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.

Chevron Corporation Is Contributing A lot To The Australian Economy

The relationship between Chevron and Australia is going fairly well, the future seems bright for both.

Australia is one of the places that are economically benefited directly or indirectly through various projects carried on by Chevron Corporation. The mega projects and activities that the company has carried out in Australia are Grogon Liquefied Natural Gas and The Wheatstone Projects. Along with these projects the corporation has made other investments as well; through these projects, investments and activities the economy has larger benefitted.

Chevron is considered as one of the major contributors and distributors of natural gas in the country. For the development of the corporation’s Gorgon and Wheatstone projects, it has committed over $45 billion from 2009 to 2014. The oil major had further provided major employment opportunities in the country which has largely contributed to the country’s economy as well. The oil and gas corporation has managed to hire over 19,000 employees from Fiscal Year 2009 to Fiscal Year 2014. In the same time span, over $1 billion have been invested in research and development in the region.

Furthermore, Chevron has also worked towards enhancing academic education and research in the country and has contributed over $53 million so that better education can be provided in the region. It has also invested in exploration activities; the amount contributed on this cause is $1.6 billion. Through this investment, the country was able to make 24 offshore discoveries.

According to the corporation, these investments and contributions will benefit Australia’s economy from 2009 all though 2040. It is likely to contribute over $1 trillion to the gross domestic product, which could be generating $32 billion to GDP annually and along with that it could also contribute to Federal Government with an amount of $338 billion in revenue. Over the period of time, these projects could generate as many as 150,000 full time jobs for workers which would mean there will be 5000 job openings in the country on an annual basis.

Once the Gorgon and Wheatstone project is fully operational, it has the capability of producing 550 joules of domestic day daily which would amount to 50% of the current domestic gas supply in Australia. It is quite evident from all this information that both Chevron and Australia aren’t letting this partnership go easily or any time soon for that matter.

On November 18, 2015 Chevron’s stock was being traded in the market for $92.21 which showed a change of 1.30%. For the next year, the company is forecasting earnings per share of -8.06% while having a current return on investment at 6.40%. The market capitalization of the gas and oil company is 171.32 billion and the current EPS is 4.60 with a price to earnings ratio of 20.03.

Chevron Corporation Revenue Update

Due to the decrease in crude oil prices and higher depreciation and tax expenses, the energy sector's stock has seen a steep decline.

On Thursday the shares of the oil corporation declined by 1.55% and were being traded at a share price of $95.29 per share. This decline was due to the drop in oil prices as a number of other oil sectors stock also went down. In the third quarter of fiscal year 2015, the company recently reported revenue of $34 billion; in comparison to the estimates by the Wall Street analysts there was a difference of $9 million. The analysts had made an estimation of $26 billion for the revenue of the oil corporation for the third quarter. On a year over year basis the company’s revenue has fallen by 31% which was mainly due to the reason that prices of the crude oil also fell and according to reports by Market Realist, the revenue during the third quarter was mostly above $50 billion; this revenue was when the crude oil prices were on a high. Since the crude oil prices have fallen 21% on a year over year basis, it has affected Chevron’s stock. The drop in the crude oil prices did not only affect Chevron Corporation’s revenue in a negative but in a way seemed beneficial it the oil corporation as well, as the company’s downstream operations benefited from the decline and further provided better margins. On the other hand, the company, for the third quarter reported upstream earnings of $59 million while in the same quarter during the last fiscal year, the company had earnings upstream of $4.6 billion. Even though it has not performed well since the previous year but in comparison to the previous quarter of the current fiscal year, it has done better as the loss incurred in the 2nd quarter of 2015 was of $2.2 billion. This loss was again due to the low crude oil price as well as the higher depreciation and tax expenditures. But this is something that would be affecting all the energy sectors. Furthermore, the fall in the upstream earnings on a year to year basis reported by the company was 60%. After the company released its earnings for the third quarter, the Wall Street started their estimation for the next 12 months. According to the estimations and suggestions of the Wall Street analysts for the next 12 months, is that 41% of these experts recommend a “Buy” rating on the shares of the oil corporation while on the other hand 52% of these analysts are adding the stock to their list of “Hold” and finally 7% suggest a “sell”. A number of brokerage firms and financial services firms have covered Chevron’s stock, the consensus of these firms has come to the stock of the company being “neutral”. Barclay’s has suggest a rating of “Equal weight” with a target price of $96 and Goldman Sachs has rated the company “Sell/Neutral” with a target price of $81 per share. The average target price, after the suggestions of all these financial firms, has come down to $95.1.