Initiating Coverage Chevron Corp (CVX)

8/10/2019 Initiating Coverage Chevron Corp (CVX)

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INITIATING COVERAGE REPORTWilliam C. Dunkelberg Owl FundOctober 27, 2014

Michael KoLead An

mkollar@theowlfund.

Nathan Eisenber Associate A

neisenberg@theowlfund.

COMPANY DESCRIPTION

Chevron Corporation (CVX) is a $220bn fully integrated, major oilcompany, which, through its subsidiaries, conducts upstream,midstream, and downstream petroleum operations and chemicaloperations on six of the seven continents. The company reports threesegments, Upstream (27.7%), Downstream (71.6%), and All Other(0.7%). Upstream operations include the exploration, drilling, andproduction of crude oil, natural gas, and LNG. CVX had productionof 2.6M barrels/day in FY2013. Downstream operations include the

refining and marketing of refined products such as gasoline, kerosene,heating oil, and plastics. CVXs refining network has the capacity torefine 2M barrels/day. Midstream operations include the operation of10,072 miles of pipelines worldwide. CVXschemical operation is the 50% interest in theChevron Phillips Chemical Company, LLC(CPChem) which operates 35 manufacturingfacilities and two R&D centers. CVX earns41% of revenue domestically and 59% ofrevenue internationally. The company holds+8% of worldwide crude oil reserves and isresponsible for +9% of worldwide crude oilproduction. CVX employs 64,600 people, wasfounded in 1879, and is headquartered in SanRamon, California.

INVESTMENT THESIS

CVX is currently undervalued, trading at 90.6x EV/Daily production,a 3.11% discount to its one-year historical average, and 4.85xEV/EBITDA, a 1.6% discount to its one-year historical average. Themain reason for this discount is the precipitous fall of Brent crude oilprices and curbed production from its Angola LNG plant as itundergoes repairs. As a result, CVX shares have declined 14% since

June to their present value of $115.91. This short-term market weakness in oil prices provides the Fund an opportunity to buy agreat company at a fair price. CVX is a top dividend growth stock (5-yr CAGR 7.5%) that exhibits a quality balance sheet and an improving

cash flow profile. CVX will pay 3.8% yield while we wait for theshort-term oil glut to be constrained and prices to normalize. CVXhas numerous multi-year and multi-billion dollar upstream projectsscheduled to begin bearing fruit by YE2014 and in 2015. CVX willrealize both increased daily production and increased free cash flowupon their completion, which will allow management to increasereturns to shareholders and drive valuation upward. The energy sectorherby initiates coverage of CVX with a Buy recommendation and a12M target price of $133.13/share, indicating a 14.9% capital return.

E n e r g y

M a

j o r

I n t e g r a t e

d O i l

Chevron CorporationExchange: NYSETicker: CVXTarget Price: $133.13 Current Price: $116.19

Sector: OutperformRecommendation: BUY

All prices current at end of previous trading sess ions from date ofreport. Data is sourced from local exchanges via CapIQ,Bloomberg and other vendors. The William C. Dunkelberg OwlFund does and seeks to do business with companies covered in itsresearch reports.

Key StatisticsPrice Projected $133.13 52 wk High $135.10Return 15% 52 wk Low $106.65Shares O/S (mm) 1,899 Yield 3.70%Market Cap (mm) $216,478 EV (mm) 226,965$

P/E 11 Beta 1.22

Date EPS NI YOY NI Surp Price3Q2013 $ 2.57 N/A -5.6% -1.6%4Q2013 $ 2.57 -16% -5.2% -4.1%1Q2014 $ 2.36 -20% -0.4% -0.2%2Q2014 $ 2.98 -8% -4.7% -1.0%

Earnings History

$- $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 $14.00 $16.00

$- $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50

2011 2012 2013 2014 2015e

Diluted EPS & Consensus

Period 2011 2012 2013 2014 2015e 1Q $ 3.09 $ 3.27 $ 3.18 $ 2.36 $ 2.772Q $ 3.85 $ 3.66 $ 2.77 $ 2.98 $ 2.963Q $ 3.92 $ 2.69 $ 2.57 $ 2.61 $ 3.134Q $ 2.58 $ 3.70 $ 2.57 $ 2.54 $ 3.14

Year $13.44 $13.32 $11.09 $10.49 $12.00

Earnings Per Share ( $) for Fiscal Year

1 year chart
mailto:[email protected]:[email protected]


