By Chevron, a leading oil and gas company, is expanding its presence around the world, with operations in countries such as Australia, Venezuela, Guyana, Kazakhstan, and Israel. However, this expansion is not without its challenges, whether they are geopolitical, geological, or labor-related.
On Friday, Chevron’s stock experienced a significant drop of 6.7% following disappointing earnings that fell short of Wall Street’s expectations by 18%. At its current price of $144, Chevron’s stock has declined by 17% this year, in contrast to Exxon Mobil’s (XOM) minimal 1% decrease. Exxon Mobil has encountered fewer operational setbacks than Chevron and has received more positive feedback from investors regarding its merger and acquisition strategy.
Chevron revealed that it is facing expensive delays at the Tengiz oil reservoir in Kazakhstan. The CEO, Mike Wirth, stated during an earnings call that the company’s exploration of the reservoir as part of a joint venture will result in lower production and dividends in the near future. This setback will require Chevron to increase spending while earning less.
Citi analyst Alastair Syme commented that Chevron’s explanation is not a strong defense since major international oil companies are expected to excel in executing large-scale projects.
In addition to the challenges faced at the Tengiz reservoir, Chevron has encountered issues at other projects as well. While some of these challenges are within the company’s control, others are not. For instance, in Australia, labor disputes over contract issues led to strikes on a significant natural gas project. However, Chevron has announced that the contract issues have since been resolved.
Venezuela Operations
Chevron has successfully restarted production in Venezuela following the lifting of U.S. sanctions on oil exports. However, the recent sanctions relief is expected to benefit Chevron’s competitors more than the company itself. Wirth, the CEO of Chevron, acknowledges that the new general license issued by the Office of Foreign Assets Control (OFAC) provides more operating opportunities for others rather than for Chevron.
Challenges in Israel
Chevron’s natural-gas project in Israel was halted due to the ongoing conflict between Israel and Hamas. This situation highlights the difficulties the company faces when operating in multiple locations. While Chevron cannot control geopolitical events, such challenges demonstrate the risks associated with its global operations.
Ambitions and Risks
In recent years, Chevron focused on increasing cash flow from existing oil wells and stock buybacks, activities that typically boost investor confidence. However, the company now aims to expand production, particularly through its planned acquisition of Hess. This acquisition, which includes a major project off Guyana, is seen as a growth opportunity with better prospects compared to peers. However, the success of these complex projects will be closely scrutinized, as any delays could significantly impact Chevron’s stock performance.
Analyst’s Perspective
Despite recent setbacks, one analyst believes that Chevron’s stock presents an attractive investment opportunity. Bank of America analyst Doug Leggate attributes the difficulties faced by Chevron in Kazakhstan to legacy operating challenges rather than its current CEO’s leadership. Leggate upgraded Chevron’s stock from Neutral to Buy and raised his price target from $190 to $200. He argues that the planned Hess acquisition enhances Chevron’s attractiveness, citing favorable growth rates, dividend capacity, and portfolio depth as factors driving value recognition.
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