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Chevron (CVX) Returns to Growth Mode But Headwinds Persist
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Chevron Corporation (CVX - Free Report) — one of the world’s largest energy companies — suffered massive losses in the initial stages of the coronavirus pandemic, particularly in the second quarter of 2020, as cash flow essentially dried up with oil demand and prices collapsing. However, the integrated firm, which briefly overtook its fierce rival ExxonMobil (XOM - Free Report) to become America’s largest oil company, survived the carnage by focusing on cost reductions, dividend safety and opportunistic acquisitions.
Now, with a bullish macro environment, the company is steadily improving. After falling to $51.60 in March 2020 at the depth of the energy slump, shares of Chevron have rebounded to more than $100 per share.
So, let's dive into the details about Chevron’s operational highlights over the past year:
Noble Energy Acquisition for an Attractive Price
Taking advantage of the commodity price collapse, Chevron acquired Noble Energy for a bargain price of $5 billion. The addition of Noble Energy's assets has expanded Chevron’s presence in the DJ Basin of Colorado and the Permian Basin across West Texas and New Mexico. The takeover is also estimated to generate potential cost savings of $300 million within a year of the deal's closing, which happened in October. The company now has access to Noble Energy’s low-cost, proven reserves along with cash-generating offshore assets in Israel – particularly the flagship Leviathan natural gas project – thereby boosting its footing in the Mediterranean. Earlier this month, Chevron also bought all ownership interests in Noble Energy’s midstream unit for full integration of its business.
Trims Spending Plans, Halts Share Buybacks
Looking to ride out the challenging environment, Chevron was forced to suspend its $5-billion share buyback program and cut capital spending. In 2020, the San Ramon, CA-based company’s capital spending amounted to $13.5 billion, down 35.7% year. The only energy representative in the 30-stock Dow Jones industrial average also lowered its operating costs by $1 billion last year.
Focus on Dividend Growth and Security
Coming to the dividend, it remains an integral part of Chevron’s plans. In contrast to European majors Royal Dutch Shell and BP plc (BP - Free Report) , both of which were unable to sustain their dividends at the height of the pandemic-led crisis, Chevron (like ExxonMobil) trimmed cost elsewhere to preserve its current payout, which it recently raised by 3.9% to $1.34 per share. The stock is currently yielding around 5%. All the while, the dividend aristocrat — on track for 34 consecutive years of annual increases — has reiterated its commitment to the payout on a number of occasions.
While we agree that Chevron is doing better, even a blue-chip oil stock like it comes with risks investors need to be aware of.
The Headwinds
For one thing, the company has seen its debt-to-equity go up from 22.3% at the start of 2020 to 34.2% as of Mar 31. During this period, Chevron was forced to increase its long-term debt load by nearly 72% to $40.6 billion, following the assumption of Noble Energy debt and to fund its own dividend in the face of plunging oil prices in early and mid-2020. Nevertheless, the supermajor’s gearing (or the ratio of net debt to total capital) of 22.1% is still very manageable indeed.
Chevron’s full-year 2020 income was negative, pointing to the brutal operating environment and its effects on the company’s bottom line. The price slump greatly impacted the results of the company’s upstream unit for obvious reasons but even the downstream segment numbers have been dragged down by lower petroleum products’ demand and margin.
Last but not the least, despite shareholder pressure, Chevron seems to have no credible long-term emission reduction targets like its European counterparts. The company’s poor reserve replacement ratio of 74%, which dulls the future volume growth prospect, is a concern as well.
The Bottom Line
Like all energy-related firms, Chevron has struggled with depressed demand stemming from the coronavirus pandemic. But it is a good, well-diversified company with a strong balance sheet and has weathered the period of very low oil prices quite well.
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Chevron (CVX) Returns to Growth Mode But Headwinds Persist
Chevron Corporation (CVX - Free Report) — one of the world’s largest energy companies — suffered massive losses in the initial stages of the coronavirus pandemic, particularly in the second quarter of 2020, as cash flow essentially dried up with oil demand and prices collapsing. However, the integrated firm, which briefly overtook its fierce rival ExxonMobil (XOM - Free Report) to become America’s largest oil company, survived the carnage by focusing on cost reductions, dividend safety and opportunistic acquisitions.
