cvx chevron corporation sector: energy sell · analysts: zachary haller, andrew paley brown and...

Analysts: Zachary Haller,

Andrew Paley Brown and Sean MillerWashburn University

Applied Portfolio Management

Report Date: 4/18/2016

Market Cap (mm) $157,566 Annual Dividend $4.28 2‐Yr Beta (S&P 500 Index) 1.32 Chevron Corporation

Return on Capital ‐1.4% Dividend Yield 5.1% Annualized Alpha ‐9.1% Compared With:

EPS (ttm) $2.46 Price/Earnings (ttm) 34.4 Institutional Ownership 6.3% ConocoPhillips

Current Price $84.35 Economic Value‐Added (ttm) ‐$20,215 Short Interest (% of Shares) 1.5% Exxon Mobil Corporation

12‐mo. Target Price $95.00 Free Cash Flow Margin ‐7.0% Days to Cover Short 2.2 and the S&P 500 Index

Business Description

Total Revenue ‐18.0% Free Cash Flow ‐356.3%

EBIT ‐143.1% Total Invested Capital 7.5%

NOPAT ‐151.5% Total Assets 4.5%

Earnings Per Share ‐43.2% Economic Value‐Added ‐251.4%

Dividends Per Share 6.8% Market Value‐Added ‐40.9%

2011 2012 2013 2014 2015

16.2% 15.7% 13.0% 10.4% ‐2.3%

N/A 0.2% ‐1.2% ‐0.8% ‐7.0%

12.7% 12.4% 8.9% 9.1% 2.7%

2.9% 3.2% 3.1% 3.8% 4.8%

2011 2012 2013 2014 2015

13.54 13.43 11.18 10.21 2.46

3.09 3.51 3.90 4.21 4.28

10.93 10.21 8.66 6.59 (1.45)

N/A 0.26 (1.35) (0.78) (4.60)

Datasource: Capital IQ

CVX Chevron Corporation Sector: Energy SELL

Free Cash Flow Margin

Chevron Corporation, through its subsidiaries, engages in integrated energy,

chemicals, and petroleum operations worldwide. The company operates in two

segments, Upstream and Downstream. The Upstream segment is involved in

the exploration, development, and production of crude oil and natural gas;

processing, liquefaction, transportation, and regasification associated with

liquefied natural gas; transportation of crude oil through pipelines; and

transportation, storage, and marketing of natural gas, as well as operates a gas‐

to‐liquids plant. The Downstream segment engages in refining crude oil into

petroleum products; marketing crude oil and refined products; transporting

crude oil and refined products through pipeline, marine vessel, motor

Investment Thesis

Worldwide energy consumption continues to grow, however the supply of

oil has outpaced demand causing prices to fall due to excessive supply. CVX

has exposed itself to greater risk through its shift in focus to upstream oil

production, which has resulted in greater losses than its downstream

focused competitors. CVX was purchased in 2009 with strong dividend

growth expected to continue. Under present conditions, CVX is not

expected to grow its dividend until 2018, making it less attractive to

dividend focused investors. ROIC has fallen significantly below the WACC,

and CVX is not expected to earn returns above the cost of its invested

capital through 2020. EVA has declined since 2011, reaching negative value

added in 2014, a trend which is expected to continue through 2020, despite

recovering oil prices.

ANNUALIZED 3‐YEAR CAGR

Margins and Yields

Operating Margin

Free Cash Flow

Earnings Yield

Dividend Yield

Per Share Metrics

Earnings

Dividends

‐35%

‐30%

‐25%

‐20%

‐15%

‐10%

10%CVX ^SPX

‐60%

‐50%

‐40%

‐30%

‐20%

‐10%

10%CVX COP XOM

2012 2013 2014 2015

Price/Earnings Price/Free Cash Flow

‐$5,000$0

$5,000$10,000$15,000$20,000$25,000$30,000$35,000$40,000$45,000

2011 2012 2013 2014 2015

EBIT Net Operating Profit After Tax

$0$10,000$20,000$30,000$40,000$50,000$60,000$70,000$80,000$90,000$100,000

‐$25,000

‐$20,000

‐$15,000

‐$10,000

‐$5,000

$5,000

$10,000

$15,000

2011 2012 2013 2014 2015

Economic Value‐Added Market Valued‐Added

2011 2012 2013 2014 2015

ROA ROE ROIC

Chevron Corporation CVX Sector Energy ConocoPhillips COP Sector Energy

2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

Total Revenue 236,286 222,579 211,664 192,308 122,566 Total Revenue 65,435 60,184 56,893 55,336 30,299

Cost of Goods Sold 163,487 155,325 150,831 136,770 85,207 Cost of Goods Sold 36,223 32,025 29,881 31,008 19,236

Gross Profit 72,799 67,254 60,833 55,538 37,359 Gross Profit 29,212 28,159 27,012 24,328 11,063

SG&A Expense 5,961 6,403 6,340 6,167 6,252 SG&A Expense 1,719 1,803 1,911 2,218 3,221

R&D Expense 0 0 0 0 0 R&D Expense 0 0 0 0 0

Dep. & Amort. 12,911 13,462 13,835 16,731 21,868 Dep. & Amort. 6,986 7,299 7,609 8,891 11,737

Other Oper. Exp. 15,628 12,370 13,072 12,572 12,033 Other Oper. Exp. 4,421 3,940 3,318 2,572 1,384

Operating Income 38,299 35,019 27,586 20,068 (2,794) Operating Income 16,086 15,117 14,174 10,647 (5,279)

Interest Expense 0 0 0 0 0 Interest Expense (954) (709) (612) (648) (920)

Other Non‐Oper. Exp. 7,695 6,947 7,855 7,763 5,236 Other Non‐Oper. Exp. 70 (41) 58 66 75

EBT ex‐Unusuals 46,139 42,132 35,577 27,976 2,561 EBT ex‐Unusuals 15,372 14,530 13,733 10,148 (6,079)

Total Unusual Exp. 1,495 4,200 328 3,226 2,281 Total Unusual Exp. 24 893 713 (758) (1,160)

Earnings Before Tax 47,634 46,332 35,905 31,202 4,842 Earnings Before Tax 15,396 15,423 14,446 9,390 (7,239)

Income Tax Expense 20,626 19,996 14,308 11,892 132 Income Tax Expense 8,208 7,942 6,409 3,583 (2,868)

Net Income 26,895 26,179 21,423 19,241 4,587 Net Income 12,436 8,428 9,156 6,869 (4,428)

Earnings per Share $13.54 $13.43 $11.18 $10.21 $2.46 Earnings per Share $9.04 $6.78 $7.44 $5.55 ‐$3.57

Dividends per Share $3.09 $3.51 $3.90 $4.21 $4.28 Dividends per Share $2.64 $2.64 $2.70 $2.84 $2.94

