Chevron Corp (CVX.N) profit fell 7 percent in the second quarter as oil prices fell, and the No. 2 U.S. oil company said output would fall short this year, while strong margins at its refineries will cushion the blow to earnings.
Like larger rival Exxon Mobil Corp (XOM.N), Chevron also faced weak prices for U.S. natural gas due to the glut of shale production, which has been a double-edged sword for U.S. companies.
But Chevron is far less reliant on North American gas, which accounts for just 5 percent of its reserves, compared with 18 percent for Exxon.
Chevron's second-quarter oil and gas production fell to 2.62 million barrels of oil equivalent per day from 2.69 million bpd a year earlier, and it surprised few investors by saying it would fall short of its 2012 target of 2.68 million bpd.
George Kirkland, the vice chairman who also runs Chevron's production arm, blamed a shutdown of its Frade field in Brazil after a spill there; third-quarter maintenance work at the 300,000-bpd Tengizchevroil plant in Kazakhstan; and a delay to the startup of its $10 billion Angola LNG project.
Kirkland now expects the first shipment of liquefied natural gas in September from Angola LNG, in which Chevron holds a 36.4 percent stake. The first exports had been expected in June.
Chevron shares jumped on Friday, hitting a four-month high on Friday after it easily topped Wall Street estimates, despite a 50 percent drop in the average price for its U.S. natural gas.
"I thought it was an outstanding quarter," said Edward Jones analyst Brian Youngberg. "The downstream (refining) was the main reason for the beat."
Cheaper oil has helped refining by lowering the input costs. Gulf Coast margins have also been lifted by rising U.S. gasoline exports, which have run at a rate of 56,000 barrels per day this year -- double the average of the same period for the past five years, according to the Energy Information Administration.
Overall, Chevron said its second-quarter net income fell to $7.2 billion, or $3.66 per share, from $7.7 billion, or $3.85 per share, in the year-ago quarter. Analysts, on average, had forecast $3.24 per share, according to Thomson Reuters I/B/E/S.
The oil and gas production business had an 18 percent profit drop to $5.6 billion, while the downstream business saw profit jump 80 percent to $1.88 billion.
Profits from Chevron's international downstream operations more than doubled to $1.1 billion, helped by an asset sale in South Korea, while U.S. operations saw profits rise 42 percent.
Chevron said this month that industry benchmark margins on the U.S. Gulf Coast rose more than $4 per barrel to $24.89, while West Coast margins improved to $21.32 per barrel, their highest three-month average in four years.
Its largest refinery is in Mississippi, with 330,000 bpd of capacity, while its two California plants can together refine 518,000 bpd.
Profits at Exxon fell short of expectations on Thursday as oil and gas output sagged and its chemical unit faced weak margins.
Shares of Chevron rose 0.9 percent to close at $109.26.
(Reporting by Matt Daily in New York and Braden Reddall in San Francisco; Editing by Gerald E. McCormick, John Wallace and David Gregorio)