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T h e W i l l i a m C . D u n k e l b e r g O w l F u n d Page

CORPORATE OVERVIEW

As a major integrated oil company, CVX has operations across the energy value chain. It is important to understand CVXs business model in order tounderstand its earnings, capital expenditures, and value drivers. Whilerevenues are distributed 71.6% downstream ($195.0bn) and 27.7% upstream($75.6bn), profits are quite the opposite. Upstream operations earn 90% ofprofits ($20.8bn) while downstream earns 10% ($2.2bn). CVX classifies itsremaining $1.9bn of revenue (0.7%) as All Other Revenue which is a mixof businesses including: chemicals, pipelines, shipping, mining, power &energy services, research & technology, and environmental protection.However, the All Other segment does not earned a profit and operates at aloss to support CVXs upstream and downstream operations and to recovera portion of costs incurred through the sale of petroleum by-products andancillary services.

Reserves

An E&P companys g reatest

assets are its crude oil, naturalgas liquids (NGLs), andnatural gas reserves, which arecommodity reservoirs deepbelow the earths surface.CVX is the 6th largest ownerof crude oil reserves in the

world, with 6.34 bn barrels, or8% of total reserves. Becauseearnings are a result of the production and subsequent depletion of theseresources, it is crucial for E&Ps to continually explore and acquire newreserves. The majority of CVXs Proved Developed Reserves are distributedacross the U.S. (38%), Africa (29%), and Asia (23%). Proven Undeveloped

Reserves are more evenly distributed across the globe.

Downstream ProductsCVX has owns 14 refineries located in California, Mississippi, Hawii, Utah,Canada, South Africa, Thailand, and elsewhere. Its largest product by

volume is Gasoline (37%), followed by Gas Oil/Kerosene (26%), Jet Fuel

(17%), Other products (11%), and Fuel Oil (9%).

ECONOMIC MOATWide Scale: CVX has operations, assets and

infrastructure across the globe. The capital-intensive nature of building a large oil & gas

production and refining operation, along withnumerous regulatory approvals, creates a largebarrier to entry.

RISKS Commodity: Volatility in the price of energy

commodities (oil, natural gas, etc.) could havedetrimental effects to future operations. This

volatility is a reflection of supply (reservesdiscovered) and demand (consumption trends),geopolitical turmoil and production efficiency.

Unsuccessful Resource Development: BecauseCVXs business depends on the extraction andsubsequent sale or refinement of natural resources,if developed reserves are not replaced, its business

will decline.

Natural & Human: CVX operates in numerouslocations which could be affected by hurricanes,floods, other severe weather, war, civil unrest, andpolitical risks.

Regulatory Environment: Changes toenvironmental laws and regulations can impactexploration and development operations. Increasedregulation and compliance costs would likely havean adverse financial impact on operationalefficiency.

Government Litigation: CVX extracts, produces,refines, and transports petroleum, which isinherently toxic and may be considered as apollutant. Accidents or unlawful disposal of toxicmaterials can lead to impacts on human health orthe environment and result in governmentaction/litigation.

FX Risk: As a global company, CVX recognizesrevenue in a number of currencies and adversefluctuations in exchange rates can impact revenueand earnings. CVX does employ derivatives tohedge this risk.


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Gorgon

Wheatstone

CATALYSTS PRODUCTION GROWTH

Overall, CVX has a goal of a 20% production increase by 2017. Much of this growth will come from these, and other, coming-on-line projects. CVX is moving from ahigh investment period in projects, to production growth and capital returns.

Liquefied Natural Gas (LNG) Projects Australia & Angola

AustraliaCVX has been developing two liquefied natural gas (LNG) trains in Australia, Gorgon(100% CVX operated) and Wheatstone (72.1% CVX operated), since 2009. With 15.6million tonnes per annum (MTPA) capacity, and 37 Tcf (trillion cubic feet) of natural gasunderfoot, Gorgon will become the fourth largest LNG train on earth. Wheatstone has8.9 MTPA LNG capacity, with 9 Tcf of natural gas underfoot. The Gorgon and