Effective Tax Rate 43.30% 43.16% 39.85% 38.11% 2.73% Effective Tax Rate 53.31% 51.49% 44.37% 38.16% 0.00%

Total Common Shares 1,986 1,950 1,917 1,884 1,868 Total Common Shares 1,375 1,244 1,231 1,237 1,242

Year‐end Stock Price $106.40 $108.14 $124.91 $112.18 $89.96 Year‐end Stock Price $72.87 $57.99 $70.65 $69.06 $46.69996 997 998 999 1000 996 997 998 999 1000

Assets 2011 2012 2013 2014 2015 Assets 2011 2012 2013 2014 2015

Cash and Equivalents 15,864 20,939 16,245 12,785 11,022 Cash and Equivalents 5,780 3,618 6,246 5,062 2,368

Short‐Term Investments 4,207 974 271 430 310 Short‐Term Investments 581 0 272 0 0

Total Cash & ST Invest. 20,071 21,913 16,516 13,215 11,332 Total Cash & ST Invest. 6,361 3,618 6,518 5,062 2,368

Total Receivables 21,660 20,940 21,600 16,335 12,660 Total Receivables 16,526 9,182 8,480 6,807 4,514

Inventory 5,543 6,144 6,380 6,505 6,334 Inventory 4,631 965 1,194 1,331 1,124

Prepaid Expenses 4,678 5,301 4,391 4,705 3,904 Prepaid Expenses 2,688 7,906 737 1,868 783

Total Current Assets 53,234 55,720 50,250 42,232 35,347 Total Current Assets 30,218 23,989 19,023 15,068 8,789

Net PPE 122,608 141,348 164,829 183,173 188,396 Net PPE 60,614 67,263 72,827 75,444 66,446

Total Assets 209,474 232,982 253,753 266,026 266,103 Total Assets 153,230 117,144 118,057 116,539 97,484

Liabilities and Equity Liabilities and Equity

Accounts Payable 22,147 22,776 22,815 19,000 13,516 Accounts Payable 18,921 9,241 9,314 8,026 4,933

Accrued Expenses 6,529 6,968 6,737 6,561 5,658 Accrued Expenses 3,182 1,017 1,082 1,642 1,046

Short‐Term Debt 269 69 340 3,762 3,424 Short‐Term Debt 0 0 0 0 0

Total Current Liab. 33,600 34,212 33,018 31,926 26,464 Total Current Liab. 28,068 17,443 15,129 11,537 9,256

Long‐Term Debt 9,684 11,966 19,960 23,960 33,584 Long‐Term Debt 25,192 23,564 21,073 22,383 22,697

Total Liabilities 87,293 95,150 103,326 109,835 112,217 Total Liabilities 87,481 68,717 65,565 64,266 57,402

Preferred Equity 0 0 0 0 0 Preferred Equity 0 0 0 0 0

Common Stock & APIC 16,988 17,329 17,545 17,873 18,162 Common Stock & APIC 44,742 45,342 45,708 46,089 46,375

Retained Earnings 140,399 159,730 173,677 184,987 181,578 Retained Earnings 49,049 35,338 41,160 44,504 36,414

Treasury Stock (29,685) (33,884) (38,290) (42,733) (42,493) Treasury Stock (31,787) (36,780) (36,780) (36,780) (36,780)

Total Common Equity 121,382 136,524 149,113 155,028 152,716 Total Common Equity 65,239 47,987 52,090 51,911 39,762

Total Equity 122,181 137,832 150,427 156,191 153,886 Total Equity 65,749 48,427 52,492 52,273 40,082

Total Liab. and Equity 209,474 232,982 253,753 266,026 266,103 Total Liab. and Equity 153,230 117,144 118,057 116,539 97,484

Income Statement Highlights

Balance Sheet Highlights

Income Statement Highlights

Balance Sheet Highlights

1. Margins and Profitability CVX, Page 2 of 17 Copyright Robert A. Weigand, Ph.D., 2016

CVX Chevron Corporation COP ConocoPhillips

Profit Margins 2011 2012 2013 2014 2015 Profit Margins 2011 2012 2013 2014 2015

Gross Profit Margin 30.8% 30.2% 28.7% 28.9% 30.5% Gross Profit Margin 44.6% 46.8% 47.5% 44.0% 36.5%

Operating Profit Margin 16.2% 15.7% 13.0% 10.4% ‐2.3% Operating Profit Margin 24.6% 25.1% 24.9% 19.2% ‐17.4%

Net Profit Margin 11.4% 11.8% 10.1% 10.0% 3.7% Net Profit Margin 19.0% 14.0% 16.1% 12.4% ‐14.6%

Free Cash Flow Margin N/A 0.2% ‐1.2% ‐0.8% ‐7.0% Free Cash Flow Margin N/A 4.3% 0.1% 11.3% 17.2%

2011 2012 2013 2014 2015

Gross Profit Margin Operating Profit Margin

‐30%‐20%‐10%0%

10%20%30%40%50%60%

2011 2012 2013 2014 2015

Gross Profit Margin CVX COP

‐20.0%

‐10.0%

2011 2012 2013 2014 2015

Operating Profit Margin CVX COP

‐20.0%‐15.0%‐10.0%‐5.0%0.0%5.0%

10.0%15.0%20.0%25.0%

2011 2012 2013 2014 2015

Net Profit Margin CVX COP

Analyst Comments: Profit margins measure a company's ability to convert revenue to profits. Gross and operating profit margins have been drifting downward. Cost of goods sold declined at

a rate of 5.8 percent from 2011 to 2014, while revenues are falling at a rate of 6.6 percent over the same period, causing gross profit to fall faster than revenue. The downtrend in profit margins has occurred because CVX increased its exposure to the more volatile and expensive upstream segment of the oil industry. They now lead the industry in upstream operations. Depreciation expenses have increased as CVX pumps more oil, depleting their oil reserves, in order to generate revenues. CVX's declining net profit margins are reflective of these trends in gross and operating margins. COP’s gross and operating profit margins have remained steady from 2011 to 2014, due to heavier exposure to the less volatile downstream segment; though COP's net profit margin has experienced volatility in an overall declining trend since 2011. COP achieved higher profit margins than CVX from 2011 to 2014, outperforming CVX by 10% to 15% in both net and operating profit margins. Both CVX and COP have realized negative operating profit margins in 2015 as a result of increased depreciation and impairment expenses. CVX was still able to recover profits through investing activities to maintain a positive net profit margin, while COP’s net profit margin was negative. Low conversion of revenues to profits shows inefficient expense management with declining revenues.

