Chevron(CVX 1.33%) recently released its preliminary capital plans for 2024. The oil giant expects to increase its capital spending by about 11% next year. It’s focusing on investing in projects that will deliver high returns and durable cash flow. That would give it more money to return to shareholders via dividends and stock buybacks. Here’s a look at Chevron’s plans for the upcoming year.
An acquisition-driven spending boost
Chevron plans to invest between $15.5 billion and $16.5 billion into organic capital projects next year. In addition, it sees capital spending at its joint ventures (CPChem and Kazakhstan) coming in at around $3 billion. That’s about 11% higher than last year at the midpoint.
The company’s budget doesn’t include capital spending related to Hess(HES 1.72%), which Chevron agreed to acquire in October. The company expects that deal to close in the first half of next year. It sees its annual capital spending budget rising to a range of $19 billion-$22 billion following its acquisition of Hess.
One factor driving Chevron’s capital spending increase is its recently closed acquisition of PDC Energy. Chevron expected to increase its capital spending budget by $1 billion per year following its deal for PDC Energy, boosting its range to $14 billion-$16 billion through 2027. It could eclipse the high-end of that range next year. However, the company also expected the deal to boost its annual free cash flow by $1 billion, assuming oil averages $70 per barrel (crude oil is currently in the mid-$70s).
Drilling for cash
Chevron plans to spend about $14 billion of its capital budget on oil and gas exploration and production projects. It will invest roughly two-thirds of that money into its U.S. operations, including about $5 billion into the Permian Basin. Chevron plans to invest another quarter of its capital into its Gulf of Mexico operations, including its Anchor project, which should start producing oil next year.
Chevron’s focus on the Permian Basin is noteworthy. The company can earn high returns on capital employed (ROCE) and generate growing free cash flow.
Image source: Chevron. ROCE = returns on capital employed.
Chevron’s focus on drilling in high-return areas like the Permian has paid off over the years. It has delivered a peer-leading improvement in its ROCE over the last five years. The company expects to continue improving its ROCE over the next few years by investing capital into its highest-return operations, like the Permian. That’s helping fuel strong cash-flow growth for the company. Chevron sees its free cash flow more than doubling by 2027 as it executes its investment strategy.
Chevron also plans to invest about $1.5 billion into downstream capital projects (e.g., refining) and about $2 billion on lower-carbon projects as it slowly grows out new energy business lines. Among its notable lower-carbon projects is its Geismar renewable diesel expansion project, which should start up next year. The company’s growing lower-carbon energy platform could become a meaningful future free-cash-flow driver.
Generating more cash to return to shareholders
While Chevron is increasing its capital spending, CEO Mike Wirth stated it is “maintaining capital discipline in both traditional and new energies.” It’s focusing its investments on those that achieve attractive returns. Further, Wirth stated, “These investments are expected to underpin durable free cash flow growth to support our objective of returning more cash to shareholders.”
Chevon’s dividend is one aspect of its shareholder returns. The company has increased its payout for 36 straight years and grown the dividend at a peer-leading 6% annual rate over the last five years, including by 6% earlier this year.
The oil company expects to grow its dividend at an even faster rate next year, with plans to boost its payout by 8% in January. It could deliver higher sustained dividend growth in the future, fueled by its high-return capital investments and needle-moving Hess deal. Chevron can grow its free cash flow at a more than 10% annual rate through 2027 at an average oil price of around $60 per barrel.
Chevron also plans to ramp up its share repurchase pace. It expects to increase its annual share repurchase rate by $2.5 billion after closing its Hess acquisition, boosting its buyback to the top end of its $10 billion to $20 billion annual range. It could continue buying back shares at the upper end of that range if oil prices remain over $70 a barrel.
A well-oiled machine
Chevron plans to increase its capital spending next year. This investment spending should pay off in the future because it’s focusing that capital on high-return projects that should produce growing cash flow. That will give Chevron more money to return to shareholders via dividends and repurchases.
This combination of increased cash flow and shareholder returns could give Chevron the fuel to produce attractive total returns in the coming years, making it look like an excellent oil stock to buy for the long haul.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
