Chevron’s Turbulent Times: Can CEO Michael Wirth Turn the Tide?
As the world’s second-largest oil company, Chevron has faced its fair share of challenges in recent years. Despite CEO Michael Wirth’s impressive track record, the company’s falling earnings and project overruns have raised concerns among investors.
A Legacy in Jeopardy
Wirth’s leadership has been instrumental in Chevron’s success, with the company’s shares outperforming rivals for five years until 2022. However, the delay in the $53 billion purchase of Hess, a deal that would give Chevron a stake in a lucrative Guyana oilfield, has cast a shadow over his legacy. The arbitration battle with Exxon Mobil has delayed the deal by almost two years, threatening to kill it entirely.
No Clear Growth Story
Analysts are questioning whether Chevron is the right investment choice, given its lack of a clear growth story. Mark Kelly, an analyst with MKP Advisors, notes, “If you have $1 to invest in an oil company now, how would you justify investing it in Chevron?” The company’s share performance has been hurt by the arbitration case, encouraging arbitrage traders to short Chevron.
New Team, New Strategy
Wirth has responded to the challenges by ushering in a new team, with several high-level executives departing or retiring. The company is poised to deliver the highest production growth rate in the industry over the next 12 months by expanding existing projects. However, the board is pressing for a faster turnaround of earnings, which have declined for the past five quarters.
The Guyana Dispute
The biggest shadow over the company remains its dispute with Hess partners’ Exxon and CNOOC Ltd over their Guyana offshore holdings. The deal’s delay is crucial to Chevron, as it would provide the company with long-lived oil production from a country with fewer geopolitical risks than its Venezuela or Kazakhstan operations.
Venezuela Uncertainty
Chevron’s presence in Venezuela is also under scrutiny, with U.S. lawmakers and Venezuelan opposition leaders calling for tighter restrictions on the company’s dealings in the country. If Chevron’s license to operate in Venezuela were terminated or amended, the company could lose its right to export about 220,000 barrels per day of oil.
Third Quarter Earnings
Chevron is expected to post third-quarter earnings of $4.26 billion, down 35% from last year’s $6.53 billion. The company’s future hinges on its ability to turn around its earnings and deliver on its growth promises. As Frederic Boucher, risk arbitrage analyst at Susquehanna Financial Group, notes, “If you spend two years working on a deal, assuring investors you are right, only to be proven wrong, should you still be trusted with investors’ money?”
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