Chevron: Don’t Miss Investing in This Stock

Chevron (CVX) announced fourth quarter ended December 31, 2015 total revenue of $28 billion, down 33 percent year-over-year from $42 billion during the same period last year.

Chevron declared fourth quarter of 2015 net loss of $588 million or $0.31 of diluted loss per share compared to net income of $3.5 billion or $1.85 per diluted share in fourth quarter of 2014.

The key liquids exploration and distribution company reported continued decline in both its top and bottom lines primarily due to the ongoing weaker global commodity demand and pricing environment coupled with the rising exploration expenditures, eating into the company’s key margins.

Weakness all around   

The energy company illustrated continued year-over-year decline in its bottom line for both upstream and downstream operations due to nearly 45% fall in crude prices, weaker gains from favorable foreign exchange translations and strategic asset sales, improved exploration activities, better DD&A and suspensions but slightly offset by reduced operating expenditures and greater volumes benefiting the upstream operations.
Downstream operations were favorably impacted by robust margins but somewhat offset by changing timing effects and reduced gains from planned asset sales.

The upstream operations sequentially benefited from favorable tax transactions and improved volumes but somewhat offset by better exploration spending, improved suspensions and impairments and nearly 15% reduction in global crude prices. The core downstream operations were poorly impacted by unfavorable foreign exchange translations and timing impacts, better operating spending on strategic turnaround actions and weaker company margins.

Increasing the production

Chevron demonstrated significant increase in total oil and gas production for the quarter as compared to the same period last year and mainly driven by expansion of operations across Lianzi, Bangladesh and Permian, improved pricing and other strategic PSC impacts coupled with lack of major Tengiz turnaround. The global total oil and gas production for Exxon during 2015 gained impressively over 2014 production primarily due to operational expansion across Bibiyana, Tubular Bells and Jack / St. Malo, expansion all through the Marcellus and Permian basins, controlled decline rates well within the company guidance and proceeds from the sale of non-core assets at Netherlands, Chad and GOM.

The continued sequential and year-over-year decline in the company’s bottom line despite notable increase in global net oil and gas production is primarily attributable to the continuing weaker worldwide commodity demand and pricing environment and higher key liquids exploration and refining costs, eating into the margins of the company.

Chevron is keenly focused on optimizing net expenditure and upstream operating spending, going forward into 2016 and with a greatest impact on upstream operations. The company has undertaken several strategic actions to minimize its cost profile including, organization initiatives, supplier minimizations, efficiency enhancements and activity lessening/ deferrals. In addition, the actual non-OPEC liquid fuel production till January 2016 is closely following the production estimates for the year which signifies the continued commitment of the company towards expanding high-quality production at minimal costs to enhance sequential and year-over-year margins.

The energy company lately declared the introduction of first gas from the Chuandongbei project in Southwest China which signifies the strength of company operations and its leadership in the growth of sour gas reserves.   In addition, Chevron has strategically entered into a key LNG agreement with ENN LNG Trading Company Limited for the strategic supply of liquefied natural gas (LNG) from the key Gorgon natural gas project being operated by Chevron in Australia to China which is estimated to deliver approximately 0.5 million metric tons per annum (MTPA) of LNG to ENN over the next 10 years with initial delivery expected to start during 2018 or the beginning of 2019.

The strategic agreements of Chevron for installing and running key liquids refining facilities with other energy companies in Australia and China coupled with the ongoing strategic cost control efforts is expected to help the company smoothly drive through the ongoing tough global operating environment and register superior profitability once the global recovery unfolds completely.

A majority of the key investment analysts are extremely positive about the growth prospects of Chevron mainly due to significant growth prospects of the company with steadily improving global operating environment which is further encouraging Chevron to offer attractive shareholder returns.

Conclusion

Overall, the investors are advised to purchase equity in Chevron Corporation considering its logical valuation level with trailing P/E and forward P/E ratios of 33.83 and 17.75 respectively and comparable to the industry’s average P/E of 22.04. The PEG ratio of -2.08 indicates no growth but decline. The profit margin of 3.74% is satisfactory. However, Chevron needs to optimize its debt-burdened balance sheet with significant total debt of $35.88 billion against weaker total cash position of $13.24 billion, restricting the company to continue with its daily operations profitably.
Published on Mar 14, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

Posted in ...