Analyst Note| Allen Good, CFA |
Chevron announced a threefold increase in low-carbon spending to $10 billion cumulatively by 2028. As a result, capital spending guidance was increased to $15 billion-17 billion from 2022 to 2025 from $14 billion-16 billion, previously. Importantly, however, it left its larger financial targets in place including a greater than 10% return on capital employed and $25 billion in excess cash by 2025. New investments are largely tangential to its core oil and gas business and fit within existing value chains where Chevron holds some competency. The level of investment of about 6% annually of total capital spending and type of investment stands in contrast to European peers, which are investing at higher levels at about 20% annually while moving into new, highly competitive, low-return renewable businesses. The increase in investment is unlikely to fully satisfy more environmentally oriented investors, especially given the lack of net-zero targets. However, we like the circumspect strategy as it opens various avenues for Chevron to decarbonize and grow while maintaining near-term financial targets, which will likely suit most investors. Our fair value estimate and narrow moat rating are unchanged.