(Google Translate)

Products: Chevron Corporation (CVX)

Crude Oil and Natural Gas Liquids (NGL)(Crude Oil and Natural Gas Liquids (NGL))
Refined Products and Chemicals(Refined Products and Chemicals)
Natural Gas(Natural Gas)

Crude Oil and Natural Gas Liquids (NGL)

What is being offered?

Crude Oil and Natural Gas Liquids (NGL) production constitutes a large proportion of Chevron's upstream activities. The company explores for oil reserves and extracts the oil in crude form along with natural gas liquids. It then sells crude oil in the market, as well as to its downstream business.

Who are the clients?

Chevron sells certain amounts of crude oil and natural gas liquids produced in the open market to other third parties. A portion is also transferred into the Refining and Marketing division (Downstream) where the oil is refined into different products for various uses.

What do customers care about?

Customers are largely concerned about whether oil & gas companies will be able to meet their demand needs in terms of production capacity as well as what the realized prices will be at any given time.

Competitors

Chevron competes with other major oil & gas producers such as ExxonMobil, Shell, ConocoPhillips, BP, and Anadarko in the crude oil and NGL production business.

Chevron™s Strengths

1. Strong Global Presence

Chevron has a strong presence across the globe. Its oil and natural gas liquids production business is operated across several geographies in more than 25 countries spanning continents like North America, South America, Europe, Asia, and Africa. The company is also expanding its exploration activities to Australia.

2. Large base of proved reserves

At the end of 2016, Chevron's total crude oil and NGL reserves stood at over 6.3 billion barrels, which basically means that the company held enough reserves to continue to produce crude oil and NGLs for at least 12.6 more years at 2016's rate without any net reserve additions.

3. Geographically dispersed operations

Chevron's global oil and gas production facilities are located globally across different regions. While 29% production is attributable to the company's U.S. operations, the remaining 71% of gas production comes from its international operations. This indicates the diversity across different regions.

Sources of Income

The Exploration and Production division makes money through the sale of crude oil and natural gas liquids (NGL). The average price realized is derived primarily through the demand and supply of these products.

Average Crude Oil realizations are based on an aggregate weighted average for the price of Brent Oil, Western Texas Intermediate (WTI), and Natural Gas Liquids (NGL) realizations.

Average Liquid Sales Price

The average liquid sales price refers to the price realized for crude oil and natural gas liquids (NGL) by subsidiaries of Chevron™s upstream division.It is effectively the weighted average of the price the company receives on its crude oil and NGL sales across the world. This is dependent on global crude oil prices and the company's proportion of sales in different countries.

Oil prices in global markets are generally influenced by:

  • Supply which is largely dependent on the production quota set by OPEC
  • Oil reserves
  • Oil demand
  • Global political uncertainties

Chevron's Average Liquids Sales Price increased from $57.50 in 2006 to $87.40 in 2008, followed by a sharp decline in 2009 to $56.90. This occurred because of the economic downturn which impacted global benchmark crude oil prices significantly. In 2010 and 2011, Chevron's Average Liquids Sales Price recovered sharply along with a recovery in benchmark oil prices to $73.20 and $101.60 per barrel, respectively. The metric remained relatively stable around $100 per barrel in the 2012-2014 period. However, the company's Average Liquids Sales Price declined sharply in 2015 due to a sharp decline in benchmark crude oil prices and stood at $46 per barrel. It dropped further to $38 per barrel in 2016 due to the continued weakness in oil prices. However, the figure increased to $48.6 in 2017, with recovery in oil prices.

Chart: Average Liquid Sales Price

Chart: Average Daily Liquids Production (Mln of barrels per day)

Refined Products and Chemicals

What is being offered?

This division includes the sale of refined products. Chevron operates a refining network to convert crude oil into final products such as gasoline, jet fuel, gas oils, kerosene, residual fuel oil, and other products such as naphtha, lubricants, asphalt, and coke. At the end of 2014, the company had a refining network capable of processing 1.8 million barrels of crude oil per day.

The company markets these products under the Chevron, Texaco, and Caltex brands globally.

Who are the clients?

Retail and wholesale customers globally.

What do customers care about?

Customers are concerned about prices and the quantity of refined products produced.

Competitors

Chevron competes with other major oil & gas producers such as ExxonMobil, Shell, and BP in the refined products business.

Chevron™s Strengths

1. Strong Global Presence

Chevron's refined products are available on all the six continents. Its retail stations are located in the U.S., Western Canada, Latin America, Asia, Africa, and in parts of Europe.

2. Strong Pipeline network in the U.S.

Chevron has an extensive pipeline network to transport refined petroleum products in the U.S., which accounts for about 43% of global unit sales of these products. The firm also has direct and indirect interests in international pipelines, however the total pipeline mileage for this segment is lower than that for the U.S.

Sources of Income

Chevron realizes income from the sale of refined petroleum products to retail and wholesale customers.

Average Daily Refined Products Sales

Chevron's Average Daily Refined Products Sales Volume refers to the sum total of refined products, like gasoline, diesel and kerosine, produced and sold by Chevron and its subsidiaries in terms of millions of barrels per day.

