Image Source: Chevron Investor presentation.

Last quarter was a particularly rough one for Chevron (NYSE:CVX) as it tries to navigate the downturn in oil prices. Based on what we have seen so far this quarter, though, it doesn't appear that this quarter will be much better.

The decline in oil and gas prices will likely hurt Chevron harder than some of its peers for a couple of reasons. Let's take a look at why Chevron is particularly exposed this quarter, and what investors should watch for when the company reports earnings. 

Refining won't be the savior
One of the recurring themes for integrated oil and gas companies has been the ability to lean on their refining operations to cover for weakness in upstream production. Unfortunately for Chevron, the company has a less-robust portfolio of downstream operations to fall back upon. Last quarter, its downstream segment was given a boost when it sold a 50% equity stake in the Caltex Australia retail operation for $1.6 billion. Without it, downstream earnings were rather modest. 

Adding even more fuel to the fire will be the fact that the company will likely see lower price realizations on oil and gas production compared to last quarter. Several other companies that have reported so far have noted even lower oil and gas prices in the quarter, especially in North America. About 30% of Chevron's oil and gas production comes exclusively from the U.S., which is a bit higher than most of the other Big Oil companies. This also suggests that Chevron's performance will be weaker than its peers. 

What to watch: Squeezing cash from the business
For many investors in Chevron, the theory is that so much of the company's woes will be alleviated when the company is able to bring its Gorgon and Wheatstone LNG facilities online. The two mega projects represent an absurd amount of the company's capital employed, and once online, they have the potential to be substantial boosts to profitability. Gorgon is expected to ship its first cargoes sometime this year, and ramp up to full production by the middle of next year. So you could call this the last big push. 

Before we get there, though, the company needs to be able to get some cash from its current operations to pay for these projects and its dividend. One thing it did rather well, considering the recent market, is pump a little extra cash out of the business.

During the last six months, cash from operations was $11 billion before adjustments for working capital compared to the $17 billion in the first half of 2014. That 35% decline in cash from ops looks much better when you consider the change in oil and gas prices over that time. If the company can maintain some semblance of cash flow before these big projects come up, it will help ease any fears that investors might have about the sustainability of its current dividend program. 

What a Fool believes
Chevron has a lot on its plate right now. It has to cut costs at a breakneck pace to maintain some level of profitability during this market downturn. It needs to complete two of its most ambitious development projects. And, in all likelihood, it needs to revise its production outlook based on lower oil price assumption than the $70 per barrel it has been working from during the past couple of years. 

You could argue that Chevron has the most upside potential of all the oil majors because it's more tied to oil and gas production than many of its peers. However, a lot of that production may need a higher cost than others to be profitable. The next few quarters will likely be transformative ones, so investors should keep a close eye on the moves the company makes to manage today's market weakness, and set itself up for the next wave of development projects. 

Chevron reports its earnings before the market opens on October 30th, and will host a conference call to discuss the results on the same day at 11 a.m. EST.

Tyler Crowe has no position in any stocks mentioned. You can follow him at Fool.com or on Twitter @TylerCroweFool.

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