Chevron has been successfully supplying “affordable, reliable, ever-cleaner energy that enables human progress” for more than 140 years. But the company is facing unprecedented challenges in the face of COVID-19, [a hostile political landscape], and a slumping oil and gas market.
Chairman Mike Wirth continues to reaffirm the company’s slogan: “The right way. The responsible way. The Chevron Way.” And he proudly emphasizes the basic solidness of Chevron and its future. Based on the company’s past performance, he is probably right. Chevron has the money, resources, and innovation to weather any storm.
In 2019, according to its annual report, Chevron beat its competitors in several important areas. The company “delivered 15.2% Total Stockholder Returns; increased [its] dividend payment 6.2%, making it the 32nd consecutive year of increased per-share dividend payouts; increased share repurchases to a run-rate of $5 billion per year; generated more than $27 billion in cash flow from operations and returned $13 billion to shareholders; lowered [its] net debt ratio to 12.8%, further strengthening the company’s balance sheet.”
Additionally, the company produced 3.06 million oil-equivalent barrels per day, an increase of 4 per cent over 2018. This was largely due to its projects located in the Permian Basin, and the roll-out of the Wheatstone LNG project off the coast of Western Australia. These projects helped to balance out losses and the sale of assets in Denmark and Great Britain.
Chevron also boasted 11.4 billion barrels of net-oil-equivalent reserves, $237.4 billion total assets, and $139.9 billion from sales and other revenues in 2019. The company exhibited a strong corporate balance sheet. But the 2020 annual report has not yet been released [as of the writing of this paper].
The company released a statement on December 3, 2020 that it is reducing its long-term spending on capital investments due to lower oil and gas prices because it does not expect conditions to change very soon. Its position reflects the attitude of the oil and gas industry as a whole. [Since then, Joe Biden has been inaugurated as President and put policies in place that have raised gas and oil prices significantly. His policies threaten the oil and gas industry as a whole].
Chevron only plans to spend $14 billion to $16 billion per year from 2022 to 2025. This represents a 27% reduction in investments from what it had originally forecast. The new forecast is necessary as the company, along with other energy companies, cut oil and gas production, laid off workers, and put projects on hold. Continued spikes in COVID-19 during the winter and a stay-at-home work force have contributed greatly to reduced demand and lower prices [pre-Biden].
While European companies are using these conditions to invest more heavily in renewable energy and low-carbon fuels, Chevron remains committed to oil and natural gas, with smaller investments in wind, solar, biomethane, and hydrogen energy. It plans to invest less money in high-cost projects such as the Tengiz oil project in Kazakhstan and invest more money in reliable projects such as the Permian Basin and the Gulf of Mexico.
Chevron has now surpassed Exxon Mobil in market value, making it the largest American oil and gas company. The company will invest $14 billion in capital projects in 2021, with $300 million set aside for investments in renewable energy. Chevron’s stable business model has allowed its stock to remain a solid investment.
As a multinational corporation with offices, plants, pipelines, partnerships, and subsidiaries all across the globe, Chevron’s success is based primarily on its relationships with its stakeholders — management, work force, investors, partners, contractors, and members of the local community. The company relies on “the inspiration, creativity, and ingenuity of [its] people” to keep the company fresh, innovative, a solid investment, and a positive place to work.
The company’s Business Conduct and Ethics Code, Operational Excellence Management System, and written safe-work practices ensure that all employees will be held accountable for supporting a company culture that gives priority to “process safety, the health and safety of [the] work force, and protection of communities and the environment.” The company’s commitment to lowering its carbon footprint, investing more in renewable energy and ground-breaking technologies (such as methods for reducing corrosion on pipelines and drilling deeper underground and underwater), makes it an exciting investment and even more exciting place to work.
Since the company has been around for a long time, it has the resilience and experience to face any challenge, from operating the world’s largest LNG facility on Barrow Island off the coast of Western Australia, to minimizing its human and industrial imprint on the island’s Class A Nature Reserve, to specializing in recovering natural gas from shale and tight rock formations in underwater fields, to building one of the largest CO2 Injection projects below Barrow Island.
Chevron strives to hire the best-qualified people and contract with the best-qualified companies to maintain the integrity of the company and its projects. In Western Australia, for example, it is a major supplier of natural gas for the Australian Gas Infrastructure Group, which owns the longest natural gas pipeline in Australia, the Dampier-Bunbury Pipeline.
