Chevron Corporation (CVX) - PowerPoint Presentation

Slide1

Chevron Corporation (CVX)

Energy and Natural Resources Coverage GroupSlide2

Company Overview

Upstream: exploring and developing oil and gasBenefits from high oil pricesRevenue decrease of 18% in 2014Downstream: refining and purifying crude resourcesBenefits from low oil prices

Revenue increase of 93.4% in 2014

Ticker

CVX

Price$106.68Market Cap$200.58BDividend$4.28P/E10.52EPS$10.14Slide3

Management

John S. Watson - CEO (2010-present)30+ years of experience with the company Variety of managerial roles George

L. Kirkland (2010-present

)

40+ years at

ChevronEngineer turned managementHead of upstream - most important division Pierre R. Breber (2014-present) 25+ years as engineer and midstream execOverall: seasoned team with relevant industry experience from both corporate and engineering perspectivesSlide4

Sector PerformanceSlide5

Thesis Summary

The market has overestimated the damage of the fall in oil prices on global energy playersChevron is in the best position amongst these companies to take advantage of depressed energy prices and subsequent recoveryHas achieved relatives success in vertical integration (especially transportation services) compared to its competitorsEffective access to cash allows for expansion of oil projects as firms such as BP are forced to consolidateMultiple new projects to be brought online, such as the largest enhanced

oil

recovery project, and extensive technology developmentSlide6

Oil Price Prediction

Price factorsLagging demand: slow global growth – China, Japan, EuropeWill they recover?Increased supply: shale etc.Price elasticity of supply?Uncertain outlookFutures ~50% volatility with 95% C.I. low

price $30

and high end $90

Supply disruptions in major geopolitical players?

Iran, Venezuela, RussiaSlide7

Rebounding Oil Prices

Companies within OPEC such as Nigeria (whose oil minister is the president of OPEC) incredibly concerned with depressed prices and are currently in talks to organize future actionNumerous countries such as Venezuela and Russia need higher oil prices to sustain their budgetsDomestic producers (especially shale) are maintaining or cutting production, which will lead to less supply and higher pricesSlide8

Vertical Integration Advantage

Shell and BP have been investigated for anti-trust issues in EuropeBest hedged against ramifications of energy trade war with China (there are likely Congressional tariffs on business with Chinese subsidiary companies) due to other companies not having majority control of their Chinese subsidiaries Slide9

Cash Advantage

Chevron assumed leadership and partial ownership of multibillion dollar projects in Gila, Tiber, and the Gulf of Mexico from BP in JanuaryChevron has been increasing investments in the deepest areas of the Gulf of Mexico as other companies have continued to cut investment as well as began pumping from sources that have not been used in over a decadeChevron was able to raise $6 billion with bonds to help push through the volatility in oil pricesSuspension of buy-back program will increase available capital for investmentSlide10

Project and Technology Advantage

Manages the world’s largest hyper-efficient, enhanced oil recovery extraction projectLed to sell off when announced, but critical in in growing market share once oil markets normalizeHad one of its best exploration years, with important discoveries in the deepwater Gulf of Mexico, Australia, West Africa and the Permian Basin

Recently brought a new deep-water oil platform online

Expected to produce 94,000 barrels per day of oil/21 million cubic feet of natural gas

.

Can generate that 10% breakeven even at oil prices as low as $30 per barrel, and production is forecasted to increase 20% from 2013 industry benchmarks by 2017Chevron Technology Ventures is over a decade old and currently has invested over $200 million in start ups and other emerging technologies Slide11

Thesis Summary

The market has overestimated the damage of the fall in oil prices on global energy playersChevron is in the best position amongst these companies to take advantage of depressed energy prices and subsequent recoveryHas achieved relatives success in vertical integration (especially transportation services) compared to its competitorsEffective access to cash allows for expansion of oil projects as firms such as BP are forced to consolidateMultiple new projects to be brought online, such as the largest hyper-efficient oil extraction project, and extensive technology developmentSlide12

Comps Model

CompanyTickerPrice

Market Cap

P/E

P/B

Dividend YieldEV/EBITDAChevronCVX$106.68$200.58B10.521.34.00%5.90ExxonMobilXOM

$88.54

$371.40B

11.66

2.14

3.10%

7.06

Shell

RDS

$65.37

$205.75B

13.87

1.19

4.70%

5.18

BP

BP

$41.44

$125.70B

33.86

1.13

5.80%

5.28

ConocoPhillips

COP

$64.40

$79.31B

11.69

1.55

4.50%

5.00Slide13

More Comparatives

CompanyTickerCash

Debt

Debt/Equity

Exploration Failure Rate

(Last reported year) ChevronCVX$13.22B$27.82B17.8130%ExxonMobilXOM$4.62B$29.12B16.08

39%

Shell

RDS

$21.61B

$45.54B

26.36

N/A

BP

BP

$30.09B

$52.85B

46.92

53%

Conoco

Phillips

COP

$5.06B

$22.56B

43.17

N/ASlide14

Risk Factors

Tied to the uncertain oil marketDownside riskDip into cash reserve?Dividend impact?Future exploration projects affected by lower per barrel pricesCeiling for the foreseeable future?

CVX vs market expectationsSlide15

Why aren’t we worried about Chevron?

Well-positioned for decline in oil pricesNo real risk of dividend declineRamifications of decline for smaller producersCash on handNot a short-term playDividend in the interim Slide16

Downstream Hedge

In the downstream, CVX completed important investments at U.S. refineries, which contributed to improved financial and operational performance.

New

premium lubricants base oil facility

in Mississippi.

Expansion of additives plants in Singapore and France. Chevron Phillips Chemical Company LLC, achieved start-up of the world’s largest on-purpose 1-hexene plant and progressed construction of its new ethane cracker and polyethylene units in Texas.Slide17

EarningsSlide18

Discounted Cash FlowSlide19

Targets

Target price: oil breaks $70/barrel, stock price around $122Exit if: oil drops below $35/barrelTimeline: 2-2.5 years