By Bradley Olson
America's biggest oil companies surprised investors with quarterly profits that missed expectations stoked by rising crude prices.
Exxon Mobil Corp. and Chevron Corp. on Friday reported quarterly net income of $8.4 billion and $3.1 billion, respectively. But most of the gains stemmed from one-time benefits related to the tax changes approved by Congress and signed into law by President Donald Trump late last year.
Exxon said its production fell by about 130,000 barrels a day and its U.S. drilling business lost money for the 12th consecutive quarter, showing continued struggles in an area where the company is making a vast expansion. Exxon also reported a $1.3 billion write-down on its natural gas properties, the second year in a row it has had to recognize the declining value of certain prospects, something it rarely did before oil prices crashed in 2014.
Chevron was hit by falling profits in its California refining business, as well as charges related to hurricanes Harvey and Nate. Chief Executive Michael Wirth, who took over this month for predecessor John Watson, said reducing costs and focusing on returns will be his priority.
"We are a cyclical commodity business," he said in a call with analysts. "Capital discipline always matters. Costs always matter."
Exxon shares fell more than 5%, their stock's biggest one-day percentage drop in five years.
"The U.S. results were disappointing," said Brian Youngberg, an analyst with Edward Jones in St. Louis. "Production declines are a continuing challenge for this company. They need to jump-start the growth for investors to get excited again."
Chevron shares declined 3.4%.
The Exxon and Chevron results were in contrast to the companies' big oil counterparts, whose executives have said that rising prices for oil, currently around $65 a barrel, have led them to expect 2018 to be the best year since crude sold for more than $100 a barrel.
Royal Dutch Shell PLC saw profits triple, nearing levels last seen before oil prices crashed in 2014. ConocoPhillips said net income was $1.6 billion, the highest quarterly profit in three years.
Oil and gas investors in the last year have begun to revolt against companies that have failed to perform for shareholders. Oil prices have surged by about 35% in the last six months. Exxon's shares have risen just 5%, and Chevron's 9%.
U.S. production in November came close to surpassing an all-time monthly record set in 1970 of more than 10 million barrels a day. The U.S. may soon surpass Saudi Arabia and Russia, according to the International Energy Agency.
Even as the biggest U.S. companies fell short of expectations, the sector is likely to generate more cash in 2018 than it did during some period of the boom era when oil sold for more than $100 a barrel, according to Simmons & Co. The amount of cash in excess of new spending and dividends could approach $40 billion in 2018, the most in more than a decade, according to the analysis.
Healthy global economic growth has created solid demand for oil, pushing up profits all over the world for refining oil into gasoline and other products. In some areas, those margins are set to surge by as much as 15% in 2018, according to Evercore ISI, above levels that were already near records.
Exxon reported a more than $8 billion profit in the last three months of 2017 as it recorded a $5.94 billion benefit from the new tax law. That was up from earnings for the same quarter a year before of $1.68 billion, or 41 cents a share.
On an adjusted basis, which omits the bump from the new tax law and impairments, earnings fell 2.2% to $3.73 billion, or 88 cents a share. Analysts polled by Thomson Reuters were expecting adjusted earnings of $1.04 a share.
Exxon Chief Executive Darren Woods plans to triple production in the red-hot Permian basin of West Texas and New Mexico and spend $50 billion in the U.S. over the next five years, a strategy that was touted by Mr. Trump in his state of the union speech.
Chevron earnings rose more than sevenfold from a year ago, but primarily because of the tax benefit. Net income rose to $3.11 billion, including a $2.02 billion benefit related to tax legislation.
In contrast to Exxon, Chevron's oil and gas production rose by almost 3% to 2.7 million barrels a day as new projects in Australia increased output and the company ramped up in west Texas. Chevron also boosted its quarterly dividend by 4% and signaled that more cash returns to shareholders could be on the way if oil prices remain near current levels.
--Allison Prang and Sarah Kent contributed to this article.
Write to Bradley Olson at Bradley.Olson@wsj.com