Comprehensive Project: Chevron Corporation

The Chevron Corporation is an American multinational organization that operates within the oil and gas industry. This company is present in more than 180 countries across the globe, employing over 60,000 people. The current chairman and CEO of the company is Mr. John C Watson (Blodget, 2015). The Chevron Corporation was founded in the late 19^th Century, and it survived many mergers and acquisitions before becoming one of America’s five largest corporations as stated in Fortune 500. The oil and gas industry has been under a lot of pressure from the environmentalist interest groups and consumers who are increasingly paying attention to the role these natural resources in environmental degradation and global warming among other concerns. The Chevron Corporation is one of the largest oil and gas companies in the world, and, therefore, it experiences pressure because of turbulence in the oil market (Blodget, 2015). Moreover, unpredictable oil prices explain the company’s decreasing revenue and income among other things. Their products include petroleum, natural gas as well as other petrochemicals with a recent interest in renewable energy such as geothermal, solar, wind and fuel cells. The purpose of this research project is to provide a comprehensive analysis of the Chevron Corporation with a focus on the company’s business strategy, SWOT analysis, financial performance, stock price performance and debt financing as well as their dividend policy.

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Company Overview

Chevron is an energy corporation that focuses on meeting the energy demands of the customers. The company was founded in 1879 as Pacific Coast Oil Company and was renamed to Chevron Corporation in 1984 (Chevron Corporation, 2016). The new name was only fair, as the company does not only explores oil in the Pacific Coast but also in such places as Australia, the Gulf of Mexico, Kazakhstan, Nigeria and Angola (Chevron Corporation, 2016). The explored and produced oil and gas in these areas is later sold in all parts of the world where there is a demand. In the last few years, companies in the oil and gas industry have had to deal with many speculations regarding their future, which is affected by environmental awareness and renewable energy. As more people become conscious about the fate of the environment and the negative effects of greenhouse emissions most of which are produced by the oil and gas industry, most companies are investing in renewable energy solutions thus destabilizing a market that has been unchanging for centuries. The need for clean energy and fluctuating oil prices explain the falling revenue of the Chevron Corporation. In the year 2015, the reported revenue was lower than it had been in 2014 (Chevron Corporation, 2015). Therefore, while the Chevron Corporation is currently one of the largest and most profitable companies in the US, its future may not be as promising within the oil and gas industry, unless the company embraces a new approach to the energy business.

Business Strategy

Currently, Chevron Corporation’s business strategy is focused on achieving the enterprise’s vision, which is to be known and respected as the global energy company that is most admired for the way they conduct business in relation to their people, performance, and partnership (Olson & Kent, 2016). It can be noted that the Chevron Corporation is possibly the only company in the oil and gas industry that has not taken ownership of the fact that the industry is responsible for most of the greenhouse gas emissions, which destroy the planet. The company seeks to position itself as a victim by stating that they agree with the scientists on the situation of the environment, and thus they are also working to ensure that the industry is just as safe, if not safer for the planet. In this way, all of the Chevron Corporation’s strategy is focused on growing its income, as the market prices for oil and gas increase. More recently, the company has started working towards renewable energy solutions as well ensuring that they remain relevant in a market that is steering away from fossil fuels and is focusing more on cleaner and more sustainable sources of energy. Thus, their business strategy, in this case, is to align the company’s operations with the perceived popular demand (Grant, 2010). While people are still buying oil and gas, the company will deliver it to them, and when they decide to switch to the cleaner energy alternatives, the Chevron Corporation will still be able to provide the needed products.

SWOT Analysis

Strengths

Chevron is a huge brand name existing for almost 100 years in the oil and gas industry (Chevron Corporation, 2016). The Chevron also has a series of partnerships with many overseas companies in relation to exploration, production, and distribution of high quality oil and natural gas. Another Chevron’s strength is that the business is financially stable with reported equity of over $155 billion in 2015 (Chevron Corporation, 2015). While the company may have had a lower revenue and profit, the equity had increased significantly. In addition, the company’s global market presence ensures that they can do business with a numerous customers compared to their restrained competitors who have limited access to most continents. Chevron is present in at least 180 countries across the globe.

Weaknesses

Recently, companies in the oil and gas industry have had to deal with many legal issues regarding their operations. Oil spills and other destructive accidents and incidents associated with oil exploration tend to be very costly for these companies regarding not only cleaning up but also the need to compensate the affected communities. Fossil fuels are also a natural resource that is continuing to dwindle, with the possibility that the company will soon run out of reserves to meet the growing demand in the market.

Opportunities

The market price of oil and gas is increasing gradually thus giving the company an opportunity to make profit because the production costs are mainly stable. In addition, the market is growing, as is the demand for energy. This scenario places the Chevron Corporation in a position for higher sales volumes that can translate into larger profits and revenues (Chevron Corporation, 2015). The renewable energy sector may not be aligned with the oil and gas industry, but Chevron as an energy corporation is well positioned to venture into this type of energy since they have the experience in the energy markets and the significant amounts of revenues from the oil and gas business.

