Chevron Corporation (NYSE:CVX) is the fourth largest of the six super major oil companies, trailing Exxon Mobil Corporation (NYSE:XOM), Royal Dutch Shell plc (NYSE:RDS.A), (NYSE:RDS.B) and BP plc (NYSE:BP) (LON:BP). It is headquartered in San Ramon, California. Chevron’s main business lines are fuels, natural gas, chemicals, lubricants, refining, supply & trading, shipping, pipelines, and exploration and production.
The oil major has decided to spend almost $37 billion in 2013 across the world, to be utilized for oil exploration and building huge capital projects. The Capex is on the rise by 12% compared to 2012 spending budget, and an astonishing 70% increase since 2010. The greater than before capital spending will lead Chevron to fuse its existing assets and to discover profitable opportunity, which will increase the company’s revenue in the long run.
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Financials (Company Not To Blame)
Chevron Corporation (NYSE:CVX) reported third quarter earnings which reflected the effects of lower oil and natural gas prices. Chevron’s Q3 revenue was recorded at $56 billion, compared to $61 billion in the third quarter of 2011. Net earnings declined to $5.3 billion ($2.69 per fully diluted share) against $7.8 billion ($3.92 per fully diluted share) over the same period last year.
Chevron’s international upstream operations posted an average crude oil price of $98 per barrel for the third quarter, against $103 per barrel a year earlier. Natural gas prices jumped from $5.50 per thousand cubic feet in the third quarter of 2011 to $6.03 per thousand cubic feet this year. Downstream operations were affected by lower volume due, in part, to a fire at Chevron’s San Francisco area refinery, and lower marketing margins on refined products.
Strong dividend history
Chevron is known to be a dividend champion stock, with a track record of 25 straight years of dividend increases. The company has an impressive track record of capital growth in share price, a past record of distributing continued increases over 25 years on dividends paid, delivering additional returns for investors via dividend income. The diversification of the company across upstream and downstream product lines is accompanied by its global reach and geographical dispersion worldwide. This provides it with an existence in rising markets like South America, as well as more safe and established markets in Australia and the United States.
Chevron Corporation (NYSE:CVX) announced that it will have a $36.7 billion capital and exploratory investment program for 2013. There is also $3.3 billion of planned expenditure by affiliates in 2013, which does not need cash outlay by Chevron.
Around 90% of the planned spending is budgeted for upstream crude oil and natural gas exploration, and production projects. Another 7% is reserved for the company’s downstream businesses that manufacture, transport, and sell gasoline, diesel fuel, and other refined products, fuel, lubricant additives, and petrochemicals.
A major portion of the 2013 spending has been allocated for large, multi-year developments. Chevron is setting up to spend $33 billion for the exploration, production and natural gas-related projects, focusing on the company’s successful and focused drilling results in recent years, as well as for further assessment and evaluation of other potential areas in the world’s major hydrocarbon basins. Major investments in 2013 are anticipated to consist of the Gorgon natural gas project in Australia, as well as opportunities in the deepwater Gulf of Mexico, Kazakhstan, Nigeria, Angola and the Republic of Congo.
Competition’s Matching Capex
Chevron’s competitors like Anadarko Petroleum (NYSE:APC), Exxon Mobil Corporation (NYSE:XOM), Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B) and Marathon Oil Corporation (NYSE:MRO) have all enhanced their capital budgets in order to meet the rising demands. Exxon Mobil plans to spend almost $185 billion in capital over the next five years. On average, Exxon spends $37 billion a year, which goes along with Chevron’s projected spending for 2013. Exxon has taken an optimistic inclusive view of the future, which is why it is determined to spend more than previous years, as well.
Anadarko Petroleum Corporation (NYSE:APC), whose flourishing business in Mozambique has now inclined spotlight to Kenya, is doing tremendously well in Eastern Africa. The American oil and gas company has taken an upbeat step towards building infrastructure in those countries, often spending from its own pockets. Anadarko Petroleum Corporation (NYSE:APC)’s capital budget for 2012 was anticipated to be under $7 billion.
Marathon has been very vigorous in Angola, Canadian oil sands and Kurdistan. The company declared a capital budget of $5.2 billion in 2013. Marathon aims to invest all the money in oil-rich eccentric fields in the U.S. Around $3 billion of its capital budget will be spent in oil-bearing shale formations in Bakken, North Dakota, Anadarko Woodford, Oklahoma and Eagle Ford, South Texas. The transformed American spending is projected to lead Marathon see an 8% boost in its production.
Royal Dutch Shell plc (NYSE:RDS.A) (NYSE:RDS.B) has a capital budget of $30 billion in 2013. It plans to spend 80% of its budget on upstream activities. 60% of this was to be spent in North America and Australia
Projects Lined up
Looking forward, Chevron has a number of projects in the pipeline which could boost its revenues. One of the most interesting projects is the supply of natural gas to eastern European countries. Recently Chevron bought a 50% stake in LL Investicijos, which is a privately held Lithuanian oil and gas exploration concern.
Chevron had already acquired 4 million acres of land in Poland and Romania, and had been approaching Bulgaria to lift its freeze on shale gas exploration.
Chevron has also started potentially rewarding drilling projects in Indonesia and in Australia. In Indonesia, Chevron started a $500 million development of its Duri field project in Sumatra. At peak production, the site is expected to add 17 thousand barrels of oil per day to production.
Chevron has big plans for several natural gas projects and is spending a massive amount in developing infrastructure and lining up future customers for natural gas in Asia. This will be a great boost for the company’s growth, because in Asia, natural gas prices five times higher than in North America.
Recent developments (All Good For Chevron)
Recently the oil and gas giant reported two new gas discoveries in Australia. This expands the gas portfolio of the company to 19 in the country.
The Canada unit of the Chevron Corp will buy a 50% stake in the Kitimat liquefied natural gas project and proposed Pacific Trail Pipeline from EOG Resources, Inc. (NYSE:EOG) and EnCana Corporation (NYSE:ECA) (TSE:ECA).
Chevron Corporation (NYSE:CVX) is keen to pay about 300 million reais ($144 million) to settle lawsuits in Brazil over an oil spill last year, a senior executive and a federal prosecutor said on Friday.
There are macro-economic and political headwinds that have put pressure on stock prices and the price of oil. But with the global economy trending towards stronger growth, there could be an increment in the use of energy resources. The planned capital expenditure of Chevron, which will pay off by 2017, and other projects undertaken by the company puts it in a good position to see an increase in its profits in the future.