The citizens of Richmond will not likely vouch for oil and gas companies at least for a few months until the smoke that billowed from Chevron's (CVX) refineries on August 6th are forgotten. Chevron's 240,000-barrel-a-day plant is a major source of gasoline for the region, and the leak has caused major embarrassment for Chevron. San Franciscans were legitimately furious over the leak and demanded an explanation from the company's authorities. Chevron did accept that this was a mistake that they wish didn't happen. What remains to be seen is how this incident will affect Chevron stock. Chevron is one of the strongest oil and gas companies in the world, and it has several active projects across the globe.
Analysts expect that the fire will cause gas prices to be pushed above $4 per gallon on the West Coast. Chevron's Richmond refinery produces almost 16% of West Coast's oil requirements. At the moment, Chevron has decided to shut the facility down until safety measures can be enforced and the damage can be undone. While the company tries to exercise damage control operations, its stock will suffer at least to a small extent. I do not believe this incident will affect Chevron so much that its stock would come crumbling down. We must remember that its competitors have had to wrestle with various green associations and environmental bodies in several countries.
BHP answered to Australian authorities after the federal government discovered that its uranium facilities were not meeting safety standards. Royal Dutch Shell (RDS.A) has also been in the news several time because of its mishandling of oil related infrastructure in Nigeria. It is worth remembering that Shell-related fires in Nigeria was so unpopular with the citizens of that nation that strikes were organized to get the company out of their nation. That did not happen, and it will never happen either. Environmental accidents are extremely tragic, and even prestigious companies like Shell, BHP and Chevron cannot avoid them.
When these disasters happen, they cause a lot of embarrassment and damage to their brand images. It is worth noting that BP had faced a similar problem when the Gulf disaster happened recently. BP, BHP, Shell and other companies that have been tangled in environmental messes have still managed to stay afloat amidst political and environmental storms. What Chevron needs to do at the moment is to acknowledge that the accident was terrible and that it will take every step to make sure that such an accident will not occur again. The company will have to spend a lot of capital on community building within Richmond and the larger San Francisco Bay area.
Exxon Mobil (XOM) and Chesapeake Energy (CHK) seemed to gain the most from Chevron's mess. Soon after the fire, Exxon's stock moved up by 0.5% which suggests that competitors may benefit from Chevron's embarrassment. Chesapeake Energy revealed profits of nearly $929 million which increased from $467 million. This is an increase to $1.29 per share from 68 cents per share. Chevron's total cash at hand is $19.77 million and a per share price of $63.61 in the recent quarter. Chevron also generated revenue of 248 billion in 12 months and earned almost $27 billion. A positive net margin of 10.79% and an operating margin of 19.27 indicate favorable reviews.
Chevron has experienced an average growth of 3.84% over the last five years. Last year, Chevron had a debt-to-equity of 0.08 and debt-to-capital ratio of 0.08. With total debt of $10.23 billion and total assets of $219.37 billion, Chevron is in a very strong position financially. Chevron certainly is one of the more reliable long-term investments in the oil and gas industry. Those who have already invested may see fluctuating results on account of the fire, but in the long-term, this should not affect long-term prospects.
Chevron's key statistics indicate that it is a buy, despite the fire accident. The stability and reliability of Chevron can be taken for granted because of its extremely successful oil and gas business all over the world. But in order to minimize the damages of the Richmond fire, Chevron must engage in proactive damage control that would include cleaning up any environmental messes. Confidence building measures and dialogues with environmental bodies will add to its credibility and eventually increase investor confidence. The Richmond fire is a setback to the company, especially on the West Coast. But it is not significant enough to cause the company to suffer major downgrades in the market. I believe Chevron's positives outweigh its negatives, and would urge investors to consider this stock.