Q. What do you think will happen with my shares of Chevron Corp.?
A. The second-largest U.S. oil company, created by the 2001 merger of Chevron and Texaco, is expected to continue its long track record of using strong cash flow to reward shareholders.
Its financial results are directly affected by the price of crude oil, which has provided a dramatic boost over the past two years, and its ability to expand international exploration and production. The company operates in oil and gas in more than 180 countries.
Inopportune investment can play an unwanted role in results. Chevron has had to write down $2 billion worth of its holdings in the electricity provider Dynegy Inc. To end those problems, it recently signed an agreement to sell its entire 96.9 million shares of Dynegy in an underwritten public offering.
Shares of Chevron are up 12 percent this year following a 29 percent gain last year, an 8 percent increase in 2005, a 21 percent advance in 2004 and a 30 percent jump in 2003. The company increased its quarterly dividend by 11.5 percent, to 58 cents per share, payable on June 11 to stockholders of record on May 18.
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Earnings increased 18 percent in the first quarter, with lower oil and gas prices offset by the sale of its Netherlands assets and favorable tax items. Oil prices have since rebounded somewhat due to tensions in Iran and Nigeria, which will mean a stronger second quarter for oil companies.
While Chevron in this country trails only Exxon Mobil Corp. in size, international competitors BP PLC and Royal Dutch Shell also are larger and have an edge in profitability.
Stock of Chevron receives a consensus analyst rating slightly better than “hold,” according to Thomson Financial. That consists of six “strong buys,” three “buys,” 12 “holds” and two “sells.”
Chevron’s international projects in Asia, Kazakhstan and off the coast of West Africa offer considerable promise, despite accompanying risks.
Meanwhile, the Venezuelan government contends Chevron owes it millions of dollars in unpaid income taxes.
In addition, Chevron has reportedly been in negotiations with federal prosecutors and may make a financial settlement related to allegations of kickbacks paid to Saddam Hussein’s government in exchange for Iraqi oil.
Earnings are expected to decline 5 percent this year, compared with the 6 percent drop forecast for the major integrated oil and gas industry. Next year’s projected fractional gain is in line with the industrywide estimate. The five-year annualized return of 5 percent compares with 8 percent projected for its peers.
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Andrew Leckey is a Tribune Media Services columnist. E-mail him at [email protected].