Energy investors are probably hoping that someone is building a device to wipe out memories so they can forget the performance of energy stocks in 2014. Even though the S&P 500 had one of its better years, gaining more than 12%, shares of energy giant Chevron (NYSE:CVX) took close to a 10% loss over the year. 

CVX Chart

CVX data by YCharts.

The simple answer to Chevron's woes is to say that oil prices have killed the prospects of this company, which is true to a certain degree. It's not the only thing that held Chevron back this past year, though. So let's take a look at why Chevron may be in for more of an oil price issue than some of its peers and at the lesser-known reason Chevron's shares took a 10% cut last year.

Chevron's tie to oil prices
Companies like Chevron are called integrated companies because they deal with every asset of the oil and gas business, from exploration and development of new wells all the way to the sale of the refined products to fill up your gas tank. Just because they all have these business segments doesn't mean that they are equally distributed within each company, though. Of the five big names that are integrated majors, Chevron is most reliant on the exploration and production side of the business for revenue and earnings. Also, its total production is much more heavily weighted toward oil production instead of natural gas.

Company% of Earnings From
Exploration & Production
(upstream, last 9 months)
% Liquids Production
Chevron 83% 66%


79% 54%
Royal Dutch Shell 76% 48%
BP 72% 51%
Total  78% 48%

Source: Company quarterly releases.

What this means is that Chevron's earnings should be the most sensitive to changes in oil prices. That said, we haven't really seen the impact of oil prices on the income statement because the average price for oil in the third quarter was still north of $90. Once fourth-quarter numbers come in -- where the average price of Brent was in the $75-$80 range -- we'll start to see what kind of impact that this will have on Chevron's earnings.

Chevron's less discussed issue
While it's easy to point at oil price sensitivity as a potential ailment for Chevron's stock, the deeper issue at hand is that the company is struggling to generate enough cash flow to cover its large capital expenditure program. So far in the first nine months of Chevron's operational results, the company has not been able to meet all of its capital expenditure obligations with cash from operations and has been forced to tap the debt market as well as rely on asset divestitures to cover its dividend and share-buyback program.

Source: Chevron earnings presentation.

A large part of this issue is related to several big-ticket projects in development such as the Gorgon LNG project, that $54 billion monstrosity in Australia in which Chevron has a 50% operational stake. As these projects finish and come online, the amount of money going to capital expenditures should wind down. As per the company's most recent analyst day report, more than 40% of its working capital is tied up in assets not yet producing. Chevron's management is targeting an unproductive asset ratio of less than 33% once these megaprojects come online, which should hopefully alleviate this cash crunch. 

What a Fool believes
As long as oil prices remain in their free fall, and as long as Chevron spends more on capital expenditures than it's generating from its operations, investors shouldn't expect killer results from the company. Hopefully, once some of these megaprojects come online, these free cash flow numbers will start to head back into the black. But when you are talking about big capital investments like these, it might take more than a year to see that kind of turnaround.