Threats

The greatest threat that this company has to face is the government regulations, as the world becomes more conscious of the state of the environment. To participate in the reduction of greenhouse gas emissions, most governments are coming up with stricter regulations to keep the oil and gas companies from damaging the environment. Moreover, the high competition that the oil and gas industry is likely to face from the renewable energy sector will decrease the company’s profitability in the future, and this is a considerable threat to Chevron’s sustainability in the industry.

Financial Performance

In 2013, Chevron Corporation reported a net income of $21.4 billion which was a drop from the previous year’s $26.2 billion (Reddall, 2013). In 2014, the net income was $19.2 billion, while in 2015, only $4.6 billion (Mollick & Nguyen, 2015). The last three years have thus shown a consistent drop in the company’s income with the recent report indicating a rather steep drop of over 70% (Mollick & Nguyen, 2015). The main concern is the fact that the industry reports indicate a positive outlook, which is meant to keep the shareholders interested in the market. Oil and gas prices keep rising as the industry attempts to remain profitable, but there seems to be a consistency in the way the net income is dropping while the total assets remain rather stable at $266 billion (Mollick & Nguyen, 2015). The Chevron Corporation is operating within an industry that has been blamed for the world’s environmental woes, such as a frequency of extreme weather conditions that have claimed thousands if not millions of lives across the globe. According to the past three years, it can also be noted that there has been a slight decline in the company’s stockholder equity that indicates an actual downward trend, which can impose large costs on the company in the long term (Mollick & Nguyen, 2015). Currently, however, the Chevron Corporation remains one of the largest oil enterprises in the US by revenue.

Stock Price Performance

In January 2014, Chevron’s stock price was trading at $111.63 closing price (Chevron Corp.: NYSE: CVX, 2016). The price reached $130.55 in May 2014 but ended the year with a $112.18 (Chevron Corporation (CVX), 2016). In January 2015, the closing price was $102.53, and by December 2015 the stock was trading at $89.96 (Chevron Corporation (CVX), 2016). In January 2016, the closing price was $86.47. However, now, one CVX share is trading at $117.15 (Chevron Corporation (CVX), 2016). These numbers indicate a steady decline in the Chevron Corporation’s stock value, except the latest numbers that show some hope for the company’s revival. It can be anticipated that despite Chevron’s participation in a relatively doomed industry, the company’s current business strategy is bringing back hope in their sustainability within the market. The financial performance indicates a dwindling condition, as the market shifts interest into renewable energy. However, Chevron has recently unveiled a campaign that shows their agreement with the consumers on the need for environmental sustainability and their growing interests in renewable energy. Depending on commitment of the Chevron Corporation regarding environmental sustainability and renewable energy, the newly recorded upward trend may signal the company’s revival and thus their ability to stay at the top of the US Forbes list.

Debt Financing

In the recent years, Chevron has promised to pay dividends to shareholders despite the tough financial position. Currently, the company has been borrowing at least $2 billion per quarter to maintain the dividends and show to the seemingly blind investors the fact that the financial performance indicates a nose-diving trend (Chevron Corporation 2015). The debt used to finance dividends is not only unnecessary but also very destructive for the company that has had to cut back on administrative costs while also reducing capital expenditure significantly. Selling assets has also proven insufficient for the company at a time when the market seems unfavorable for the oil and gas industry. Therefore, the company’s debt is growing steadily while the income is continuously decreasing, leading to the possibility that the company’s market value will fall. Debt financing is considered logical when the debt is used to fund a profitable line of business, but for Chevron, the high debts that they are accumulating are meant to keep the investors interested in the business that is no longer making enough money to continue its operations.

Dividend Policy

At the moment, share repurchasing at Chevron has been cut to zero as a way of ensuring minimal expenses on the company’s part. Chevron is at an all-time low concerning the company’s financial performance, and it has been seeking out ways to limit expenditures without having to cut back on the dividends. Paying dividends in cash is a part of the company’s strategy to keep the investors from pulling out and compromising the business’s market value. The company needs to stop paying out the dividends to limit the amount of debt with which they are operating. The investors may be getting regular reasonable dividends, but their equity is gradually losing value as the debtors can claim the company assets. In addition, it can be noted that the corporation will continue registering lower revenue since the oil and gas industry is losing its hold in the energy markets, as renewable energy becomes the new trend.

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Conclusion

The Chevron Corporation is a large corporation that is heavily invested in the wrong industry. Oil and gas have been extremely profitable commodities in the international market until recently. Nowadays, these oil and gas companies are blamed for the global warming and for their contribution to the carbon emissions that are destroying the planet. Currently, the oil and gas industry is no longer as lucrative, and the numbers reported by Chevron Corporation clearly indicate a downward trend. However, to solve the issue the company has to focus on renewable energy rather than the oil and gas industry. Recently, the Chevron Corporation declared itself an energy corporation that invests in geothermal, wind and solar energy, thus taking the possibility to make profits in the future. At the moment, however, they continue to incur a quarterly debt of around $2 billion dollars to pay out dividends to the investors. If this trend continues, the company will have to liquidate sooner rather than later to offset the debts and pay off the investors.