Chevron Corporation has posted earnings that were much lower than expected as maintenance exacerbated a decline this year in oil and natural gas production, and shares of the second-largest US oil company slid 2.5 per cent. Third-quarter production fell to 2.52 million barrels of oil per day (bpd) from 2.60 million bpd a year earlier. With a fourth-quarter bounce expected, Chevron expected 2012 production to average about 2.6 million bpd, or 97 per cent of its original 2.68 million bpd target. ncreasing output from the wellhead is a struggle for many big oil companies, including Exxon Mobil Corporation and Royal Dutch Shell. With oil and gas assets tightly controlled by the countries where they are located, the majors are left to drill in pricier areas on land and offshore. Smaller US oil company Hess Corp, on the other hand, delivered on Friday a strong increase in profits and production owning to its interest in the Bakken oil basin in North Dakota, and a resurgent Libya operation. For Chevron, the third quarter was marred by a huge fire at its Richmond refinery in California that damaged the crude unit there and now expected to be repaired in the first quarter. However, the company said this had a limited impact on third-quarter earnings, which were hit hard by weak marketing margins. Overall, third-quarter net income fell to $5.25 billion, or $2.69 per share, from $7.83 billion, or $3.92 per share, a year earlier. Earnings dropped 17 per cent to $5.1 billion in the oil and gas production business and plunged 65 per cent to $689 million in the refining, or downstream, operation. “Downstream was the primary culprit behind the miss,” Simmons & Co analysts said in a note to investors. The reported profit included about $600 million from an asset sale gain, offset by a negative foreign exchange impact, they said. Leaving out certain items, Chevron earned $2.55 per share, compared with the analysts’ average estimate of $2.83, according to Thomson Reuters. Chief Executive Officer John Watson said that, apart from heavy planned oilfield maintenance, pricing for its output was also weaker. This was in part because of the oversupplied US market for natural gas liquids, while the average Brent oil price of $110 per barrel was down $2 from a year before. A storm cut into Gulf of Mexico production, while planned maintenance in Kazakhstan and the United Kingdom caused the majority of the production decline outside the United States, according to Chevron. One downstream bright spot was that Chevron’s smaller North American refineries in British Columbia and Salt Lake City were running discounted crude piped in from the Bakken, said Mike Wirth, executive vice president for downstream and chemicals. A large spread between US oil prices and international benchmark Brent has emerged due to the combination of a surge in North American oil production along with subdued US demand and the limited ability to ship it out to international markets. “On this crude disconnect, it is like real estate,” Wirth told analysts on a conference call. “It is location, location, location, and our large coastal refineries are distant from where these advantages really are.” More broadly, Wirth said he was pessimistic about near-term demand for refined products based on the sales figures he saw in Asia and elsewhere. Shares of Chevron were down 2.5 per cent at $108.67 in early afternoon trading on the New York Stock Exchange. Brent crude futures, the benchmark for two-thirds of the world’s oil, fell 2.4 per cent during the quarter to an average of $109.42 a barrel. Worldwide crude output rose by 2.16 million barrels a day during the third quarter from a year earlier, four times faster than the 540,000-barrel-a-day increase in demand, according to an Oct.12 report by the International Energy Agency. Chevron’s performance also was diminished by a 29 per cent decline in US gas prices from a year earlier to an average of $2.893 per million British thermal units during the quarter. Horizontal wells and hydraulic fracturing have allowed explorers to penetrate gas-rich shale formations in the US Great Plains, Appalachia and western Canada, leading to a North American supply glut.