Earnings season continued Friday, amid a market that had developed a mind of its own. Among the companies lined up to report results was Chevron (NYSE: CVX), the second-biggest U.S. major oil company -- behind Exxon Mobil (NYSE: XOM) -- and the second of the majors to tell us about its quarter, after ConocoPhillips (NYSE: COP).

For the quarter, Chevron's net profit reached $5.3 billion, or $2.64 per share, versus $3.07 billion, or $1.53 per share in the fourth quarter of 2009. That's a more than 70% jump on the net income line. Revenue in the latest quarter was $54.03 billion, an increase from last year's $48.68 billion. Thus, the company soundly beat analysts' expectations of $2.35 in per-share earnings, but its revenue was on the short side of a $58.8 billion forecast.

Setting sail upstream
Upstream, the company's global net oil-equivalent production was 2.79 million barrels of oil equivalent per day, a hair's breadth above the 2.78 million barrels per day in the fourth quarter of 2009. Chevron reported output gains in Brazil, China, Kazakhstan, and Thailand, which were largely offset by what the oil companies refer to as normal field declines, along with other price- and cost-related factors.

Geographically, U.S. exploration and production earnings were 13% lower year-on-year, while the international contribution was up nearly 27%. Crude prices rose both at home and abroad, while natural gas realizations were lower year-on-year in the U.S., but higher internationally.

Among Chevron's upstream operating accomplishments was its approval of the development of its 60%-owned Big Foot deepwater Gulf of Mexico project. It also signed another marketing agreement for liquefied natural gas from the huge Gorgon project it operates in Australia, with ExxonMobil and Royal Dutch Shell (NYSE: RDS) as partners.

The company reached an agreement for an expansion of the Caspian pipeline, which carries crude oil from the giant Tangiz field -- among others -- to a terminal on the Black Sea. In addition, it made considerable progress toward final development of the Papa-Terra field, which it shares with Petrobras (NYSE: PBR) in Brazil's Campos Basin. 

Time to be more reserved
As you know, a key objective of oil companies is the replacement of at least 100% a given year's net production with new reserves. Unfortunately, Chevron's replacement rate for 2010 constituted just 24% of its production. While the reasons behind its shortfall are complex, the miss clearly means a lot.

During the quarter, Chevron also announced that it would spend $4.3 billion to acquire Atlas Energy and its active natural gas operations in the Marcellus shale. Atlas shareholders will formally vote on the combination in mid-February.

Downstream, Chevron improved its financial performance, from losses in both the U.S. and internationally in 2009 to earnings last year of $475 million and $267 million, respectively. Along with many of its peers, the company is in the process of trimming its downstream assets to focus on its areas of notable strength. In 2010, it sold its 23.4% interest in the Colonial Pipeline, along with its assets in most East Coast markets. Chevron ultimately expects to cut its refining activities from 24% to 15% of its core business.

No more lumps of coal
Chevron has also announced that it plans to exit the coal business by the end of 2011. Ostensibly, the company has based its decision on the glacial pace at which it sees new coal technologies developing. Indeed, as management noted in announcing its decision, the application of many of new coal technologies appears to be a decade or more from fruition.

In the process, Chevron will dispose of three coal mines, including an open pit mine in Wyoming and two others in New Mexico and Alabama. At the same time, it is in the latter stages of completing a deal to sell an underground mine in western Alabama to Walter Energy (NYSE: WLT).

Come on, guys!
CEO John Watson expressed obvious frustration on his call with analysts regarding the lack of deepwater drilling in the Gulf of Mexico, following the lifting of a moratorium established following the BP (NYSE: BP) Gulf tragedy. When asked about his assumptions regarding Gulf of Mexico activity, Mr. Watson's response included, "The progress in getting back to work has been slower than we would have expected. There's some maintenance work going on. But fundamentally, the moratorium's up, but they're not issuing permits."

And he continued with, "…I think (the administration is) trying to get it perfect, in terms of some of the regulations that they're putting in place. And so we keep getting more thrown at us…We just think that the unprecedented step of just shutting down a business has reached the point of diminishing returns, and its time to get back to work."

The bottom line
So there you have it. In my opinion, Chevron is a solid member of its Big Oil contingent with a number of changes in the works. I, like most who watch the company, was surprised by its light reserve replacement ratio during 2010. Indeed, I believe that the ratio could accelerate the pace of change and the potential for additional acquisitions at the company.

As such, while I certainly wouldn't advise Fools against maintaining or creating positions in Chevron stock, or in most of Big Oil, for that matter, those positions should be predicated on extensive investment time horizons. 

Chevron and  Petroleo Brasileiro are Motley Fool Income Investor picks.  The Fool owns shares of Exxon Mobi and Petroleo Brasileiro.  Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Fool contributor David Lee Smith doesn't own shares in any of the companies named above.  The Motley Fool has a disclosure policy.