Chevron Corporation - Stocks

Instrument description

Oil is the world’s most important and essential commodity due to its massive usage in several sectors which includes transportation, industrial applications, and generation and distribution of electricity and gas. Oil is so valuable to the economy of every country and it is often referred to as ‘Black Gold.’ Crude oil is drilled and extracted from land and sea surfaces and found alongside other resources such as natural gas and coal.

All the big oil exploration and distribution oil companies are known for their massive operations and revenues. All over the world, investing in oil companies is considered the safest bet as you are more likely to receive a dividend. Chevron is a US multinational energy corporation that is involved in the exploration, production, refining, and transportation of oil, natural gas, and other petroleum products.

Chevron is one of the largest business companies and ranked 15 as of March 2020 by Fortune 500. Chevron has an annual revenue of $146.5 billion and a market valuation of $136 billion. From the 1940s to 1970s, Chevron was part of Seven Sisters that dominated the petroleum industry of the world. Chevron is considered the 5th largest company in the oil and gas sector and is headquartered in San Ramon, California, USA.

Chevron operates in more than 180 countries in the world and has 48,200 employees. The product portfolio of Chevron includes Fuels, Lubricants, Aviation Fuel, Additives, Chemicals, Process oils, and Marine and Base oils. The areas where Chevron operates the most is the US Gulf Coast, US west coast, Australia, Southeast Asia, and South Korea.

Chevron has an estimated 12 billion crude oil reserves, and nearly 3 million barrels of oil are produced every day, from which almost 1.6 million barrel of oil is refined. The company sells its refined products under Chevron, Texaco, and Caltex. Chevron has close to 8000 gas stations in the US and 5000 located in different parts of the world. Chevron generates almost 45% of the total revenue from the US market.

History of Chevron

Chevron was first founded as the Pacific Coast Oil Company on June 19, 1879, and later renamed as Chevron Corporation on June 23, 1984. The Pacific Coast Oil Company was acquired by Standard Oil for $791,000 in 1900 that made it the largest oil company in California. The Pacific Coast Oil Company retained its name until 1906 when it was merged with a subsidiary of Standard Oil to become Standard Oil Company or California Standard.

In 1911, the Standard Oil Trust was dissolved by order of the US Supreme Court, and Standard Oil Company emerges as a single firm called Standard Oil (California), which merged with Pacific Oil Company in 1926. In 1930, the Standard Oil Company of California, also referred to as SoCal, discovers oil in Bahrain and this starts the expansion of the company in the Middle East.

In 1933, SoCal was permitted to drill oil sites in Saudi Arabia, and in 1936, the company sold 50% of its drilling rights in Bahrain and Saudi Arabia to Texas Company, which was later called (Texaco Inc.). A new joint venture was formed called California-Texas Oil Company (Caltex), and the Saudi division of Caltex was later called Aramco (Arabian American Oil Company).

In 1948, 30% of Aramco was sold to Standard Oil Company (New Jersey) and 10% to Socony Vacuum Oil Company. In 1961, SoCal acquired Standard Oil Company (Kentucky) to distribute and market gasoline in the Southeast region of the US.

The year 1970 was not quite promising as the company suffered due to oil embargo by OPEC (Organization of the Petroleum Exporting Countries), and many units of Caltex were nationalized. The Saudi government nationalized the entire Aramco in 1980.

The name SoCal was changed to Chevron in 1984, and the company acquired Gulf Corporation for $13.2 billion. In 1993, Chevron signed a joint venture with the Republic of Kazakhstan to develop the Tengez Oil field. In 1996, Chevron sold its natural gas division to Natural Gas Clearinghouse and a 27% stake in the firm, which was later named Dynergy Inc. In 2000, Chevron partners with Phillips for its global chemical operations, and it’s a 50-50 joint venture called ‘Chevron Phillips Chemical Company.’

In 2001, Chevron buys Texaco in a deal worth $45 billion and forming ChevronTexaco Corporation, the deal was done amid spikes in oil prices, but the savings from the deal were estimated to be $1.2 billion. The new company ChevronTexaco started with a market capitalization of $97 billion, which brought it in the ranks of other top oil-producing companies that included British Petroleum, ExxonMobil Corporation, and Royal Dutch Shell.

