Big oil isn’t wait it used to be. And for Chevron Corporation (NYSE:CVX) that fact has hit the firm right in its wallet. Since the energy crash that started in 2014, CVX has been basically drifting water in terms of cash flows and profits. That’s resulted in some decent share price declines and even analysts questioning whether or not, CVX can keep its rich dividend going. Those fears have only gotten worse over the course of 2017.
In fact, CVX stock is down year-to-date.
But all of that could be changing for the better. CVX is finally starting to capitalize on several big time projects and rising oil prices will help its bottom line. For investors, the integrated giant may have finally gotten its mojo back. And that makes CVX nearly 4% dividend yield as good as gold and a major income buy.
Breaking The Declining Revenue Cycle
One of the major problems with the largest integrated giants has to be replacement. The problem is, legacy wells continue to dry-up at a rapid pace. When you can’t find new oil to replace the old stuff, your revenues dip. This is exacerbated even further when oil prices drop to lows not seen in decades. This scenario is basically what happened to everyone sans a few names. But for CVX it hit hard.
As an oil focused integrated giant, meaning the bulk of its revenues still come from crude oil and not natural gas, CVX has suffered hard over the last few years. Back in 2011, Chevron pumped out roughly 2.673 million BOE/d on average. However, by the end of 2016, that production had dropped by about 80,000 barrels per day. What’s worse is that the last few years have seen lower average selling prices for that crude.
The duality of the two factors has continued to hit Chevron right where it hurts. All in all, CVX’s revenues have declined by an average annualized rate of about 14.7% over the last five years. Needless to say, upstream profits have been pretty bad as well. As have cash flows, which have been halved in about a year.
But things could finally be looking up for the integrated energy giant.
Production has finally started to rise. During the second quarter of 2017, Chevron managed to produce roughly 2.78 million barrels of energy. Even better is that the firm continued to increase this number further in June. All in all, upstream volumes increased by an average of 104,000 barrels per day. The reason? Big projects are finally starting to take hold at CVX.
Chevron’s projects such as its massive Gorgon LNG and new deep-water platforms in the Gulf have finally started to produce oil and natural gas. These massive projects as well as several smaller ones were huge cash sinks for the firm. It took a while for them to come online and start making money, rather than costing CVX.
Even better that these projects have come online right during the rebound in crude oil prices.
Getting Ready For Round Two At CVX
The end result of this is that CVX has seen marked improvements in its cash flows, earnings and revenues. And Chevron could be gearing up for more ahead.
The firm is already one of the largest owners of acreage in the prolific Permian Basin. And it’s finally tapping that acreage using advanced drilling techniques. According to Reuters, CVX plans on spending around $4 billion next year to boost output in the Permian. Chevron’s will be able to rise to 400,000 barrels per day over the next few years. The real beauty is the region features low costs, high margins and decent sized payloads.
For CVX, the expansion is a low-cost way to boost is struggling production profile and keep the cash flowing.
Buying CVX Stock
In the end, Chevron is finally getting its mojo back. The struggles it had with regards to cash flows have started to abate. Mega-projects like the Gorgon are no longer cash sucks and are making money. Meanwhile, its recent moves into the Permian come at a time of higher oil prices. The low-cost play will only strengthen the company’s cash flows and profit potential. The albatross around CVX stock’s neck seems to be gone.
And that could mean that it’s time to finally pull the trigger at add shares. The firm’s 3.85% dividend is starting to be better supported and the longer view is rosy. For investors looking for a big play on big oil, Chevron could be finally be it.