Chevron Corp posted a drop in quarterly profit on Friday, and its new boss said the second-largest U.S. oil company had plenty of work to do on its own project line-up without making any big acquisitions.

Chief Executive John Watson also said there would be no refinery closures in the near term, despite a bad performance in the fourth quarter that weighed heavily on its bottom line.

Exxon Mobil Corp's planned purchase of U.S. natural gas producer XTO Energy cast the industry's attention on how Exxon's smaller rivals might respond.

Chevron's anticipated 2010 production growth will not come anywhere close to the 9 percent fourth-quarter increase, but Watson, who just took over the top job at the start of January, said the company's long-term pipeline was very full.

We can see growth out through the rest of this decade, and so we haven't been particularly needy, if you will, to do a large transaction, he told analysts on a conference call. We haven't felt that the opportunities that are out there compete with other things that we have in our portfolio.

For one, the company will be spending heavily off the coast of Western Australia this year, with $3.5 billion of its $21.6 billion capital spending budget going toward construction of its massive natural gas operations there.

Meanwhile, fourth-quarter profit fell 37 percent, as refining margins have suffered with pricier oil lifting costs even as the weak economy has shrunk fuel demand.

That weakness overshadowed a steep 9 percent rise in oil and gas output in the quarter from new and expanded projects, which lifted proved reserves by 1.1 billion barrels.

It's like trying to run at 40 miles per hour in a boat while dragging an anchor, said James Halloran, energy advisor at Financial America Securities in Cleveland.

Fourth-quarter profit fell to $3.07 billion, or $1.53 per share, from $4.9 billion, or $2.44 per share, a year before, with Chevron being hit by negative currency moves and a lack of derivative gains and a $600 million asset swap a year before.

The earnings figure was far short of the $1.70 per share analysts expected, according to Thomson Reuters I/B/E/S, hit by a steeper-than-expected $613 million refining, marketing and transportation loss, versus a year-ago profit of $2.1 billion.

Analysts were still encouraged by Chevron's reserve replacement of about 112 percent in 2009.

Watson, on his first call with analysts since becoming CEO, said it was quite premature to talk of closing refineries, but he would seek cost cuts and aim for a 10 percent-plus downstream return through the cycle.

Chevron will merge its chemicals arm with the rest of the downstream business, and retain a spending bias that will shift its focus over time to exploration and production, he added.

We have favored upstream investment for more than the last decade. That has been a pattern I think you will see going forward, Watson said.

Chevron is looking for modest production growth of about 1 percent this year, at 2.73 million barrels of oil equivalent (boe) per day, with output from new projects more than offsetting a base business decline of about 6 percent.

Production at Chevron was 2.78 million boe per day in the fourth quarter, including 135,000 bpd associated with the ramp-up at Agbami in Nigeria, which commenced operations in the third quarter of 2008, and expansion at Tengiz in Kazakhstan.

The stock fell 1.02 percent to $72.19 on Friday, in line with the Standard & Poor's Energy index <.GSPE>.

Earlier this week, ConocoPhillips posted better-than-expected earnings as the firmer oil prices offset its weak refinery performance.

Exxon reports fourth-quarter results on Monday.

(Reporting by Matt Daily in New York and Braden Reddall in San Francisco; Editing by Dave Zimmerman, Gunna Dickson and Bernard Orr)

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