The Henry Fund Henry B. Tippie School of Management Husam Atari [husam-atari@uiowa.edu]

Chevron Corporation (CVX) November 17, 2016

Energy – Integrated Oil and Gas Stock Rating Hold

Investment Thesis Target Price $112.00 We recommend a HOLD for Chevron Corporation (CVX), as we believe it is only slightly undervalued by about 3.4%. On the one hand, CVX faces significant headwinds as crude oil has failed to sustain prices above $50/bbl this year. On the other hand, CVX is one of the few companies that involves the entire oil and gas value chain, has trimmed operating expenses by 20% since 2013, and has promising projects in its pipeline. Overall, if CVX can produce and sell in line with the oil futures curve, it will grow earnings at a strong enough pace to justify holding it as an investment.

Drivers: • The futures curve is pricing oil at $50-58 over the next five years, such

prices would be enough to spur 3.7% production CAGR and 11% total revenue CAGR through 2021.

• Such growth will put Chevron in a strong position to keep increasing its dividend, specifically at a 2.27% CAGR through 2021.

• Chevron has several new projects that are expected to add an additional 1MM barrels per day (liquids and gas) by 2021.

• The oil price downturn of the last two years has forced Chevron to become more efficient – producing 13MM more barrels while spending $8B less in capital and operating expenditures in 2015 relative to 2014.

Risks: • Oil prices may not reach the levels that the futures curve is currently

indicating, hampering Chevron’s production and earnings.• Chevron may be unable to reduce capex to the $10B we expect in 2021,

which would squeeze its already thin return on invested capital (9.65%)below its cost of capital (9.50%).

• OPEC tends to be a wildcard – if it decides not to freeze, or even increase,supply, there could be further turmoil in the oil markets and for Chevron.

Henry Fund DCF $99.85 Henry Fund DDM $112.32 Relative P/S $121.70 Price Data Current Price $108.35 52wk Range $775.33 – $109.06 Mean 1yr Target $114.63 Key Statistics Market Cap (B) $200B Shares Outstanding (M) 1,885 Institutional Ownership 62.60% Beta 1.17 Dividend Yield 4.09% Est. 5yr Growth 24.53% Price/Earnings (TTM) -135.10Price/Earnings (FY17E) 23.4 Price/Sales (TTM) Price/Book (mrq)

2.02 1.39

Profitability Profit Margin (TTM) -1.48%Operating Margin (TTM) -7.75%Return on Assets (TTM) -1.86%Return on Equity (TTM) -0.94%

Earnings Estimates Year 2013 2014 2015 2016E 2017E 2018E EPS $11.18 $10.21 $2.46 $0.37 $4.63 $7.50

growth -16.72% -8.62% -75.95% -0.85% 1,156% 62.04%12 Month Performance Company Description

Chevron Corporation is one of the world’s largest energy companies. As an integrated oil and gas company, Chevron does everything from exploring and drilling for crude oil to refining and marketing various petroleum products. Chevron is active in more than 30 countries and has approximately 65,000 employees.

Tearsheet sources: Yahoo! Finance; FactSet

4.1 2.0

12.0

3.51.0

8.1

4.4

0.8

7.2

02468

101214

Dividend Yield(TTM)

P/S (TTM) EV/EBITDA (TTM)

CVX Sector Industry

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

N D J F M A M J J A S O N

CVX S&P 500

Important disclosures appear on the last page of this report.

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EXECUTIVE SUMMARY

The oil and gas industry has seen its share of troubles the past two years but Chevron has been tough enough to withstand it. Looking ahead, we expect Chevron to emerge even stronger over the next five years, yet we do not believe Chevron’s shares are significantly undervalued.

Based on the oil and gas futures curves, we have built in five-year CAGRs of 3.7% production, 11% revenue, and 2.27% dividend through 2021. Additionally, we foresee Chevron improving its operating margins, from a historically low -0.67% in 2016 to an average of 14% through 2021. Given that Chevron historically averaged operating margins above 15% prior to 2015, and has trimmed operating costs by nearly 20% since 2013, we believe this turnaround is plausible.

However, despite such growth built into our models, we do not see appreciable upside. As Chevron is a dividend aristocrat, we lean towards our DDM model, which produces a price of $112 – less than 4% upside relative to the current market price.

Thus, it seems that Chevron is strong company with solid prospects, but is also fairly priced. Therefore, our current recommendation is HOLD.

COMPANY DESCRIPTION

Chevron corporation (CVX) is a large international integrated oil and gas company. CVX is headquartered in the US, has approximately 65,000 employees, and is active in over 180 countries. CVX is a behemoth: it has a market capitalization of nearly $200B, assets over $260B, 30+ subsidiaries, produces 2.6MM barrels of net oil equivalents per day, and sells another 1.5MM barrels of refined products per day.i CVX has two main operating segments: upstream and downstream. Historically, upstream tends to account for approximately 17% of total revenue, and downstream the other 83% - we do not forecast a material shift in this makeup through 2021.

