🛢 Can Chevron Remain The Outperformer?

Boeing wins a large order.

Hey Global Investor! Here’s what you need to know before the US markets open.

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🛢 Chevron: Pedal To The Metal?

Chevron (CVX) reported mixed results for Q4. Revenue came in above estimates, but EPS didn’t. There were positive updates on cash flow and debt reduction as well. Yet, shares retreated from a record high. What might be going on? (Tweet This)

Dirty Business?

Chevron is the second-largest US-based oil and gas major after ExxonMobil. In the last five years, while Exxon’s investors saw a -10% return, Chevron returned 15% to its shareholders. Not great, you might say. But under the circumstances, better than its older brother!

Established in 1879, Chevron is one of the seven sisters that dominated the global petroleum landscape from the 1940s till the 1970s. It is active in over 180 countries worldwide, with projects ranging from natural gas to deep water to heavy oil, LNG, and even shale. Chevron’s Gorgon project in Australia is poised to make Australia a leading LNG supplier to the Asia-Pacific.

In 1993, a 30K-member class-action lawsuit was filed against Texaco for environmental damage caused in Ecuador. In 2000, Chevron acquired Texaco lock, stock, and barrel. In 2011, the Ecuadorian court gave an $18B judgment against Chevron. In response, the company folded its operations in Ecuador and beat a retreat, refusing to pay the fine.

Thus far, the company has spent over $2B on lawyers and private litigations while dodging the penalty. Tactics such as these have led to oil and gas companies being criticized for being opportunistic and abandoning their responsibility to the communities they operate in. With climate change becoming a hot topic, there’s increased scrutiny on what the companies are doing about it.

Case in point: ExxonMobil. Engine No.1, a little-known hedge fund, managed to get three board seats for itself at ExxonMobil to push the company to do more on the “green” front. On the other hand, Shell was ordered by a court in The Hague to reduce its emissions by 45% by 2030. On the back of this judgment, Shell sold its assets in the Permian basin for $9.5B.

Engine No.1 is sharpening its aim at Chevron. Last September, the hedge fund managers met Chevron’s leadership to talk about its emission reduction plans. The hedge fund clarified it wasn’t planning on launching an Exxon-like proxy battle with Chevron. The company, for its part, came up with a contingency plan to thwart any such possibilities.

Hard Work Pays!

Last week, crude oil topped $90 per barrel for the first time since October 2014. As oil worked its way up, Chevron’s revenues rose as well.

Key Highlights from Q4:

  • Revenue: $48.13B Vs $45.69B expected
  • EPS: $2.56 Vs $3.12 expected
  • Operating Cash Flow: $9.4B Vs $11.3B expected

EPS suffered as Chevron’s production declined 5% to 3.12M barrels per day in Q4, compared to the year prior. For the full year 2021, Chevron’s net profit of $15.6B was its best since 2014. It is also an improvement from the $5.5B loss in 2020.

The company saw a record free cash flow of $21.1B in 2021 and reduced debt by $12.9B. As of December 31, the total debt for Chevron stood at $31.4B (compared to $57B each that both Exxon and Shell had on their balance sheets as of September 2021).

So just how much higher was Chevron’s sales price per barrel compared to Q4 2020? This past quarter, the company sold oil at $63 per barrel, almost double the $33 per barrel price it could charge in Q4 2020. Per thousand cubic feet of natural gas, the company charged $4.78 as against $1.49 during the same time last year.

Chevron plans to return the billions in free cash flow to shareholders via dividends and share buybacks. The company has increased its quarterly dividend by 6% to $1.42, the 35th straight year it has increased the dividend payout. It also plans to repurchase stock worth $1.25B in Q1 2022, higher than estimates of $1B, having already bought $750M worth of shares in Q4.

As oil climbs ever closer to the $100/barrel mark, Chevron seems to be in a tad more comfortable position than the competition. So why did shares fall? Maybe it had to do with the looming Ukraine crisis or simply investors wanting to take in some profits in the face of tumbling markets.

Even so, the company cannot afford to take its eyes off the road ahead as things can turn on a dime. The hard work of ensuring better-than-expected results while keeping costs low and assuring investors of its “green” ambitions will need to continue day in and day out!

Market Reaction
CVX ended at $131.33, up 0.55%.

Company Snapshot 📈

CVX $131.33 +0.72 (0.55%)

Analyst Ratings (30 Analysts) BUY 70%  HOLD 30%  SELL 0%

Newsworthy 📰

Truce: Joe Rogan apologizes to Spotify and musicians amid boycott over his podcast (SPOT +13.46%)

Huge: Boeing wins Qatar Airways order for 737 Max planes, new 777X freighters (BA +4.99%)

Abuzz: Sony to buy ‘Destiny’videogame developer Bungie in $3.6B deal (SONY +4.51%)

Later Today 🕒

  • Alphabet Inc. Earnings (GOOG)
  • Advanced Micro Devices Earnings (AMD)
  • Exxon Mobil Corp. Earnings (XOM)
  • General Motors Co. Earnings (GM)
  • PayPal Holdings Inc. Earnings (PYPL)
  • UBS Group Earnings (UBS)
  • United Parcel Service Inc. Earnings (UPS)
  • Starbucks Corp. Earnings (SBUX)
  • UBS Group Earnings (UBS)
  • MicroStrategy Inc. Earnings (MSTR)
  • Chubb Ltd. Earnings (CB)
  • Electronic Arts Inc. Earnings (EA)
  • Evoqua Water Technologies Corp. Earnings (AQUA)
  • Gilead Sciences Inc. Earnings (GILD)
  • IAC/InterActiveCorp Earnings (IAC)
  • Match Group Inc. Earnings (MTCH)
  • Veoneer Inc. Earnings (VNE)
  • 7:15 PM IST: Markit Manufacturing PMI
  • 8:30 PM IST: Job Openings & Job Quits

Today’s Market Terminology: Financial Intermediaries

Financial Intermediaries are institutions that provide the market function of matching borrowers and lenders or traders. They facilitate transactions between those with excess cash and those with insufficient cash for mutual benefit

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