updated 7/31/2009 1:16:59 PM ET 2009-07-31T17:16:59

Chevron on Friday said that its second-quarter profits fell 71 percent and the second-largest U.S. oil company put its entire land-based natural gas drilling operations on hold, citing dismal demand.

“By the end of the year, we will not have a single gas land-rig running,” George Kirkland, Chevron’s executive vice president for global upstream and gas said in a conference call.

With natural gas plunging to about a quarter of its value last year, “it really doesn’t make sense right now to be drilling those gas wells,” he said.

Chevron said its net income amounted to $1.75 billion, or 87 cents per share, for the three-month period that ended June 30. That compared with $5.98 billion, or $2.90 per share, in the same period last year.

The company said its net income suffered from a weak U.S. dollar, amounting to $453 million in reduced earnings. That compares with an income benefit of $126 million in the same period last year.

Analysts surveyed by Thomson Reuters expected earnings of 95 cents per share. Those estimates typically exclude one-time items.

San Ramon, Calif.-based Chevron says total revenue fell 51 percent to $40 billion from $81 billion a year ago.

“The demand for refined products remained generally weak,” Chairman and CEO Dave O’Reilly said in a statement.

Raymond James analyst Pavel Molchanov said he still considers Chevron stock a strong buy despite the weak earnings report. Like Exxon Mobil, Chevron has spread its refining operations around the world and doesn’t depend on American consumers to make money.

“Petroleum demand in the United States is the weakest of any major economy,” Molchanov said. “They’re particularly focused in Asia where the economy is relatively decent.”

The company said a barrel for crude oil and natural gas liquids fetched $53 in the second quarter, compared with $110 in the second quarter of 2008.

Chevron’s production numbers, however, stood out when compared with other major oil companies reporting earnings this week.

Chevron boosted net oil-equivalent production by 5 percent. On Thursday, Royal Dutch Shell, Europe’s biggest oil company, said its production dipped 6 percent. Exxon Mobil, the world’s biggest publicly traded oil company, said its production fell 3 percent.

During the quarter, Chevron’s subsidiaries started drawing crude and natural gas from deepwater production facilities in the Gulf of Mexico and off the coasts of Angola and Brazil.

The company also boosted capital and exploratory operations, spending $11.4 billion in the first half of the year, compared with $10.3 billion in the first six months of 2008.

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