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Making Sense of Chevron's (CVX) Reorganization, Climate Plans

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Last week, supermajor Chevron Corporation (CVX - Free Report) announced significant changes to its organization and management structure. The company also conducted its Annual General Meeting (AGM), wherein several climate resolutions were put to vote.

Business Overhaul

Starting Oct 1, Chevron’s Upstream (or exploration and production), Midstream and Downstream (or refining) segments will be led by a single decision maker — executive vice president, Oil, Products & Gas. Nigel Hearne — former head of the company's Europe, Asia and Pacific production — has been entrusted this role and will look after the entire value chain.

The business overhaul will also see CVX consolidating its upstream operations into two regions — Americas Exploration & Production and International Exploration & Production. Further, the integrated major is bringing its Strategy & Sustainability, Corporate Affairs and Business Development functions under a new executive vice president, Strategy, Policy & Development.

According to Chevron, the new, streamlined corporate structure (together with senior leadership changes) is aimed at capital optimization, while allowing the company to more easily manage the portfolio of businesses as it works toward transitioning to a lower-carbon future.

The reorganization is also aligned with the company’s plans to focus more on domestic hydrocarbon production and cost-efficiency. As most of the world races to wean itself off Russian energy, following its invasion of Ukraine, the onus is on American energy producers like CVX to augment their output and meet demand. The company’s prime acreage in the lucrative Permian Basin — the top U.S. unconventional region — where Chevron aims to churn out 15% more year over year in 2022 (to a record 700,000 - 750,000 barrels per day), highlights the trend in that direction. Investors should know that the San Ramon, CA-based energy giant grew its U.S. output by 10.1% in the first quarter of 2022.

Climate Goals

Now, coming to its AGM, some 33% of Chevron shareholders voted in favor of a proposal asking the energy company to substantially cut Scope 3 emissions — a sharp decrease from last year, when a similar motion won 61% support. These are the hard-to-address releases from the combustion of fuel (such as jet fuel and gasoline) it sells to end-users that typically constitute more than 90% of an oil and gas holding’s total footprint. Chevron, like its peers, is under increasing pressure from activists and investors surrounding climate change and the commitment to reduce emissions. At the same time, an overwhelming 98% shareholders backed a company-supported move to prepare a report detailing an evaluation on the reliability of its methane emissions disclosures.

On its part, CVX has said that it “aspired” to achieve net-zero greenhouse gas emissions in its operations by 2050. The company’s climate goal covers carbon emissions directly generated from its operations (Scope 1) and indirect emissions caused by the electricity consumption to run its facilities (Scope 2).

Zacks Rank & Key Picks

Chevron is one of the largest publicly traded oil and gas companies in the world with operations that span almost every corner of the globe. The only energy component of the Dow Jones Industrial Average, Chevron is fully integrated, meaning it participates in every aspect related to energy — from oil production, to refining and marketing.

Chevron currently carries a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space include Equinor ASA (EQNR - Free Report) , Canadian Natural Resources (CNQ - Free Report) and Marathon Oil (MRO - Free Report) , each carrying a Zacks Rank #1 (Strong Buy), currently.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Equinor: Equinor is valued at some $122.3 billion. The Zacks Consensus Estimate for EQNR’s 2022 earnings has been revised 51.9% upward over the past 60 days.

Equinor, headquartered in Stavanger, Norway, delivered a 1.9% beat in Q1. EQNR shares have surged around 71.9% in a year.

Canadian Natural Resources: CNQ beat the Zacks Consensus Estimate for earnings in each of the last four quarters. The company has a trailing four-quarter earnings surprise of roughly 17.6%, on average.

Canadian Natural is valued at around $77.3 billion. CNQ has seen its shares gain around 93.3% in a year.

Marathon Oil: Marathon Oil is valued at some $22 billion. The Zacks Consensus Estimate for MRO’s 2022 earnings has been revised 52.9% upward over the past 60 days.

Marathon Oil, headquartered in Houston, TX, has a trailing four-quarter earnings surprise of roughly 23%, on average. MRO shares have gained around 156.6% in a year.

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