CHEVRON CORP. $70 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.2 billion; Market cap: $154.0 billion; WSSF Rating: Above average) is the second-largest integrated oil company in the United States, after ExxonMobil Corp.

The company produces oil and natural gas in 35 countries, and refines oil into gasoline and petrochemical products. It also operates 26,500 gas stations. The U.S. accounts for 30% of Chevron’s total production.

In the three months ended December 31, 2006, Chevron’s earnings fell 6.5% to $1.74 a share (total $3.8 billion) from $1.86 a share ($4.1 billion) a year earlier. Revenue fell 11.3%, to $47.7 billion from $53.8 billion.

Although oil prices and production rose, natural gas prices in the U.S. fell 42% as production returned to normal levels following the disruption caused by Hurricane Katrina in 2005.

Chevron is doing a good job replacing its production with new reserves. The company spent $16.6 billion on capital expenditures and exploration in 2006, up 49.5% from $11.1 billion in 2005. Part of that stems from Chevron’s acquisition of Unocal in 2005.

Chevron will probably offset these costs by selling between $1 billion to $3 billion of older assets.

About 30% of Chevron’s new reserves come from its oil sands operation in Canada. The tar-like oil sands require much more energy to extract and refine than regular crude. But these fields are the second-largest oil deposits in the world after Saudi Arabia, and shouldlast for decades.

Chevron also owns half of the big Jack 2 offshore oilfield in the Gulf of Mexico. However, a lack of deep-water drilling rigs has slowed development.

The company’s strong balance sheet will help it fund these projects. It has $11.4 billion ($5.20 a share) in cash and $9.8 billion in debt (14% of stockholders’ equity).

Chevron spent $5 billion on share buybacks in 2006, but it may cut future repurchases as its exploration costs grow.

However, it will probably raise its $2.08 dividend, which yields 3.0%. The stock now trades at just 9.5 times its forecast 2007 profit of $7.36 a share, and at 6.4 times cash flow of $10.95 a share.

Chevron is a buy.