NEW YORK/SAN FRANCISCO Chevron Corp's 72 percent rise in quarterly profit easily beat Wall Street forecasts, but anemic growth in its oil reserves disappointed investors and its shares fell 1.5 percent.
Like smaller rivals ConocoPhillips and Occidental Petroleum Corp, earnings at the second-largest U.S. oil company were lifted by the strength of oil prices.
But Chevron said on Friday that it added only 240 million oil-equivalent barrels (boe) to reserves last year, or 24 percent of the oil and gas it produced.
Chief Executive John Watson appeared to be relaxed about future production given Chevron's ability to buy more, according to Fred Burke, head of investments at Washington-area outfit Sandy Spring Bank.
"If they realize one day that they don't have the reserves, are they going to start buying other companies? There are a couple out there that they could seriously pursue," said Burke, who manages $682 million of investments, including stakes in Chevron and Conoco.
In the fourth quarter, Chevron added to its U.S. natural gas position with the announced purchase of Atlas Energy, a developer of gas from shale rock.
Watson told analysts he hoped to close that deal soon, and signaled an intent to keep shopping around for a good deal.
"We are in the business of acquiring assets," he said on a conference call. "So that effort will continue, including in shale areas, if we see the right commercial opportunity."
The San Ramon, California-based company said reserves would have risen by an additional 140 million boe in 2010, but rising oil prices increased the share of reserves owed to partners.
It would have replaced 37 percent of output without price effects, Watson said, adding that Chevron would recognize reserves in future for major deepwater projects commissioned in 2010.
Chevron plans to grow output by 1 percent annually through 2014, before growth accelerates to between 4 percent and 5 percent in the three years after 2014, driven largely by its huge Australian natural gas projects at Wheatstone and Gorgon.
The 1 percent output growth this year assumes activity resumes in the Gulf of Mexico.
"The unprecedented step of just shutting down a business has reached the point of diminishing returns and it's time to get back to work," Watson said.
Apart from regulatory battles in the Gulf, Chevron is also fighting a huge pollution case in Ecuador that should be ruled on in the months ahead, with the plaintiffs reshuffling their lawyers recently in anticipation.
PUMPED UP PROFIT
Chevron's fourth-quarter profit surged to $5.3 billion, or $2.64 per share, from $3.1 billion, or $1.53 per share, a year earlier, easily topping an average estimate of $2.41 on Thomson Reuters I/B/E/S. Revenue rose 9 percent to $51.9 billion.
Profit from its production arm climbed 16 percent to $4.85 billion; the refining and transportation business had a profit of $742 million, compared with a year-ago loss.
Given the strength of oil relative to natural gas prices, Chevron is fortunate that more than two-thirds of its output is liquids, compared with just over half for sector leader Exxon Mobil Corp.
Benchmark U.S. oil averaged $85 per barrel in the fourth quarter, up $9 from a year earlier. Natural gas went the other way, with average prices at the key Henry Hub delivery point down 12 percent to $3.80 per million British thermal units.
Chevron shares, up 29 percent in the past 12 months, fell 1.5 percent to $93.37, after closing on Thursday at their highest level since July 2008.
The shares have outperformed those of Exxon, which will report earnings on Monday. Exxon, which doubled its exposure to the depressed U.S. natural gas market through its XTO purchase last year, has seen its stock rise 22 percent over the year.
BP Plc and Royal Dutch Shell Plc are also due to report next week. On Wednesday, Conoco and Oxy unveiled big spending increases along with the profits.
(Editing by Dave Zimmerman, John Wallace and Andre Grenon)