A Quick Snapshot of Chevron Corporation’s Crude Oil & NGL Segment

by Trefis Team
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Chevron Corporation (NYSE:CVX) generates its revenues from two sources: its upstream business — which includes Crude Oil & Natural Gas Liquid (NGL), and the Natural Gas segments — and from its downstream operations. The crude Oil & NGL segment accounts for over 60% of the company’s value, according to our estimates. We have created an interactive dashboard highlighting the company’s Crude Oil & NGL segment. You can adjust revenue drivers and EBITDA margins for 2018 and 2019 to see how it impacts the company’s overall revenues and EBITDA. Below we discuss our expectations and forecasts for the company.

What Makes Crude Oil & NGL the Most Valuable Business For Chevron Corporation?

While the Crude Oil & NGL segment accounts for over 20% of the company’s overall revenues, its contribution to EBITDA is much higher at 60%, thus making it the most valuable segment for Chevron Corporation. This can be attributed to the fact that downstream operations for any oil & gas company accounts for a significant portion of revenues but only a fraction of that to the overall EBITDA, as the business operates on very low margins, usually in low single digits. For Chevron corporation, the downstream business accounts for over 70% of the company’s revenues, but only 22% to the overall EBITDA.

Expect Crude Oil & NGL Revenues To Grow In The Near Term And Beyond

We estimate the Crude Oil & NGL revenues to grow roughly 9% in 2018. While we don’t expect much change in the production, the average crude oil and NGL sale price is estimated to see a 10% jump to $53. Our forecast is based on the fact that OPEC and its allies have committed to production cuts, which is likely to keep oil prices higher, as compared to the prior year. Having said that, there is a risk of OPEC changing its course, given a surge in oil exports from the U.S. to Asia. Moreover, increased supply from the U.S. shale producers can keep the price in check. However, we believe that the average price realization will trend upwards north of the $80 mark by 2024. This can be attributed to an increased demand for oil, especially from the transportation sector in the emerging markets. While the global demand from industrial and power sectors is expected to remain largely stable in the long run, growing economic activity and vehicle ownership in the emerging markets is expected to drive significant growth in petroleum fuel demand for transportation, which would be partially offset by improvements in vehicle fuel efficiency, and the growing use of alternatives such as natural gas and biofuels in the transportation sector.

It should be noted that transportation accounts for more than a quarter of the global energy demand. Liquid petroleum fuels including gasoline, diesel, and jet fuel, currently meet almost all of this demand. While the demand for petroleum products has been consistently declining in developed economies, primarily due to vehicle fuel efficiency improvements, it has overall remained buoyant because of increasing economic activity in emerging markets. Oil demand is expected to peak around 2030, and will slow down thereafter, primarily due to increased efficiency in vehicles, as well as growth of electric vehicles, according to a report by McKinsey. 

Expect EBITDA Margin To Improve

We estimate the Crude Oil & NGL EBITDA to grow roughly 10% in 2018, as well as in 2019. This growth will be led by a ramp up in revenues, as well as the margins. With OPEC members commitment to cut the production in 2018, prices are expected to remain higher as compared to 2017. This pricing boost will aid the segment revenue growth, and also provide room for margin expansion. Furthermore, production costs for Chevron have been on a decline since the past few years and stood at $8.51 per barrel in 2017, as compared to $17.44 in 2015. Accordingly, we estimate a 50 basis point increase in the EBITDA margin for Chevron’s Crude Oil & NGL division in 2018. Note that the segment revenues also include income from equity affiliates, for which the margins are 100%, primarily due to the fact that income from equity affiliates is counted entirely as profits on the company’s books.

Don’t Agree With Our Forecast? Feel Free To Create Your Own By Making Changes To Our Model


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