Source: CVX 10K

How Chevron Makes Money

Upstream

Chevron’s upstream activities consist of exploring for, producing, and selling crude oil and natural gas. The money Chevron earns from upstream activities is tied to industry prices for crude oil and natural gas.ii Thus, Chevron’s upstream revenues are essentially the price it receives for the oil and gas it produces. Such prices turn on global economic conditions, product demand, OPEC actions (implicit and explicit), and geopolitical stability.

Given these relationships, we tied our forecast for upstream revenue to the oil and gas futures curves as of November 1, 2016. Specifically, Chevron groups crude oil and liquefied natural gas (LNG) together into net liquids production by thousands of barrels per day (MBOED) and natural gas by million cubic feet per day (MMCF). Thus, we tied net liquids production to the WTI futures curve and natural gas MMCF to the Henry Hub futures curve. For liquids, we use WTI, despite the relevance of Brent, as the difference between the two is immaterial to our analysis.

Source: FactSet; Bloomberg

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Source: Model Projections

Using this approach, we forecast a 3.7% five-year CAGR through 2021 in liquids production. It is worth noting, that relative to historical production numbers and oil prices, our production forecasts may seem aggressive. For example, 2011, a peak year, was only 1,850 MBOED versus our prediction of 2,044 in 2021. However, we believe that Chevron has adapted well to the new oil environment. Thus, as technology improves and exploration and production costs continue to decline, Chevron will be able to produce at a much more efficient pace. This will enable overall liquids volume to grow in line with the increase in oil prices.

Source: CVX November 2016 Investor Presentation

Additionally, we expect some of Chevron’s younger but major projects to boost production, further contributing to our growth story. Several new projects are expected to lead to approximately 1MM additional barrels per day in new production by 2021 (note the below graph includes natural gas production, while our MBOED projections above are liquids only).iii

As for natural gas, we project a 1.2% five-year CAGR in daily MMCF production – in line with the Henry Hub futures curve.

Source: Model Projections

With expected production and prices for oil and gas, we forecasted total upstream revenue as a product of the two (net of intersegment sales). Thus, we project a five-year CAGR of 14% through 2021, relative to the 11% annualized downturn from 2011-2016.

Source: CVX 10K; model projections

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Geographically, upstream production is dispersed throughout the world.

Source: CVX Supplement to 2015 Annual Report

Source: CVX Supplement to 2015 Annual Report

Overall we are confident in our upstream projections, as Chevron continues to leverage the scope of its resources and reserves.

Downstream

Chevron’s downstream activities include refining and marketing of gasoline, jet fuel, gas oils, lubricants, residual fuel oils, and other products derived from crude oil and natural gas. Essentially, Chevron takes the oil and gas it gets from its upstream activities, refines it and sells it throughout the world. Thus, Chevron’s downstream revenues are a function of its marketing volume and prices it receives for its refined products.

We looked at Chevron’s historical downstream revenues to see what multiple of oil price Chevron historically received on its refined products. For example, in 2015, Chevron sold 2,735,000 barrels of refined product per day, generating $111B in annual downstream revenue. Thus, on an annualized basis, Chevron received about $110 per

refined barrel. Also, during this time, the average crude oil price for Chevron was $44.81 per barrel. This translates into a 2.46x multiple (i.e., 110/44.81=2.46). Over the five-year period of 2011-2015, Chevron averaged about a 2.20x multiple, with a trend that indicated the lower the oil price, the higher the multiple. Therefore, we set a 2.25x multiple, to the WTI futures price (same curve referenced above), to determine the money Chevron would receive per refined barrel. Like our upstream production, we tied the growth of Chevron’s sales volume to the percentage growth along the WTI futures curve. Thus, we forecast a 3.7% five-year CAGR for downstream production (in thousands of barrels per day, or MBD).

Source: CVX 10K; FactSet; Model Projections

With the downstream volume projected, we tied our 2.25x multiple to the WTI futures prices, and produced our total downstream revenue forecast. Thus, we expect a 10% five-year CAGR through 2021, a nice turnaround from the 15% annualized drop off from 2011-2016.

Source: CVX 10K; Model Projections

We are confident in our downstream forecast as Chevron continues to deliver across the value-chain - including boosting its high-value product yields and refinery feedstock flexibility. Additionally, Chevron has several

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chemical manufacturing projects that continue to add capacity and increase global market share.

Total Revenue

Based on our upstream and downstream forecasts, we expect total revenue to achieve an 11% five-year CAGR through 2021 – a solid bounce back from the 14% annualized decline from 2011-2016. Note that total revenue also includes income from equity affiliates and other sources, but such line items are immaterial to our analysis and thus not discussed.

Source: CVX 10K; Model Projections

Overall, our expectations do not vary much from Wall Street analysts. This gives us a degree of comfort in the reasonableness of our forecasts.