‐10.0%

‐5.0%

2012 2013 2014 2015

Free Cash Flow Margin CVX COP

Profitability Ratios 2011 2012 2013 2014 2015 Profitability Ratios 2011 2012 2013 2014 2015

Net Profit Margin 11.4% 11.8% 10.1% 10.0% 3.7% Net Profit Margin 19.0% 14.0% 16.1% 12.4% ‐14.6%

× Total Asset Turnover 1.1 1.0 0.8 0.7 0.5 × Total Asset Turnover 0.4 0.5 0.5 0.5 0.3

= Return on Assets 12.8% 11.2% 8.4% 7.2% 1.7% = Return on Assets 8.1% 7.2% 7.8% 5.9% ‐4.5%

× Equity Multiplier 1.7 1.7 1.7 1.7 1.7 × Equity Multiplier 2.3 2.4 2.2 2.2 2.4

= Return on Equity 22.0% 19.0% 14.2% 12.3% 3.0% = Return on Equity 18.9% 17.4% 17.4% 13.1% ‐11.0%

2011 2012 2013 2014 2015

Return on Assets Return on Equity

‐15%

‐10%

2011 2012 2013 2014 2015

Return on Assets Return on Equity

2011 2012 2013 2014 2015

Total Asset Turnover CVX COP

‐10.0%

‐5.0%

2011 2012 2013 2014 2015

Return on Assets CVX COP

‐15.0%

‐10.0%

‐5.0%

2011 2012 2013 2014 2015

Return on Equity CVX COP

Analyst Comments: Profitability ratios express net income in proportion to equity or assets, indicating the returns generated from deployment of assets or equity. CVX's ROA and ROE have

fallen dramatically since 2011, with ROA reaching a low of 1.7% and ROE reaching a low of 3% in 2015, due to declining profits as well as simultaneously increasing total assets and equity. COP's ROA and ROE have also drifted downward since 2011, as total assets and equity have been reduced as net income declined, falling to negative levels in 2015 due to recorded losses. CVX's ROA has consistently outperformed COP’s ROA. CVX’s ROE fell below COP’s ROE in 2013 and 2014, but CVX has outperformed COP’s ROE in 2015. CVX's profitability ratios decline, driven by a multi‐year decline in net income is a negative sign for investors as it indicates lower return per unit of asset and equity.

2011 2012 2013 2014 2015

Equity Multiplier CVX COP

Multiples and Yields 2011 2012 2013 2014 2015 Multiples and Yields 2011 2012 2013 2014 2015

Price/Earnings 7.9 8.1 11.2 11.0 36.6 Price/Earnings 8.1 8.6 9.5 12.4 N/A

Price/Book 1.0 0.9 0.9 0.8 0.6 Price/Book 0.7 0.6 0.7 0.7 0.6

Price/Free Cash Flow N/A 413.1 N/A N/A N/A Price/Free Cash Flow N/A 27.8 2661.7 13.7 11.1

Earnings Yield 12.7% 12.4% 8.9% 9.1% 2.7% Earnings Yield 12.4% 11.7% 10.5% 8.0% ‐7.6%

Dividend Yield 2.9% 3.2% 3.1% 3.8% 4.8% Dividend Yield 3.6% 4.6% 3.8% 4.1% 6.3%

0.050.0100.0150.0200.0250.0300.0350.0400.0450.0

2012 2013 2014 2015

Earnings Yield Dividend Yield

‐10.0%

‐5.0%

2012 2013 2014 2015

Earnings Yield CVX COP

Analyst Comments: Relative valuation ratios express the company's stock price as a multiple of fundamentals that support the firm's intrinsic value, including revenues, profits, the book

value of assets and dividends. Both CVX and COP maintained relatively stable P/E ratios from 2012 to 2014 due to generally proportionate declines in stock prices and earnings. CVX’s P/E ratio increased dramatically in 2015 as earnings declined much faster than stock price, though earnings remained positive. COP had negative earnings in 2015 so there is no P/E ratio. Dividend yield growth for COP and CVX in recent years have been fueled by falling stock prices and consistently rising dividends, making both companies more attractive to dividend‐focused investors, despite declining earnings. In first quarter 2016, COP has cut its dividend by 66 percent, the first reduction in 25 years, while CVX's dividend has remained steady at $1.07/quarter for the last eight quarters. While CVX's and COP's profits have been in a multi‐year decline, the dramatic decline in earnings in 2015 caused CVX’s P/E to more than triple. The rising P/E ratio driven by falling earnings is a negative sign for investors.

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

2012 2013 2014 2015

Price to Earnings CVX COP

‐10.0%

‐5.0%

2012 2013 2014 2015

Price to Book CVX COP

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

2012 2013 2014 2015

Price to Free Cash Flow CVX COP

2012 2013 2014 2015

Dividend Yield CVX COP

2. Relative Valuation and Debt CVX, Page 5 of 17 Copyright Robert A. Weigand, Ph.D., 2016

Liquidity and Debt 2011 2012 2013 2014 2015 Liquidity and Debt 2011 2012 2013 2014 2015

Current Ratio 1.58 1.63 1.52 1.32 1.34 Current Ratio 1.08 1.38 1.26 1.31 0.95

Quick Ratio 1.42 1.45 1.33 1.12 1.10 Quick Ratio 0.91 1.32 1.18 1.19 0.83

Days Sales Outstanding 33.46 34.34 37.25 31.00 37.70 Days Sales Outstanding 92.18 55.69 54.40 44.90 54.38

Inventory Turnover 42.63 36.23 33.18 29.56 19.35 Inventory Turnover 14.13 62.37 47.65 41.57 26.96

Total Debt to Assets 4.8% 5.2% 8.0% 10.4% 13.9% Total Debt to Assets 16.4% 20.1% 17.8% 19.2% 23.3%

Long‐Term Debt to Equity 8.0% 8.8% 13.4% 15.5% 22.0% Long‐Term Debt to Equity 38.6% 49.1% 40.5% 43.1% 57.1%

Times Interest Earned N/A N/A N/A N/A N/A Times Interest Earned 16.86 21.32 23.16 16.43 5.74

0.00.20.40.60.81.01.21.41.61.8

2011 2012 2013 2014 2015

Current Ratio Quick Ratio

2011 2012 2013 2014 2015

Current Ratio Quick Ratio

0.00.20.40.60.81.01.21.41.61.8

2011 2012 2013 2014 2015

Current Ratio CVX COP

Analyst Comments: Debt ratios measures the company’s balance of financing activities through debt and equity. CVX's current and quick ratios have steadily declined since 2011, and are

currently at levels which are healthier than COP. As of 2015, both ratios are well above 1.0, presenting no reason for immediate concern. Neither days sales outstanding or inventory turnover have changed significantly enough to warrant concern. CVX is collecting receivables in 37.7 days, which is acceptable . CVX’s inventory turnover is down by 18 percent from 2011, but this change is not significant enough to warrant any concern. CVX's debt to assets and long‐term debt to equity ratios have nearly doubled over the past three years, as the firm invests in PPE. A continuation of this trend could present reason for concern, however CVX remains significantly less leveraged than COP. Compared to COP, CVX remains in a relatively strong position in terms of debt.

