UPDATE 1-Chevron sees production growth, cost cuts in 2009

* Sees 4 pct production growth in 2009

* Targets 14 pct upstream base business cost cuts in 2009

NEW YORK/SAN FRANCISCO, March 10 - Chevron Corp, the second-largest U.S. oil company, said on Tuesday it expects to increase production 4 percent this year while also cutting costs to match the sharp drop in oil prices.

George Kirkland, executive vice president for global upstream and gas, said the company aims to cut its upstream base business costs 14 percent this year, which would exclude one-off payments for concessions.

"You have wells that get squeezed when prices come down to $30 to $40 per barrel ... We'll defer them," he said at the company's annual analyst meeting in New York. "We're going to get the cost of doing business back down (first)."

Kirkland also said Chevron expects to drill more than 50 exploratory wells in 2009 and spend $2 billion on exploration, about the same it spent in the last few years.

Looking further ahead, Chevron released an anticipated peak capacity for its Jack/St Malo project in the Gulf of Mexico of 120,000 to 150,000 barrels of oil equivalent (boe) per day, though the start date for production has yet to be determined.

Chief Executive David O'Reilly also said the "stars are getting aligned" to move ahead with its 50 percent-owned Gorgon liquefied natural gas project in Australia, which it expects to sanction in the second half of the year.

Chevron expects overall LNG production to more than triple to about 300,000 boe per day by 2015, Kirkland said.

While the company has already abandoned its plan for 3 percent compound production growth between 2005 and 2010, it is still expecting solid growth this year.

Assuming oil priced at $50 a barrel, the San Ramon, California-based company has said it expects to produce 2.63 million boe per day in 2009, up from just over 2.5 million boe in 2008. Net proved reserves stood at 11.2 billion boe at the end of 2008.

Shares of Chevron, the world's fourth-largest oil company by value, rose 5 percent to $61.18, in line with the market. The stock is down 17 percent in 2009, versus a 15 percent drop in the Chicago Board Option Exchange's oil index .OIX>.