NEW YORK/SAN FRANCISCO Chevron Corp's (CVX.N) quarterly profit more than doubled, easily beating Wall Street forecasts, as high oil prices and healthy refinery margins boosted its bottom line.
The third-quarter results from the second-largest U.S. oil company on Friday came a day after larger rival Exxon Mobil Corp (XOM.N) also beat estimates and set another U.S. record for quarterly profits.
While smaller players have been forced to pare back investment, both majors will take advantage of their financial firepower and stick to their plans for capital spending, which totaled $15.8 billion for Chevron in the first nine months of 2008.
"We anticipate trying to hold our capital expenditure pretty much in line with where we've been this year," said George Kirkland, vice president for Chevron's upstream and gas business. "We don't like fluctuating our capital spend up and down. Our long-term view on pricing has really not changed."
Investors are concerned that the credit crisis will trigger a global recession and cut energy demand, so the oil majors' spending plans are being carefully scrutinized.
Chevron's third quarter net income rose to $7.9 billion, or $3.85 per share, from $3.7 billion, or $1.75 per share, in the same period a year ago. Revenue rose 43 percent to $78.9 billion.
Analysts had expected a net income of $6.55 billion, or $3.27 a share, according to the average on Reuters Estimates.
Italy's Eni SpA (ENI.MI), another top-10 global oil company, reported on Friday a 53 percent rise in profit and said it would keep its capital spending steady.
Chevron's U.S. refineries made a profit of $1 billion after suffering a loss of $110 million a year before, while profit from international operations rose 68 percent to $817 million.
Like Exxon's, Chevron refineries had a better-than-expected performance after oil prices peaked early in the quarter and declined sharply over the next two months, cutting their input costs and bolstering margins.
With oil still historically pricey, Chevron's oil and gas production side also saw much better profits than a year ago.
"There was sort of a sweet spot right in the middle of the quarter with the pricing of upstream and downstream," said Michael Cuggino, chief executive of Pacific Heights Asset Management in San Francisco, who manages about $3.8 billion.
Cuggino said he was a long-term holder of Chevron, as well as ConocoPhillips (COP.N) and BP Plc (BP.L), given anticipated supply constraints and energy demand growth in the future.
With U.S. retail gasoline prices posting their steepest-ever drop after peaking above $4 per gallon in the summer driving season, near-term demand may prove more robust than expected, one analyst said.
"Frankly, what we're hearing about prices and with the demand coming back for gasoline, we could see refining margins being stronger into the first half of next year than what people had been planning for," said R. Lewis Ropp, analyst at Barrow, Hanley, Mewhinney and Strauss, which owns nearly 2 million Chevron shares.
Third-quarter capital expenditure rose to $5.5 billion from $5.2 billion a year earlier. Stock buybacks totaled $2 billion, as in the previous four quarters, and Chevron Chief Financial Officer Steve Crowe said this quarter would be no different.
Chevron shares touched a three-week high of $75.97, and ended 0.6 percent higher at $74.60. The shares have lost a fifth of their value in 2008, versus a 33 percent drop in the Chicago Board Options Exchange oil company .OIX index.
Oil and gas production fell 5.8 percent in the quarter to 2.44 million barrels of oil equivalent (BOE) per day, hurt by storms and reductions built into production-sharing agreements outside the United States that lower its stake as prices rise.
Chevron, based in San Ramon, California, said Gulf of Mexico hurricanes cut upstream, or exploration and production, earnings by about $400 million and cut September output by about 150,000 BOE per day.
Half of the production lost to the hurricanes has been restored, but bringing the rest back will be largely dependent on the return of damaged pipelines not owned by Chevron.
Since peaking in July above $147 per barrel, crude oil futures have tumbled more than 50 percent, but prices were still well above the year-ago level for the quarter.
Chevron reiterated its assumption of a 4 percent to 5 percent rate of decline in output from existing wells, which is about half the industry average.
Falling output for Chevron and others may lead the biggest companies to seek acquisitions to prop up their portfolios.
"These guys have got to begin thinking about consolidating the smaller players that have the growth profiles," Ropp said.
(Reporting by Matt Daily and Braden Reddall; editing by Dave Zimmerman, Gerald E. McCormick and Carol Bishopric)