strategic-management

29
Chevron Corporation — 2009
Linda Herkenhoff
Saint Mary’s College
CVX
www.chevron.com
Wonder whether the price per gallon of gas soon will be over $4.00 like it was in May 2008 or
will it be below $2.00 per gallon as in the first quarter of 2009? Gasoline is what keeps
America moving. Joe Petrowski, Gulf Oil LP CEO, recently said that the price of oil could
sink to $20 per barrel, meaning that gasoline prices could drop as low as $1 per gallon by early
2010. But like many oil companies, Chevron had an outstanding 2008, earning $23.9 billion,
a new record.
The tumultuous world of energy continues to make headlines in 2009, with Chevron
announcing a 71 percent drop in their second quarter profits to the lowest level in five years.
In the first quarter, Chevron generated $1.75 billion, but during the same three months in
2008, Chevron’s profits hit $5.98 billion. The critical difference is that oil prices soared to
$145 per barrel in July of 2008 and in July 2009 are hovering around $69 per barrel.
But Chevron in not alone in their state of reduced profits. ExxonMobil Corp.
announced a drop of 66 percent in their second quarter profits, while Royal Dutch Shell
announced a 67 percent reduction and BP announced a 53 percent reduction. Conoco
Phillips had the most significant reduction in profits out of the Big Five, recording a drop
in profit of 76 percent for their second quarter.
Chevron’s total revenue fell 51 percent to $40 billion from $81 billion a year ago.
The company boosted capital and exploratory operations, spending $11.4 billion in the
first half of the year, compared with $10.3 billion in the first six months of 2008. As we
look to the future, a real concern is that if companies eventually decide to reduce exploration
and production, there could be supply shortages and that could certainly mean
higher prices down the road for all of us. Specifically within Chevron, their refining and
marketing operations actually lost $95 million in the second quarter despite the fact that
gas rose to $3 per gallon in some states. On the West Coast, their refining profits dropped
45 percent from this same time last year.
Chevron’s strategies to compensate for these losses includes stopping drilling new
gas wells in the continental U.S. and stopping buying back its own stock. The executive
vice president of exploration and production, George Kirkland, explained that with current
gas prices it does not makes sense to be drilling gas wells.
On the global scene, Chevron continues to look to its high profile projects to increase
their oil production. New wells in Angola and Brazil contributed to an increase of 5 percent
in Chevron’s net oil equivalent production in the second quarter. These production numbers
are impressive when compared with some of the other major oil companies. Royal Dutch
Shell’s production dipped 6 percent while ExxonMobil’s production fell 3 percent.
History
Chevron began with an oil discovery north of Los Angeles in 1879 followed by the formation
of the Pacific Coast Oil Company, the oldest predecessor of Chevron Corporation.
Standard Oil Company (owned by John D. Rockefeller) subsequently bought Pacific Coast
Oil in 1900, and six years later the merged name became Standard Oil Company
(California). But in 1911, the Sherman Antitrust Act resulted in the breakup of the parent