Chevron Offers Gas and Oil at $59 Per Barrel
Hold-rated Chevron (CVX) offers unlevered appreciation potential of 28% to estimated net present value [NPV] of $98 a share. On October 28, we reset NPV from $135 a share on the basis of a long-term oil price assumption of $75 a barrel, down from $100. Patience may be necessary as CVX stock price remains below the 200-day average of $87. Third quarter results displayed strength in unlevered cash flow (Ebitda) driven by crude oil and natural gas prices.
Futures prices now look lower for the next four quarters. Projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P) supports NPV.
Reported cash flow from downstream operations in the latest quarter reversed “timing effects” that were adverse in the previous quarter. Stock repurchase continues as a tax efficient means for Chevron to acquire oil and gas in the stock market without paying an acquisition premium. Chevron stock offers oil and gas resources as though the long-term oil price were $59 a barrel (McDep Ratio of 0.78 times $75 long-term oil price for calculating NPV).
Originally published October 31, 2008
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