Performance of Chevron Corporation - Case Study Example

Chevron-Draft Name of Student Name of Institution Executive summary Chevron Corporation is one of the leading American multinational energy companies. It has a rich history, being one of the successors of Standard oil which was associated with John Rockefeller, the legendary entrepreneurs. The company is headquartered in San Ramon in California, United States and has a presence in over 180 countries worldwide. With an estimated market valuation of about $111.72 billion, it is one of the most valuable companies in the energy domain globally. The company is on the list of Forbes’ 2000 world’s biggest multinationals at position 28. It also the 126th in terms of profit, 106th position in terms of asset base and 156th best American employer on the list. As noted, the company is an integrated energy company dealing with nearly every aspect of energy. The company works closely with many other subsidiaries and the government especially in the provision of the administrative, financial management and other support to the entities’ interests in petroleum processing, prospecting or marketing; chemical processes, mining, generation of power and generally meeting other energy demands. The company has remained strongly relevant today when the world is increasingly becoming conscious of the energy demands and concerns such as sustainability. The company operates using two models or segments (Forbes, 2016). The upstream segment is tasked with prospecting, exploring for and processing of crude or gas through all the processes required. The downstream segment, on the other hand, deals with refining of the crude oil into light petroleum, marketing and manufacture of other commodities such as plastics, petrochemicals and lubricants. Background of the energy industry The energy industry is one of the oldest in the United States. It has been the core driver of life, serving a broad range of needs. For many years, humans have recognized the significant role that energy plays and have sought to improve it as far as possible. The changes in the types of energy used in the country have changed over time, majorly driven by factors such as changes in technology, discovery of new sources, need to control the prices of the energies, rising concerns such as sustainability and environmental consciousness and social class among other factors (Eia.gov, 2017). One thing is clear though, that the quantities of energy consumed have quadrupled over the years. In the 1700s, the predominant energy source was wood fuel due to the ease to get it, portability and the fact that it could be consumed on demand. Wood was used in steam heating and subsequent power generation. In the 1800s, the predominant energy was coal and its use spurred up the Industrial Revolution, powering machines to generate the needed power (Eia.gov, 2017). The dawn of the 1900s saw the discovery of oil as a result of advancement in drilling technologies which made the availability of oil and gas to be realized at a lesser cost. The demand of oil and its products has increased robustly since then. Generally, while the energy sector in the country has faced significant changes over the years, the three primary fuels- petroleum, coal and natural gas have provided a combined over 87% of the total energy needs for well over one century. The energy sector still enjoys many opportunities such as strong government incentives and support (Anadon, Gallagher, Bunn, & Jones, 2009). Many expert see the increased investment in technology, cost efficiency measures that are being put in place and improved market overview will be able to drive the sustainability bits of the industry and bolster returns even in the times when the market has been unsteady (King, 2017). One of the main challenges facing the energy sector, particularly the petroleum industry is the questions of the longevity of shale. The US government has for a long time held the ban on exports of crude oil or its products (Ernst & Young LLP, 2014). Another challenge that remains is geopolitical tensions especially in relation to Middle East and other energy producers like Russia and china. In the recent times, however, there have been multiple studies that show that there is rising production of gas, with some industry experts remaining positive that the production is likely to surpass that of Saudi Arabia by 2020 (Tiger Group, 2013). It is significant to note that the energy has four main business cycles that largely mirror the fluctuation in the economy and each of the phases has an impact on the performance of the sector. These phases are early, mid, late and recession phase. The US energy market is in an expansion mode, in the mid phase. The falling global oil prices have reshaped the sector. While the falling prices are good news for the consumers, they are unwelcome news for the energy companies, and has led to drop in share prices. The prospect of oil exports is also a factor affecting the industry with increasing pressure to remove the ban provisions under the Energy Policy and Conservation Act of 1975. Regulation is also another factor affecting the industry. The enforcement by entities like the US Commodity Futures Trading Commission has had a heavy impact on the industry. At the same time, there has been some uncertainty regarding the regulatory environment. Economic-wise, there has been increased scrutiny of hedging practices of the energy companies especially cross-market hedging. Another aspect that affects the industry is the wide distribution of the energy resources and the increasing significant role that customers are playing in shaping demand, supply and costing (Allied Valve Inc., 2017). The need to incorporate technology in the operations is also significant. Shifting demographics has also meant that there are skill gaps in the industries. Performance of the company Chevron has a fairly healthy financial performance, an indication that the sector has a generally negative outlook. It is critical to take a look at the individual aspects that define the financial health of the company. The company has had a fairly rough five year performance outcome, largely attributed to the changing dynamics of the oil industry in the world that have affected the prices. The company had revenues of about $220 billion in 2013 as compared to about $110 billion in performance realized in 2016, which is about half of the 2013 performance. The same has been noted in the profitability aspect, where the profits are at an all-time low of $43.989 billion. Comparing 2014 and 2015, for instance, the company had a current ratio of 1.322 and 1.351 respectively. It is important to appreciate that the current ratio is low end has been reducing over the years, showing that the company has a risk of failing to meet its short-term objectives. The company’s current liabilities are increasing rapidly and runs the risk of exceeding the current assets, which could be detrimental to the company. In the same time period, the company also has a quick ratio of an average of 0.34. The performance across the sector has generally been slow growth owing to the external market condition that have posed a challenge to the growth of the market. There has been a steady rise in the revenues of Shell Oil Corporation from a performance of $459.6 billion in 2013 to approximately 285.1 billion in 2015. References Allied Valve Inc., (2017). 7 Factors That Will Influence the Energy Sector in 2015 -. [online] Allied Valve Inc. Available at: http://alliedvalveinc.com/industry-news-and-trends/7-factors-will-influence-energy-sector-2015/ [Accessed 22 Feb. 2017]. Eia.gov, (2017). Energy sources have changed throughout the history of the United States - Today in Energy - U.S. Energy Information Administration (EIA). [online] Eia.gov. Available at: http://www.eia.gov/todayinenergy/detail.php?id=11951 [Accessed 22 Feb. 2017]. Ernst & Young LLP, (2014). The future of shale: capital challenges and opportunities. [online] Ogfj.com. Available at: http://www.ogfj.com/articles/2014/10/the-future-of-shale-capital-challenges-and-opportunities.html [Accessed 22 Feb. 2017]. Forbes, (2016). The World’s Biggest Public Companies. [online] Forbes.com. Available at: http://www.forbes.com/companies/chevron/ [Accessed 22 Feb. 2017]. King, H. (2017). History of Energy Use in the United States. [online] Geology.com. Available at: http://geology.com/articles/history-of-energy-use/ [Accessed 22 Feb. 2017]. Tiger Group, (2013). Lenders to see challenges, opportunities in US oil and gas boom. [online] Ogfj.com. Available at: http://www.ogfj.com/articles/2013/07/lenders-to-see-challenges-opportunities-in-us-oil-and-gas-boom.html [Accessed 22 Feb. 2017]. Read More