Oil giant Chevron is investing in new fuels
Oil company Chevron Corp. (CVX) plans to use the increased free cash flow to invest in new energy sources and return money to shareholders. Chevron is the beneficiary of rising oil prices, which increases free cash flow. Recently, the company provided investors with information about how it plans to spend the available funds. One of Chevron’s priorities is investing in traditional and new energy sources. The company spent 80% more on these things in the first half of this year than it did in the exact moment last year. Thanks to these investments, oil production in the high-margin Permian Basin (USA) has increased by 15% over the past year.
Chevron also approved developing its Ballymore project in the Gulf of Mexico to increase oil supplies in the coming years. Additionally, the company has also expanded its low-carbon business. Now it has become one of the country’s leading producers of renewable fuels, having spent more than $3 billion on the purchase of Renewable Energy Group. In addition, Chevron partnered with Bunge to create a renewable fuel joint venture and began developing its carbon capture and storage business. Thus, the company is already diversifying its business and will be ready to increase the share of new energy in the revenue structure with a likely change in environmental regulations.
In parallel with investments in new technologies, Chevron intends to increase dividends. The company has made payments to shareholders for more than 35 years. Beginning of this year, it expanded its rewards again, this time by 6%. Chevron also continues repurchasing shares: the company has increased its share repurchase plan to $15 billion annually. It is enough to buy back 1% of the issued shares every quarter. The company expects to maintain this buyback level even with lower oil prices.
The increased free cash flow allowed Chevron to reduce its debt burden. The company is paying off debt for the fifth consecutive quarter. As a result, the net debt ratio has decreased to 8%, significantly ahead of the original debt repayment plan. Thus, by strengthening its balance sheet now, Chevron will gain more financial flexibility in the future. It can continue programs to return money to shareholders in the long term.
