Oil refineries, which turn crude into gasoline, diesel and other fuels, struggled last year as oil prices doubled from February to December.
As a result, Chevron has been scaling down its refining operations. Chairman and CEO John Watson told investors in a conference call that Chevron would cut spending by $1 billion this year on its downstream business, which includes refining, marketing and transportation.
"We are shifting to a simpler and less costly organization," Watson said.
Chevron shares fell 46 cents to $72.78 in afternoon trading.
Raymond James analyst Pavel Molchanov said investors have been asking whether Chevron will shutter any of its refineries. A shutdown of Valero Energy Corp.'s Delaware refinery resulted in a $1.2 billion loss for that company.
"We've known for a very long time that refining was going to be a brutal business," Molchanov said.
Chevron said earlier this month that changes to its refining business will lead to cut jobs throughout the company. Watson said more details will be announced in March.
The nation's second-largest oil company also plans to pull its name from 1,100 service stations in the eastern half of the U.S. where it has the most competition.
Chevron's fourth-quarter earnings were $3.1 billion, or $1.53 per share, for the final three months of 2009. That compares with $4.9 billion, or $2.44 per share for the same period of 2008. Revenue increased 10.3 percent to $47.6 billion.
Analysts expected quarterly earnings of $1.70 a share on revenue of $40.4 billion.
For the full year, Chevron earned $10.5 billion, or $5.24 per share, compared with $23.9 billion, or $11.67 per share in 2008.
Watson blamed the company's refining troubles on a weak economy and a wild swing in energy prices from 2008 to 2009.
In the fourth quarter of 2009, oil prices climbed as energy traders anticipated an economic recovery and a rise in oil consumption. In the same period of 2008, they were in free fall, giving up nearly 60 percent of their value in three months.
Chevron's finances were pulled in different directions. While its oil production business boomed, Chevron's refineries tanked, losing $613 million in the fourth quarter compared with a profit of $2 billion in the year-ago period.
Chevron has responded by aggressively cutting expenses, slashing costs 15 percent in 2009, Watson said.
Meanwhile, Chevron continues to wait for a ruling in a $27 billion court case in Ecuador, where residents claim the company contaminated huge portions of the Amazon rain forest.
Watson said he didn't know when the judge would rule.
"There could be an adverse verdict," he added. "If so, we'll vigorously defend ourselves, not only in Ecuador but the United States and anywhere else they might choose to seek enforcement."
The 17-year-old case accuses Texaco, which Chevron acquired in 2001, of dumping toxic wastewater from drilling operations into unlined waste pits. Chevron says Texaco already has spent millions on environmental cleanup in the region and is no longer responsible.