Short-term hiccups for Big Oil continue. Chevron (NYSE: CVX) has come out with its interim first-quarter update and things don't look so good. While the company is expecting higher earnings this quarter on a sequential basis, the fundamentals seem far from impressive.

Here's a breakdown of some of the latest information.

Exploration and production
Total U.S. production volumes dipped by 17,000 barrels of oil equivalent per day (Boe/d) in the first two months of this year, when compared to the fourth quarter of 2011. The company cites the sale of its Cook Inlet assets in Alaska as the reason for the production drop. On a year-on-year basis, total production fell by a huge 50,000 Boe/d. That's more than a 7% drop.

Internationally, overall production volumes remained the same sequentially. However, liquids production fell by 30,000 barrels per day (Bpd) and more than 6% in the first two months on a year-on-year basis (which translates to an 89,000 Bpd plunge). And the reason isn't exactly clear. Furthermore, in the middle of March, Chevron had to shut down production from its 33,000-Bpd Frade field off the coast of Brazil after detecting a second leak following the first leak last November. This should bring down average daily production further.

The bad news is that production from this field, where Petrobras (NYSE: PBR) holds a 30% stake, has been suspended indefinitely. The Brazilian oil fields are arguably the most exciting prospects in oil exploration and production. The latest turn of events might prove to be a big blow to both Chevron and Petrobras, who are struggling to increase production. Chevron, in particular, is struggling with natural production declines in its properties all over the world.

The silver lining, of course, is that international natural gas production increased by 5% from the fourth quarter. This was supplemented by healthy prices with natural gas costing an average $5.82 per Mcf in the international market, up from $5.55 per Mcf and $5.03 per Mcf in the fourth quarter and first quarter of last year, respectively. Additionally, average crude oil prices (both WTI and Brent benchmarks) rose more than 10% in the 12-month period, and should come to Chevron's rescue.

Refining and marketing
This segment has actually sprung a surprise. Refining margins improved sequentially and on a year-on-year basis. Taking advantage of higher margins, Chevron increased refinery input, both domestically and internationally. Domestic crude input volumes increased a solid 20% sequentially, thanks to a major revamp of its Richmond, Calif., refinery. Margins for the Maya crude oil along the Gulf coast rose a fantastic 73% over the fourth quarter of 2011 to $20.56 per barrel, and this could mean the refining industry is coming out from the doldrums.

Going by this massive improvement, I'm actually looking forward to the first-quarter earnings of Valero Energy (NYSE: VLO), which has seven refineries along the Gulf Coast and three in the midcontinent region constituting two-thirds of its entire operations. HollyFrontier (NYSE: HFC), which has its entire operations in the Gulf coast and midcontinental region, should also see substantial gains.

Foolish bottom line
Chevron's first quarter has been largely unimpressive. While its long-term outlook looks solid, I believe the next six months look bleak as production could either stagnate or fall. Simply relying on crude oil prices to stay high to beef up the bottom line isn't the best strategy. Meanwhile, we at The Motley Fool will help you stay up to speed on the top news and analysis on Chevron. You can start by adding the company to your free watchlist.

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