The Pennsylvania State University

Department of Energy and Mineral Engineering

Elsa Yi Sa Ng
431 McElwain Hall
16802 University Park, PA

Dr. Antonio Nieto

Associate Professor of Mining Engineering
Thomas V. Falkie Faculty Fellow
122 Hosler Building
University Park, PA 16802

Dr. Nieto,
Please find herein my economic evaluation of Chevron Corporation. This report focuses
predominantly on the time period from 2004-2014 and both the stock price for
Chevron and crude oil price at year 2014 are prediction. Regardless, the evaluation is complete
as the estimation should be relatively accurate.
Let me know if you have any questions or concerns.

Sincerely,
Elsa Yi Sa Ng

Pennsylvania State University

Department of Energy and Mineral Engineering
EME 460: FINAL PROJECT
Spring 2014

Chevron Corporation
Economic Evaluation 2004-2014

ELSA YI SA NG

Abstract
For this project, the company to be studied is Chevron which is a leading energy company. This
study will mainly focus on crude oil as its main commodity. This paper will cover the time
period from 2004 to 2014. The stock price of Chevron will be analyzed at the first section of the
paper. The analysis will be based on the value reported on its financial report. Next, the price of
the commodity to be studied which is crude oil will be analyzed. In the end, both of the prices
will be compared and contrast to find the correlation between them.
The significant events of the company will be discussed at the last section of the paper which
compromise of events that will impact the stock price of the company. These events will be used
to explain the trend of the stock price of Chevron over the specific time period.
By studying both the stock price of the company and also the crude oil price we can draw
conclusions to how influential Chevron is in the oil industry.

Table of Contents
1. Introduction
1.1. Chevrons History
1.2. Financial of Chevron
2. Analysis
2.1. Chevrons Stock Price
2.2. Crude Oils Price
2.3. Comparison of Chevrons Stock Price and Crude Oils Price
3. Significant Events of Chevron
4. Summary
5. Appendix
6. Reference

1.1 Introduction
Chevron is one of the worlds leading integrated energy companies. The company was
discovered at Pico Canyon, north of Los Angeles, which in turn led to the formation of the
Pacific Coast Oil Co, which later became Standard oil Co of California and in the end renamed
to Chevron. The company changed their name when they merged with Gulf Oil production in
1984 which is one of the largest mergers in US history. The merger doubled their worldwide
crude oil and natural gas reserves. Under their family tree, is The Texas Fuel Company which
was formed in Beaumont, Texas, in 1901 which was eventually named Texaco. In 2001, these
two companies merged which allowed Chevron to be an energy industry leader around the
world.
The company has approximately 61,900 highly skilled employees which include more than 3,600
service station employees. Chevrons average net production was 2.61 million barrels of oilequivalent per day in 2012. However, about 75 percent of that amount occurred outside of
United States. Its marketing network branches out to six continents and also investment in 11
power-generating facilities in the United States and also
Chevron is well-known to be involved in every aspect of the energy industry. First of all, they
explore, produce and transport crude oil and natural gas. Secondly, they refine market and
distribute transportation fuels and lubricants. Other things that Chevron is involved is
manufacturing and selling petrochemical products, generating power, producing geothermal
energy, providing renewable energy and energy efficiency solutions, and lastly developing the
energy resources of the future, which includes the research into advanced biofuels.

1.2 Financial of Chevron

Figure 1. Net Income and Annual Cash Divedends of Chevron from year 2004 to 2013

As observed from the graph of net income, it can be concluded that Chevrons net income is
steadily increasing annually from year 2004 to year 2007. This increase in net income in year
2008 is significantly larger. It was mainly dued to the improved earnings for upstream, which
were driven by higher prices for crude oil and also natural gas.

From the annual cash dividends graph, it is also very evident that the cash dividend is also
increasing steadily year by year from 2004 to 2008. It is also worth noting that 2008 is the 21st
consecutive year that the companyhas increased in its annual dividend payout.

Figure 2 . Net Income and Annual Cash Dividends of Chevron from year 2009 to 2013

From year 2009 to 2011, we can see an increase in the net income of the company. However a
slight decline from year 2011 to year 2012 was observed. And in year 2013, the net income had
significantly lessen (Note that the net income in year 2008 was $23.9 billion in comparison to
$21.4 billion in 2013) .This decrease can be explained with the lower earnings in both upstream
and downstream activities as a result of the lowered gains on asset sales, more expensive
operating cost, lowered margins on refined product sales and also lesser crude oil production.

Although the net income had decreased over the recent years, the companys annual dividend
was increasing, and at year 2013 it was the 26th consecutive year of the increase.