Chevron's Average Daily Refined Products Sales Volume declined from 3.08 million barrels per day in 2006, to 2.3 million barrels per day in 2017, primarily due to a continuous decline in the demand for refined petroleum product in the developed world because of increasing vehicle fuel efficiencies and more or less stagnant automobile sales. The decline in sales volume could also be attributed to the company's strategy of trimming its exposure to the highly commoditized downstream business in favor of higher investments in more profitable upstream projects.

Chart: Average Daily Refined Products Sales

Average Refined Products Selling Price

Average Refined Products Selling Price refers to the average price per barrel realized by Chevron and its subsidiaries on the sale of of refined products, like gasoline, diesel and kerosine.

Chevron's Average Refined Products Selling Price stood at $125.50 per barrel in 2008 on the back of higher crude oil prices and stronger refining margins. However, in 2009, as the economic recession weighed on demand and refining margins were under significant pressure due to excess capacity, gasoline prices declined. As a result, Chevron's Average Refined Products Selling Price declined to $83.50 per barrel in 2009.

Price realizations improved significantly with the rise in crude oil prices in 2010 and 2011, while in 2012, 2013 and 2014, crude oil prices remained relatively stable around the $100 per barrel mark and Chevron's Average Refined Products Selling Price also did not move much. However, the company's refined products price realization fell significantly in 2015 and 2016 because of the decline in global benchmark crude oil prices, and stood at $74 and $62 per barrel respectively. The figure increased to $73.6 in 2017.

Chart: Average Refined Products Selling Price

Natural Gas

What is being offered?

Natural Gas production is part of Chevron's upstream activities. The company is involved in the exploration, extraction, and distribution of natural gas.

Who are the clients?

Chevron sells natural gas produced in the open market to other third parties.

What do customers care about?

Customers are largely concerned about whether oil & gas companies will be able to meet their demand needs in terms of production capacity as well as what the realized prices will be at any given time.

Competitors

Chevron competes with other major oil & gas producers such as ExxonMobil, Shell, ConocoPhillips, BP, and Anadarko in the natural gas production business.

Chevron™s Strengths

1. Strong global presence

Chevron has a strong presence across the globe. Its natural gas production business is operated across several geographies in more than 25 countries across North America, South America, Europe, Asia, and Africa. The company is also expanding its exploration activities to Australia.

2. Large base of proved reserves

At the end of 2016, Chevron's total natural gas reserves stood at over 28.76 trillion cubic feet, which basically means that the company held enough reserves at the end of 2016 to continue to produce natural gas for at least 16.4 more years at the 2016 average production rate without any net reserve additions.

3. Geographically dispersed operations

Chevron's global natural gas production facilities are located globally across different regions. While 21% production is attributable to the company's U.S. operations, the remaining 79% of gas production comes from its international operations. This indicates the diversity across different regions.

Sources of Income

Chevron realizes income from the sale of Natural Gas to third parties. The average price realized is derived primarily through the supply and demand of these products.

Average Natural Gas Sales Price

The Average Natural Gas Sales Price refers to the average realized price Chevron's Subsidiaries recognize from the sale of natural gas it produces. It is represented in U.S. dollars per thousand cubic feet. The market generally determines the price of natural gas at any given point, which is driven by supply and demand factors. When gas demand increases and supply is short, prices tend to shoot up.

The market factors that influence prices include:

  1. The current supply of natural gas for sale, as well as the future anticipated supply of natural gas
  2. Temperature changes and the duration of these temperature changes
  3. The amount of natural gas available in storage
  4. Current and anticipated demand for natural gas
  5. Cost to get the natural gas to homes for residential usage or industries for commercial usage
  6. The price of oil

Apart from market related factors there are other reasons why natural gas prices may fluctuate significantly as well. These include:

  1. Interstate pipeline charges: Pipeline costs represent the costs associated with the pipes that transport natural gas. These charges are approved by the Federal Energy Regulatory Commission (FERC) and seldom fluctuate.
  2. Pipeline refunds: Utilities may be allowed / required to pass on to consumers slight surcharges or credits based on their performance under gas cost incentive mechanisms. They generally tend to be small relative to commodity, pipeline, and distribution service costs.
  3. Local distribution service rates approved by the PSC: These are the rates that reflect the utility™s cost of maintaining and operating its local system for distributing natural gas to homes and businesses. These rates change only when the PSC has a formal rate proceeding for the utility.

Chevron's Average Sales Price for Natural Gas jumped from $5.44 per thousand cubic feet in 2006 to $6.90 per thousand cubic feet in 2008 as energy prices spiked. It declined to $3.94 per thousand cubic feet (Tcf) in 2009 as a result of the economic downturn which led to a collapse in demand. In 2010, prices rose to $4.55/Tcf because of a broad recovery in energy prices. In 2012 and 2013, the average sales price for natural gas rose to $5.42/Tcf and $5.45/Tcf, respectively, despite a fall in gas prices in the U.S.

However, in 2015, the company's average natural gas price realization declined to $3.96/Tcf due to the decline in global energy prices. It fell further to $3.45/Tcf in 2016 due to the continued weakness in commodity prices. However, with recovery in prices in 2017, the figure stood at $4.07.

Chart: Average Natural Gas Sales Price ($ per 1,000)

Chart: Average Daily Natural Gas Production (Bln of cubic feet per day)