Wheatstone trains are expected to come online mid 2015, and late 2016, respectively.Combined, these two projects will make the two largest LNG ports in the Asia-Pacificregion. After over $83 billion in combined investments, Gorgon and Wheatstone areabout to become profitable, and will be serving an energy-hungry Asia Pacific. Currently,19.31 MTPA LNG, or 78.8% of capacity, has been contracted out fromGorgon/Wheatstone, with contracts extending as long as 2039. LNG export contractsinclude:

Japan 49.9% of contracts China 17.35% of contracts India 6.12% of contracts Others (S. Korea, etc.) 26.6% of contracts

The International Energy Agency (IEA) expects Asia to become the second-largest naturalgas market in the world by 2015, and sees LNG meeting much of this new demand. Giventheir strategic placement and significant net pay, we see Gorgon/Wheatstone capitalizingon this expanding natural gas market.

AngolaCVX has the largest share (36.4%) of a LNG project joint venture in Angola. AngolaLNG has experienced several issues since it began producing in 2013: technical issues,pipeline leaks, electrical fire and a rig collapse resulting in a workers death. These mistakescaused Angola LNG to operate at only 10% of full capacity (25 MTPA) in 2013, withCVX projecting 50% of capacity in 2014 until required modifications are completed in2015. Angola LNG provides LNG to Europe and Asia-Pacific; and, it will do so at a lowercost than any current LNG facility, as Angola LNG is the first LNG plant to useassociated gas, a once undesirable byproduct of crude oil production, as feedstock. Onceproduction is maximized, we believe Angola LNG will be a low-cost natural gas exporterto high-demand (and high natural gas price) markets like Europe and Asia-Pacific.

New Gulf of Mexico Production Jack / St. Malo, Bigfoot & Guadalupe Jack/St. Malo are two jointly developed deep-water oilfields off the Gulf ofMexico. CVX has a 51% operating stake. Very near completion, Jack/St. Malo productionis expected to begin Q4 2014, with 0.177 MBOED (millions barrels of oil equivalent perday) and 42 Mcf natural gas per day.

Bigfoot is a 60% CVX operated project that is nearly completed with 0.075 MBOED and25 Mcf natural gas production per day expected in 2015.

On Oct. 23, 2014, Chevron announced Guadelupe, a new oil discovery in the Gulf ofMexico. The Guadalupe exploration well returned significant oil pay. While its too earlyto project total reserves at the Guadalupe well, +30,000 feet deep, illustrates CVXsongoing exploration and discovery in the Gulf.

CVX plans to see ~30% production growth in deep-water reserves, such as these, by2017. In addition to these projects, CVX participated in 6 deep-water exploratory projectsand acquired an additional 11 deep-water leases in the GoM in 2013.

Angola

Jack / St. Malo


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PEER GROUP IDENTIFICATION

This peer group includes the other members ofthe S&P 500 Oil & Gas Major Integrated Oil index.

ExxonMobil (NYSE:XOM)

Hess Corporation (NYSE:HES)

Occidental Petroleum (NYSE:OXY)

For valuation purposes, the only truly comparable company thattrades on major US exchanges and is a constituent of the S&P500 index is ExxonMobil.

Additional detail provided in XOM Relative Valuation .

TARGET PRICE

We achieved our target price by averaging the target prices calculatedusing the following methodologies:

EV / EBITDA (Historical)Price Per Flowing Barrel

EV/EBITDA Target Price: $122.57Price Per Flowing Barrel: $143.70

Average Price: $133.13

Projected Capital Return: 14.9%

Bloomberg 12M TP Consensus: $132.90

INDUSTRY OVERVIEW

Major Integrated Oil & Gas CompaniesMajor integrated oil & gas companies, or majors, engage in the exploration, production, refining, marketing and distributio n of oiland gas. Majors are vertically integrated in their different segments of operation: upstream, which includes exploration and production(E&P), downstream (refining/marketing) and occasionally midstream (transmission). In contrast, most oil and gas companiesconcentrate on one of the three streams. Given the size and scope of the majors, with revenues sometimes dwarfing the GDP of thestates in which they operate, firms like Exxon, Chevron and Shell comprise the public face of the oil and gas industry. Integrated oil isa mature market, and majors distinguish themselves by the success and relationships between the segment streams.

UpstreamMajors upstream operations focus on discovering (exploratory drilling) new hydrocarbon reserves (like oil and gas) and producingthem. A majors reserves are an important function of future production potential and are categorized as proven reserves (1P), whic hincludes the volume able to be estimated with reasonable certainty. Probable reserves (2P) and possible reserves (3P) are alsoestimated, and can transfer into 1P as production expands over a reserves life. As production makes the rest of the value chai npossible, upstream operations dominate majors spending and drive strategic focus.

