Will Chevron Renewables Ignite Growth?

Chevron Corporation (NYSE:CVX) has long been a pure-play U.S.-based energy giant, but policy shifts have changed, and energy companies are increasingly realizing that oil and gas need to be supplemented with renewable energy plays.

Chevron has ramped up its sustainable investments to adapt to the status quo but will these initiatives help or hurt shareholders?

New Energy Initiatives Set To Open Revenue Streams

Tackling the carbon emissions that oil and gas companies generate has been a huge task, especially since these conventional energy giants have come under fire due to their adverse environmental impacts. Increasingly, managements have realized that technology innovations are the best path forward.

In 1999, Chevron launched Chevron Technology Ventures (CTV) as a way to integrate technology that increases efficiency and produces cleaner energy. Through this entity, the company invests in younger firms that can help it to reach its goals. In 2018, the investment arm launched the Future Energy Fund with an initial commitment of $100 million.

Management’s aim is to reach $10 billion in lower carbon capital allocation by 2028. Alternative operations are a means of hitting the goal and constitute carbon capture, utilization, and storage (CCUS).

Chevron operates one of the world’s largest integrated CCUS projects, Gorgon. In addition, Bayou Bend is a joint venture carbon capture project run by Chevron that has a 140,000-acre footprint.

Apart from carbon capture, the company has explored other renewable sources like hydrogen and even geothermal energy.

In its hydrogen capacity, Chevron has a majority interest in the Advanced Clean Energy Storage Delta (ACES Delta) electrolytic hydrogen storage project that is located in Utah, where operations are planned as soon as next year. A project in California’s Central Valley is also in the pipeline.

Recently, Chevron’s venture capital arm launched a third fund with a $500 million commitment to invest in renewable energy technologies. This fund’s investments are aimed at transforming carbon into higher-value products, and so potentially opening up new revenue streams. 

Record Cash Returned to Shareholders

In 2023, Chevron recorded $200.95 billion in revenues and other income.

Sales stood at $196.91 billion last year, declining 16.5% from the prior year, which came as a setback in light of the fact that the top line had grown by 51.5% between 2021 and 2022.

Net income on a GAAP basis also showed a similar trajectory by more than doubling between 2021 and 2022 and then declining by 39.9% from 2022 to reach $21.41 billion in 2023. The company’s U.S. upstream segment can be blamed for this decline.

Lower margins and commodity prices on the sales of Chevron’s refined products also dented the company’s cash flow from operations, which fell from $49.60 billion in 2022 to $35.60 billion last year. Free cash flow plunged from $37.6 billion to $19.8 billion.

Nonetheless, Chevron ended 2023 with $9.28 billion in cash, cash equivalents, and restricted cash, which is a significant liquidity pile but not by the company’s past-year standards.

Still, it eliminated over $4 billion of debt, including the burden it had assumed from acquiring PDC Energy, Inc. As a result, it returned a record $26.3 billion of cash to its shareholders last year.

Should You Buy Chevron Now?

In spite of the renewable energy efforts, Chevron remains indisputably an oil and gas giant that dependent on volatile oil prices. While its longstanding commitment to sustainability is laudable, oil and gas operations and revenues far exceed those from alternative sources, at least for now.

Chevron expects to invest approximately $14 billion in its upstream business in 2024 alone, while downstream capital expenditures are expected to be about $1.5 billion.

Approximately $2 billion is set to be allocated to lower carbon capital expenditures. In addition, the $53 billion Hess Corporation (NYSE:HES) acquisition is still in the works, although whether it completes remains a debate.

Chevron’s price sits at 12.21x its forward non-GAAP earnings, a little bit stretched by industry standards. While the stock is down 6.3% over the past year, Wall Street analysts do see a 13.5% upside, favoring the stock.

However, Chevron could be watched for now and waited on for an opportunity to enter and tap into its long-term renewable prospects.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.