Chevron (CVX) has its hands in almost every component of energy including natural gas, biofuels, coal mining, and geothermal energy, as well as insurance and real estate. Of the big boys, Chevron is the second largest behind Exxon Mobil (XOM), but in the same field as BP (BP) and Royal Dutch Shell (RDS.A). While others such as Valero Energy (VLO) and Anadarko Petroleum (APC) compete well with Chevron, none of these are pursuing more unique and alternative ways to expand. It is this uniqueness, and savvy business sense, ("It's all about the money boys!") that I believe puts Chevron in a class alone as a company worth investing in for the long haul. This is one that an investor can look back on years from now and be thankful for investing in Chevron today.
Because of the volatile nature of the oil and gas business, deal-making is part of the process. Chevron is selective in doing business with others. Obviously, the company looks for growth potential, but is always looking at how current deals, spinoffs, acquisitions, and joint ventures will affect all stakeholders 10 to 30 years down the road. One recent deal is between an Australian subsidiary of Chevron and Chubu Electric Power Co., a Japanese utility firm under which Chevron will sell liquefied natural gas (LNG) from its natural gas project in Australia to Chubu. This is not the first time Chevron has partnered with a Japanese company. The company has entered into several deals with Japanese and South Korean companies to sell a major portion of LNG from the project. With this recent agreement, company covered more than 70% of Wheatstone's LNG under long-term contracts with customers. Per the agreement, Chevron -- together with Apache Energy (APA) and KUFPEC -- is expected to deliver one million tons per annum (MTPA) of LNG to Chubu for up to 20 years.
Along with smart partnering and acquisitions, Chevron is always seeking innovation by focusing on research and development of better materials as well as services. Last month the company announced its newest product: a new premium oil for use in compressed natural gas (CNG) and liquefied natural gas and liquefied petroleum gas (LPG) engines. This oil improves performance in CNG and LNG engines and helps minimize operating costs for delivery and waste truck services, municipal bus operations as well as off-road equipment. The company is also always looking to more efficiently locate and drill for energy sources. Chevron recently signed a deal with Vialogy using that company's QuantumRD processing to help Chevron better position horizontal wells by reducing finding and production costs. Vialogy will provide 3D-seismic data support helping with the appraisal of sites in the Delaware Basin.
Benefiting Chevron the most is the movement toward a realization by the U.S. that oil is still the future regardless of what alternative energy advocates proclaim. Many are finding that the costs for alternative sources are a lot higher than oil. Research and development, plus building costs are astronomical. In addition, sources for alternative energy such as windmills incorporate costly and noisy construction and maintenance, the blades are huge and kill birds, and the result is only in single digits of energy. Some alternative energy companies are filing for bankruptcy while oil companies continue to profit.
Chevron states that its total domestic oil equivalent production for the first two months of the March quarter fell 17,000 barrels per day from prior-quarter levels, primarily due to the previously announced sale of Alaska oil and gas assets in Cook Inlet at year-end 2011. Boosted by the completion of a major maintenance activity at the Richmond, Calif., refinery, the company's U.S. refinery crude-input climbed 152,000 barrels per day. Outside the U.S., refinery crude-input volumes were 7,000 barrels per day during the same period. First-quarter refining margins increased $5.19 per barrel on the U.S. West Coast, and $8.72 per barrel on the Gulf Coast.
Chevron increased its cash reserves for 2011 by 12.83%, or $1.80 billion. The company earned $41.10 billion from its operations for a cash flow margin of 16.20%, and paid $11.77 billion in financing cash flows and used $27.49 billion on investing activities. The company has a debt-to-total-capital ratio of 7.67%, a lower figure than the previous year's 10.74%. Chevron's year-on-year revenues grew 23.80% from $204.93 billion to $253.71 billion, while net income improved 41.37% from $19.02 billion to $26.90 billion. Remarkably, both dividends per share and earnings per share increased 8.80% and 41.78%, respectively. The company is worth about half of Exxon in terms of market capitalization, but it offers a yield of about 3.2%. Chevron's earnings per share growth is above the industry average. The company's drop in net income in the fourth quarter of the last fiscal year came after three straight quarters of year-over-year profit increases. Profit dropped 3.2% year over year in the most recent quarter. The figure rose more than twofold in the third quarter of the last fiscal year, 42.9% in the second quarter of the last fiscal year, and 36.4% in the first quarter of the last fiscal year.
For Chevron's first quarter earnings announcement, analysts are estimating $3.31 per share, a 7.1% increase from the year-ago quarter when Chevron reported earnings of $3.09 per share. For the fiscal year, analysts are expecting earnings of $13.38 per share.
Revenue is expected to be $72.42 billion for the quarter, 20% higher than the year-earlier total of $60.34 billion, and for the year revenue is projected to come in at $285.36 billion.
Chevron still has it together and is growing stronger than ever. This is the name that many of the other oil and gas companies are trying in vain to emulate. The company has proven that with smart partnerships, continued innovative exploration and production strategies, and bringing quality products to market, this is a smart investment play.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.