SAN RAMON -- Chevron reported lower profits on Friday amid falling oil prices and reduced energy production, but the results were cushioned by improved earnings from refinery operations.

"Our second quarter earnings and cash flow were among our strongest ever, even with softer oil markets," CEO John Watson said in a prepared release.

San Ramon-based Chevron earned $7.21 billion during its second quarter that ended on June 30, nearly 7 percent below the year-ago earnings of $7.73 billion.

Its profits of $3.66 a share were, nevertheless, better than Wall Street's expectations of $3.23 a share. Chevron stock climbed 0.9 percent, or 99 cents a share, to finish at $109.26 on Friday.

"Chevron is firing on all cylinders now," said Brian Youngberg, an analyst with the St. Louis office of Edward Jones, an investment firm. "The company is really doing well."

The energy giant looks strong compared to its peers in the oil industry. Chevron's profits are at $25.61 per barrel of oil and its equivalent amount of natural gas. That's $7 a barrel better than its nearest competitor.

The company earned $5.62 billion on its upstream business -- exploration, production and development operations -- in the April-June period. That was down 18.2 percent from the year-ago quarter.

Chevron earned $1.88 billion from downstream operations -- consisting of its refinery, retail and transportation units. Those profits were up 6.8 percent.


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The company pushed ahead on multiple fronts in its upstream business, which increasingly has become the more important pillar of the company's financial operations.

It announced a natural-gas discovery in Australia, and struck deals to sell liquefied natural gas from Australia to power companies in Japan. Off the shore of Scotland, it began early engineering and design for a deep-water oil and gas project. In the Kurdistan region of Iraq, the company bought an 80 percent stake in two oil projects. And in the United States, Chevron bid for additional offshore acreage in the Gulf of Mexico.

"Despite current weakness in the global economy, we continue to invest in our long-term growth projects to help deliver affordable energy to meet future demand," Watson said.

The primary propellant for Chevron's earnings was improved profits at the company's refineries, which include its massive plant in Richmond.

"In addition to the higher profit margins for refineries, there is also increasing demand for exports of finished fuels out of the United States," Youngberg said. "Oil prices are down, so Chevron was able to squeeze additional refining profits out of that. Overall, refining is a more attractive business than it was a year ago. Chevron is a very efficient operator and is capitalizing on that."

One red flag for Chevron and other oil companies is eroding production levels. An ocean oil leak has temporarily shut down a Chevron field off the Brazil. Major upgrades and repairs are scheduled for the company's vast Tengiz complex in Kazakhstan. And a liquefied natural gas field in Angola has been delayed.

Chevron production currently runs about 2.6 million barrels a day, but that will grow, George Kirkland, Chevron's vice chairman, said during a conference call Friday.

"Our long-term guidance remains intact," he said. "Looking to 2017, we continue to expect production to grow to 3.3 million barrels per day."

Those numbers impressed analysts.

"We're very happy with Chevron's progress upstream," said Stacey Hudson, an analyst in the Houston office of investment firm Raymond James. "They are executing well in exploration and production. This is really a mid-decade story that will get better."

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