Chevron (NYSE:CVX) is an ideal asset for a defensive position with an adequate annual dividend and potential for significant long-term growth. This stable asset has some of the best metrics amongst its industry peers; Chevron's most recent earnings release underscored this dependability. Chevron increased downstream earnings while upstream earnings decreased marginally, but there were several promising developments throughout the summer that bode well for Chevron's outlook. Chevron is positioned for significant growth as an LNG supplier in the eastern hemisphere - it has enough capital on hand to make substantial acquisitions within the distressed gas sector that can take its market share penetration in the west.
Exxon Mobil (NYSE:XOM) is Chevron's chief competition amongst U.S. based integrated energy firms. BP (NYSE:BP) and ConocoPhillips (NYSE:COP) are also integrated energy firms that are comparable to Chevron's metrics and diverse global portfolio. Chevron has a market cap around $220 billion and Exxon Mobil has a market cap around $405 billion. BP has a market cap around $113 billion and ConocoPhillips is over $65 billion. Chevron's price is around 8.2 times earnings while Exxon Mobil's is around 9.1 times earnings, BP is around 7.7 times earnings and ConocoPhillips is around 10.85 times earnings. Chevron has the highest current ratio at around 1.72 and quick ratio around 1.5, Exxon's current ratio is around 1.04 and its quick ratio is around 0.82.
Chevron has the lowest debt-to-ratio of around 0.08, Exxon Mobil's is around 0.10, BP's is around 0.40 and ConocoPhillips' is around 0.50. Chevron has the highest EPS of around $13.43, Exxon Mobil's is around $9.52 and both BP and ConocoPhillips' EPS is under $6.00. Chevron typically has a lower beta score than Exxon Mobil; both are usually close to one or lower. Exxon Mobil's average daily volume is over 16 billion shares and ConocoPhillips is over 9 billion shares while Chevron is only over 6 billion shares. Chevron's annualized dividend rate of $3.60 is also the highest; BP's is around $2.57, ConocoPhillips' is around $2.64 and Exxon Mobil's is around $2.28. Chevron's shares have increased by around 1.7% since its last earnings release.
As the second largest natural gas firm in the U.S., Chesapeake Energy (NYSE:CHK) is also worth considering in comparison to these integrated energy firms. Oversupply and flat domestic demands have put downward pressure on natural gas prices and firms like Chesapeake Energy that have a core focus on natural gas assets. Chevron had $21 billion in cash at the end of the first half of 2012; Exxon Mobil had $17 billion in cash. With a market cap of $12 billion, a debt-to-equity ratio of 0.82 and increasing debt obligations, Chesapeake may be a candidate for an acquisition or merger in the near future. Chevron has not announced any plans for an acquisition in the U.S., but an asset like Chesapeake or Hess (NYSE:HES) is well within its means. Either would be a significant addition to help Chevron penetrate U.S. natural gas market share in order to compete with Exxon Mobil.
Chevron's total second quarter 2012 revenue was $62.6 billion, down from $68.94 billion, YOY. Total second quarter costs were $50.25 billion, down from $55.74 billion, YOY. Net income was $7.23 billion, down from $7.76 billion; net income for the first half was $13.73 billion, down from $13.99 billion, YOY. Upstream revenue was $6.45 billion, down from $7.8 billion; downstream revenue was $53.2 billion, down from $58.73 billion, YOY. Upstream earnings were $5.62 billion, down from $6.87 billion; downstream earnings were $1.88 billion, up from $1.04 billion, YOY. Net production in the first half was 2.63 MMBOEPD, 20% occurred in OPEC territories.
Lower prices and 5% decrease in liquids production and 9% decline for natural gas decreased U.S. upstream earnings, international gas production increased 6%, YOY. Improved margins and sales volumes increased downstream revenue. Most of Chevron's upstream investments are outside the U.S., downstream marketing is primarily on the U.S. West Coast, Gulf Coast and Asia. Chevron will close the sale of its Perth Amboy refinery in 2012 and will convert its Kumell refinery in Australia into an import terminal by 2014. More than 80% of the LNG from Wheatstone is under long-term agreements with customers in Asia. Chevron also had successful bids on 50% stake of a shale gas block in the Ukraine and for deep-water exploration in the Gulf of Mexico.
Chevron recently announced it will be expanding its Bibiyana natural gas asset in Bangladesh at a cost of around $500 million. This move increases natural gas production by 300 Mcf per day to 1.4 Bcf per day. This expansion also yields 4,000 barrels of LNG per day; start-up production is expected in 2014. This is the largest field that yields natural gas production in Bangladesh; it bolsters Chevron position as a leading provider in the Asia Pacific region.
Chevron recently exchanged its 16.7% stake in East Browse titles and 20% stake in West Browse titles for Shell's 33% stake in the WA-205-P and WA-42-R blocks in addition to $450 million in cash. This exchange brings Chevron's stake in the WA-205-P and WA-42-R blocks to 100% holdings. This supports Chevron's long-term plans for expansion of its Wheatstone asset. Chevron also recently had its 14th discovery in north-western Australia since 2009; a natural gas discovery was made in the Carnarvon Basin within the Greater Gorgon Area. Chevron has a core focus on the development and expansion of the Gorgon and Wheatstone projects in order to further improve market penetration in the Australia and Asia-Pacific regions.
Projections for increasing energy demands around the world bode well for Chevron's long-term outlook. Global population is expected to reach 9 billion by 2035, and energy demands could increase 40% in the next 25 years. Renewable fuels will account for 70% growth through 2035 but fossil fuels will contribute to 75% of the worldwide energy demands in this timeframe. The recent boom in innovation now has natural gas from shale rock currently accounting for 25% of total U.S. gas production while the U.S. currently consumes around 19 million barrels of oil per day. These expectations for growing demands should compel current shareholders to consider Chevron a long-term hold while interested investors should buy this asset before gas and oil prices begin to rebound.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.