Chevron Corp., the No. 2 U.S. oil company, posted the smallest second-quarter profit increase among major producers as damage from last year's Gulf of Mexico hurricanes blunted the impact of surging energy prices.

Net income climbed 18 percent to a record $4.35 billion, or $1.97 a share, from $3.68 billion, or $1.76, a year earlier, San Ramon, California-based Chevron said today in a statement. The company was expected to earn $2.21 a share, the average analyst estimate in a Thomson Financial survey. Chevron said repairs of uninsured storm damage cost the company 13 cents a share.

Chevron's results capped a week of earnings gains by five of the world's six largest publicly traded oil companies. Irving, Texas-based Exxon Mobil Corp., the world's largest oil company, Thursday reported net income of $10.4 billion, up 36 percent from a year earlier.

Exxon, Chevron and Houston-based ConocoPhillips and Europe's Royal Dutch Shell Plc and BP Plc netted more than $34 billion combined in the quarter. That works out to $263,000 a minute.

"Chevron's been slow to perform at the same level as the other major oil companies," said Peter Dunay, who helps manage $150 million, including Chevron shares, at Leeb Capital Management in New York.

Five of the world's six largest oil companies reported earnings this week, and only Chevron fell short of analyst expectations. Chief Executive Officer David O'Reilly, who last year acquired Unocal Corp. to end a slide in output, is boosting spending on new wells to capitalize on record oil prices.

Shares of Chevron fell $1.68, or 2.5 percent, to $66.05 in New York Stock Exchange composite trading. The decline was Chevron's biggest since June 7.

O'Reilly raised output 10 percent to the equivalent of 2.67 million barrels of oil a day. Without the production added through last year's Unocal acquisition, output would have declined by 170,000 barrels a day, said William Featherston, an analyst at UBS Securities LLC.

Chevron was paid $62.24 per barrel of crude, a 38 percent increase from a year earlier. Each $1 increase in the price of oil boosts Chevron's per-share earnings by 1.8 percent, said Featherston, who rates the company's stock at "neutral." Revenue rose 11 percent to $53.5 billion.

Exploration costs climbed to $265 million as Chevron expanded the search for oil and natural gas in Nigeria, Australia and the Gulf of Mexico. The increase was three times larger than expected by Howard Weil Inc. analyst Wes Ralston.

"Exploration expenses industrywide are rising," said Evan Smith, who helps manage $1.3 billion in energy, minerals and equipment stocks at San Antonio-based U.S. Global Investors Inc. "We're seeing cost inflation in everything from hiring crews to leasing drilling rigs."

Chevron scuttled its Typhoon platform in the Gulf of Mexico in May, eight months after Hurricane Rita lashed the structure with six-story waves and winds of 150 miles per hour.

The producer may plug and abandon more wells in the Gulf, O'Reilly told investors yesterday in a conference call. Chevron still hasn't restored daily production equivalent to 60,000 barrels of oil a day in the Gulf, the company said.

Worldwide output in this year's second half will slow to the equivalent of 2.6 million barrels a day, O'Reilly said.

Chevron said it will record one-time costs of $200 million in the third quarter to account for a retroactive tax increase in the U.K. The increase will cost the company about $80 million in the second half of the year.