DownstreamDownstream operations refine produced hydrocarbons into petrochemical and end products, such as: fuel oil (gasoline), kerosene,plastics, etc. Fuel oils account for roughly 80% of refined hydrocarbons. As with all fossil fuels, refining and subsequent consumption

form a negative externality: pollution. Regulatory bodies, such as the EPA, are engaged in reducing this effect through CO2-reductionpolicies, etc. However, the current availability, hydrocarbon-dependency in infrastructure, and high energy density of oil and gasensure reliance upon petrochemical refining for the foreseeable future.

Crack SpreadUnlike independent oil and gas firms, a majors control over the entire supply chain remove it from some of the risks of fall ingcommodity prices through the crack spread. The crack spread is the difference between the price of crude oil/natural gas (input) andthe price of refined products (output). In periods of low commodity prices, independent E&Ps will see margin contraction throughthe loss of premium pricing when selling to independent refineries. In times of high commodity prices, independent refineries will seemargin contraction, as the high input prices do not translate into higher prices on refined products. Thus, integrated majors are oftenable to see margins improve slightly during low commodity prices, relative to the broader energy sector, as they benefit fromcontrolling both inputs and outputs, the crack spread.

Brent OutlookIn the near term, we expect Brent to remain above ~$80/barrel, supported by low globalgasoline inventories and incremental seasonal demand for heating oil in the wintermonths. The EIA (U.S. Energy Information Administration) predicts long-term crude oilprices to decrease from $112 (2012) to $92 through 2017, then rising to $141 in 2040 asaggregate demand increases. Crude oil and natural gas prices are self-correcting in the longrun, as private and state-owned oil & gas companies are highly-responsive to supply anddemand fluctuations due to the sensitivity of their earnings to prices. Declines in profitscan also materially impact fiscal budgets for many nations, including Saudi Arabia, Russia,and Venezuela. As excess supply is creeps into the market, production is cut until supply isconstrained, and ultimately results in oil & gas prices returning to long-term price levels.

Thus, we view the current $80~85/barrel prices as a low point, and expect crude to returnto the EIA-expected long-term equilibrium of $90-95/bbl within the next twelve months.


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US Upstream Revenue 5.0% 18%Intnl Upstream Revenue 9.7% 32%

US Downstream Revenue 7.9% 1%Intnl Downstream Revenue 7.1% 1%

Revenue 5 yr CAGR 5 yr Profit Margin

FINANCIAL ANALYSIS

RevenueCVXs revenues are a function of production volumes and commodity pricesdictated by the international market. It is important to note which of these factorsCVX has control of, and which it does not. CVX reported FY2013 revenue of$211.6bn and has increased by a five-year CAGR of 5.8%. Consensus estimatesstate that revenue will be $221.5bn in FY2014 and $214.0bn in FY2015,indicating YOY growth rates of 4.6% and -3.4%, respectively. While revenues aresubject to commodity price fluctuations, CVX can create value by investing insegments with the highest returns. The table below depicts CVX ability to delivergrowth in its highest margin segment, International Upstream.

Upstream 27.7%FY2013 revenue was $75,558MM and has grown at a 5-yr CAGR of 8.0%. Salesin the upstream segment are based on the price of Brent crude oil, which was at$99.05/barrel (hedged). As CVXs highest margin segment is Internationalupstream, the company has been investing in production and growing revenuesin this market faster than domestically. This is based on the fact that crude oil inthe U.S., also known as West Texas Intermediate (WTI), typically trades at adiscount to internationally priced Brent.

Downstream 71.6%FY2013 revenue was $195,034MM and has grown at a 5-yr CAGR of 7.5%.Sales in the downstream segment are based on worldwide gasoline, kerosene,and jet fuel prices. A key growth driver for this segment going forward isdemand in emerging markets such as China and India.

MarginsCVX s margins are a function of commodity prices. CVX does employshort term hedging to manage financial risks associated with thetransactions of physical crude oil, refined products, natural gas, natural gasliquids, liquefied natural gas and refinery feedstocks. That said, CVX smargins are at risk to falling prices. As an integrated company, however,CVX s margins are more resilient in times of weakness due to its ability tocontrol its levels of production, which can aid the costs to its downstreamsegment. Independent E&Ps and independent refiners do not have this abilityand are more at risk.