2011 2012 2013 2014 2015

Total Debt to Assets CVX COP

0.05.010.015.020.025.030.035.040.045.0

2011 2012 2013 2014 2015

Days Sales Outstanding Inventory Turnover

2011 2012 2013 2014 2015

Days Sales Outstanding Inventory Turnover

2011 2012 2013 2014 2015

Total Debt to Assets Long-Term Debt to Equity

2011 2012 2013 2014 2015

Total Debt to Assets Long-Term Debt to Equity

2011 2012 2013 2014 2015

Long-Term Debt to Equity CVX COP

2. Relative Valuation and Debt CVX, Page 6 of 17 Copyright Robert A. Weigand, Ph.D., 2016

Total Invested Capital 2011 2012 2013 2014 2015 Total Invested Capital 2011 2012 2013 2014 2015

Total Cash and ST Investments 20,071 21,913 16,516 13,215 11,332 Total Cash and ST Investments 6,361 3,618 6,518 5,062 2,368

+ Receviables 21,660 20,940 21,600 16,335 12,660 + Receviables 16,526 9,182 8,480 6,807 4,514

+ Inventory 5,543 6,144 6,380 6,505 6,334 + Inventory 4,631 965 1,194 1,331 1,124

− Accounts Payable 22,147 22,776 22,815 19,000 13,516 − Accounts Payable 18,921 9,241 9,314 8,026 4,933

− Accrued Expenses 6,529 6,968 6,737 6,561 5,658 − Accrued Expenses 3,182 1,017 1,082 1,642 1,046

= Net Oper. Working Capital 18,598 19,253 14,944 10,494 11,152 = Net Oper. Working Capital 5,415 3,507 5,796 3,532 2,027

+ Net Property, Plant & Equip. 122,608 141,348 164,829 183,173 188,396 + Net Property, Plant & Equip. 60,614 67,263 72,827 75,444 66,446

= Total Invested Capital 141,206 160,601 179,773 193,667 199,548 = Total Invested Capital 66,029 70,770 78,623 78,976 68,473

÷ Total Weighted Shares 1,986 1,950 1,917 1,884 1,868 ÷ Total Weighted Shares 1,375 1,244 1,231 1,237 1,242

= Total Invested Capital/Share $71.10 $82.36 $93.78 $102.80 $106.82 = Total Invested Capital/Share $48.02 $56.90 $63.87 $63.83 $55.13

NOPAT and Free Cash Flow 2011 2012 2013 2014 2015 NOPAT and Free Cash Flow 2011 2012 2013 2014 2015

Operating Income (EBIT) 38,299 35,019 27,586 20,068 (2,794) Operating Income (EBIT) 16,086 15,117 14,174 10,647 (5,279)

× (1−Effective Tax Rate) 43.3% 43.2% 39.8% 38.1% 2.7% × (1−Effective Tax Rate) 53.3% 51.5% 44.4% 38.2% 0.0%

= Net Oper. Profit After Tax 21,715 19,905 16,593 12,419 (2,718) = Net Oper. Profit After Tax 7,510 7,333 7,886 6,584 (5,279)

− ∆ Total Invested Capital N/A 19,395 19,172 13,894 5,881 − ∆ Total Invested Capital N/A 4,741 7,853 353 (10,503)

= Free Cash Flow N/A 510 (2,579) (1,475) (8,599) = Free Cash Flow N/A 2,592 33 6,231 5,224

NOPAT per Share $10.93 $10.21 $8.66 $6.59 ($1.45) NOPAT per Share $5.46 $5.90 $6.41 $5.32 ($4.25)

Free Cash Flow per Share N/A $0.26 ($1.35) ($0.78) ($4.60) Free Cash Flow per Share N/A $2.08 $0.03 $5.04 $4.21

$50,000

$100,000

$150,000

$200,000

$250,000

2011 2012 2013 2014 2015

Net Property, Plant & Equip. Total Invested Capital

$0$10,000$20,000$30,000$40,000$50,000$60,000$70,000$80,000$90,000

2011 2012 2013 2014 2015

Net Property, Plant & Equip. Total Invested Capital

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

2011 2012 2013 2014 2015

Total Invested Capital per Share CVX COP

($15,000)

($10,000)

($5,000)

$5,000

$10,000

$15,000

$20,000

$25,000

2012 2013 2014 2015

Net Operating Profit After Tax Free Cash Flow

($6.00)($4.00)($2.00)$0.00$2.00$4.00$6.00$8.00$10.00$12.00

2012 2013 2014 2015

NOPAT per Share CVX COP

($6,000)

($4,000)

($2,000)

$2,000

$4,000

$6,000

$8,000

$10,000

2012 2013 2014 2015

Net Operating Profit After Tax Free Cash Flow

Analyst Comments: NOPAT measures a company's pre‐tax operating profit, and free cash flow measures NOPAT less the year‐over‐year change in invested capital, or the remaining cash

available to pay out to investors. CVX's NOPAT has declined by over $24 Billion since 2011, reaching negative $2.7 Billion in 2015. The decline in NOPAT is driven by the decline in EBIT. CVX's declining NOPAT is unable to support the heavy long‐term investment required by its focus to the upstream segment. This has forced CVX's free cash flow to fall below zero. COP maintained steady NOPAT from 2011 to 2014, as declining EBIT was offset by its reduced effective tax rate. COP’s NOPAT fell steeply in 2015 to negative $5.2 Billion. Due to COP's downstream focused model it maintains greater control over investing activity, allowing COP to keep their year‐over‐year change in total invested capital below NOPAT, except during the exceptionally difficult market conditions of 2015. This has allowed COP to generate positive free cash flows in all years except 2013 and 2015. CVX's heavy investment coupled with declining NOPAT is consistentlyreducing free cash flow, while COP's comparatively more controlled investing activities have allowed it to outperform CVX with positive free cash flows in most years. CVX's investment into long‐term, capital‐demanding activities are locking NOPAT into investments that are declining in value, leaving no free cash flow for investors.

