Chevron Corporation Thesis

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Chevron Corporation (NYSE:CVX) is one of the world's leading producers of oil and gas products, and has created one of the most advanced exploration, production and distribution networks globally in existence today. Chevron has operations that encompass the entire oil and natural gas industry value chain, from exploration and production to refining, international or global marketing, and logistics. At present Chevron Global Marketing operates in 26 nations of the over 100 nations the company has field, exploration and processing facilities in. At present Chevron's global brand is comprised of the Chevron, Texaco and Caltex (DataMonitor, 2008). Chevron Global Marketing pays a critical role in the development of key initiatives in emerging markets, including the definition of marketing throughout 3rd world nations including Kenya and Uganda (Corrin, 2008). In addition Chevron Global Marketing also plays a critical role in the development of Chinese market expansion strategies as well (McGregor, 2007). During 2005-2006 when gasoline prices and concerns over green or environmental performance of oil companies began to increase significantly over previous years' Chevron began a national program to refresh the company's image as well (National Petroleum News, 2006).

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Over time the role of Chevron Global Marketing has been to be one of the key internal participants in defining the roadmap to innovation for the company (Strategic Direction, 2007). Chevron has been one of the leaders in the oil & gas industry in terms of marketing differentiation, creating Techron as a brand of premium gasoline as well. Taken together, as all these factors illustrate how much of a leader Chevron is in global marketing of oil and gas products, in addition to an exceptional ability to manage global distribution channels and multiple customer segments. Due to all these factors, Chevron is a fascinating company to monitor and continually learn from.

Thesis on Chevron Corporation Assignment

Industry Background

The oil and gas exploration and production industry is primarily comprised of crude oil exploration and production (76%) with natural gas comprising the remaining 24%. This shift to oil exploration and production has specifically been due to the rising price of crude oil on the markets of the world. Table 1: Global Oil and Gas Exploration and Production, illustrates the rise in revenue from $1,528B in 2004 to $3,915B in 2008. Despite this growth there is a reduction in the number of establishments participating in the industry, from 9,323 in 2004 to 8,984 in 2008, a reduction of 339 establishments over the five-year period. Paradoxically however employment has grown from just over 1 million to 1.11 in the period. This indicates that the industry has become increasing efficient.

Table 1: Global Oil and Gas Exploration and Production

Key Factors 2004 2005 2006 2007 2008 Unit of Measure Industry Revenue $1,528.9 $2,143.9 $2,491.7 $2,762.7 $3,915.6 $Bill Industry Gross Product $1,299.6 $1,865.2 $2,167.9 $2,411.9 $3,406.6 $Bill Number of Establishments 9,323 9,266 9,153 9,040 8,984 Units Number of Enterprises 8,250 8,200 8,100 8,000 7,950 Units Employment 1,013,747 1,035,022 1,057,699 1,090,747 1,111,019 Units Exports $760.7 $1,089.4 $1,293.5 $1,482.2 $2,207.9 $Bill Imports $760.7 $1,089.4 $1,293.5 $1,482.2 $1,510.5 $Bill Total Wages $37.3 $38.8 $40.8 $43.4 $45.4 $Bill Domestic Demand $1,528.9 $2,143.9 $2,491.7 $2,762.7 $3,218.2 $Bill Crude Oil Output 72.5-73.8-73.5-73.3-74.5 Million barrels per day Source: (DataMonitor: Oil & Gas Exploration & Production Industry Profile, 2008)

Crude oil comprises 76% of the total global production in this industry, followed by natural gas with 24% of total production as of 2007 according to DataMonitor (DataMonitor: Oil & Gas Exploration & Production Industry Profile, 2008).

Figure 2: Global Oil and Gas Products and Services Segmentation

Product/Services

Share

Crude oil

Natural gas

Source: (DataMonitor: Oil & Gas Industry Profile, 2008)

In evaluating the industry and Chevron's role within it, it is critical to keep in mind that there are widely varying grades of oil, each requiring a specific type of refinery and distribution operation (Petroleum Economist, 2007). These grades of crude oil vary from the highest quality light sweet crude oil to poor quality heavy, sour crude oil. Different grades of oil necessitates that Chevron have significantly different refinery configurations. From these different refinery configurations, the company produces different proportions of refined petroleum products including gasoline and automotive distillate based on the demand from its customers and distribution channels. Of all grades of oil, sweet crude is the most difficult to find and extract from the ground, with the lower-grade oil being more prevalent, yet much more costly to process and transform into gasoline and other petroleum products.

