3rd UPDATE: Chevron 2Q Net Soars On Higher Prices, Refining Margins

(Adds 2010 production outlook and updated stock price.) By Isabel Ordonez Of DOW JONES NEWSWIRES HOUSTON (Dow Jones)--Chevron Corp.'s (CVX) second-quarter earnings more than tripled, driven by higher oil prices and a surge in refining earnings. Chevron, of San Ramon, Calif., and the second-biggest major U.S. oil and gas company after Exxon Mobil Corp. (XOM), joined a number of energy companies in posting a jump in quarterly profits this week, helped by a rebound of the refining business. Refining margins, which slumped during the recession, have recovered in recent months as demand for fuel grew with the onset of the summer driving season, and as the economy strengthened. Chevron posted much stronger results from its exploration and production activities than its peers, with second-quarter income from oil and gas sales nearly tripling. Exxon and ConocoPhillips (COP) posted increases of 40% and 87%, respectively. Chevron's output is more heavily weighted than its rivals' toward crude oil, which has been more profitable than natural gas, the price of which has languished amid a boom in domestic U.S. production. Chevron is "differentiating itself with stellar upstream results," says William Featherson, analyst at UBS. The company posted earnings of $5.41 billion, or $2.70 a share, up from $1.75 billion, or 87 cents a share, a year earlier. Revenue jumped 29% to $51.05 billion. Chevron's results bested analysts' expectations of $2.44 mainly due to the higher-than-expected refining profits, which are difficult for analysts to predict. Earnings from the downstream segment came in at $975 million, a more than seven-fold increase from a year earlier. Profit from oil and natural-gas production nearly tripled to $4.5 billion, boosted by a 3% in production to 2.75 million barrels of oil equivalent a day. Chevron increased its 2010 production target to 2.78 million barrels of oil equivalent per day, implying 3% growth, up from its original outlook of 1% growth, or 2.73 million barrels of oil per day. Still, a large part of Chevron's oil production comes from the Gulf of Mexico, where the U.S. government imposed in May a six-month drilling moratorium in the wake of BP's oil spill. The ban hasn't so far dramatically affected the company's results, but Chevron said it expects production to come in 10,000 barrels a day lower this year because of delays in the issuance of permits and the slowdown of activities expected to increase production. The impact could become more significant if the government extends the moratorium, said George Kirkland, Chevron's executive vice president for global upstream and gas, during a conference call on the results. A continuation of the drilling ban could postpone the startup of deep-water projects in the Gulf such as Tahiti, Big Foot, Jack and St. Malo, which are expected to drive the company's future production growth. "We think we're in pretty good shape up until November," Kirkland said. But, "at some point, (the moratorium) is going to start pushing the startup date of these projects." A extension of the drilling ban could reduce oil supply and raise prices, Kirkland said, adding that if the government raises a cap on the liability individual companies have for an accident, it will hurt small producers rather than giants such as Chevron. "We believe competition is good, and if you set the liability cap too high there's a lot of companies that will not be able to participate," Kirkland said. U.S. lawmakers have been discussing the possibility of increasing an existing $75 million liability cap after Transocean Ltd. (RIG, RIGN.VX) Deepwater Horizon rig burned and sank in late April, unleashing the biggest offshore oil spill in U.S. history. Kirkland said the company believes the investigation of spill will show that the "tragedy was preventable." The company's results benefited from a rise in oil prices during the quarter, with the average sale price per barrel of crude oil and other liquids in the U.S. coming in at about $71, up from $50 a barrel a year earlier. Chevron said it doesn't plan to repurchase any shares in the third quarter, but that it could spend more than the $17.3 billion it has previously said it would on exploration and production. Shares of Chevron closed Friday up 19 cents at $76.21 on the New York Stock Exchange but were down to $76.14 in recent after-hours trading. -By Isabel Ordonez, Dow Jones Newswires; 713-547-9207; Isabel.Ordonez@dowjones.com (Tess Stynes contributed to this report.) (END) Dow Jones Newswires July 30, 2010 17:07 ET (21:07 GMT)