2.1 Analysis of Chevrons Stock Price

Figure 3. Chevron Year End Stock Price from year 2004 to year 2013

From year 2004 to year 2007, the companys company stock price has been increasing steadily.
However, the stock price experienced a drastic drop in the year 2008. Where it dropped from
roughly $90.00 per share to $ 73. 97 per share. This is a 20.7 percent decline. From year 2008 to
2009, the change is unnoticible. Starting from year 2009 to year 2013 the company ha
experienced increase in the year end common stock price. Hence, from year 2008 to year 2013,
the stock price has increased from $73. 97 to $ 124.91 which is almost 40 % increase.

Figure 4. Chevron Stock and volume from year 2004 to 2014

The volume of the stock is the measurement of sold shared between buyer and seller. After
speculating the graph, it can be said that the peak volume occured during 2008. However, the
stock price at year 2008 has significantly dropped. Since the stock price decreased, this might
explain the reasoning behind the increased in volume, as people might see an opportunity to
invest in Chevron. From year 2004 to year 2008 the volume is increasing gradually. As of from
year 2009 to 2014 the volume is decreasing as the stock price is increasing. As the stock price
increase is relatively larger than that of the volume, the company income is still increasing.
The red line represents the S&P 500 which is the short for the Standard and Poor 500. It is a type
of stock market index that seeks to represent the whole stock market. It tracks the 500 most
widely held stock on the NYSE and then reflects the risk and return of the large companies.
However, it also is used as a proxy for all of the total stock market. In the chart it is obvious that
Chevrons stock price is high above in comparison to the S&P 500 index. It can also be noted
that they share the same shape of curve which implies that Chevron contributes to a huge portion
of the S&P 500 index.

2.2 Analysis of Crude Oil Price

Figure 5. The price of imported crude oil in United States

130.00

Imported crude oil price

110.00
90.00
Price per barrel
($)
70.00
50.00
30.00
2004

2006

2008

Year

2010

2012

2014

Annual
Average Motor Gasoline Price
4.00
3.50
Price /gallon($) 3.00
2.50
2.00
2002

2004

2006

2008

Year

2010

2012

2014

2016

Observing the crude oil price from year 2004 to 2014, we can see a trend of increasing price
from year 2004 to year 2008 .Then there is a sharp decline in price in year 2009. The year 2009
is the year of the Great Recession, which also hit hard on Chevron that year. After 2009, the
crude oil price bounced back up as the economy recovered from the recession. However, in
recent years the price has again decreased slowly fron 2011. As explain in Forbes, the reasoning
behind the fall is that the price previously had been high, and that this is a result of the long time
lags in oil production.

2.3 Comparison of Chevron Stock Price and Crude Oil Price

120.00

Imported cude oil price

110.00
100.00
90.00
80.00
Price per barrel ($)
70.00
60.00
50.00
40.00
30.00
2004

2006

2008

Year

2010

2012

2014

By comparing the two graphs, we can tell that they have a similar trend. However, there are a
few distinctive differences between the two charts. For both graphs, the prices are increasing
from 2004 till 2007. In 2008, however, Chevron had experienced a huge decline, and maintain
that price up until 2009, whereas for the imported crude oil price in United States only fell
drastically at year 2009. Another obvious difference is from year 2011 to year 2014. Chevrons
stock price had increase slowly from year 2011 to 2013 and then stabilized at year 2014. This is
not the case for the average crude oil price which started to decline slowly since year 2011.

3. Significant Events of Chevron

From 2002 to 2007, Chevron had earned close to $72 billion. During this period of time, it had
been making roughly the same amount of investment. This is an effort to bring new energy
supplies to the market.
At the same period which is from year 2002 to 2007, the company also added an average of 1
billion barrels to its resource base in its exploration program. This shows an average of 42
percent success rate of exploration well.
These two significant events can explain the increase in both net income and stock price for
Chevron over the time period of 2004 to 2007 as new energy supplies and also increased
production.
In year 2005, the company acquired Unocal Corp, which strengthens its position in the energy
field. This acquisition had been a very strategic game play, as it can lignify both the exploration
and also production portfolio of the company. In addition, Unocal had been a provider of source
for talent and modern technology which Chevron had fully made use of by integrating it to its
organization. As technology is one of the main factors when it comes to seeking new energy
supplies, Chevron becomes more powerful when it acquired Unocal Corp.
It is evident that from year 2004 to year 2005, the increase in stock price is relatively low in
comparison to the increase of stock price from year 2005 to 2007. This can be explained by the
acquisition of Unocal Corp.

