Fueled by higher oil and gasoline prices, Chevron's profit jumped 43 percent in the second quarter to $7.73 billion, the San Ramon-based energy giant reported Friday.

The oil titan's earnings easily topped Wall Street's predictions. Chevron earned $3.85 a share, well ahead of the average projection of $3.51 by analysts surveyed by FactSet.

Sales and operating revenue totaled $66.67 billion, up 31 percent from the same quarter a year ago.

"Chevron is executing just fine," said Pavel Molchanov, an analyst with investment firm Raymond James. "This was a strong quarter, and the highest quarterly earnings since 2008."

Robust oil prices and fatter profits at its refineries helped Chevron offset a slump in oil output. Those factors combined with generally increasing demand for crude oil worldwide, along with supply disruptions triggered by the civil war in Libya, an oil exporter.

"These earnings are really a testament to the strength of the oil market," Molchanov said. "Oil prices are still strong, even with the U.S. economy in as much of a mess as it is, and overseas economies not doing much better."

Chevron shares slumped 1 percent, falling $1.01 to finish at $104.02 Friday.

Profit from Chevron's upstream operations -- exploration, production and development -- rocketed higher by 51 percent.

Earnings from the company's downstream activities -- refining and retail -- rose 7 percent.

"We continued to advance our major capital projects (and) resumed important exploration and development drilling activity in the deepwater Gulf of Mexico," Chevron CEO John Watson said.

Among the upstream projects for the company:

  • Kazakhstan and Russia. Chevron began construction for an expansion of a Caspian Sea pipeline.

  • Australia. The company gained some regulatory approvals for the Wheatstone liquefied natural gas project and also signed a deal to sell LNG from Wheatstone to Tokyo Electric.

  • Bulgaria. Chevron is exploring a shale gas block of more than 1 million acres.

  • Gulf of Mexico. Drilling work resumed in the deep waters of the Gulf with three rigs being active.

  • Pennsylvania. The company obtained more acreage in the state's Marcellus Shale region, which is rich in natural gas deposits.

    Upstream operations earned $6.87 billion, while the downstream units earned $1.04 billion, bolstered by hefty profit margins at refineries.

    "Refining is a bright spot," said Robbert Van Batenburg, head of equity research for Louis Capital Markets. "Refiners are buying the oil cheap and then selling the gasoline at high prices."

    Chevron owns a large refinery in Richmond.

    "This is a remarkable about-face, an incredible comeback for the refining industry," Van Batenburg said.

    Despite the strong results, analysts said Chevron faces some obstacles.

    "The biggest headwind for Chevron is the difficulty in achieving growth in production and reserves," Molchanov said.

    Chevron reported that it produced an oil-equivalent of 2.69 million barrels of oil a day in the second quarter, down 1.9 percent from the year-ago quarter.

    To bolster its production and reserve levels, Chevron in February completed the $4.92 billion purchase of Atlas Energy. That deal opened a gateway for Chevron into a Pennsylvania region rich in natural gas.

    "We have seen Chevron make the sizable acquisition of Atlas Energy, and Chevron has been active on the exploration front," Molchanov said. "They are trying to achieve production growth. But it's not easy."

    Contact George Avalos at 925-977-8477. Follow him at twitter.com/george_avalos.