Chevron Corp , the second-largest U.S. oil company, put several of its downstream operations up for sale, including its Pembroke refinery in the UK, and said it would eliminate 2,000 jobs this year.

As it concentrates increasingly on extracting oil and natural gas, Chevron expects 1 percent annual production growth through 2014 and 4 percent to 5 percent in the three years after that, as two big Australian gas projects start up.

John Watson, in his first big presentation to analysts since becoming chief executive this year, affirmed his support for refining and marketing, even as that downstream side of the business undergoes wrenching changes.

We don't contemplate shutting our refineries, he told reporters after the meeting on Tuesday. In fact, our refineries are competitive. The issue for us has been the industry conditions are very difficult right now.

Refiners have been hit hard as the global economic slowdown has left them with too much capacity while demand for fuel has slumped, hammering profit margins.

Mike Wirth, executive vice president for global downstream, expects the tough market conditions to last several years and said growing competition from refineries in Asia and the Middle East will threaten U.S. and European operations.

Good refineries, competitive refineries in those markets will continue to exist, but the refineries at the margin and the weaker ones are the ones that are under the most pressure and the most vulnerable, he said at the meeting in New York.

The less competitive facilities over time are likely to drop out of the market.

Along with 1,900 jobs already cut, the downstream workforce will be reduced by a fifth by the end of 2010. Wirth expects after-tax severance charges of $150 million to $200 million this quarter, and Chevron will continue to cut jobs into 2011.

Chevron will also seek bids for some downstream operations in Europe, the Caribbean and Central America, and will review operations in Hawaii and in Africa outside South Africa.

Wirth also said Chevron has already received unsolicited expressions of interest in the Pembroke refinery in Wales, which has capacity to refine about 210,000 barrels per day.

But the refineries up for sale will join many others already put on the market by rivals, including Royal Dutch Shell Plc and Total SA .

Chevron said it ultimately wants its downstream business to be in fewer than 40 countries, versus 93 last year, and to own only 1,900 filling stations, down from 3,200 in 2009.

Asked about the Hawaii refinery, under review since May, Watson told reporters he does not plan to shut it or convert it to a fuel terminal, after making some changes to improve it.

LONG SHIFT AWAY FROM REFINING

Watson, who became a vice president in charge of mergers and acquisitions in 1998, told the analysts that the company had been reducing its downstream exposure for the past decade, selling off nearly $1 billion in assets per year on average.

He said Chevron has been reshaped, with capital employed in upstream rising to a 65 percent share from about half in 1999, and that share should grow further in the years ahead.

Watson told reporters that oil prices will rise eventually as supply dries up. We don't expect sharp spikes in the near future; but in the years ahead when that surplus capacity diminishes, the potential for an increase in prices is there.

Like its rivals, Chevron sees natural gas as a growing part of its future. Liquid reserves fell to 62 percent of its total in 2009, down from 66 percent a year before.

Chevron said on Tuesday it expects natural gas to represent 41 percent of production by 2017, up from 31 percent now.

Off the coast of Western Australia, the Gorgon project should start up in 2014 a reach a peak production of 450,000 barrels of oil equivalent per day (boepd), while the Wheatstone project should start two years later and produce up to 260,000 boepd.

As for the next three years, Chevron expects to approve or start 25 upstream projects that cost at least $1 billion. One due to begin early engineering work in 2011 is another expansion of the Tengiz project in Kazakhstan, which should grow production by between 250,000 and 300,000 barrels per day to about 900,000.

Chevron shares rose 0.3 percent to $74.84 in afternoon trading.

Larger rival Exxon Mobil Corp will outline its 2010 plans for analysts at a meeting in New York on Thursday.

(Reporting by Braden Reddall; Editing by Gerald E. McCormick, Dave Zimmerman)

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