Fuel your Portfolio: Fill up with Chevron

Ticker: CVX
Sector: Energy
Industry: Oil & Gas Integrated
Headquartered: California, USA
Moat: Narrow – Scale, Positioning

Action at date of this post

Accumulate as of 05.04.2024
This is technically a buy opinion. Accumulate means if you are an investor that buys periodically then keep buying. If you do not own it, but are looking to buy, this is an indication to open a position of no more than 25% of your intended, total position then accumulate shares over a set time frame.

Chevron Fair Value Analysis

I do a fair value analysis on every stock in two ways. The first is the Discounted Cash Flow (DCF) method which I use for most stocks. I also run the Peter Lynch Fair Value method on stocks as well. I like running both as there are times where one way is more meaningful than the other depending on the stock.

Chevron Corporate Overview

Chevron Corporation, a global energy giant, is a leading player in the oil and gas industry. With a rich history spanning over a century, Chevron has evolved into a diversified energy company, involved in every aspect of the energy sector, from exploration and production to refining and marketing. Headquartered in San Ramon, California, Chevron operates in more than 180 countries worldwide, employing cutting-edge technology and innovation to meet the world’s growing energy needs responsibly.

The company’s portfolio includes a diverse range of assets, including upstream operations in prolific oil and gas basins, downstream refining and marketing facilities, and a growing presence in renewable energy initiatives. Chevron is committed to sustainable practices, prioritizing safety, environmental stewardship, and social responsibility in all its operations. With a strong focus on efficiency and profitability, Chevron continues to be a key player in shaping the future of the global energy landscape.

Chevron Segment Analysis

As a global, integrated oil and gas producer, Chevron reports in two segments – Upstream and Downstream.

Upstream operations consist primarily of (from CVX’s annual report):
Exploring for, developing, producing and transporting crude oil and natural gas; liquefaction, transportation and regasification associated with liquefied natural gas (LNG); transporting crude oil by major international oil export pipelines; processing, transporting, storage and marketing of natural gas; carbon capture and storage; and a gas-to-liquids plant.

Downstream operations consist primarily of (from CVX’s annual report):
Refining of crude oil into petroleum products; marketing of crude oil, refined products, and lubricants; manufacturing and marketing of renewable fuels; transporting of crude oil and refined products by pipeline, marine vessel, motor equipment and rail car; and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses, and fuel and lubricant additives.

Chevron Narrow Moat Source

The quality of the company’s portfolio of assets, the cost at which they acquired and scale give the company cost advantages which is the source of their moat.

Chevron Growth Outlook

The source of growth for the Chevron is it’s large play in the Permian Basin. Like the other majors, Chevron refocused its energy on capital discipline versus following the whims of global governments. Thanks to improved cost efficiencies the company is looking to expand oil production to ~ 4 million barrels of oil equivalent per day by 2027. This is up from the current 3 million. The company’s position in the Permian is sizable and mostly legacy acreage. This means low cost of entry and almost no royalty payments going out the door.

Besides the Permian, the company is expanding its project at Tengiz in Kazakhstan as well as plays in the Gulf of Mexico. The Tengiz project, like the permian, is advantaged in that Chevron has a low cost of entry which means high profitability.

Chevron has an offer in to merge with Hess but, this may no come to fruition due to a fight among global oil players over Hess’s position in the Stabroek Block off the coast of Guyana. If the Hess deal goes through that could be a major win for the company and its growth.

The Numbers

The company’s numbers are on the upswing after a rough patch that caused it (and other majors) to refocus their energy toward shareholders. Chevron has paid and increased its dividend for 36 consecutive years. With a sound balance sheet and solid free cash flow the company is in a great position to reward shareholders. While the company’s fortunes are tied to oil and gas prices, it still has solid margins.

This website and associated newsletter along with its content/links are not financial advice. Nothing in this newsletter is an investment recommendation. All content is created for entertainment, educational, or informational purposes only. My strong buy, accumulate, hold, reduce or sell opinions are exactly that – opinions. Be sure to do your own research for your own particular circumstances or higher a professional advisor.

At the time of writing this post, the author does have a position in CVX.