Chevron (CVX - Free Chevron Stock Report), the world's fourth-largest oil company based on proven reserves, has posted December-quarter share earnings of $2.64, 73% above the year-earlier tally and 31% better than our estimate of $2.01. Sales were up 6.5%, to $51.85 billion. Chevron ended 2010 with a bottom-line tally of $9.48, 81% higher than the 2009 number. Sales and operating earnings benefited from higher prices for crude oil and refined products. Specifically, net oil equivalent production rose, and refining margins improved. (Chevron is 70% weighted toward oil production.) In a strategic move to capitalize on the trend toward the potentially profitable market for domestic shale gas, Chevron acquired Atlas Energy in the final quarter, which is primarily located in the Marcellus shale bed in southwestern Pennsylvania.

In the Upstream business (exploration and production), the company's average sales price per barrel of oil was $76 in the fourth quarter, compared with $67 in the prior year. The average sales price of natural gas was $3.65 per thousand cubic feet, compared with $4.23. In the downstream business (refining and marketing), results benefited from the gain on sale of a 23.4% stake in the Colonial Pipeline Company. Excluding this gain, operating profits were down from the 2009 period due to lower gasoline and jet fuel sales. Refined product margins, however, improved considerably.

Looking ahead, we expect a gradual improvement in the global economy will buoy oil prices and that a lowering of capacity in the natural gas industry, in conjunction with greater demand for this cleaner-burning commodity, will help increase the price of natural gas. The difficulty of obtaining new permits to drill in the Gulf of Mexico, though, is likely to contribute toward a reduction in domestic production of about 4%.

All told, we continue to like these shares for conservative investors with long-term views, The stock is also attractive to income-oriented accounts.

About The Company: Chevron Corporation is the world’s fourth largest oil company based on proven reserves. In 2009, daily gross production of crude oil and natural gas liquids topped 1.845 million barrels. Natural gas production, meanwhile, was just under 4.99 billion cubic feet. Net proved oil reserves were 8.589 billion barrels at the end of 2009, while natural gas reserves were 22.480 trillion cubic feet.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.