Chevron Corp., the second-biggest U.S. oil company, is drilling 43 major prospects from Australia to Canada after posting its biggest drop in output since 2003.

New fields will allow Chevron to meet its target of 4 percent production growth this year without acquisitions, Chief Executive Officer David O’Reilly said today in a meeting with analysts in New York. San Ramon, California-based Chevron plans to spend $22.8 billion this year to add new sources of petroleum and expand refineries, keeping its capital budget unchanged after crude dropped $100 a barrel from July’s all-time high.

O’Reilly, a 62-year-old native of Ireland who was trained as an engineer in Dublin, is trying to stem nine straight quarters of declines in production, even as costs for the most prized rigs and services remain near 2008’s peaks. Chevron spent $10.49 per barrel of oil produced last year, 20 percent more than its bigger U.S. rival, Exxon Mobil Corp.

“It’s a margin squeeze,” said Fadel Gheit, an analyst at Oppenheimer & Co. in New York who rates Chevron shares “buy” and holds some shares in his personal portfolio. “But there’s nothing much you can do about supply contracts that you signed last year. They can’t be renegotiated.”

Chevron rose $3.50, or 6 percent, to $61.78 in New York Stock Exchange composite trading. Before today, the stock had dropped 21 percent this year.

Project Delays

Development of some of the company’s fields has been deferred until construction costs decline and crude prices rise, O’Reilly told analysts today.

“We believe we’ll get better economics by holding back,” O’Reilly said. “Our long-term view hasn’t changed. We never got caught up in $140 oil. You could already tell when oil got to $140 that demand was falling.”

Last month, Chevron said it delayed the start of output at a trio of Nigerian projects that are expected to add 123,000 barrels of oil equivalent a day to the company’s production. Worldwide, the company raised cost targets for some of its biggest projects by $7.3 billion.

O’Reilly is targeting a 4 percent increase in worldwide production in 2009 to the equivalent of 2.63 million barrels a day, according to an annual report filed on Feb. 26 with the U.S. Securities and Exchange Commission. Output dropped 3.4 percent last year, Chevron’s biggest decline in half a decade.

Costs Rise

The Agbami oilfield, a development off the coast of Nigeria that began production in July, will cost an estimated $7 billion, 30 percent more than planned, Chevron said last month. The company intends to raise output from Agbami by 92 percent this year to 250,000 barrels of crude a day.

Nigeria accounted for 6.2 percent of Chevron’s worldwide output last year, tying for fourth-largest source with Angola, behind the U.S., Indonesia and Thailand, the filing showed.

In Canada, Chevron said the Athabasca Oil Sands Project expansion will cost $13.7 billion, exceeding a previous estimate of $10.2 billion. The expansion is still set to begin production next year, according to the filing. Chevron owns 20 percent of the development, which Royal Dutch Shell Plc operates.

Energy companies including ConocoPhillips and Marathon Oil Corp. are cutting capital budgets after crude plunged 70 percent from a record $147.27 a barrel reached in July. Worldwide oil demand will fall an estimated 1.1 percent this year after sliding 0.4 percent in 2008, the International Energy Agency said on Feb. 11.

OPEC Cuts

“Low oil prices inevitably mean less investment,” OPEC Secretary General Abdalla el-Badri said in a March 6 statement. “Oil prices need to be at levels to help sustain economic growth, by supporting longer-term energy industry investments across the board.”

The Organization of Petroleum Exporting Countries, source of 40 percent of the world’s crude, may decide to cut output when the cartel meets in Vienna on March 15, Mohammad Ali Khatibi, Iran’s OPEC governor, said last month.

Chevron derives 20 percent of its oil and gas from OPEC nations, including Angola, Venezuela and the Partitioned Neutral Zone shared by Saudi Arabia and Kuwait. OPEC production cuts in 2007 and 2008 had no impact on Chevron’s output, the company said in last month’s SEC filing.

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