However, on a sequential basis, upstream profits jumped 8%, helped by a slightly better-than-expected average price per barrel of crude and natural gas liquids in the U.S. of $94. Here, too, Chevron outperformed Exxon and peers ConocoPhillips (COP) and Hess (HES).
For the downstream business, profits in the U.S. fell more than 70% from $459 million last year to $135 million. Here again, higher operating expenses was the major culprit. But Chevron was able to offset this weakness with better profitability in international operations, with profits of $566 million, up 64% year over year.
The more I study Chevron's business, it gets progressively easier to like the stock, even as shares soar higher. But in this sector, growth and profitability hinge on production and exploration, which require significant ongoing capital investments. As seen by the higher expenses seen in the upstream/downstream businesses, management seems committed to growth.
It's easy to look at Chevron's books and see that the company is not lacking in capital. But should oil and gas prices stay lethargic, it's easy to kiss these investments in production and exploration goodbye. To that end, Chevron's current projects, which includes construction on the Gorgon and Wheatstone LNG in Australia, are progressing well. As are other initiaves, including Big Foot deepwater projects in the Gulf of Mexico, which management said are still on track for a 2014 kickoff.