Chevron ( CVX ) is one of the largest energy companies in the world and competes with other established oil producers like Exxon Mobil ( XOM ), ConocoPhillips ( COP ), BP ( BP ) and Anadarko ( APC ). The company derives almost 42% of its value from crude oil & natural gas liquids production. We break this down below. Our price estimate for Chevron's stock stands at $104 , in line with market price.
Higher Profitability Compared to Downstream Activities Like Refining
Although the revenues attributed to crude oil and NGL production are less than downstream businesses like refined product sales, the profitability is much higher. We estimate that EBITDA margins for crude oil and NGL production were a little over 53% in 2010 compared to only 2.3% for refined product sales.
We attribute the difference in margins to the fact that the cost of production per barrel is quite low for crude oil compared to its selling price. For example in 2009, the company's average selling price for crude oil was around $56 per barrel when average production costs were only $10 per barrel.
Higher Production and Pricing Compared to Natural Gas
Although natural gas production and crude oil and NGL production have similar margins, the production volume (when measured on a comparable basis) and pricing is higher for crude oil.
While Chevron produced around 1.62 million barrels of oil per day globally in 2010 , natural gas production was less than half of this when measured on an oil-equivalent basis (6,000 cubic feet of natural gas being equivalent to 1 barrel of oil when seen from energy content perspective). Additionally, the pricing per barrel of oil was almost thrice when compared to the equivalent energy amount of natural gas.