Earnings


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Capital Expenditures CVX capital expenditures grew at an 18% CAGR since 2010 to $38.7 billion in FY 2013. This has outpaced integrated major Exxon,

who grew CAPEX at a 5.8% CAGR over the same period. CVX has a CAPEX-to-depreciation ratio of 2.8x, also higher than that ofExxon at 1.96x. CVX sees 2014 CAPEX at similarly high levels, yet plans for CAPEX to flatten out in 2015 and 2016. SignificantCAPEX in recent years has been a result of ramped up upstream exploration and development, including LNG and GoM projectslike Gorgon, Wheatstone, Jack/St. Malo, etc. which together have amounted in >$80 billion invested since 2009.

Free Cash Flow CVX had a negative FCF FY 2013 of $7.6 billion. This is largely due to the additional $8.0 billion spent in CAPEX in 2013 asopposed to 2012. As promising new projects come online, and capital outlays slow, we see CVXs 20% production growth goalcontributing to significant positive FCFs. Consensus estimates project FCF to grow at a 51.5% CAGR from 2015-2018, from $3.8billion to $20 billion.

Debt & LiquidityCVX has no long term debt expiring in FY2014 or FY2015. Thereafter is has $750MM, $2,000MM, and $2,000MM of debt expiringin 2016, 2017, and 2018, respectively. As of June 30, 2014 CVX had cash & cash equivalents of $14,235MM and $37,066 of cash fromoperations. CVX has a current ratio of1.5 and a quick ratio of 1.2 indicatingit is liquid. CVX had not had anyportion of long term debt due in thelast two years, and no associated

interest expense; however, it shouldeasily manage its FY2014 and FY2015interest payments of $108MM and$321MM, respectively. Overall, CVXhas a very clean balance sheet and adebt/equity ratio of 13.7%.

Shareholder Returns

Due to the relatively stable nature of CVXs business, it pay s a healthy dividend yieldof 3.7%, with a payout ratio of 38.6%. CVX has increased its dividend every year since1997. In July 2010, CVX s Board of Directors approved an ongoing share repurchaseprogram which has no set terms or monetary limits. $15bn of shares have been

repurchased at an average price of $108/share so far, with $5bn repurchased inFY2013. CVX expects to repurchase between $500MM and $2bn of its commonshares per quarter.

CVX s management is clearly committed to passing returns on to shareholders. Weexpect CVX to be in an even better position to raise dividends and increase buybacksas the company enters the turning point of its investment cycle and goes FCF positive.


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VALUATION

Undervaluation

Since late summer 2014, Brent crude prices entered a bear market, falling 28%from an intra-year high of $115.71/barrel in late June to the recent low of

$82.95/barrel in mid-October. Contributing to this decline was an economicslow-down in China, an overall weakness in Europes economy, a strengtheningdollar due to global investors flight to safety, and an EIA FY2015 oil demandrevised that while demand was growing, it was growing less than expected. Thesefactors perpetuated a sell-off across the energy sector, particularly amongcompanies whose earnings are most sensitive to commodity prices. Shares ofCVX have declined over 14% in the last three months as investors fled the stock,fearing oil prices had entered free-fall as it did in the 2008 financial crisis when oilfell from +$120/barrel to $200bn revenue, ~15% gross margins, similar businesssegment financial performance; a global scope of operations with >50% international exposure; production mix of >75% oil; UnitedStates as a country of domicile; and that the company trades on major US exchanges.

ExxonMobil Corporation (NYSE:XOM) was the only major integrated oil company that met each of the above criterion and wasused to derive CVXs relative valuation. The information below supports the claim that XOM is comparable to CVX.

Brent Oil vs. CVX | 2 year

Price- 5yr Historical Spread


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EV/EBITDAX While EBITDA eliminates accounting variations which may distort earnings, as well as other expenses which are derived by acompanys capital structure, it still contains Exploration Costs. ExplorationCosts are unique to E&Ps and are expenses incurred for efforts to identify newreserves. Because Exploration Costs have no bearing on an E&Ps effectivenessat producing its existing reserves - which is the main driver of cash flow, weintroduce a new, E&P specific metric, EBITDAX. EBITDAX is earningsbefore interest, taxes, depletion, depreciation, amortization, and explorationcosts. By using EBITDAX, costs not associated with cash flow fromoperations are removed. On an EV/EBITDAX basis, CVX is trading at 5.1x,

while XOM is trading at 6.7x, indicating CVX is currently at a discount.

