NEW YORK (TheStreet) -- The refining business of the oil behemoth Chevron (CVX) has turned out to be a promising hedge in a period of deteriorating oil prices, which was evident in its latest quarterly results.
But that may not continue if oil prices go back up or if the lower prices remain for a prolonged period of time.
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Chevron's third-quarter results showed total production slightly dropped from 2.58 million barrels a day last year to 2.56 million barrels a day. With declining crude prices, Chevron's earnings from oil and gas production fell 9% year over year to $4.65 billion.
However, the company's profits climbed 13% thanks to a four-fold increase in profits from downstream, or refining and marketing operations that benefited from lower oil prices that reduced the unit's input costs. Shares are down nearly 9% for the year to date.
In an email to TheStreet, Justin Higgs, Chevron's spokesperson, said that a well managed downstream business "continues to produce significant value for us as an integrated energy company."
Raymond James analyst Pavel Molchanov explained an email to TheStreet that although refining is just as cyclical as oil prices, "it often serves as a natural hedge when oil prices are down."
Chevron, as well as Exxon Mobil, retained their refining and marketing business as some of the other oil producers, such as ConocoPhillips (COP) and Marathon Oil (MRO) , spun off these units into new companies to focus solely on exploration and production.
Unlike Chevron, ConocoPhillips and Marathon Oil reported 12% and 13% drops in profits, respectively, excluding the impact of one-time items such as asset sales, in their last quarterly results due, in part, to lower crude prices. For Chevron, however, the downstream segment will continue to "support profitability in times of lower oil prices" said Molchanov, who has a strong buy rating on the stock with a price target of $140.