Now, with a bullish macro environment, the company is steadily improving. After falling to $51.60 in March 2020 at the depth of the energy slump, shares of Chevron have rebounded to more than $100 per share.
So, let's dive into the details about Chevron’s operational highlights over the past year:
Noble Energy Acquisition for an Attractive Price
Taking advantage of the commodity price collapse, Chevron acquired Noble Energy for a bargain price of $5 billion. The addition of Noble Energy's assets has expanded Chevron’s presence in the DJ Basin of Colorado and the Permian Basin across West Texas and New Mexico. The takeover is also estimated to generate potential cost savings of $300 million within a year of the deal's closing, which happened in October. The company now has access to Noble Energy’s low-cost, proven reserves along with cash-generating offshore assets in Israel – particularly the flagship Leviathan natural gas project – thereby boosting its footing in the Mediterranean. Earlier this month, Chevron also bought all ownership interests in Noble Energy’s midstream unit for full integration of its business.
Trims Spending Plans, Halts Share Buybacks
Looking to ride out the challenging environment, Chevron was forced to suspend its $5-billion share buyback program and cut capital spending. In 2020, the San Ramon, CA-based company’s capital spending amounted to $13.5 billion, down 35.7% year. The only energy representative in the 30-stock Dow Jones industrial average also lowered its operating costs by $1 billion last year.
Focus on Dividend Growth and Security
Coming to the dividend, it remains an integral part of Chevron’s plans. In contrast to European majors Royal Dutch Shell and BP plc (BP - Free Report) , both of which were unable to sustain their dividends at the height of the pandemic-led crisis, Chevron (like ExxonMobil) trimmed cost elsewhere to preserve its current payout, which it recently raised by 3.9% to $1.34 per share. The stock is currently yielding around 5%. All the while, the dividend aristocrat — on track for 34 consecutive years of annual increases — has reiterated its commitment to the payout on a number of occasions.
While we agree that Chevron is doing better, even a blue-chip oil stock like it comes with risks investors need to be aware of.
The Headwinds
For one thing, the company has seen its debt-to-equity go up from 22.3% at the start of 2020 to 34.2% as of Mar 31. During this period, Chevron was forced to increase its long-term debt load by nearly 72% to $40.6 billion, following the assumption of Noble Energy debt and to fund its own dividend in the face of plunging oil prices in early and mid-2020. Nevertheless, the supermajor’s gearing (or the ratio of net debt to total capital) of 22.1% is still very manageable indeed.
Chevron’s full-year 2020 income was negative, pointing to the brutal operating environment and its effects on the company’s bottom line. The price slump greatly impacted the results of the company’s upstream unit for obvious reasons but even the downstream segment numbers have been dragged down by lower petroleum products’ demand and margin.
Last but not the least, despite shareholder pressure, Chevron seems to have no credible long-term emission reduction targets like its European counterparts. The company’s poor reserve replacement ratio of 74%, which dulls the future volume growth prospect, is a concern as well.
The Bottom Line
Like all energy-related firms, Chevron has struggled with depressed demand stemming from the coronavirus pandemic. But it is a good, well-diversified company with a strong balance sheet and has weathered the period of very low oil prices quite well.
Bitcoin, Like the Internet Itself, Could Change Everything
Blockchain and cryptocurrency have sparked one of the most exciting discussion topics of a generation. Some call it the “Internet of Money” and predict it could change the way money works forever. If true, it could do to banks what Netflix did to Blockbuster and Amazon did to Sears. Experts agree we’re still in the early stages of this technology, and as it grows, it will create several investing opportunities.
Zacks has just revealed 3 companies that can help investors capitalize on the explosive profit potential of Bitcoin and the other cryptocurrencies with significantly less volatility than buying them directly.
See 3 crypto-related stocks now >>