3. Value Creation and DCF Model CVX, Page 7 of 17 Copyright Robert A. Weigand, Ph.D., 2016

Cost of Capital 2015 Weight % Cost Weighted % Cost of Capital 2015 Weight % Cost Weighted %

Equity Capitalization $168,045 82.0% 9.628% 7.891% Equity Capitalization $57,985 71.9% 10.347% 7.436%

+ Total Debt $37,008 18.0% 5.000% 0.878% + Total Debt $22,697 28.1% 5.000% 0.748%

+ Preferred Stock $0 0.0% 0.000% 0.000% + Preferred Stock $0 0.0% 0.000% 0.000%

= Value of All Securities $205,053 100.0% = Value of All Securities $80,682 100.0%

Effective Tax Rate 2.73% Alternative RF Rate: Effective Tax Rate 46.83% Alternative RF Rate:

Risk‐Free Rate 1.766% 1.766% Risk‐Free Rate 1.766% 1.766%

Beta (5‐Yr) 1.123 Alternative Beta: 1.1232 Beta (5‐Yr) 1.226 Alternative Beta: 1.22586

Market Risk Premium 7.0% Market Risk Premium 7.0%

CAPM Cost of Equity 9.628% CAPM Cost of Equity 10.347%

Weighted Average Cost of Capital: 8.768% Weighted Average Cost of Capital: 8.184%

8.768% 8.768% 8.768% 8.768% 8.768%

ROIC, EVA and MVA 2011 2012 2013 2014 2015 ROIC, EVA and MVA 2011 2012 2013 2014 2015

Return on Invested Capital 15.4% 12.4% 9.2% 6.4% ‐1.4% Return on Invested Capital 11.4% 10.4% 10.0% 8.3% ‐7.7%

Economic Value‐Added 9,334 5,823 830 ‐4,562 ‐20,215 Economic Value‐Added 2,106 1,541 1,451 121 ‐10,883

Market Valued‐Added 89,928 74,349 90,339 56,319 15,329 Market Valued‐Added 34,960 24,141 34,878 33,539 18,223

EVA per Share $4.70 $2.99 $0.43 ($2.42) ($10.82) EVA per Share $1.53 $1.24 $1.18 $0.10 ($8.76)

MVA per Share $45.28 $38.13 $47.13 $29.89 $8.21 MVA per Share $25.42 $19.41 $28.33 $27.11 $14.67

‐$12.00‐$10.00‐$8.00‐$6.00‐$4.00‐$2.00$0.00$2.00$4.00$6.00

2011 2012 2013 2014 2015

EVA per Share CVX COP

20,000

40,000

60,000

80,000

100,000

‐25,000

‐20,000

‐15,000

‐10,000

‐5,000

10,000

15,000

2011 2012 2013 2014 2015

Economic Value-Added Market Valued-Added

10,000

15,000

20,000

25,000

30,000

35,000

40,000

‐12,000

‐10,000

‐8,000

‐6,000

‐4,000

‐2,000

2011 2012 2013 2014 2015

Economic Value-Added Market Valued-Added

Analyst Comments: EVA measures how well CVX is creating value each year, while ROIC and ROE measure the firm's return generated for every dollar of invested capital and equity. CVX's

outlook is bleak, as EVA has fallen below zero since 2013, their ROIC fell below their WACC in 2014, and ROE has fallen from 22 percent in 2011 to 3 percent in 2015. CVX’s ROIC has fallen below its WACC since 2013, indicating a lower return on capital than the cost of capital. COP had negative EVA in 2015, though slightly less than CVX. COP’s ROIC has fallen below its WACC in 2015, earning a return on its investments less than the cost of capital. In terms of EVA, ROIC, and ROE, both CVX and COP are generating negative economic profit.

‐10.0%

‐5.0%

2011 2012 2013 2014 2015

Return on Invested Capital CVX COP

2011 2012 2013 2014 2015

Return on Invested Capital Return on Equity

‐15%

‐10%

2011 2012 2013 2014 2015

Return on Invested Capital Return on Equity

Long‐Term Growth Rate: Long‐Term Growth Rate:

Intrinsic Value Model 2011 2012 2013 2014 2015 Intrinsic Value Model 2011 2012 2013 2014 2015

PV of Future FCFs ‐79,066 ‐86,509 ‐91,515 ‐98,065 ‐98,065 PV of Future FCFs 57,758 59,893 64,762 63,831 63,831

+ Value of Non‐Oper. Assets 20,071 21,913 16,516 13,215 11,332 + Value of Non‐Oper. Assets 6,361 3,618 6,518 5,062 2,368

= Total Intrinsic Firm Value ‐58,995 ‐64,596 ‐74,999 ‐84,850 ‐86,733 = Total Intrinsic Firm Value 64,119 63,511 71,280 68,893 66,199

− Total Debt 9,953 12,035 20,300 27,722 37,008 − Total Debt 25,192 23,564 21,073 22,383 22,697

= Intrinsic Value of Equity ‐68,948 ‐76,631 ‐95,299 ‐112,572 ‐123,741 = Intrinsic Value of Equity 38,927 39,947 50,207 46,510 43,502

÷ Total Weighted Shares 1,986 1,950 1,917 1,884 1,868 ÷ Total Weighted Shares 1,375 1,244 1,231 1,237 1,242

= Per Share Intrinsic Value ‐$34.72 ‐$39.30 ‐$49.71 ‐$59.75 ‐$66.24 = Per Share Intrinsic Value $28.31 $32.12 $40.79 $37.59 $35.03

vs. Year‐End Stock Price $106.40 $108.14 $124.91 $112.18 $89.96 vs. Year‐End Stock Price $72.87 $57.99 $70.65 $69.06 $46.69

Over (Under) Valuation/Share $141.12 $147.44 $174.62 $171.93 $156.20 Over (Under) Valuation/Share $44.56 $25.87 $29.86 $31.47 $11.66

% Over (Under) Valued ‐406.5% ‐375.2% ‐351.3% ‐287.7% ‐235.8% % Over (Under) Valued 157.4% 80.6% 73.2% 83.7% 33.3%

‐$100

‐$50

2011 2012 2013 2014 2015

Year-End Stock Price Per Share Intrinsic Value

‐450%‐400%‐350%‐300%‐250%‐200%‐150%‐100%‐50%0%

2011 2012 2013 2014 2015

$ Over (Under) Valued % Over (Under) Valued

2011 2012 2013 2014 2015

0%20%40%60%80%100%120%140%160%180%

2011 2012 2013 2014 2015

MVA per Share CVX COP

Analyst Comments: Per share intrinsic value represents the present value of expected future cash flows, allowing investors to select stocks that are undervalued with beliefs that the market will

realize the true intrinsic value of a company and raise the price. Per this model, CVX has a negative intrinsic value, therefore the stock is consistently overvalued against its market price. COP has been undervalued since 2013, making it a more attractive investment than CVX. CVX’s ROIC has fallen below the WACC, meaning that CVX is earning a return on its invested capital lower than what is required by investors, thus not creating value. CVX must increase its ROIC by increasing NOPAT and/or decreasing invested capital, in order to return to value creation.