In the year 2009, Chevron had succeeded in their first oil from the Tahiti Field in the U.S Gulf of
Mexico. This field is the deepest producing well in the gulf with approximately 4,100 feet of
water. Also, Chevron employed a three-dimensional visualization technology in Karachaganak
fields in Kazakhstan. The project is called the Sour Gas Injection which took five years and also
a budget of $7 billion to complete. However, this major project manages to double the
production capacity.
Another significant event was on year 2010, where Chevron began to upsize its upstream
business and announce that Chevron Pipe Line Co, a Chevron subsidiary, sold 23.44% of its
stake in Colonial Pipeline which is a company that owns and operate 5,500 miles of pipeline in
the United States that mainly deals with the downstream transportation .At the same year, it also
acquired Atlas Energy which can provide Chevron with natural gas resources in southwestern
Pennsylvania's Marcellus Shale.
In year 2011, Chevron has been investing more in its upstream business than its downstream
business, which includes oil exploration and production. This is exemplify from its 2011s
capital expenditure budget of $26 billion which represents an increase of 20 % over 2010, which
compromises of 87% of upstream business and only 11% of downstream business. Chevron also
made the effort to cut 12 % of its downstream staff to reduce its operating cost.
Between year 2010 to 2012, Chevron is focusing its upstream business especially in Asian
markets. The company is planning to start 25 new upstream projects with an investment of at
least $1billion. Hence, it can be concluded that between year 2010 to 2012, Chevron is in a
transition phase to refocus on upstream activities. With this shift, the stock price of the company
has been increasing steadily.

Another significant event happened in year 2010 where a fire aboard of a BP oil rig led to an
explosion which caused a major oil leak. In response to the incident, President Obama had
imposed a six month moratorium on deep-water oil drilling in the Gul of Mexico. This has
deeply negatively impacted Chevrons production capacity in the gulf since it was restricted to
only operate oil rigs above 500 feet. The result from this has cause Chevrons shares to fall
nearly 10 % in two months. It is estimated that 300,000 barrels of oil per day of the Gulf
production was lost. Although this is the case, Chevron still manage to increase its stock price
from year 2010 to 2011 which implies that the lost in this incident is relatively smaller than the
profit that it gained from investing in upstream activities.

4. Summary
It can be concluded that the stock price of Chevron has been increasingly steadily since 2004
throughout 2007. It experienced a drastic drawback in year 2008 which was before the Great
Recession took place. The companys stock price trend is quite similar to the trend of the price of
crude oil n United States. This implies that the company has a huge control over the crude oil
industry in the United States.
Between 2004 and 2007, Chevrons stock price increase can be explained by its investment
effort on new energy supplies, addition of production and also acquisition of Unocal Corp, which
was all beneficial for the expansion of the company.
In year 2010 onwards, it can be observed that Chevron was in an effort to refocus its activities to
upstream by selling its downstream subsidiary company stock, acquiring a Marcellus well
company and also downsizing its downstream employee.
In conclusion, after studying Chevrons stock price and activities over the past 10 years, it is
undeniable that Chevron is a very strong company with stable stocks, increasing production and
a great future.

5. Appendix
Table 1: Average Imported Crude Oil Price in United States

Year

Consumer index

Nominal
price

Real price

2004

1.889

35.89

44.83

2005

1.953

48.89

59.08

2006

2.016

59.05

69.13

2007

2.073

67.19

76.46

2008

2.153

92.57

101.48

2009

2.146

59.04

64.93

2010

2.181

75.87

82.10

2011

2.249

102.65

107.68

2012

2.296

101.09

103.89

2013

2.330

98.12

99.38

2014

2.370

99.76

99.32

Table 2: Average Annual Motor Gasoline Price

Consumer index

Nominal
price

Real
price

2003

1.840

27.73

2004

1.889

35.89

2.31

2005

1.953

48.89

2.74

2006

2.016

59.05

3.02

2007

2.073

67.19

3.19

2008

2.153

92.57

3.57

2009

2.146

59.04

2.58

2010

2.181

75.87

3.01

2011

2.249

102.65

3.70

2012

2.296

101.09

3.73

2013

2.330

98.12

3.55

2014

2.370

3.45

3.44

6. References
"Annual Reports." Chevron. N.p., n.d. Web. 01 May 2014.
<http://www.chevron.com/news/publications/#b2>.
Conerly, Bill. "Oil Price Forecast for 2013-2014: Falling Prices." Forbes. Forbes Magazine, 01 May 2013.
Web. 01 May 2014.
<http://www.forbes.com/sites/billconerly/2013/05/01/oil-price-forecast-for-2013-2014-fallingprices/>
"Historical Stock Chart." Investor Relations Home Chevron. N.p., n.d. Web. 01 May 2014.
<http://investor.chevron.com/ >.
Jordan, Geoffrey. "Chevron Corporation (CVX)." Stock:. N.p., n.d. Web. 01 May 2014.
<http://www.wikinvest.com/stock/Chevron_Corporation_%28CVX%29>.
"Short-Term Energy and Summer Fules Outlook." U.S. Energy Information Administration - EIA
Independent Statistics and Analysis. N.p., n.d. Web. 01 May 2014.
<http://www.eia.gov/forecasts/steo/realprices/>
"The End of Easy Oil." Chevron. Chevron, n.d. Web. 01 May 2014.
<http://www.chevron.com/about/history/2002/>.