Chevron: Strengths, Weaknesses, Opportunities, Threats

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.

Strengths:

  • 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%.

Weaknesses:

  • 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.

Opportunities:

  • 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.

Threats:

  • 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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Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On January 31, 2012, at 4:17 PM, tweenthelines wrote:

    Question is how much an investor should hold, not if. Who said it (Buffett?) Evaluate the assets because the liabilities are solid. CVX may have its place but no longer a "core" holding.

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