2011 2012 2013 2014 2015

Return on Invested Capital WACC

Piotroski Financial Fitness Scorecard 2012 2013 2014 2015 Piotroski Financial Fitness Scorecard 2012 2013 2014 2015

Positive Net Income 1 1 1 1 Positive Net Income 1 1 1 0

Positive Free Cash Flow 1 0 0 0 Positive Free Cash Flow 1 1 1 1

Growing ROA (% change NI > % change TA) 0 0 0 0 Growing ROA (% change NI > % change TA) 0 1 0 0

Earnings Quality (Operating Income > Net Income) 1 1 1 0 Earnings Quality (Operating Income > Net Income) 1 1 1 0

Total Assets Growing Faster Than Total Liabilities 1 1 0 0 Total Assets Growing Faster Than Total Liabilities 0 1 1 0

Increasing Liquidity (Current Ratio) 1 0 0 1 Increasing Liquidity (Current Ratio) 1 0 1 0

% Change Shares Outstanding < +2.0% 1 1 1 1 % Change Shares Outstanding (Diluted) < +2.0% 1 1 1 1

Expanding Operating Margin 0 0 0 0 Expanding Operating Margin 1 0 0 0

Asset Turnover (% change sales > % change assets) 0 0 0 0 Asset Turnover (% change sales > % change assets) 1 0 0 0

Total Liabilities to Operating Cash Flow (EBIT) < 4.0 1 1 0 1 Total Liabilities to Operating Cash Flow (EBIT) < 4.0 0 0 0 1

Piotroski Score (max = 10) 7 5 3 4 Piotroski Score (max = 10) 7 6 6 3

Altman Probability of Bankruptcy Z‐Score 2012 2013 2014 2015 Altman Probability of Bankruptcy Z‐Score 2012 2013 2014 2015

(Current Assets‐Current Liabilities)/Total Assets 0.1108 0.0815 0.0465 0.0401 ## (Current Assets‐Current Liabilities)/Total Assets 0.0671 0.0396 0.0364 ‐0.0057

Retained Earnings/Total Assets 0.8227 0.8213 0.8344 0.8188 ## Retained Earnings/Total Assets 0.3620 0.4184 0.4583 0.4482

Earnings Before Interest & Tax/Total Assets 0.4960 0.3587 0.2489 ‐0.0346 ## Earnings Before Interest & Tax/Total Assets 0.4259 0.3962 0.3015 ‐0.1787

Market Value Equity/Total Liabilities 1.3297 1.3905 1.1545 0.8985 ## Market Value Equity/Total Liabilities 0.6298 0.7959 0.7978 0.6061

Sales/Total Assets 0.9544 0.8333 0.7222 0.4601 ## Sales/Total Assets 0.5132 0.4814 0.4744 0.3105

Altman Score 3.71 3.49 3.01 2.18 Altman Score 2.00 2.13 2.07 1.18

Altman Z‐Score Scale: Safe Zone = Z > 2.9, Grey Zone = 1.23 < Z < 2.9, Distress Zone = Z < 1.23 Altman Z‐Score Scale: Safe Zone = Z > 2.9, Grey Zone = 1.23 < Z < 2.9, Distress Zone = Z < 1.23

31‐Dec‐11 31‐Dec‐12 31‐Dec‐13 31‐Dec‐14 31‐Dec‐15

Chevron Corporation CVX Energy Report Date:

Average

2011 2012 2013 2014 2015 2011 ‐ 2015 2016E 2017E 2018E 2019E 2020E

Total Revenue 236,286 222,579 211,664 192,308 122,566 Total Revenue 125,017 131,268 139,144 145,406 148,314

% growth N/A ‐5.8% ‐4.9% ‐9.1% ‐36.3% ‐15.1% % growth 2.0% 5.0% 6.0% 4.5% 2.0%

Gross Profit 72,799 67,254 60,833 55,538 37,359 Gross Profit 38,130 40,693 43,830 46,530 47,460

Gross Margin (% of sales) 30.8% 30.2% 28.7% 28.9% 30.5% 29.8% Gross Margin (% of sales) 30.5% 31.0% 31.5% 32.0% 32.0%

Operating Income (EBIT) 38,299 35,019 27,586 20,068 (2,794) Operating Income (EBIT) 6,251 8,532 11,132 14,541 17,798

Operating Margin (% of sales) 16.2% 15.7% 13.0% 10.4% ‐2.3% 10.6% Operating Margin (% of sales) 5.0% 6.5% 8.0% 10.0% 12.0%

Earnings Before Tax 47,634 46,332 35,905 31,202 4,842

Income Tax Expense 20,626 19,996 14,308 11,892 132 Forecasted Effective Tax Rate 38.1% 38.1% 38.1% 38.1% 38.1%

Effective Tax Rate 43.3% 43.2% 39.8% 38.1% 2.7% 33.4% Effective Tax Rate Adjustment 38.1% 38.1% 38.1% 38.1% 38.1%

Net Income 26,895 26,179 21,423 19,241 4,587 Net Income 5,626 8,532 11,132 13,668 13,942

Net Margin (% of sales) 11.4% 11.8% 10.1% 10.0% 3.7% 9.4% Net Margin (% of sales) 4.5% 6.5% 8.0% 9.4% 9.4%

Total Common Shares 1,986 1,950 1,917 1,884 1,868 Total Common Shares 1,868 1,868 1,868 1,868 1,868

% growth N/A ‐1.8% ‐1.7% ‐1.7% ‐0.8% ‐1.5% % growth 0.0% 0.0% 0.0% 0.0% 0.0%

Earnings per Share $13.54 $13.43 $11.18 $10.21 $2.46 Earnings per Share $3.01 $4.57 $5.96 $7.32 $7.46

Dividends per Share $3.09 $3.51 $3.90 $4.21 $4.28 Dividends per Share $4.28 $4.28 $4.49 $4.72 $4.81

% growth N/A 13.6% 11.1% 7.9% 1.7% 8.5% % growth 0.0% 0.0% 5.0% 5.0% 2.0%

Year‐end Stock Price $106.40 $108.14 $124.91 $112.18 $89.96996 997 998 999 1000 996 997 998 999 1000

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Cash + ST Investments 20,071 21,913 16,516 13,215 11,332 Cash + ST Investments 11,502 11,158 11,827 12,359 12,607

% of sales 8.5% 9.8% 7.8% 6.9% 9.2% 8.5% % of sales 9.2% 8.5% 8.5% 8.5% 8.5%

Total Receivables 21,660 20,940 21,600 16,335 12,660 Total Receivables 11,877 12,470 13,219 13,814 14,090

% of sales 9.2% 9.4% 10.2% 8.5% 10.3% 9.5% % of sales 9.5% 9.5% 9.5% 9.5% 9.5%

Inventory 5,543 6,144 6,380 6,505 6,334 Inventory 6,876 6,563 4,870 4,798 4,894

% of sales 2.3% 2.8% 3.0% 3.4% 5.2% 3.3% % of sales 5.5% 5.0% 3.5% 3.3% 3.3%

Net PPE 122,608 141,348 164,829 183,173 188,396 Net PPE 188,776 189,026 190,628 196,298 197,257

% of sales 51.9% 63.5% 77.9% 95.2% 153.7% 88.4% % of sales 151.0% 144.0% 137.0% 135.0% 133.0%

Total Assets 209,474 232,982 253,753 266,026 266,103 Total Assets 262,536 262,536 262,983 260,276 263,999

% of sales 88.7% 104.7% 119.9% 138.3% 217.1% 133.7% % of sales 210.0% 200.0% 189.0% 179.0% 178.0%