The Dampier-Bunbury Pipeline receives 112,000 hours of scheduled maintenance every year, has operated at 99% efficiency for the last 10 years, and is expected to last for another 50 years. Since Chevron’s largest LNG project, Gorgon Project, is expected to be productive for the next 40 years, this is an ideal situation for both Chevron and the Australian Gas Infrastructure Group.
According to Chairman Mike Wirth, “an investment in Chevron is an investment that drives human progress, lifts millions out of poverty, and makes modern life possible. It is an investment that values operating with integrity, getting results the right way, and striving for humanity’s highest aspirations: to create a more prosperous, equitable, and sustainable world.”
A good example is Chevron’s Gorgon Project, which is located off the coast of Western Australia. The project is expected to pour $400 billion into Australia’s Gross Domestic Product and $69 billion worth of taxes into the federal government between 2009 and 2040. As a result, Australia is fast becoming a leading producer of natural gas in the global market.
Natural gas is safer, cleaner, and more reliable than some other forms of energy, including electricity. It is transported through gathering pipelines, transmission pipelines, and distribution pipelines. But natural gas is also a hazardous substance. Chevron uses risk management principles to identify and minimize risks to property and human lives. Risks are assessed throughout the system, rated according to severity, and safety measures are put in place to minimize and eliminate safety hazards.
The U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) is the primary regulator of energy companies and pipelines in the United States. It is responsible for “regulating the safety of design, construction, testing, operation, maintenance, and emergency response of U.S. oil and natural gas pipeline facilities.” The safety of the public and the environment is the primary concern of PHMSA.
PHMSA sponsors an Integrity Management Program which requires all pipeline operators to evaluate the environment and population surrounding a pipeline. It is critical that operators understand the consequences of a pipeline failure to the local community and take measures to prevent an incident from happening. When operators develop this kind of awareness, they are more likely to make certain that inspections and scheduled maintenance get done. They will be better prepared to handle the situation if a pipeline safety hazard occurs.
The Office of Pipeline Safety, which is part of PHMSA, performs “field inspections of pipeline facilities and construction projects; inspections of operator management systems, procedures, and processes; and incident investigations.” The agency can enforce safety regulations when violations are found.
Chevron’s Operational Excellence Management System addresses safety, health, and wellness issues throughout the company and its facilities around the world. Chairman Mike Wirth’s personal mission is “to eliminate high-consequence personal and process safety events. This means no fatalities or serious injuries and no fires, spills or explosions that can affect people or communities.”
According to Wirth, the company must focus on three important areas: 1) understanding the risks and benefits of managing oil and gas operations; 2) identifying the safety measures needed to minimize and eliminate the risks; 3) implementing, maintaining, and improving those safety measures.
All members of the company are expected to take a proprietary interest in promoting a culture of safety. This means every employee takes responsibility for his own and his peers’ actions. Every member must act as part of a team to achieve safety and performance goals.
The two key elements of the Chevron safety code are: “Do it safely or not at all” and “There is always time to do it right.” Failure to follow this code resulted in a major safety hazard during routine maintenance at the Gorgon Project in Western Australia, costing the company millions of dollars.
Driving down costs is also an important part of Chevron’s Operational Management System. Using energy and resources wisely, and maintaining a safe and secure environment, ensures that all stakeholders will benefit from the company’s efficient management of its operations.
Chevron invests a lot of resources in developing its current and future work force. The company is a strong proponent of teaching high school children science, technology, engineering, and mathematics skills (STEM). It needs qualified geologists, chemists, IT specialists, healthcare workers, engineers, and other specialists to keep the company performing at a high standard. It supports special programs which help low-income men and women get the job skills they need to land a high-paying job with Chevron or another energy company. And it strongly encourages girls to gain STEM skills. The company promotes diversity and a global perspective that defines it as a “global energy company most admired for its people, partnerships, and performance.”
In spite of setbacks, a global pandemic, [a hostile political landscape], and suffering oil and gas prices [which are now too high], Chevron will be strong as long as it conducts business according to its core values.
Dawn Pisturino
December 22, 2020
Thomas Edison State University
Trenton, New Jersey
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