Making sense of the reorganization of Chevron (CVX), climate plans – May 31, 2022

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Last week super major Chevron Company (CLC Free Report) announced significant changes to its organization and management structure. The company also held its annual general meeting (AGM), during which several climate resolutions were put to the vote.

Company redesign

Starting Oct. 1, Chevron’s Upstream (or exploration and production), Midstream and Downstream (or refining) segments will be led by a single decision-maker — the executive vice president, Oil, Products & Gas. Nigel Hearne, the company’s former head of Europe, Asia and Pacific production, has been given the role and will look after the entire value chain.

The corporate overhaul will also see CVX consolidate its upstream operations in two regions: Americas Exploration & Production and International Exploration & Production. Additionally, the integrated major consolidates its strategy and sustainability, corporate affairs, and business development functions under a new executive vice president, strategy, policy, and development.

According to Chevron, the new simplified corporate structure (along with changes in leadership) is intended to optimize capital, while allowing the company to more easily manage the portfolio of businesses as it works to transition to a low carbon future.

The reorganization is also aligned with the company’s plans to focus more on domestic hydrocarbon production and profitability. As most countries around the world rush to wean themselves off Russian energy, following its invasion of Ukraine, it is incumbent on American energy producers like CVX to increase production and meet demand. The company’s prime acreage in the lucrative Permian Basin – the first unconventional region in the United States – where Chevron aims to produce 15% more year-over-year in 2022 (for a record 700,000 at 750,000 barrels per day), highlights the trend in this direction. Investors should know that the San Ramon, Calif.-based energy giant increased its U.S. production by 10.1% in the first quarter of 2022.

Climate goals

Now, at its annual general meeting, some 33% of Chevron shareholders have voted in favor of a proposal asking the energy company to drastically reduce Scope 3 emissions – a sharp drop from the year last, when a similar motion had 61% support. These are the difficult-to-manage releases from the combustion of fuels (like jet fuel and gasoline) that it sells to end users, which typically make up more than 90% of an oil and gas holding company’s total footprint. . Chevron, like its peers, is under increasing pressure from activists and investors around climate change and the commitment to reduce emissions. At the same time, an overwhelming majority of 98% shareholders backed a company-backed decision to prepare a report detailing an assessment of the reliability of its methane emissions disclosures.

For its part, CVX said it “aspires” to achieve net zero greenhouse gas emissions in its operations by 2050. The company’s climate target covers carbon emissions directly generated by its operations. (Scope 1) and indirect emissions caused by electricity consumption. to operate its facilities (Scope 2).

Zacks ranking and key picks

Chevron is one of the largest publicly traded oil and gas companies in the world with operations that span nearly every corner of the globe. The only energy component of the Dow Jones Industrial Average, Chevron is fully integrated, meaning it participates in all aspects of energy – from oil production to refining and marketing.

Chevron currently carries a Zacks Rank #3 (Hold).

Some higher ranked energy players include Equinor ASA (EQNR free report), Canadian natural resources (CNQ free report) and Marathon Oil (RRM Free Report), each carrying a Zacks Rank #1 (Strong Buy), currently.

You can see the full list of today’s Zacks #1 Rank stocks here.

Equine: Equinor is valued at some $122.3 billion. The Zacks consensus estimate for EQNR’s revenue in 2022 has been revised up 51.9% in the past 60 days.

Equinor, headquartered in Stavanger, Norway, grew 1.9% in the first quarter. Shares of EQNR have jumped about 71.9% in one year.

Canadian Natural Resources: CNQ has beaten Zacks’ consensus estimate for earnings in each of the past four quarters. The company has a four-quarter earnings surprise of around 17.6% on average.

Canadian Natural is valued at approximately $77.3 billion. CNQ has seen its shares gain about 93.3% in one year.

Marathon Oil: Marathon Oil is valued at some $22 billion. The Zacks consensus estimate for MRO earnings in 2022 has been revised up 52.9% in the past 60 days.

Houston, TX-headquartered Marathon Oil has a trailing four-quarter earnings surprise of about 23%, on average. MRO shares have gained about 156.6% in one year.

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