In addition to creating petroleum products, the oil and gas industry also supplies products and services to a number of value chain related markets including petroleum refining and the production of petroleum products, gasoline and automotive engine additives being the most prevalent. Increasingly oil production is actively being used to generate electricity primarily for 3rd world nations, although this use as continued to stay at a constant rate relative to the exponential growth from gas production (DataMonitor: Oil & Gas Industry Profile, 2008).

Of the two major products of the oil and gas industry, natural gas is far more diverse and is also used in the manufacture of petrochemical products. Chevron resells the natural gas its extracts for purposes of power generation, which consumes 13.5% of total industry output. Only 10.5% is consumed within homes for heating and cooking (DataMonitor: Oil & Gas Exploration & Production Industry Profile, 2008).

Company Background

Chevron Corporation (NYSE:CVX) has a global market share of 2.4% (DataMonitor: Oil & Gas Exploration & Production Industry Profile, 2008) and was originally formed by the merger of Texaco Inc. And Chevron Corporation merged in October 2001. Headquartered in San Francisco, CA Chevron operates in over 100 nations with subsidiaries developed to specifically focus on increasing supply chain efficiency and performance, Chevron coordinates marketing efforts in 26 nations with the Chevron Global Marketing Division (Stone, Leary, 2007) which plays a critical role in the strategic direction of the company. This specific team also was instrumental in creating the brand of Chevron Corporation in May, 2005. Chevron's Global Marketing Division also is responsible for the positioning and branding of the acquisition of Unocal in 2006. This was after the China National Offshore Oil Corporation (CNOOC), a 100% state-owned agency of China, offered $18.5B for Unocal. The U.S. House of Representatives voted to block the Bush administration from approving CNOOC's bid to acquire Unocal while also calling for a review of the negotiations between Unocal and CNOOC. Chevron was approached by Unocal and completed a bid of $17B at a special meeting of stockholders in August 10, 2005. Unocal shareholders and board members felt the offer was too low, yet eventually accepted it given the ruling by the U.S. government against the purchase by CNOOC. The acquisition of Unocal broadened the total available market for Chevron, expanding their operations in the Asia Pacific, the Caspian region, and the Gulf of Mexico. Specifically in the Asia Pacific region, the Unocal acquisition is leading Chevron to compete in these markets more effectively than in the past. In addition, Chevron continues to be a leading industry producer in the Caspian region and Gulf of Mexico. Unocal's most significant amount of oil reserves had been in the Eastern European country of Azerbaijan, and had a controlling interest in the Azerbaijan International Operating Company (AIOC) and Baku-Tbilsi-Ceyhan (BTC) export pipeline. These two strategic assets have also been integrated into the global marketing and selling strategies of the company as well (Stone, Leary, 2007) leading to best practices in performance of supply chain, strategic sourcing, product development, logistics and fulfillment.

Chevron Stock Performance

Chevron Corporation (NYSE:CVX) has a current market capitalization rate of $143.8B at the current per share trading price of $70.82 with 13.4M shares traded as of January 23rd, 2008. Figure 3, Chevron Stock Performance over the last five years shows that through 2007 the stock price continually climbed as the price of oil continued to be the subject of speculation throughout this time period. Reflecting the global economic slowdown, Chevron's stock price started to fall as OPEC further increased prices. This led to very high gas prices, which in turn led to consumers purchasing less gas than they had in decades.

Figure 3: Chevron Stock Performance

Chevron however has been able to sustain its performance across profitability, liquidity, debt management and asset management ratios through the time periods of 2003 through 2007 according to the company's filings with the Securities and Exchange Commission (Chevron, 2008). What is remarkable about Chevron is the Revenue per Employee continual growth despite economic uncertainty in the 2007 timeframe.

Table 2: Chevron Corporation Ratio Analysis

Profitability Ratios

ROA % (Net)

ROE % (Net)

ROI % (Operating)

EBITDA Margin %

Calculated Tax Rate %

Revenue per Employee

Liquidity Indicators

Quick Ratio

Current Ratio

Net Current Assets % TA

Debt Management

LT Debt to Equity

Total Debt to Equity

Interest Coverage

Asset Management

Total Asset Turnover

Receivables Turnover

Inventory Turnover

Accounts Payable Turnover

Accrued Expenses Turnover

Property Plant & Equip Turnover

Cash & Equivalents Turnover

Sources: (Chevron, 2008)

International Competitors

Chevron faces its most… [END OF PREVIEW] . . . READ MORE

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