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With the progress in mass vaccination across the world, demand for oil & gas trimmed the high inventory levels in the U.S. and OECD countries. In the recent ministerial meeting, OPEC remains committed to curtailing production as a resurgence of coronavirus cases is observed in many places.
Thus, Chevron Corporation along with other integrated and upstream companies have been focusing on capital conservation measures to assist shareholder returns.
Recently, Chevron announced a 4% growth in quarterly dividend fairly in-line with the company’s long-term capital return policy. At a $60 Brent price, the company expects to generate $150 billion of operating cash in the next five years with $75 billion allocated as cash capex, around $50 billion for dividends, and $25 billion of excess cash.
Below are key drivers of Chevron's value that present opportunities for an upside or downside to the current Trefis price estimate for Chevron:
For additional details, select a driver above or select a division from the interactive Trefis split for Chevron at the top of the page.
Chevron Corporation is the second largest energy company in the U.S., after Exxon Mobil. The company manages its investments in subsidiaries and affiliates and provides administrative, financial, management, and technology support to U.S. and international subsidiaries that engage in fully integrated petroleum, chemicals, and mining operations, as well as power generation and energy services.
Chevron has operations in 180 countries along with a strong network of retail gas stations under the Chevron, Texaco, and Caltex brands.The company is also involved in pursuing alternative energy solutions.
Crude Oil and Natural Gas Liquids production is by far the most valuable segment for Chevron for the following reasons:
Although, the revenues attributed to crude oil and NGL production are less when compared to downstream businesses like refined product sales, the profitability is much higher. We estimate that EBITDA margins for crude oil and NGL production were around 47% in 2017 compared to 2.5% EBITDA margin for its refined product sales during the year.
The difference in margins is attributable to the fact that the cost of production per barrel is quite low for crude oil compared to its selling price. For 2017, the company's average selling price for crude oil was around $49 per barrel when average production costs were around $11.50 per barrel.
It is estimated that a large part of the world's oil reserves have already been discovered. Recent statistics have indicated that global consumption has been outpacing reserve additions. Peak oil is a commonly used term to describe the point at which world oil output will reach a maximum and decline afterward.
However, many institutions such as the International Energy Agency (IEA) believe that peak oil will not occur for another 25 years at the very least. Many governments across the world are promoting alternative energy measures to ensure that the supply and demand of energy will be met at all times to come.
Due to limited underlying growth in product demand, there has been a movement in recent years towards increasing the complexity of refineries rather than expanding capacity. In the U.S., no new refineries have been built since 1980, however, improvements in process design and technology has seen capacity increase around 1% per year.
The early refineries that were established were mainly used to process light sweet crude resulting in an increase in demand for light sweet crude. As a result of higher oil prices in recent times, heavy crude oil is becoming more economically attractive. In addition, interest in the development of new cost effective methods for extracting and transporting heavy crude oil, for refining into valuable light and middle distillate fuels, is also increasing.