In 2005, Chevron bought Unocal Corporation for $18.4 billion, which increased the petroleum and gas reserves of the company by 15%. In 2011, Chevron closed retail operations in the Mid-Atlantic US, and the names of Chevron and Texaco were removed from over 1000 gas stations. Chevron acquired Atlas Energy Inc. in 2011 for $3.2 billion

In 2013, top oil company Total S.A did a joint venture with Chevron to buy its retail petroleum distribution in Pakistan. In October 2014, Chevron decided to sell Canadian oil shale holdings to Kuwait Oil Company. In 2016, Chevron decided to exit the South African market. In the second quarter of 2020, Chevron announced up to a 10% to 15% reduction in the workforce due to the Coronavirus pandemic. In July 2020, Chevron has shown interest in acquiring Noble Energy for $5 billion.

Current Business and Investment of Chevron

Chevron is a global brand that is involved in exploration, production, refining, transportation, financial management, and technological support of energy and chemical operations. Chevron manages both upstream and downstream operations; the upstream contributes to one-third of revenue while the downstream accounts for more than two-thirds of revenue.

• Upstream

The upstream segment is responsible for the exploration, and production of crude oil and natural gas along with its processing, storage, and transportation of oil through pipelines. The upstream sector also oversees the marketing of gas. Chevron has ownership of almost 60,000 oil wells and 6500 gas wells.

• Downstream

The downstream segment is involved in the manufacturing and selling of products that include fuels, additives, petrochemicals, and lubricants. The downstream sector oversees the manufacturing and marketing of petrochemicals, as well as fuel and lubricant additives, and plastics for industrial use. The three processes in the downstream section are

1. Refining of crude oil into petroleum products
2. Marketing of crude oil and its products
3. Transportation of crude oil and refined products by pipeline

Risk and Potential in Chevron Environment

Chevron is a leading company when it comes to the energy and power sector. The company is over 100 years old and has a strong global presence. SWOT analysis is a common strategic tool used by companies to oversee its current performance and do future growth estimations. The SWOT analysis of Chevron are

• Strengths

Chevron holds a global market presence with a stable financial performance for many years. The company comes among the five biggest oil companies. The strength of the company lies in its total integration, which means management from drilling to production to refinery and distribution of petroleum products. Chevron operates in more than 180 countries in the world. The company has a significant amount of oil and gas stockpiles.

• Weaknesses

Chevron had to face legal issues on number of occasions, and it was also fined by the US Environmental Protection Agency (EPA). The company has to face a decline in its product and services and an increased debt amount.

• Opportunities

Due to an increased carbon footprint, the demand for alternative fuels and sustainable energy resources has increased. Chevron has the opportunity to take advantage of gas demand, and the company also has an advanced renewable facility in California, Wyoming, and New Mexico. Chevron is a leading company when it comes to geothermal energy. The increase in oil demand leads to high oil prices from which Chevron can potentially maximize its profits.

• Threats

Chevron faces growing challenges due to strict government rules and regulations, along with compliance with environmental laws. The global recession and pandemic situation heavily impacts the sales and revenue generation, as seen due to the ongoing Covid-19 outbreak where oil demand and prices have declined drastically over the world. There is also a threat to oil site or pipeline damage due to unexpected weather change or natural calamity. Chevron also has to face tough competition with other major oil companies such as ExxonMobil, Royal Dutch Shell, BP, and Total S.A (France).

Stock Analysis of Chevron

Chevron is listed and actively trades on the New York Stock Exchange (NYSE) with the ticker symbols ‘CVS.’ The company is listed under the ‘Energy Minerals’ Sector, and the industry is ‘Integrated Oil.’

The all-time high share price of Chevron was $134.85 on June 24, 2014, and the average price in the last 52 weeks is $103.77.

Due to the Coronavirus pandemic, Chevron already decided in the second quarter of 2020 to cut the workforce by 10% to 15% and take other steps to restructure the company amid the financial crisis. Chevron has decided a 30% reduction in spending for 2020 due to the pandemic that has resulted in record low consumption of oil in all parts of the world. The US crude prices have come to half prices due to Coronavirus, and per barrel price of oil is $33.

On May 1, 2020, the Q1 results showed the company falling short of the estimated revenue numbers. The cash flow from operations was reported $4.7 billion, and the company promises to reduce spending by $14 billion. Chevron offers a healthy dividend yield of 5.6%. The stock value of Chevron plummeted in March when Coronavirus cases peaked all over the world, but now the company is improving its performance.

The oil prices have seen record swings in 2020 due to the Covid-19 outbreak, where the oil markets plunged in March 2020 but surged globally in May 2020. The financial performance of Chevron may have improved, but at the end of the day, the results are directly related with oil prices, if the oil prices decline again then so will the share price of Chevron. Investors should closely analyze the economic impact of Coronavirus, and there is still uncertainty when it comes to oil prices, which fluctuates quite often.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.