Financial Analysis – Chevron (CVX)

As you probably already know, Warren Buffet bought $25.9bn of new stocks of Chevron in 1Q22. I took a look at the company and will post here summary of my findings.

Business model

Frist, let’s start by explaining the business model of the company. Company engages in all phases of petroleum operations, from exploration, production, and refining to marketing and research.

Chevron does business in two main segments: upstream and downstream segment. Upstream segment is derived primarily from the refining and marketing of petroleum products such as gasoline, jet fuel, gas oils, lubricants and other products derived from crude oil.

The most significant factor affecting the results of operations for the upstream segment is the price of crude oil, which is determined in global markets outside of the company’s control. Another important factor for companies that do business in upstream segment are disclosed proved reserves. At December 31, 2021, 34% of the company’s net proved oil-equivalent reserves were located in the United States, 19% were located in Australia and 16% were located in Kazakhstan. In the table below you can find comparison of proved reserves with last years production. If the company doesn’t manage to find more oil wells (which is almost impossible as the company larglerly invest in R&D), it currently has available reserves for the next 10 years, providing some cushion for investors.

Production vs Reserves2021
Proved reserves (Oil-Equivalent)11,264
Production Oil-Equivalent1,131
Reserves / Production9.96

Downstream segment is closely tied to margins on the refining, manufacturing and marketing of products that include gasoline, diesel, jet fuel, lubricants, fuel oil, fuel and lubricant additives, petrochemicals and renewable fuels. Industry margins are sometimes volatile and can be affected by the global and regional supply-and-demand balance for refined products and petrochemicals, and by changes in the price of crude oil, other refinery and petrochemical feedstocks, and natural gas.

Upstream & Downstream
Upstream segment main contributor of income

Source: Chevron audit reports

Segments Last 3 Years
Upstream skyrocketed in 2021

Source: Chevron audit reports

The upstream segment accounts for 84% of income, but this is a significant jump compared to 2020, mostly due to the realization of international crude oil and natural gas liquids in 2021.

U.S. crude oil and natural gas liquids in 2021 was $56.06 per barrel compared with $30.53 in 2020, while international crude oil and natural gas liquids in 2021 was $64.53 per barrel compared with $36.07 in 2020.

The average natural gas realization was $3.11 per thousand cubic feet in 2021 in US markets, compared with $0.98 in 2020, while the average natural gas realization in international markets was $5.93 per thousand cubic feet in 2021 compared with $4.59 in 2020.

Crude Oil & Revenue & Net Income
Price in 2022 surges by almost 50%

Source: Brent Crude Market, Audit reports

Net income and revenue follows brent crude oil prices. Revenue surged in 2022 as brent crude oil price rose significantly. Company had loss in 2021 due to higher operating expenses and depreciation.

Profitability Overview

Revenue & Net Income
Revenues surged 64.7% y/y, net income follows

Source: Chevron audit reports

Profitability Margins         
Profit driven by higher oil price

Source: Chevron audit reports

The upstream segment performed very well in 2021, increasing profit margins, providing strong recovery from pandemic-year in 2020.

Balance Sheet Analysis

Assets & Equity
Minor changes

Equity Ratio        
Improved y/y, while not on highest levels

Equity ratio improved y/y mostly due to retained earnings from net profit. Also, assets decreased a bit due to lack of CAPEX, which was almost twice less than depreciaton & amortization.

According to the management, top tier drilling and completions performance has enabled year-over-year capital expenditure efficiency improvement and cycle time reduction generating higher returns throughout Chevron’s Permian portfolio.

Cash Flow Analysis

Operating cash flow grew

Cash Flow        
Higher dividend & debt payment in 2021

The largest part of the cash flow was paid to shareholders as dividends as the company keeps regularly pay dividends every year, but also a good part of the cash flow was used to clean the balance sheet, ie to reduce the debt that company accumulated in the previous year.

Stock Price
On highest levels since inception

Regularly paid dividends

Chevron attracted attention from many investors as oil crisis begin with Ukranian-Russia war started. The company pays dividend regularly and act good to its shareholders, despite rough economic conditions.

Many investors see a big advantage in this, so at the beginning of the 2022, Warren Buffet’s Berkshire Hathaway also invested, which further increased the share price. We see how the price has fallen slightly in the last few weeks given the uncertainty surrounding inflation and rising interest rates.


As oil&gas price skyrocketed in first quarter of 2022 due to Russian-Ukrainian crisis, Chevron achieved great results. Net oil-equivalent production of 1.18 million barrels per day in first quarter 2022 was up 109,000 barrels per day, or 10 percent, from a year earlier. The increase was due to net production increases in the Permian Basin and the absence of impacts from winter storm Uri. The net liquids component of oil-equivalent production of 880,000 barrels per day in first quarter 2022 was up 10 percent from the corresponding 2021 period. Net natural gas production increased 11 percent to 1.83 billion cubic feet per day in first quarter 2022 from the 2021 comparative period.

DCF Model

Value Breakdown
78% comes from terminal value

Intrinsic value seems to be much higher according to my valuation (by 42%).

Margin of Safety  
Almost 30% of intrinsic value

Peers Comparison

Be sure to double check this numbers before using them. Do not make any financial decision according to this data. If you have any questions regarding analysis or just want to discuss some items, please contact me.

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