Price Per Flowing Barrel As previously mentioned, the EV/BOE/D multiple represents how investors value an E&P based on how many barrels of oil thecompany produces each day. We originally found CVX to be trading at a discount to its historical EV/BOE/D average. Afterconducting a historical spread analysis of CVX to XOM, we find CVX to be trading 3.29% and 3.43% below its average EV/BOE/Dmultiple on a one-year and three-year basis, respectively.

In order to achieve a 12M target price for CVX using the EV/BOE/D multiple, we forecasted the companys expected dailyproduction in FY2015. To do this we summed the expected incremental BOE of production from each major projec t CVXsmanagement stated to be operational before YE2015. To account for potential cost overruns and other project risks, we adjusted theExpected New Production value by 15% before adding it to CVXs current daily BOE/D production of 2,545. After reac hing anexpected daily production rate of 3,0006.55 BOE for FY2015, we applied an implied EV/BOE/D multiple of 94.25x to arrive at anenterprise value of $283,361MM. After subtracting debt and preferred, then adding back cash, we arrived at an equity value of$272,874MM. By dividing by current shares outstanding, we arrived at our target price of $143.70/share.

Daily Production ForecastName Location MBOE/D Note

Tubular Bells GOM 44 Online 2014 Jack / St. Malo GOM 177 Online 2014Big Foot GOM 79 Online 2015

Angola LNG Africa 30 Fully Operational by YE2015Gorgon Australia 213 Online 2015Expected New Production 543Pro ject Completion Risk Ad justment 15% -81.45Current Production (MBOEPD) 2545 From 2Q2014 Form 10-QFY2015 Expected Production 3006.55

Price Per Flowing Barrel Relative Valuation1 Year Period

Company Mean Factor Comp EV/BOE/D Implied EV/BOE/D

XOM 0.85 110.8408 94.25

FY2015 Production Est. 3,006.55 Target EV/Daily Prod 94.25X Enterprise value estimate 283,361$- Debt outstanding (MRQ) 23,548$

+ Cash 14,227$- Preferred 1,166$Equity value 272,874$No. Shares (Millions) 1,899

Target price 143.70$Last Price 115.91$Capital Return 24.0%

EV/BOE/D Target Price

CVX XOMEnterprise Value $230,592 $425,629

EBIT $27,213 $44,622

+ Depreciation & Amort $15,265 $17,144+ Exploration Costs $2,394 $1,890= EBITDAX $44,872 $63,656

EV/EBITDAX 5.1 6.7

EV/EBITDAX


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Historical Valuation One Year

EV/EBITDA As mentioned in the Undervaluation section above, CVX is trading at a discount to its historical one year EV/EBITDAmultiple. In order to calculate a target price based on this multiple we sourced consensus EBTIDA estimates for thenext four quarters from Bloomberg and totaled them to arrive at a NTM EBITDA of $49,291MM. After multiplying

this value by CVXs one-year historical average EV/EBITDA multiple of 4.93 we arrived at an Enterprise Valueestimate of $243,230MM. After making balance sheet adjustments to arrive at CVXs equity value we arrived at a targetprice of $122.57/share.

Average Target Price We felt the nature of CVXs business warranted averaging the EV/BOE/D and EV/EBITDA target prices whichprovided and an average target price of $133.13, indicating a 14.9% capital return. This is fairly consistent with theStreets 12M target price of $132.90 and 14.7% return.

Comparable Analysis

Consensus NFY EBITDA 49,291$ Target EV/EBITDA 4.93X Enterprise value estimate 243,230$- Debt outstanding (MRQ) 23,548$+ Cash 14,227$- Preferred 1,166$Equity value 232,743$No. Shares (Millions) 1,899

