Chevron Corporation (NYSE: CVX), a company manufacturing and selling a range of refined petroleum products, including gasoline, diesel, marine, and aviation fuels, premium base oil, finished lubricants, and fuel oil additives, is scheduled to announce its fiscal third-quarter results on Friday, October 27. Chevron
CVX
has a diversified business with exposure to the entire energy value chain but still, oil prices are a big driver of financial performance. That said, oil prices were surprisingly lower than expected at the beginning of this year. However, crude oil picked up on expectations of tighter supply ever since Saudi Arabia and Russia extended their voluntary output cuts of a combined 1.3 million barrels per day (bpd) to the end of the year 2023 – in order to support prices. Among the most significant risks to oil markets since Russia’s invasion of Ukraine last year is the latest geopolitical tension between Hamas and Israel. There have not yet been any impacts on oil flows due to the conflict, but there could be major repercussions if it escalates. If the U.S. steps up sanctions against Iran, this would likely further strain an already tight oil market. The growing tight supplies due to geopolitical uncertainty and the soaring demand from the reopening of China’s economy could likely bode well for energy prices by the end of 2023. Even if oil trends lower, Chevron is among the lowest-cost producers, so it can still generate a tremendous amount of cash. Given that crude oil is currently at $88 per barrel at the time of this writing, Chevron is set up nicely to return a lot of capital to shareholders.
Chevron is buying fellow oil and gas producer Hess in an all-stock deal. The company is exchanging 1.025 of its shares for each share of Hess to pay $171 per share. In this scenario, Hess’ equity is valued at $53 billion, while the merger’s full value is $60 billion (after the assumption of debt). This acquisition will enhance and extend Chevron’s production and free cash flow growth outlook into the 2030s.
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