HOUSTON/SAN FRANCISCO Renewed strength in refining and chemicals led to higher-than-expected fourth-quarter earnings for Exxon Mobil Corp (XOM.N) and Chevron Corp (CVX.N), the two largest U.S. oil companies.
A flood of oil produced from U.S. shale formations has pushed refining margins higher for many companies with plants in the United States, while chemical producers are benefiting from the low price of natural gas, a key feedstock.
Brian Youngberg, energy company analyst with Edward Jones in St. Louis, said bigger-than-expected refining earnings "were a common theme for this quarter."
Exxon's overall profit was $9.95 billion, or $2.20 per share, compared with $9.4 billion, or $1.97 per share, in the same period a year earlier, as its refining arm's earnings quadrupled to $1.77 billion.
"As we look at just our U.S. Gulf coast refining circuit, we have more than tripled the processing of advantaged North American crude over the last couple of years," David Rosenthal, Exxon's investor relations executive, told analysts.
Exxon's refining margins were also boosted by cheaper Canadian crude oil, Rosenthal said.
Chevron Chief Executive John Watson said its refineries in Utah and British Columbia had been processing low-priced North American crude, though transporting it to its Mississippi plant or to its two West Coast refineries had been a bigger challenge so far.
"We have moved a little bit there, but it is a longer haul so it is not clear that we will be able to take advantage of it in that way," Watson said.
Chevron, based in San Ramon, California, reported a rise in net income to $7.2 billion, or $3.70 per share, from $5.1 billion, or $2.58 per share, a year earlier - though the latest profit included a $1.4 billion one-time gain.
Chevron's refining operations made a profit of $925 million, compared with a loss of $61 million a year before.
Increasing output from the wellhead, on the other hand, has been a struggle in the past year for big oil companies. Shares of ConocoPhillips (COP.N) fell on Thursday after its production outlook disappointed investors.
Ernie Cecilia, chief investment officer at Bryn Mawr Trust and a Chevron shareholder, noted Conoco was struggling while its spun-off refining arm, Phillips 66 (PSX.N), did well in what remains a highly cyclical business.
"The refining side can be a two-edged sword, being a tailwind as well as a headwind," Cecilia said.
Exxon's oil and gas output fell 5 percent to 4.29 million barrels oil equivalent per day (bpd). Chevron managed an increase to 2.67 million bpd after a year of underperformance, and predicted 2013 average output of 2.65 million bpd.
For the full year, Exxon's output fell 5.9 percent, or about 1 percent below the company's projections for the year, it said.
To stem the output decline, Exxon is investing heavily in projects like the Kearl oilsands in Alberta and the Bakken shale formation in North Dakota.
Exxon also has an ambitious joint venture with Russia's state oil company Rosneft (ROSN.MM) to use horizontal drilling and hydraulic fracturing to explore for oil in Western Siberia.
In 2012, Exxon spent a record $40 billion, a figure that includes $3 billion in acquisitions, Rosenthal told analysts.
Chevron's Watson responded to concerns about its large cash balance by saying it would fall over the next few years due to capital investments and returns of money to shareholders.
As for the crippled Richmond refinery on San Francisco Bay, Watson said it was on track to start its crude unit back up this quarter once it does internal checks and gets a nod from worker safety regulator Cal/OSHA -- which just issued a record fine to Chevron for the August fire at Richmond.
Shares of Exxon were unchanged at $89.97 in midday trading on the New York Stock Exchange, while Chevron shares rose 0.7 percent to $115.98.
(Reporting By Anna Driver and Braden Reddall; Editing by Steve Orlofsky and Alden Bentley)