Legal issues have been concerning investors in Chevron (NYSE:CVX), and recent news will not alleviate these concerns. Chevron is not having any luck in resolving the lawsuit it is fighting against the Ecuadorian government.
A court recently ruled against Chevron once again. This time, the company was denied access to documents from the consulting group that is suing the company on behalf of citizens of the Amazon rainforest. A lower court had previously granted the company access to the documentation in question, but the decision was overruled and reversed by the D.C. Circuit Court of Appeals.
Chevron would like to pursue the allegation that the expert testimonies against Chevron are fraudulent, but the U.S. courts will not give Chevron a chance to argue this position. I feel that this continuing denial is probably based on a belief that no fraud was involved. This is, of course, merely speculation, but it does make you wonder about the reliability of Chevron's claims and the likely outcome of the trial. There seems to be no evidence working strongly in the company's favor. It seems that the company may be unable to make the courts believe that the lawsuit is a result of fraud on the part of the Ecuadorean government.
I believe that this is a dangerous development for Chevron. It seems incapable of showing that its claims are true, and this will certainly hurt it in the legal case. Others may begin to question the company as well. Investors, for example, will probably lose a great deal of faith in the company and treat it with suspicion from here on out.
The Ecuadorian government recently took the case to trial in Canada in order to have Chevron assets seized. Chevron is avoiding paying for the damages it has been charged with during a trial in Ecuador. It has avoided this by claiming that the case was fraudulent. Canada has a history of being far stricter than other courts such as those in Ecuador. In addition, it has a reputation for fair legal proceedings. This will make it incredibly difficult for Chevron to continue claiming that the lawsuit is based on fraud. I think it is highly unlikely, furthermore, that fraud is the reason for the charges against the company. In fact, I think that these recent developments may be the start of a downward trend for the company that it will struggle to recover from.
In addition to the legal problems, Chevron warned that the development of shale gas outside the United States will most likely move more slowly than investors expect. There are simply too many factors that the company has to take into account. This may work in the company's favor, however, as the prices of natural gas are currently quite low. At the moment, therefore, it is almost considered unprofitable to bring more into the market. Many natural gas companies are struggling with this at the moment. Due to a lower quantity of natural gas, prices recently spiked slightly, but the problem of low prices will not go away that easily. By the time Chevron's reserves are ready, investors should hope that the prices will be better.
That being said, there has been a noted slowing of growth in terms of the amount of natural gas being stockpiled. As has been noted, this resulted in a number of companies experiencing increases in stock prices. EOG Resources (NYSE:EOG) is one example of the companies that benefited from this recent spike, but several other companies have also benefited from this. Overall, however, prices have dropped for a number of reasons, including the fact that too many major companies are making too many major discoveries of natural gas. Warm weather has also contributed to a low demand for natural gas. EOG may appear like a decent stock for the moment, but it will likely be decreasing once again in the near future.
Anadarko Petroleum (NYSE:APC) recently announced that it has made yet another significant discovery of natural gas reserves off the coast of Mozambique. The amount of gas found here is certainly significant and will make a difference to the company's reserves. It will not help the current situation of low natural gas prices though. In fact, it adds to the problem. As a consumer, lower prices suit you, but as an investor, higher prices are required in order to ascertain that the company is doing well and that you will receive a significant return. I think Anadarko stock may experience some short-term increases but struggle more in the long term.
Exxon Mobil (NYSE:XOM) and Statoil (NYSE:STO) have made a similar discovery off the coast of Tanzania. The discovery is being described as "large," and once again, this will not help solve the problem of low natural gas prices. That being said, there continues to be a demand for natural gas, and companies cannot simply stop producing it. It may be necessary, however, for these companies to come up with back up plans and alternative sources of revenue. In the short term, things look good for these stocks, but investors should look for these alternative sources of revenue if considering a longer-term investment.
Chesapeake (NYSE:CHK) has benefited the most from the recent rise in natural gas prices. This slight advantage comes at a good time, furthermore, as the company has been significantly downgraded by analysts. The company was downgraded due to the overall low price of natural gas. This slight rise in price, therefore, is the kind of thing the company needs to recover. It is not enough though, especially when considering the discoveries of its competitors. Fortunately, Chesapeake is "taking positive steps forward" in terms of finding ways to recover. I would be careful with this stock, however, as I think rises in the stock price will be short-lived.
Even when compared to its competitors, investors need to watch out for Chevron. The company is on a downward spiral, and I feel that it is highly unlikely that it will experience a favorable outcome when the trial against Ecuador reaches its conclusion. Chevron is playing a dangerous game that may end up damaging it and making its recovery a long, difficult road. As should appear obvious by now, I would not recommend investing in this stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.