Chevron Investor Roundup
Sep 26th 2011 1:00PM
Updated Sep 26th 2011 1:02PM
It's not my Texas heritage that causes me to equate keeping up with today's market conditions with bull riding. Nevertheless, whatever the prevailing market circumstances -- and especially amid the bucking and whirling movements that are currently the order of the day -- Fools are advised more strongly than ever to carefully research the sectors and specific stocks they're considering adding to their portfolio.
Virtually all industries present their own particular top-down challenges, while individual companies within the sectors have their own idiosyncrasies. As is the case with the major integrated oil and gas companies, which have long been collectively referred to as "Big Oil," for instance, larger companies demand increased attention and often seem to provide a thrill a minute, given their size and the plethora of geographic, political, and technological challenges they face at any given time.
Beginning new coverage
The ideal way to initiate coverage of a company and its stock is to become familiar with its history through careful reading of its 10-K forms, which are filed with the SEC and available to the public.
Ideally, that initial perusal should be followed by at least twice-weekly scans for newsworthy items about the company and its peers. Beyond that, there's a lot to be gained by pausing at about six-week intervals -- perhaps monthly for large companies with lots of activity -- for a "roundup" that will help you remain focused on the company's strengths, weaknesses, apparent goals, and progress in reaching them.
Let's create a roundup to see how it's supposed to work. Let's stick with Big Oil and focus on Chevron's (NYS: CVX) active past month. Why Chevron? Perhaps because, unlike ExxonMobil (NYS: XOM) , the biggest U.S.-based member of Big Oil, it's not Texas-based, so I won't be accused of favoritism. Further, Chevron remains unceasingly busy in a variety of global locations.
1. Early this month, the company hit on an apparently major deepwater oil discovery in the Gulf of Mexico. The Moccasin discovery was drilled about 216 miles from Louisiana in 6,700 feet of water to a depth of nearly 31,545 feet. It sits in the lower tertiary formation in proximity to the company's Buckskin discovery, a trio of recently announced Exxon finds, and BP's (NYS: BP) 2009 Tiber discovery, which may contain 3 billion barrels of oil. Chevron partnered with BP and Samson Offshore on the Moccasin prospect.
At about the same time, BP announced a doubling of the oil contained in the Mad Dog field in the Gulf, in which BHP Billiton (NYS: BHP) and Chevron served as partners. It now appears that the field may contain as much as 4 billion barrels of oil equivalent.
2. As September began, Chevron received environmental approval from the state government of Western Australia for the development of its $25 billion Wheatstone liquefied natural gas project. While the company awaits approval from Australia's federal government, it nevertheless has reached an agreement with Japan's Kyushu Electric Power for the sale of up to 700,000 tons of Wheatstone LNG annually. Included with Chevron as partners in the project are Apache (NYS: APA) and Royal Dutch Shell (NYS: RDS.B) .
Chevron also continues to progress on its even larger ($37 billion) Gorgon project, also in Western Australia, on which Exxon and Shell are its primary partners.
3. As August concluded, Chevron CEO John Watson spoke to The Houston Partnership. In my opinion, his key observation was that: "We could accomplish great things if America had a rational, robust, and comprehensive energy policy. Such a policy would prepare us for rising demand. It would expand safe and responsible at home. It would promote energy efficiency across the country. And it would encourage alternative sources, not by mandates and subsidies, but by allowing the market to identify the best new fuels and bring them up to commercial sale."
4. As last week's market plunge took shape, Fort Worth, Texas-based Range Resources' (NYS: RRC) shares climbed on rumors that the company could be an acquisition target. Chevron and Shell were two of the majors mentioned as possible suitors for the unconventional gas producer with 1.2 million acres in the Marcellus shale. On Friday, Range's shares retreated substantially.
5. On the somewhat less positive side, it's impossible to scan Chevron's activities for any length of time without discussing the company's interminable environmental litigation with indigenous citizens of Ecuador. In a case first filed in 1993, an Ecuadorian court in February ordered the company to pay $18 billion for damages created in the Amazon portion of the country by Texaco's operations from 1964 to 1990 (before it was acquired by Chevron in 2001). The following month, a New York judge issued a preliminary order barring the plaintiffs from collecting on the award.
At the end of August, in a separate case, the Permanent Court of Arbitration in The Hague found that Ecuador had overstated its domestic crude demand from 1991 to 1993 to increase its share of production from wells then operated by Texaco. The judgment, which Ecuador vowed to appeal, includes a $96 million judgment for Chevron.
Back at the ranch, or, more accurately, back to the primary litigation, a federal appeals court last week vacated the March order that had barred collection of the $18 billion award. The three judges sitting on the appeals court clearly were dubious that the judge's jurisdiction extended beyond the U.S.
The ongoing litigation obviously has little effect on Chevron's valuation, and its ultimate duration is anyone's guess. It does, however, require monitoring by anyone following the company.
Foolish bottom line
The format of an effective roundup is up to the individual investor. You may choose to simply jot cursory notes on a legal pad or to maintain a simple outline on your computer. The key is that periodically reviewing the goings-on at a busy company helps you keep up to speed on its twists and turns. As such, maintaining a moving roundup in concert with placing the company on your individual version of The Motley Fool's My Watchlist, is an optimum combination for following an active -- and solid -- company like Chevron.
At the time this article was published The Motley Fool owns shares of Range Resources. Motley Fool newsletter services have recommended buying shares of Chevron and Range Resources. Try any of our Foolish newsletter services free for 30 days.Fool contributor David Lee Smith doesn't own shares in any of the companies named in this article. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.