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It's always interesting to see the most heavily owned stocks. While Companies like BP and Exxon-Mobil (XOM) continue to get most of the press, large oil companies like Chevron (CVX) are not far behind. With the S&P 500 and its tracking exchange traded funds (SPY) up nearly 30% for the year, stocks like Apple (AAPL) up nearly 40% for the year, and some financials not far behind, investors are increasingly looking to other sectors to bolster their portfolios going into the back half of the year. One popular choice is Chevron.

Indeed, Chevron has made some strong decisions to tilt their refining business to the more profitable west coast, and reduce natural gas production as prices continue to drop. Still, while Chevron seems like a well-run company, their oil production numbers continue to disappoint. I think the company's share price seem to offer little to no value at the current near $105 dollar level unless oil prices were to make a big move up.

Chevron has been one of the better performing large integrated names during the past several years. Offering investors small but consistent dividend increases and steady returns, Chevron has outperformed their peers like Exxon by a fairly wide margin during the past several years.

However, despite Chevron's outperformance of other large integrated names, the stock has still underperforming mid-majors like EOG Resources (EOG) and Apache (APA) by a fairly wide margin during the last decade.

If we look at Chevron's last quarter, which included a summary of their business during the 2011 fiscal year, we begin to see what the company's problems have been.

The company reported a nearly 3% drop in internaitonal oil production, which accounts for about three fourths of its total production. Chevron also reported a less sizeable drop in natural gas production, and suggested that gas production would begin to rise next year because of increases in production in their Australian fields, as well as in the Marcellus Shale.

The company also reported a wide gain in the west coast refining division, which has not been particularly profitable over the past couple years, as WTI prices rose less than Brent prices.

What is interesting to me about Chevron's quarter is that it highlights the problem that all of the majors are having now. Dropping production numbers even while prices rise. Royal Dutch Shell (RDS.A) recently reported production drops of around 3%, Conoco-Phillips' annual production numbers dropped significantly as well, although they were especially impacted by events in Venezuela. Exxon, the exception amongst the majors, still reported just a 1% increase in oil production.

Oil is obviously becoming increasingly hard to find, and while Chevron still gets an appealing nearly two thirds of its production from their higher margin oil business, their production numbers continue to drop. Even when oil prices reached their 3 year peak, several years ago, around $115 a barrel in WTI prices, the company was unable to take any stronger action than a mere 8% dividend raise.

The company recently reported a sizable increase in their reported reserves and outlined plans to increase production by nearly 20% by 2017. Still, their production results of recent have been disappointing, and the SEC's rules and regulation for reporting oil reserves are anything but strict. Under today's rules reserves can be "proven", "probable", or "possible".

While often times even proven reserves are not recoverable, mother nature is unpredictable, and even oil classified in one category can often be found to be difficult if not impossible to recover once the drilling actually begins.

To conclude, while the recent spill off the coast of Brazil seems to be relatively minor with estimates for the total barrels spilled to be around 3,000 and no known damage to coastline or other environmental or commercial areas reported - the barrel per day estimate in the BP spill ranged from 50-60,000 by some account - risks for Chevron remain.

With oil becoming increasingly hard to find and Chevron now getting nearly 30% of their oil and gas production from lower margin natural gas, it's unlikely Chevron will be able to significantly increase returns in the near-term without an equally significant rise in the underlying price of the commodities they are producing.

Source: Chevron: Another Overvalued Large Integrated Oil Company Set To Underperform