The shares of Chevron Corporation (NYSE: CVX) have touched the highs of $174 assisted by skyrocketing benchmark oil & gas prices and rising transportation demand. In 2021, the company reported 1.8 MMBPD of liquid production which is almost 2% of the global crude oil output. While the geopolitical uncertainty due to the Russia-Ukraine war is leading to spikes in benchmark oil prices, rising inflation is jeopardizing global economic growth and triggering measures such as new energy security alliances. Our interactive dashboard on Chevron valuation highlights the historical trends in revenues, earnings, valuation multiple, and forecast for FY2022.
Before the pandemic, Chevron Corporation’s revenues observed an 8% annual growth from $110 billion in 2016 to $139 billion in 2019 assisted by benchmark prices and expanding production. Chevron’s average crude oil price has ranged from $46/bbl in 2015 to $62/bbl in 2018 to $54/bbl in 2019. While benchmark prices reported a deep contraction in 2020, the company did not suspend operations as low production costs assisted cash generation. Moreover, the company retained dividend payouts by implementing a prudent capital investment plan and raising long-term debt. Given the surge in benchmark oil prices, the company has been returning excess cash to shareholders through buybacks. In a recent investor presentation, Chevron highlighted the potential to buy back 25% of its shares outstanding if Brent averages at $75/bbl in the next five years.
EIA and World Bank project a downside in the Brent benchmark
In 2021, the company’s Upstream and Downstream businesses contributed 30% and 70% of the total revenues, respectively. With oil & gas investments driving revenues and earnings, the company anticipates a significantly lower capital spend on its low carbon businesses. Per EIA, the Brent benchmark is likely to trend downward from $103 in 2022 to $97 in 2023. Similarly, the World Bank expects Brent crude to observe a decline from $100 in 2022 to $92 in 2023 and $80 in 2024. While the West has imposed stringent sanctions on Russia, the oil & gas embargo is a difficult decision due to multiple transportation and economic concerns. (related: Should A Benchmark Price Correction Weigh Heavily On BP Stock?)
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