Chevron is Adding Even More Fuel to its High-Octane Growth Engine. Is the Oil Stock Still a Buy Following its 22% War-Fueled Surge?
Chevron (CVX 5.14%) was already on track to have a stellar year well before the war with Iran sent crude prices soaring. The oil giant completed several major growth capital projects last year and closed its needle-moving acquisition of Hess. These growth drivers, along with its cost-savings initiatives, positioned the oil giant to produce an additional $12.5 billion of free cash flow at $70 oil this year. With crude prices now in the $90s, Chevron is on track to produce an even bigger gusher of free cash flow.
Higher oil prices aren’t the only major additional catalyst for the oil stock this year. Chevron recently added two more drivers to its high-octane growth engine. Here’s a look at how they could enhance its long-term growth profile.
Image source: The Motley Fool.
Striking more oil in the Gulf
Chevron is a leader in the Gulf of Mexico (also known as the Gulf of America in the U.S.). It’s the largest leaseholder with about 1.7 million net acres. Last year, Chevron and its partners started production from the Anchor, Ballymore, Stampede, and Whale fields in the Gulf. These recently completed projects have the company on track to produce 300,000 barrels of oil equivalent per day from the region this year. That growing production is helping fuel the expected surge in its free cash flow.
The oil giant and its partners continue to find more oil in the Gulf. Occidental Petroleum recently announced a discovery at its Bandit prospect in the Gulf. Chevron has a 37.1% interest in Bandit (Occidental holds 45.4% and Woodside Energy owns 17.5%). The discovery is adjacent to another Occidental-operated facility and others in the region. That proximity means it has the potential for subsea tiebacks, enabling the partners to leverage existing infrastructure to deliver production faster and at lower costs.
Today’s Change
(-5.14%) $-9.67
Current Price
$178.48
Key Data Points
Market Cap
$375B
Day’s Range
$178.46 – $182.19
52wk Range
$132.33 – $214.71
Volume
227K
Avg Vol
13M
Gross Margin
14.66%
Dividend Yield
3.67%
Bandit is just the latest oil discovery by Chevron and its partners in recent years. Last year, BP announced a discovery at the Far South prospect (57.5% owned by BP and 42.5% by Chevron). These discoveries should give Chevron plenty of fuel to continue growing its production in the region.
Swapping assets in Venezuela
Chevron also has a long history of operating in Venezuela. While many of its peers have left the oil-rich South American nation over the years due to political instability, Chevron has grown its oil output by about 200,000 barrels per day since 2022.
The company had been looking to complete a deal to bolster its operations in the region. It’s now doing so through an asset swap with the country’s national oil company, PDVSA. Under the terms of the deal, Chevron will receive an additional 13.21% interest in their Petroindependencia joint venture (JV), increasing its stake to 49%. In addition, another JV, Petropiar, has received the rights to develop the adjacent Ayacucho 8 area in the Orinoco Oil Belt of Venezuela. In exchange, Chevron will hand Venezuela its 60% and 100% interests in two offshore gas licenses, as well as its 25.2% interest in the Petroindependiente JV.
Overall, the deal expands Chevron’s heavy oil position in two joint ventures. It adds Ayacucho 8, which is a producing asset near Petropiar. That proximity enhances its ability to develop that resource. The swap puts the company in a stronger position to achieve its goal of boosting its oil production in Venezuela by 50% within the next two years. The company’s JVs with PDVSA currently produce about 260,000 barrels per day, about a quarter of Venezuela’s output.
A high-octane oil stock
Chevron reached an inflection point this year, which is fueling a sharp rise in its free cash flow. There’s more grow coming, with the oil giant expecting to deliver 10% compound annual free cash flow growth through 2030 at $70 oil. Meanwhile, these new growth drivers will add even more fuel to its long-term growth engine. While its share price is already up by more than 20% this year, Chevron could have a lot further to run as its growth engine kicks into high gear, making it still look like a compelling buy even after the war-fueled surge.
