Chevron Corporation Might Be In Trouble Due To Declining Crude Oil Prices

Due to the reducing crude oil prices, which are highly unlikely to hike up, might cause Chevron to opt for internal financing.

In a year, Chevron Corporation has fallen by at least 25% and it continues to fall further as the crude oil prices remain in a downtrend. For the longest time, the second largest United States based company in oil and gas has been known as the ‘dividend machine’ but considering the current scenario, it is debatable to call it such.

Along with being called the Dividend machine, the dividend for the oil and gas organization has constantly risen in the last 28 years. For all the years, that Chevron has been considered oil and gas giant because of its robust dividend was majorly due to the prices of crude oil.

The major reason for the company to keep increasing its dividends as per barrel range was the trade from $110 to $115. Since the price of crude oil has decreased, the scenario is likely to change. Since June 2014, the crude oil prices have fallen by as much as 50%.

Due to these falling crude oil prices, the corporation’s liquidity position is being threatened along with leaving the investors confused. Stockholders now are concerned with whether to conserve more in cash but that will ultimately reduce dividends. In a last 52 week, Chevron’s stock has fallen almost 25%. The Free Cash Flow of the corporation has been in red for the past five quarters.

The stock experts at The Street have predicted that the negative Free Cash Flow of the company would likely increase in the fourth quarter of the current fiscal year. Another option for it would be to take loans in order to pay dividends but threats and problems might arise in the future because of borrowing money.

Additionally, according to news, the United States Federal Reserve is also expected to increase the interest rates. An increase in the interest rate would ultimately cause the US dollar to hike up due to which debt servicing could become expensive. However, in the past one year, the debt has increased by 39%. Furthermore, in terms of remedies, the Chevron can even look at its own asset sales, cutting costs via reducing its capital expenditures and downsizing employees.

As mentioned in the company’s earnings report for the third quarter, Chevron stated that it would keep the capital expenditures at a price of $25 billion to $28 billion, which is a decline of 25% in comparison to the same quarter last year. In the year 2017 and 2018, the capital expenditure of the oil and gas giant is estimated to be $20 - $24 billion.