CHEVRON CORP. $125(New York symbol CVX; Cyclical Growth Dividend Payer Portfolio, Resources sector; Shares o/s: 1.9 billion; Market cap: $237.5 billion; Divd. yield: 3.6%; Dividend Sustainability Rating: Above Average; www.chevron.com)is the second-largest integrated oil company in the U.S. by revenue, after ExxonMobil (New York symbol XOM).
Producing oil and natural gas supplies 80% of Chevron’s earnings. Based on current production rates, its reserves of 11.7 billion barrels should last roughly 12 years. The remaining 20% of earnings comes from refineries, petrochemical operations and 7,700 gas stations in the U.S.
31 years of rising dividends
Chevron last raised its quarterly dividend by 3.7% with the March 2018 payment. Investors now receive $1.12 a share, up from $1.08. The new annual rate of $4.48 yields 3.6%. The company has now increased its dividend each year for the past 31 years.
Due to declining production, as well as lower oil and gas prices, Chevron’s revenue fell 50.0%, from $228.8 billion in 2013 to $114.5 billion in 2016. Thanks to improving prices for crude oil, 2017 revenue jumped 23.8% to $141.7 billion.
Earnings fell 77.9%, from $11.09 a share (or a total of $21.4 billion) in 2013 to $2.45 a share (or $4.6 billion) in 2016. The company then lost $0.27 a share (or $497 million) in 2016, before earnings recovered to $3.79 a share (or $7.2 billion) in 2017.
Cash flow per share rose 3.0%, from $18.61 in 2013 to $19.17 in 2014. It then fell to $13.61 in 2015 and to $10.02 in 2016 before rebounding to $13.93 in 2017.
In the latest quarter, Chevron’s production rose 6.3% to 2.85 million barrels a day (62% oil, 38% gas) from 2.68 million barrels a year earlier. About 74% of that output comes from fields outside of the U.S.
The higher production also reflects a 65% increase in production for the Permian basin in the U.S. Chevron also recently started up two Australian liquid natural gas projects. The first, Gorgon, is 47.3% owned by the company. Its reserves should last 40 years. Chevron also owns 64.1% of the Wheatstone project; its reserves should last 30 years.
As a result of the higher production and oil prices, Chevron’s revenue rose 13.0%, to $37.8 billion from $33.4 billion. Earnings jumped 34.8% to $1.90 a share (or a total of $3.6 billion) from $1.41 a share (or $2.7 billion).
Capital spending set to decline in 2018
Now that the company has completed work on Gorgon and Wheatstone, its spending on exploration and development will decline 2.7%, to $18.3 billion for 2018 from $18.8 billion in 2017.
Chevron’s biggest project under development is the Tengiz oil field in Kazakhstan. It holds a 50% stake; the Kazakhstan government owns the rest. The company will spend $3.7 billion on Tengiz in 2018 and hopes to complete the project by 2022.
A solid balance sheet will let Chevron continue to invest in its operations. As of March 31, 2018, its total debt was $39.7 billion, or a moderate 17% of the company’s market cap. Chevron also held cash of $6.5 billion.
The company should generate cash flow of $14.36 a share in 2018. Chevron trades at a low 8.7 times that forecast.
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