Payables and Accruals 28,676 29,744 29,552 25,561 19,174 Payables and Accruals 19,503 20,478 21,707 22,683 23,137

% of sales 12.1% 13.4% 14.0% 13.3% 15.6% 13.7% % of sales 15.6% 15.6% 15.6% 15.6% 15.6%

ST Debt plus LT Debt 9,953 12,035 20,300 27,722 37,008 ST Debt plus LT Debt 37,755 35,442 34,786 33,443 32,629

% of sales 4.2% 5.4% 9.6% 14.4% 30.2% 12.8% % of sales 30.2% 27.0% 25.0% 23.0% 22.0%

Total Equity 122,181 137,832 150,427 156,191 153,886 Total Equity 152,521 157,522 164,190 168,671 172,044

% of sales 51.7% 61.9% 71.1% 81.2% 125.6% 78.3% % of sales 122.0% 120.0% 118.0% 116.0% 116.0%

April 18, 2016

Forecasted Income Statement Drivers

Forecasted Balance Sheet Drivers

Historical Income Statement Drivers

Historical Balance Sheet Drivers

($50,000)

$50,000

$100,000

$150,000

$200,000

$250,000

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Total Revenue Operating Income (EBIT) Analyst Comments: According to S&P's Capital IQ, CVX is expected realize positive revenue growth beginning in 2016 and increasing in 2017 and 2018, fueled by LNG projects, Gorgon (2016) and Wheatstone (mid‐2017), becoming operational. According to the EIA, Oil prices, the number one driver of revenues in the upstream segment, are expected to bottom at the current $32.78/bbl and begin torebound in 2016, increasing to $50/bbl by 2017 ‐ although there is substantial volatility in the consensus of oil price forecasts. Operating margin fell to ‐2.3 percent in 2015 primarily caused by excessive impairment and depreciation of assets. As oil pricesrecover, impairment and depreciation will decrease significantly allowing more revenue to flow to operating profit. CVX has announced that they will not increase dividends in 2016 and 2017, and has halted their buyback program with no plans to resume in order to free up cash for dividend payments. CVX is valued for their dividend growth and is expected to resume dividend growth in 2018.

4. Forecasting and Valuation CVX, Page 11 of 17 Copyright Robert A. Weigand, Ph.D., 2016

Chevron Corporation Chevron Corporation

Total Invested Capital 2011 2012 2013 2014 2015 Total Invested Capital 2016E 2017E 2018E 2019E 2020E

Cash and ST Investments 20,071 21,913 16,516 13,215 11,332 Cash and ST Investments 11,502 11,158 11,827 12,359 12,607

+ Receviables 21,660 20,940 21,600 16,335 12,660 + Receviables 11,877 12,470 13,219 13,814 14,090

+ Inventory 5,543 6,144 6,380 6,505 6,334 + Inventory 6,876 6,563 4,870 4,798 4,894

− Payables and Accruals 28,676 29,744 29,552 25,561 19,174 − Payables and Accruals 19,503 20,478 21,707 22,683 23,137

= Net Oper. Working Capital 18,598 19,253 14,944 10,494 11,152 = Net Oper. Working Capital 10,751 9,714 8,210 8,288 8,454

+ Net Property, Plant & Equip. 122,608 141,348 164,829 183,173 188,396 + Net Property, Plant & Equip. 188,776 189,026 190,628 196,298 197,257

= Total Invested Capital 141,206 160,601 179,773 193,667 199,548 = Total Invested Capital 199,528 198,740 198,837 204,586 205,711

÷ Total Common Shares 1,986 1,950 1,917 1,884 1,868 ÷ Total Common Shares 1,868 1,868 1,868 1,868 1,868

= Total Invested Capital/Share $71.10 $82.36 $93.78 $102.80 $106.82 = Total Invested Capital/Share $106.81 $106.39 $106.44 $109.52 $110.12

NOPAT and Free Cash Flow 2011 2012 2013 2014 2015 NOPAT and Free Cash Flow 2016E 2017E 2018E 2019E 2020E

Operating Income (EBIT) 38,299 35,019 27,586 20,068 (2,794) Operating Income (EBIT) 6,251 8,532 11,132 14,541 17,798

× (1−Effective Tax Rate) 43.3% 43.2% 39.8% 38.1% 2.7% × (1−Effective Tax Rate) 38.1% 38.1% 38.1% 38.1% 38.1%

= Net Oper. Profit After Tax 21,715 19,905 16,593 12,419 (2,718) = Net Oper. Profit After Tax 3,869 5,282 6,890 9,001 11,017

− ∆ Total Invested Capital N/A 19,395 19,172 13,894 5,881 − ∆ Total Invested Capital (20) (788) 97 5,749 1,125

= Free Cash Flow N/A 510 (2,579) (1,475) (8,599) = Free Cash Flow 3,890 6,069 6,793 3,252 9,891

NOPAT per Share $10.93 $10.21 $8.66 $6.59 ($1.45) NOPAT per Share $2.07 $2.83 $3.69 $4.82 $5.90

Free Cash Flow per Share N/A $0.26 ($1.35) ($0.78) ($4.60) Free Cash Flow per Share $2.08 $3.25 $3.64 $1.74 $5.30

Historical Performance Forecasted Performance

Analyst Comments: Total invested capital and net fixed assets are expected to peak and begin consolidation in 2015, as Gorgon and Wheatstone become operational. Positive NOPAT growth combined

with little change in total invested capital is expected to generate positive and growing FCF beginning in 2016. Projected free cash flow per share will be able to support CVX dividend growth beginning in 2018. Growing free cash flows will send a positive signal to investors.

$50,000

$100,000

$150,000

$200,000

$250,000

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Total Invested Capital Net Fixed Assets

($15,000)

($10,000)

($5,000)

$5,000

$10,000

$15,000

$20,000

$25,000

2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

NOPAT Free Cash Flow

$10.00

$12.00

$14.00

$16.00

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Earnings per Share Dividends per Share

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

0%5%10%15%20%25%30%35%40%45%50%

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Net Profit Margin Effective Tax Rate (right axis)

$50,000

$100,000

$150,000

$200,000

$250,000

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Total Invested Capital Net Operating Working Capital

Chevron Corporation

Cost of Capital 2015 Weight % Cost Weighted % Chevron Corporation

Equity Capitalization $168,045 82.0% 9.116% 7.471%

+ Total Debt $37,008 18.0% 5.000% 0.559% Year 2016E 2017E 2018E 2019E 2020E

= Value of All Securities $205,053 100.0% Dividend Growth Rates 0.0% 0.0% 5.0% 5.0% 2.0%

Expected Future Dividends $4.28 $4.28 $4.49 $4.72 $4.81

Effective Tax Rate 38.10% Alternative RF Rate:

