Morningstar

Chevron in a Strong Position Despite Weak Quarter

Fourth quarter results were weaker than expected, but Chevron remains one of the better-positioned integrateds to succeed in an environment of ongoing low oil prices.

Securities In This Article
Chevron Corp
(CVX)

While we see Chevron shares as fully valued, we think it remains one of the better-positioned integrateds to succeed in an environment of ongoing low oil prices. With production set to increase 4%-9% and capital spending set to fall dramatically this year, Chevron will be able to cover the dividend with free cash flow at current strip prices. Furthermore, Chevron maintains one of the higher-quality portfolios of its peer group, with new production delivering margin expansion. In 2017, three fourths of production will have cash margins of over $15/barrel of oil equivalent, compared with less than half in 2016. In addition, 70% of 2017’s $19.8 billion in capital spending will generate cash flow within two years, offering dividend protection in the event of weak oil prices in the next few years.

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About the Author

Allen Good, CFA

Director
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Allen Good, CFA, is a director, Europe, for Morningstar*. Based in Amsterdam, he covers the oil and gas industries as well as manages a team of multi-industry analysts. He is also chair of the Morningstar Research Services Economic Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat ratings issued by Morningstar. In this role, he is responsible for ensuring consistent application of Morningstar’s Economic Moat methodology across sectors and regions as well as updating and revising the methodology. His specialty is global integrated oils such as Exxon, Chevron and Shell and US independent refiners such as Valero and Marathon Petroleum. He also contributes to developing hydrocarbon price and petroleum product margin forecasts used in valuation models.

Before joining Morningstar in 2008, He performed merger and acquisition advisory work for a middle-market investment bank. Before that, he spent several years at Black & Decker in various operational roles, primarily focused on manufacturing and distribution.

Good holds a bachelor’s degree in business from the University of Tennessee and a master’s degree in business administration from Kenan-Flagler Business School at the University of North Carolina. He also holds the Chartered Financial Analyst® designation.

* Morningstar Holland BV (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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