HOUSTON (Reuters) -Chevron ( CVX ) beat analyst estimates on Friday as record oil and gas production, boosted by its $55 billion acquisition of Hess, and stronger refining margins lifted the No. 2 U.S. oil producer's results for the third quarter.

Adjusted earnings for the three-month period ended September 30 were $3.6 billion or $1.85 per share, which handily beat the consensus estimate from analysts of $1.68 per share as compiled by LSEG.

Cash flow from operations excluding working capital grew nearly 20% year-over-year to $9.9 billion, driven in part by production growth in areas including the Permian Basin and the U.S. Gulf of Mexico, Chevron ( CVX ) Chief Financial Officer Eimear Bonner said in an interview. 

The company said in an investor presentation that it expects strong cash generation to continue, even with lower oil prices, because of increased capital efficiency and growth in high-margin assets.

Chevron ( CVX ) completed the acquisition of Hess in July, which gave the company access to a prolific oilfield in Guyana operated by larger rival Exxon Mobil. The deal puts Chevron ( CVX ) in a better position to weather oil price volatility with a source of profitable production, investors have said.

The new combined company produced 4.1 million barrels of oil equivalent per day (boepd), a record high and up from Chevron's ( CVX ) standalone production of 3.4 million boepd in the same quarter last year.

The results were also buoyed by lower costs, as Chevron ( CVX ) is on pace to reach $2 billion to $3 billion in cost reductions next year, Bonner said.

"Those are the catalysts that are coming together to give us this high confidence in free cash flow growth with lower execution risks, given that all these major milestones are behind us," she said. 

DOWNSTREAM EARNINGS JUMP WITH HIGHER REFINING MARGINS

Upstream earnings totaled $3.3 billion, a 28% decline from the same period last year due to lower oil prices. Chevron's ( CVX ) profit from the downstream business jumped 91% over the same time frame to $1.1 billion, driven by higher refining margins and lower operating expenses in the U.S.

Chevron ( CVX ) paid $3.4 billion in dividends and bought back $2.6 billion worth of shares during the quarter. The company said capital expenditure, which totaled $4.4 billion in the third quarter, rose from the same period last year because of spending on legacy Hess assets.

Benchmark Brent crude prices averaged $68.17 over the third quarter, down about 13% from the same period last year and up 2% from the second quarter. The OPEC+ group of oil producers increased its output throughout the year, raising fears about oversupply and hampering crude prices.

Average U.S. natural gas prices during the quarter rose about 38% compared with the year-ago quarter.