeble demand for gasoline in a sour economy.

"In our downstream operations, we continued to experience weak margins on the sale of gasoline and other refined products," O'Reilly said.

The paltry profits in refinery and retail operations could persist for some time, Chevron warned during a conference call with analysts to discuss the results.

"We're headed for a weak period here," O'Reilly said. "I'd expect 2010 and 2011 to be pretty sloppy."

In contrast, in appears that production, already robust, could strengthen even further in 2010.

After the second quarter results were released, Chevron forecast a 5 percent increase for all of 2009 in production. Production for all of 2009 should be 6 percent higher than 2008, said Patricia Yarrington, Chevron's chief financial officer.

"Our major capital projects continue performing on plan or better," Yarrington said.

Excluding certain items such as gains from asset sales, Chevron beat analysts' estimates by 24 cents a share. Analysts embraced the earnings win, along with the production output trends.

"Chevron has been delivering strong production results and strong quarterly earnings," said Nancy Prue, an executive vice president with Petroleum & Resources Corp., a closed-end mutual fund that invests heavily in energy companies. "They are on pace to deliver perhaps the strongest production growth among the oil majors."

Chevron, following its purchases of Texaco and Unocal, embarked on a strategy to find and develop oil fields in an array of locations, both in North America and overseas.

"All of those big projects around the world that Chevron developed are starting to come to fruition," said Bernard Picchi, portfolio manager with Palisade Capital Management.

The Gulf of Mexico, western Africa, Australia, Kazakhstan, Brazil and Angola are the primary locations where Chevron has delivered major new projects during the last 15 months.

That upswing in production could enrich Chevron's bottom line for some time to come, analysts said.

"It looks as if the pipeline is pretty well filled," Picchi said. "Chevron has a lot of projects that investors can count on for the next few years."

George Avalos can be phoned at 925-977-8477

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