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Can Chevron Keep Gushing Higher?

Sean Williams
September 11, 2012

Shares of Chevron (NYSE: CVX  ) hit a 52-week high on Monday. Let's take a look at how it got there and see if clear skies are still in the forecast.

How it got here
Can anything stop a big oil company benefiting from robust oil prices and an abundance of new oil and gas field finds? Probably not, unless oil prices fall back to their 2009 lows again!

Chevron has been benefiting most from its downstream refining operations which have been helped by lower oil prices and higher crack spread margins. Refining and chemical operations profit jumped a robust 80% in the second quarter. If there's been any chink in Chevron's armor, it's been that lower realized oil prices toward the end of the second quarter caused a double-digit revenue decline in its upstream production business. Consider me unconcerned, however, as operating margins still expanded 50 basis points to 19.7%.

Chevron also wasn't the only large exploration and production company to face a decline in revenue or production from its upstream segment. ExxonMobil (NYSE: XOM  ) reported a 5.6% decline in oil equivalent production in its upstream second-quarter results, while BP's (NYSE: BP  ) production dipped 7.4% in the second-quarter.

The real story behind Chevron's rise is a macroeconomic play that things aren't as bad as they first appeared. The European Central Bank and Mario Draghi have made it clear that the ECB will provide the needed liquidity to member nations by purchasing their bonds in exchange for outside fiscal oversight. Also, China approved a $156 billion infrastructure improvement plan to spur growth. Both of these moves should theoretically boost global output which should, in turn, cause the demand for oil to rise around the world. Of course, it's a nice plan on paper, but Europe's debt crisis and China's slowing growth are trends that aren't expected to disappear overnight.

How it stacks up
Let's see how Chevron compares to its peers.

CVX Chart

CVX data by YCharts.

Note that ConocoPhillips' (NYSE: COP  ) large drop in 2012 was due to its spinoff of Phillips 66 and thus makes its performance more in line with the rest of the sector.



Price/Cash Flow

Forward P/E

Dividend Yield

Chevron 1.7 5.8 8.4 3.0%
ExxonMobil 2.5 7.7 10.2 2.3%
ConocoPhillips 1.5 4.1 8.9 4.7%
Royal Dutch Shell (NYSE: