Chevron (CVX Free Chevron Stock Report), the world's fourth-largest oil company based on proven reserves and a member of the Dow 30, has reported first-quarter earnings per share of $2.77, compared with the year-earlier figure of $3.66 and our estimate of $3.40. The lower-than-expected earnings were due mainly to across-the-board profit declines in all of the company's major business segments, specifically its downstream operations. The bottom line would have looked worse if not for the help of favorable currency exchange rates and a reduction in the number of shares outstanding. Chevron stock traded down moderately on the news, even though recent investor expectations had fallen following disappointing earnings reports by industry peers Exxon Mobil (XOM Free Exxon Mobil Stock Report) and Royal Dutch Shell (RDSA).

In the core Upstream (Exploration and Production) business (approximately 90% of first-quarter profits), worldwide net oil-equivalent production came in at 2.58 million barrels per day (mmboe/d), compared with 2.62 mmboe/d in last year's like quarter. Production increases from project ramp-ups in the United States and Angola were more than offset by normal field declines.

Earnings in the U.S. Upstream segment were down 18%, to $1.1 billion, due to higher operating expenses and lower crude oil production. Chevron's average sales price per barrel of crude oil and natural gas liquids was $92 in the second quarter, compared with $97 in the year-earlier quarter. The international segment of the upstream market saw profits decrease 10%, to $3.9 billion, due to lower volumes for crude oil and higher operating expenses, which were partially offset by lower exploration costs.

In the Downstream (Marketing and Refining) business, Chevron earned $628 million in the international segment, compared with $1.1 billion a year earlier. Comparisons were hampered by an unfavorable change in the effects of derivative investments and lower margins on refined product sales. (The second quarter of 2012  also was aided by a gain from a large asset sale.) Domestically, earnings plunged 83%, to $138 million, as refinery crude oil input fell 12%, to 814,000 barrels per day versus the year-earlier period. Higher costs associated with the turnaround at a Hawaiian refinery and an incident that shut down a refinery in Richmond, California, as well as lower margins on refined product sales, contributed to the weak performance.

As a result of this latest earnings report, we are lowering our full-year 2013 share-net estimate from $13.90 to $13.00. Despite this setback, however, long-term investors might be interested in Chevron stock as a defensive selection in an equity market that has regularly been setting all-time highs. Finally, the company has excellent finances and generates a tremendous amount of cash, which enables it to pay a generous dividend.

About The Company:Chevron  has daily gross crude oil and natural gas liquid production of about 1.734 million barrels. Natural gas production averages around 4.782 billion cubic feet. Net proved reserves at 12/12 were 7.089 billion barrels of oil. The company operates a multitude of well sites all over the globe, as well as owning/leasing about 4,100 gas stations, mostly in the United States.

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