Risk‐Free Rate 1.766% 1.766% PV Dividends 1‐4 $14.30 Dividend Yield 5.1%

Beta (5‐Yr) 1.050 Alternative Beta: 1.1232 PV Perpetual Div. $47.71

Market Risk Premium 7.0% 1.050 Intrinsic Value $62.02 If Purchased For: $84.35

CAPM Cost of Equity 9.116% Current Price $84.35 Expected Return = 0.3%

Weighted Average Cost of Capital: 8.029% ($84.35) $4.28 $4.28 $4.49 $72.36 $67.648.029% 8.029% 8.029% 8.029% 8.029% 8.029% 8.029% 8.029% 8.029% 8.029%

ROIC, EVA and MVA 2011 2012 2013 2014 2015 ROIC, EVA and MVA 2016E 2017E 2018E 2019E 2020E

Return on Invested Capital 15.4% 12.4% 9.2% 6.4% ‐1.4% Return on Invested Capital 1.9% 2.7% 3.5% 4.4% 5.4%

Economic Value‐Added 10,377 7,010 2,159 ‐3,131 ‐18,740 Economic Value‐Added ‐12,151 ‐10,676 ‐9,075 ‐7,426 ‐5,500

Market Valued‐Added 89,129 73,041 89,025 55,156 14,159 Market Valued‐Added 5,045 ‐32,159 ‐32,279 ‐25,701 ‐24,732

EVA per Share $5.23 $3.60 $1.13 ($1.66) ($10.03) EVA per Share ($6.51) ($5.72) ($4.86) ($3.98) ($2.94)

MVA per Share $44.88 $37.46 $46.44 $29.28 $7.58 MVA per Share $2.70 ($17.22) ($17.28) ($13.76) ($13.24)

Perpetual Growth Rate: 2.0%

DCF Intrinsic Value Model 2011 2012 2013 2014 2015 DCF Intrinsic Value Model 2016E 2017E 2018E 2019E 2020E

PV of Future FCFs 91,392 98,219 108,684 118,886 137,030 PV of Future FCFs 144,143 149,648 154,870 164,053 167,334

+ Cash and ST Investments 20,071 21,913 16,516 13,215 11,332 + Cash and ST Investments 11,502 11,158 11,827 12,359 12,607

= Total Intrinsic Firm Value 111,463 120,132 125,200 132,101 148,362 = Total Intrinsic Firm Value 155,645 160,805 166,697 176,413 179,941

− Total Debt 9,953 12,035 20,300 27,722 37,008 − Total Debt 37,755 35,442 34,786 33,443 32,629

= Intrinsic Value of Equity 101,510 108,097 104,900 104,379 111,354 = Intrinsic Value of Equity 117,890 125,363 131,911 142,969 147,312

÷ Total Common Shares 1,986 1,950 1,917 1,884 1,868 ÷ Total Common Shares 1,868 1,868 1,868 1,868 1,868

= Per Share Intrinsic Value $51.11 $55.43 $54.72 $55.40 $59.61 = Per Share Intrinsic Value $63.11 $67.11 $70.62 $76.54 $78.86

vs. Year‐End Stock Price $106.40 $108.14 $124.91 $112.18 $89.96 vs. Most Recent Stock Price $84.35

Over (Under) Valuation/Share $55.29 $52.71 $70.19 $56.78 $30.35 Over (Under) Valuation/Share $21.24

% Over (Under) Valued 108.2% 95.1% 128.3% 102.5% 50.9% % Over (Under) Valued 33.7%

Forecasted Performance

Dividend Discount Valuation Model

Historical Performance

‐40,000

‐20,000

20,000

40,000

60,000

80,000

100,000

‐25,000

‐20,000

‐15,000

‐10,000

‐5,000

10,000

15,000

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

EVA MVA (right axis)

Analyst Comments:Beta was decreased slightly, on the thesis that oil price volatility has to decline in 2016 ‐‐ even if the price of oil fails to rise significantly.The dividend discount model values a stock as

the present value of its future stream of dividends. Based on the above forecasts, the dividend discount model values CVX's future stream of dividends at $62.02, well below the current price of $84.35. EVA is expected to remain negative through 2020, indicating continued loss of economic value. The DCF intrinsic value model values a stock based on the present value of future free cash flows. Per this model, CVX is currently overvalued by $21.27. Projected intrinsic value is expected to grow at an average annual rate of 5.7 percent from 2016 to 2020. In conclusion, CVX has been historically overvalued in terms of both the DDM and DCF; based on this forecast, CVX 's intrinsic value is expectedto remain below its current market price through 2020. With the oil industry expected to recover in the near term, CVX's stock price is expected follow the market and to continue its trend of overvaluation though 2020.

($6)($4)($2)$0$2$4$6$8$10$12

2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

NOPAT per Share Free Cash Flow per Share

‐$30

‐$20

‐$10

‐$12.0‐$10.0‐$8.0‐$6.0‐$4.0‐$2.0$0.0$2.0$4.0$6.0

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

EVA per Share MVA per Share (right axis)

Relative Valuation 2011 2012 2013 2014 2015 Relative Valuation 2016E 2017E 2018E 2019E 2020E

Price to Earnings 7.9 8.1 11.2 11.0 36.6 Price to Earnings 28.0 14.7 11.9 10.5 10.6

Price to Free Cash Flow N/A 413.1 ‐92.9 ‐143.3 ‐19.5 Price to Free Cash Flow 40.5 20.7 19.4 44.0 14.9

Price to Sales 0.9 0.9 1.1 1.1 1.4 Price to Sales 1.3 1.0 0.9 1.0 1.0

Price to Book 1.0 0.9 0.9 0.8 0.6 Price to Book 0.6 0.5 0.5 0.5 0.6

Earnings Yield 12.7% 12.4% 8.9% 9.1% 2.7% Earnings Yield 3.6% 6.8% 8.4% 9.6% 9.5%

Dividend Yield 2.9% 3.2% 3.1% 3.8% 4.8% Dividend Yield 5.1% 6.4% 6.4% 6.2% 6.1%

Analyst Comments: Due to slow forecasted growth, ROIC is expected to remain below WACC through 2020. Price to earnings spiked in 2015 due to an exceptionally large decrease in earnings relative

to change in stock price. P/E is expected to shift toward the historical average between 8 and 12 as earnings increase more quickly than intrinsic value. Free cash flow is expected to rise at a faster rate than intrinsic value, causing the P/FCF to decrease over time. Earnings yield is expected to increase to its historical average by 2018, while dividend yield is elevated due to the decline in stock price between 2012 and 2015; dividend yield is expected to remain steady through 2020. ROIC is projected to remain below WACC through 2020, meaning CVX will continue to lose economic value as its cost of capital exceeds the returns earned on capital.

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

ROIC WACC

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

2011 2012 2013 2014 2015 2016E

‐200.0

‐100.0

2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Price to Earnings Price to Free Cash Flow

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Price to Sales Price to Book (right axis)

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