Chevron in a Strong Position Despite Weak Quarter
Fourth quarter results were weaker than expected, but Chevron remains one of the better-positioned integrateds to succeed in an environment of ongoing low oil prices.
While we see Chevron shares as fully valued, we think it remains one of the better-positioned integrateds to succeed in an environment of ongoing low oil prices. With production set to increase 4%-9% and capital spending set to fall dramatically this year, Chevron will be able to cover the dividend with free cash flow at current strip prices. Furthermore, Chevron maintains one of the higher-quality portfolios of its peer group, with new production delivering margin expansion. In 2017, three fourths of production will have cash margins of over $15/barrel of oil equivalent, compared with less than half in 2016. In addition, 70% of 2017’s $19.8 billion in capital spending will generate cash flow within two years, offering dividend protection in the event of weak oil prices in the next few years.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.