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Chevron Corp CVX

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Morningstar’s Analysis

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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Chevron Increases Low-Carbon Spending, but Maintains Discipline and Focus on Core Competencies

Allen Good, CFA Sector Strategist

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.

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Company Profile

Business Description

Chevron is an integrated energy company with exploration, production, and refining operations worldwide. Chevron is the second- largest oil company in the United States with production of 3.1 million of barrels of oil equivalent a day, including 7.3 million cubic feet a day of natural gas and 1.9 million of barrels of liquids a day. Production activities take place in North America, South America, Europe, Africa, Asia, and Australia. Its refineries are in the U.S. and Asia for total refining capacity of 1.8 million barrels of oil a day. Proven reserves at year-end 2020 stood at 11.1 billion barrels of oil equivalent, including 6.1 billion barrels of liquids and 29.9 trillion cubic feet of natural gas.

Contact
6001 Bollinger Canyon Road
San Ramon, CA, 94583-2324
T +1 925 842-1000
Sector Energy
Industry Oil & Gas Integrated
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Hard Assets
Employees 13,379

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