Chevron: An Oil Giant With a Formidable Balance Sheet and Sound Dividend
Chevron was born from the discovery in 1879 of an oilfield near Los Angeles that yielded 25 barrels of oil per day. Today, Chevron is one of the largest oil companies in the world and produces over 3 million oil-equivalent barrels each day.
The oil giant's profits come from upstream activities like exploring for and producing oil, gas, and liquefied natural gas, as well as downstream operations, including refineries that use crude oil to make petroleum products such as gasoline and petrochemicals as well as a network of gas stations.
Despite operating in a highly cyclical industry, Chevron and its predecessors have paid uninterrupted dividends since 1912. Many rivals have come and gone during Chevron's time, highlighting the skill it has taken for Chevron to flourish.
In short, Chevron has proven adept at managing costs (a must since profits are at the mercy of commodity prices) and making wise capital allocation decisions.
By acquiring rivals during downturns and continuously reinvesting profits to expand exploration and production of new oil and natural gas sources, Chevron has achieved a massive scale that gives the firm a lasting advantage over rivals.
For example, Chevron has developed a diverse portfolio of resources, including heavy oil, deepwater, natural gas, conventional oil, and shale. Moreover, Chevron's operations span the globe, with key production zones in North America, South America, Australia, Asia, and Africa.
This diverse asset base helps Chevron optimize its profitability through various commodity cycles and reduces the risk that any single project failure has a material impact on the firm, a luxury not afforded to smaller competitors.
Further strengthening Chevron's competitive position is the firm's vertical integration. The diversified energy behemoth participates in all aspects of the fossil fuel business, such as manufacturing refined products like gasoline, diesel, and petrochemicals. These downstream operations use crude oil as an input and benefit from low oil prices, helping stabilize the company's cash flow during lean times.
Importantly, Chevron has managed to scale and diversify without sacrificing financial flexibility. The company maintains one of the strongest balance sheets in the industry and has earned an AA- credit rating from Standard & Poor's.
With relatively low leverage, Chevron can enter unpredictable downturns in oil prices with the flexibility to make opportunistic investments and defend its dividend track record until the environment inevitably improves.
The oil giant's profits come from upstream activities like exploring for and producing oil, gas, and liquefied natural gas, as well as downstream operations, including refineries that use crude oil to make petroleum products such as gasoline and petrochemicals as well as a network of gas stations.
Despite operating in a highly cyclical industry, Chevron and its predecessors have paid uninterrupted dividends since 1912. Many rivals have come and gone during Chevron's time, highlighting the skill it has taken for Chevron to flourish.
In short, Chevron has proven adept at managing costs (a must since profits are at the mercy of commodity prices) and making wise capital allocation decisions.
By acquiring rivals during downturns and continuously reinvesting profits to expand exploration and production of new oil and natural gas sources, Chevron has achieved a massive scale that gives the firm a lasting advantage over rivals.
For example, Chevron has developed a diverse portfolio of resources, including heavy oil, deepwater, natural gas, conventional oil, and shale. Moreover, Chevron's operations span the globe, with key production zones in North America, South America, Australia, Asia, and Africa.
This diverse asset base helps Chevron optimize its profitability through various commodity cycles and reduces the risk that any single project failure has a material impact on the firm, a luxury not afforded to smaller competitors.
Further strengthening Chevron's competitive position is the firm's vertical integration. The diversified energy behemoth participates in all aspects of the fossil fuel business, such as manufacturing refined products like gasoline, diesel, and petrochemicals. These downstream operations use crude oil as an input and benefit from low oil prices, helping stabilize the company's cash flow during lean times.
Importantly, Chevron has managed to scale and diversify without sacrificing financial flexibility. The company maintains one of the strongest balance sheets in the industry and has earned an AA- credit rating from Standard & Poor's.
With relatively low leverage, Chevron can enter unpredictable downturns in oil prices with the flexibility to make opportunistic investments and defend its dividend track record until the environment inevitably improves.
