January 31, 2012
Chevron (NYSE: CVX ) 's fourth-quarter earnings missed estimates. However, a look into the company's strengths, weaknesses, opportunities and threats will help investors develop a more complete picture about the company. Today, we'll see how this oil and gas integrated behemoth fares on a SWOT test.
- Chevron has a global footprint. International operations accounted for 71% of total profits in 2011. These locations include Australia, Brazil, Nigeria, Angola, Indonesia, Thailand and the United Kingdom.
- The Wheatstone and Gorgon LNG projects in Australia -- which are expected to come online by 2014 -- are located strategically close to the high-demand Asian markets. This will work to the company's advantage since natural gas sells for a much higher price in Asian markets as compared to the U.S. markets.
- A healthy balance sheet with over $15 billion in cash. Also, debt-to-equity stands at only 8%.
- A decent dividend yield of 3.1%.
- The company's downstream operations posted a $61 million loss in the fourth quarter. Crude-processing margins shrank due to maintenance projects, and analysts expect continued pressure on these margins.
- Total production fell 5% in the fourth quarter due to field declines and maintenance-related downtime.
- The net liquids component of oil-equivalent production decreased 7% in the fourth quarter to 447,000 barrels per day. Hence, Chevron couldn't fully capitalize on high crude oil prices.
- High reserve replacement ratio: The company added 171% in reserves in 2011 over what it produced in 2010.
- Opportunities provided by the fast growing Asian markets are huge.
- With vast properties around the globe, declining production will be a recurring problem. Compensating for this decline won't be easy, as only a production-spike in any given location will make that possible. This doesn't look likely in the near future.
- Low natural gas prices that might not recover in the next five years. With declining liquids production, operating cash flows may suffer.
- Pending lawsuits around the globe. An Ecuadorean court has slapped a $18 billion-fine for years of damages from oil fields in the country. Again, Brazilian prosecutors have filed a case for civil damages of $11 billion over a spill in Frade Field off the coast of Brazil.
Foolish bottom line
The pros and cons look equally balanced right now. Chevron is at a critical juncture. Investors must dig deeper. To stay up to speed on the top news and analysis on this company, you can start here by adding it to your watchlist.
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