Global refining margins have suffered in recent months as rising crude oil prices have driven up costs even as the weak economy has shrunk demand for gasoline and diesel fuel.
That refinery 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.
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.
Chevron signed off on the $37 billion Gorgon liquefied natural gas project in September, after hiring a contractor to design the Wheatstone project nearby only weeks earlier.
Chevron's fourth-quarter net profit fell to $3.07 billion, or $1.53 per share, from $4.9 billion, or $2.44 per share, in the same quarter a year before.
That fell far short of analysts' average forecast of $1.70 per share, according to Thomson Reuters I/B/E/S, largely because of the steeper-than-expected $613 million loss from refining, marketing and transportation.
Chief Executive John Watson, on his first call with analysts since getting the job, 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 on the conference call.
After outperforming on oil and gas output in 2009, Chevron is looking for modest production growth of about 1 percent this year, to 2.73 million barrels of oil equivalent (boe) per day.
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.
Overall revenue rose nearly 12 percent to $48 billion.
Chevron said earlier in January that fourth-quarter profit would be hit by the slump in its refining business, which saw margins fall to the lowest levels of the year.
The company's business lost in the quarter versus a year-ago profit of $2.1 billion.
Earlier this week, ConocoPhillips
Exxon Mobil Corp
At Thursday's close, Chevron shares had shed 4.5 percent since the start of 2010, against a 3.6 percent decline in the Chicago Board Options Exchange index of oil companies <.OIX>.
The stock fell 0.6 percent to $72.82 on Friday, while the Standard & Poor's Energy index <.GSPE> was flat.
(Reporting by Matt Daily in New York and Braden Reddall in San Francisco, editing by Dave Zimmerman and Gunna Dickson)