Chevron Corp warned that first-quarter earnings would be sharply lower than the previous quarter as lower oil and gas prices took a toll and refined-product margins shrank significantly.

The second-largest U.S. oil company said on Thursday the earnings would include $100 million in write-offs associated with exploration, adding that the fourth quarter included a $650 million foreign-exchange benefit as the dollar weakened as well as $600 million from an asset-exchange transaction.

Chevron shares fell 2 percent to $67.78 after-hours, while shares of larger rival Exxon Mobil Corp handed back some of their 1.3 percent regular-trade gain.

Chevron said U.S. oil-equivalent production in January and February was 660,000 barrels per day (bpd), up from 619,000 in the fourth quarter, and international output was 1.985 million bpd, higher than both the previous quarter and a year before.

But refining margins were down nearly across the board from a year ago, hit particularly hard last month by a recovery in crude oil prices, which increases input costs. Margins had improved in Northwest Europe from near break-even a year before, but were down from the fourth quarter.

Benchmark West Texas Intermediate crude prices averaged about $43 a barrel in the first quarter, 56 percent lower than in the same quarter last year. The quarter's average price of natural gas for delivery at Henry Hub was $4.73 per million British thermal units, down 44 percent from last year.

Chevron said downstream earnings would include about $350 million from sales of its fuel marketing businesses in Brazil and Nigeria. Earnings from its chemicals business were expected to fall on lower margins and volumes.

Chevron also said after-tax charges for corporate and other activities might significantly differ from its normal guidance of $250 million to $350 million due to foreign currency effects and potential accruals from pension settlements and taxes.

The San Ramon, California-based company is due to report first-quarter results on May 1. Analysts had been expecting a net profit before items of $2.03 billion, or 94 cents a share, on revenue of $23.11 billion. In the same quarter last year, it made $2.48 per share on revenue of nearly $66 billion.

A week ago, rival ConocoPhillips said earnings would be hurt by weakness in North American natural gas prices and that its worldwide margins would be significantly lower.

Marathon Oil Corp is expected to give its quarterly update next week.

Chevron's stock closed on Thursday at $69.23, up $13 from its low in early March when it was within sight of its lowest levels for nearly three years. A rally in energy prices and the stock market lifted the entire industry in the past month.

Chevron shares are down 6 percent so far in 2009, broadly in line with peers tracked by the Chicago Board Options Exchange oil index <.OIX>.

(Reporting by Braden Reddall; Editing by Bernard Orr and Matthew Lewis)

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