We issued an updated research report on Chevron CorporationCVX on Apr 14, 2015. Chevron is one of the largest integrated energy companies in the world. Its current oil and gas development project pipeline is among the best in the industry.
However, the ongoing oil price slump has adversely affected the company's earnings and cash flows, particularly at its upstream unit. This is reflected in Chevron's current Zacks Rank #3 (Hold).
Chevron's pipeline of oil and gas development project is impressive - targeting volume growth of 20% by 2017 (from 2014 levels) - driven by the big Australian LNG projects (Gorgon and Wheatstone), as well as deepwater developments in the U.S. Gulf of Mexico (GoM). Moreover, Chevron found first oil and natural gas from the Jack/St. Malo project − located in deepwater U.S. GoM. The fields are among the largest in the region and can produce as much of 94,000 barrels of crude oil and 21 million cubic feet of natural gas per day at their peak.
The company's financial flexibility and strong balance sheet are real assets in this highly uncertain period for the economy. Chevron remains in excellent financial health, with nearly $13 billion in cash on hand and an investment-grade credit rating with a debt-to-capitalization ratio of just over 15%.
However, with crude prices tumbling more than 50% since last June, Chevron's upstream division − which is its largest earnings generating segment − has been able to extract less value for its products. This has stressed the group's profit margins.
Additionally, Chevron has pegged its 2015 capital budget at $35 billion. Though lower than the previous year, this is expected to substantially increase the company's leverage and deteriorate its credit metrics. Additionally, the increasing capital intensity of its operations may result in reduced returns going forward.
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