By Shariq Khan and Gary McWilliams

HOUSTON (Reuters) -Exxon Mobil on Friday beat Wall Street’s third quarter profit estimate, boosted by strong oil output in its first full quarter that includes volumes from U.S. shale producer Pioneer Natural Resources.

Oil industry earnings have been squeezed this year by slowing demand and weak margins on gasoline and diesel. But Exxon’s year-over-year profit fell 5%, a much smaller drop than at rivals BP and TotalEnergies, which posted sharply lower quarterly results.

The top U.S. oil producer reported income of $8.61 billion, down from $9.07 billion a year ago. Its $1.92 per share profit topped Wall Street’s outlook of $1.88 per share, on higher oil and gas production and spending constraints.

“We had a number of production records” in the quarter, said finance chief Kathryn Mikells, citing an increase of about 25% year-on-year in oil and gas output to 4.6 million barrels per day.

Exxon shares rose about 1.3% in premarket trading to $118.25 per share.

Exxon earlier this month flagged operating profit had likely decreased, leading Wall Street analysts to shave their quarterly per share earnings outlook by nearly a dime.

The results included Exxon’s first full quarter of production following its acquisition in May of Pioneer Natural Resources.

The $60 billion deal drove production in the top U.S. shale basin to nearly 1.4 million barrels per day of oil and gas, helping overcome a 17% decline in average oil prices in the quarter ended Sept. 30.

The company expects full year output to average about 4.3 million barrels of oil equivalent per day (boepd), including eight months of Pioneer’s contributions.

No. 2 U.S. oil producer Chevron, whose plans to acquire Hess Corp have locked the two rivals in a bitter arbitration battle over the prized Guyana asset, also beat Wall Street estimates despite lower year-over-year earnings. Chevron’s shares were up 2.2% premarket.

Exxon said it plans to issue a revised production forecast next month. The company noted that scheduled well maintenance will lower oil and gas output by about 30,000 boepd in the fourth quarter.

The market is worried about oil supply outrunning demand next year, with exporter group OPEC reviewing plans to add 180,000 barrels per day (bpd) of additional oil supply from December. Oil prices slumped over the summer and remain about 12% below June’s average.

Exxon disclosed it raised its quarterly dividend by 4% after generating free cash flow of $11.3 billion, well above analysts’ estimates. Rivals Saudi Aramco and Chevron have had to borrow this year to cover shareholder returns after boosting dividends and buybacks to attract investors.

Exxon’s earnings from producing gasoline and diesel in the quarter were $1.31 billion, down from $2.44 billion year-on-year as weak margins and a nearly month-long outage at its 251,800-bpd Illinois refinery hit segment results.

Lower planned maintenance at other plants, along with gains on derivatives, helped offset weak industry-wide refining margins and the impact of the Illinois outage, Exxon said.

“Refining margins definitely came down in the quarter. If you look at overall results for the refining business, we feel pretty good,” said CFO Mikells. Per unit refining margins since 2019 have about doubled on a constant margin basis, she said.

Profits from Exxon’s chemical business, which has been pressured by industry overcapacity for two years, rose in the quarter to $893 million, compared with $249 million a year ago, on a slight increase in margins.

“We are in a much better position (in chemicals) because we have a strong Gulf Coast footprint that benefits from Gulf Coast (natural gas) prices,” said Mikells.

(Reporting by Gary McWilliams in Houston and Shariq Khan in New York; Editing by Daniel Wallis and Marguerita Choy)

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