Target price 122.57$Last Price 115.91$Capital Return 5.7%

EV/EBITDA Target Price

Period Amount3Q2014 123644Q2014 117231Q2015 123212Q2015 12883

Total 49,291$

Consensus EBITDA

Historical One Year average 4.93EV/EBITDA Multiple

EV/EBITDA TP 122.57$EV/BOE/D TP 143.70$

Average TP 133.13$Current Price 115.91$Expected Return 14.9%Dividend Yield 3.7%

Total Return 18.6%

Target Price

S&P 500 Major Integrated Index Comparable AnalysisEquityValue

EnterpriseValue P/E EV/EBITDA EV/BOE/D ROE ROA

Dividend Yield

GrossMargin

EBITDAMargin

ProfitMargin

CurrentRatio

QuickRatio

Debt/Equity

% % % % % % %

Chevron Corp. $220,105 $230,592 11.0 5.7 90.6 13.6 7.9 3.5 15.3 12.9 10.1 1.5 1.2 13.7

Mean 13.0 5.7 92.6 14.0 8.3 2.0 29.5 23.6 16.0 1.3 1.0 26.7

Median 13.6 5.7 148.4 13.5 7.5 2.1 32.9 22.2 16.8 1.3 0.9 27.1ExxonMobil Corp. $402,971 $425,629 12.0 7.6 110.8 19.7 9.7 2.7 13.7 10.3 8.3 0.8 0.5 13.0Occidental Petroleum $69,792 $74,759 14.0 5.1 465.8 12.7 8.8 3.1 42.3 35.7 24.1 1.3 1.1 16.1Hess Corp. $25,341 $29,310 14.9 6.0 91.9 7.6 8.9 1.2 28.0 12.4 22.7 1.3 0.7 23.5


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APPENDIX

CVX to XOM One-Year EV to Daily Production Historical Spread 3.29% Discount

CVX One-Year Historical EV/EBITDA Average (Top) & P/E Average (Bottom)


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Table IV Each location has 1 refinery, excluding Affiliates which has 6

Refinery Locations Capacity 2013 Input Util izationUnited States 955 774 81.0%

Mississippi 330 304 92.1%California 269 235 87.4%California 257 153 59.5%Hawaii 54 39 72.2%Utah 45 43 95.6%

International 330 281 85.2% Thailand 165 161 97.6%South Africa 110 78 70.9%Canada 55 42 76.4%

Affiliates 675 583 86.4% Total Worldwide 1960 1638 83.6%

Table IRevenue (millions) %Upstream $75,558 27.7%Downstrem $195,034 71.6%

All Other $1,916 0.7% Total $272,508

United States $111,902 41.1%International $160,606 58.9% Total $272,508

Profit (millions) %Upstream $20,809 97.1%Downstrem $2,237 10.4%

All Other -$1,623 -7.6% Total $21,423

United States $4,831 22.6%International $18,215 85.0%

All Other -$1,623 -7.6% Total $21,423

Table IIPipeline by Product Miles %United StatesCrude Oil 1883 21%Natural Gas 2638 30%Petroleum Products 4395 49%Total 8916 89%

InternationalCrude Oil 667 58%Natural Gas 199 17%Petroleum Products 290 25%Total 1156 11%

Worldwide 10072

Table IIIRefined Products Sales by Volume % 2013United States 43.6%

Gasoline 51.9% 613 Jet Fuel 18.2% 215Gas Oil/Kerosene 16.5% 195Fuel Oil 5.8% 69

Other Products 7.6% 90Total 1182 International 56.4%

Gasoline 26.0% 398 Jet Fuel 16.0% 245Gas Oil/Kerosene 33.4% 510Fuel Oil 11.7% 179Other Products 12.9% 197

Total 1529

Worldwide Total 100.0% 2711


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DISCLAIMER

This report is prepared strictly for educational purposes and should not be used as an actual investment guide. The forward looking statements contained within are simply the authors opinions. The writer does not own any Chevron Corp. stock.

TUIA STATEMENT

Established in honor of Professor William C. Dunkelberg, former Dean of the Fox School of Business, for histireless dedication to educating students in real - world principles of economics and business, the William C. Dunkelberg (WCD) Owl Fund will ensure that future generations of students have exposure to a challenging,practical learning experience. Managed by Fox School of Business graduate and undergraduate students withoversight from its Board of Directors, the WCD Owl Funds goals are threefold:

Provide students with hands-on investment management experience Enable students to work in a team-based setting in consultation with investment professionals. Connect student participants with nationally recognized money managers and financial institutions

Earnings from the fund will be reinvested net of fund expenses, which are primarily trading and auditing costsand partial scholarships for student participants.

Documents

Initiating Coverage Chevron Corp (CVX)