Revenue Estimates

Source: Model Projections; FactSet

How Chevron Spends Money

Chevron’s largest expense, by far, is the cost of purchasing crude oil and related products – representing 50% of total revenue in 2015. This is the money Chevron spends on crude oil from third-parties, before it turns around and sells the oil or refines it and sells the resulting product. Low oil prices seem to have an asymmetrical effect on revenues and expenses. In other words, low oil prices seem to have lessened this specific cost by more than it has harmed revenues, leading to a lower percentage of overall revenue now (and going forward) than in peak oil times.

Source: CVX 10K; Model projections

This effect has also helped Chevron’s gross margins, from an average of 42% in 2011-2014 (peak-ish oil) to 49% in 2015-2021 (low-ish oil).

Source: CVX 10K; Model projections

The remainder of Chevron’s expenses pale in comparison, as operating expenses is the next largest line item at approximately 16% of total revenues in 2015.

Source: CVX 10K

Going forward, we expect Chevron to improve its cost structure and continue its production efficiency. For example, it is anticipated that Chevron will trim its workforce by 20-25% and cut the number of days, from 50

2016E 2017E 2018EHenry Fund 115,723 150,127 172,278Analyst Avg. (as of 11/15/2016) 114,275 149,535 172,737

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to 41, required to drill 10,000 feet.iv Thus, overall, we expect improved operating margins over the next five years – closer to the 18% range by 2021, which Chevron has not seen since 2012.

Source: CVX 10K; Model Projections

CapEx

Given the capital intense nature of integrated oil and gas – exploring, drilling, refining, etc. – capital expenditures (capex) are a relevant part of Chevron’s business model. Due to the oil price decline that started mid-2014, Chevron has significantly pulled back on capex. More specifically, Chevron cut capex by 17% in 2015, and is on pace to cut it by another 18% to just under $24B in 2016 (despite guidance of $25-28B). Additionally, Chevron has reduced its guidance for 2017 and 2018 to $17-22B. Given this, we expect 2017 and 2018 to trend similarly toward the lower end or even below initial guidance.

Source: CVX 10K; FactSet; Model Projections

We see this trend continuing through 2021 for a few reasons. Firstly, per the futures curve, oil prices will rise a bit tepidly – hitting $58 in 2021. Thus, the oil price velocity will not be there to incentivize aggressive capex spending. Secondly, in part by design and in part due to technology, Chevron is becoming a more efficient producer. This

means a large capex budget will no longer be necessary to increase production. Thirdly, given Chevron’s expected earnings and cash flows, high levels of capex will depress its return on capital, harming its investors. In other words, Chevron will please its investors more by using its extra cash to pay higher dividends and/or repurchase shares.

Company Earnings

Quarterly

Most recently, Q3 2016, Chevron beat estimates by a whopping 31 cents – posting a 68 cent GAAP based EPS, relative to expectations of 37 cents.v Not only was this a positive surprise, but it was also Chevron’s first profitable quarter since Q3 2015.

Source: CVX 10Q

As can be seen in the table above, it’s been a rough seven quarters for Chevron. However, despite the headwinds it has faced in the sluggish oil environment, Chevron has performed decent relative to market expectations. More specifically, it has beat estimates in four of the last seven quarters by an average of 50%.vi And in the three quarters it has missed, its average miss has been 42%.vii All in all, it has not been a pretty two years for Chevron, but it could have been uglier, and the most recent quarter indicates a light at the end of this tunnel.

Source: FactSet

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016GAAP EPS $1.38 $0.30 $1.09 ($0.31) ($0.39) ($0.78) $0.68YOY Growth -42% -90% -63% -117% -128% -357% -38%

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Annually

On an annual basis, Chevron’s earnings have declined each year since 2011, and that trend is on pace to continue through 2016.

Source: CVX 10K; Model Projections

Unlike the quarterly estimates, Chevron has struggled to beat analyst expectations on an annual basis.

Source: FactSet

It is interesting that Chevron was missing annual estimates in the high-price oil days of 2011-2013. And clearly, 2015 was a year of adjustment for Chevron and market expectations, but 2016 (as seen by the quarterly numbers) seems to be the beginning of a turnaround.

Going Forward

As Chevron produces, refines, and sells in line with the oil and gas futures curves, while also controlling costs, we expect its EPS to respond accordingly. Specifically, we forecast a jump to $4.63 in 2017 from $0.37 in 2016. Beyond that, we expect a 12% four-year EPS CAGR through 2021.

Source: FactSet; Model Projections

As can be seen in the graph above, our expectations are very much in line with Wall Street analysts – other than 2018, where we are more optimistic by about $1. This difference stems from nearly a $2B difference in net income. Given that we both us and the analysts forecast $172B in total revenue, the divergence comes from expense expectations. However, without a detailed breakdown of analyst forecasts for expenses, it is difficult to see specifically where the difference lies. Our guess is that we have Chevron maintaining a firmer grip on operating expenses than the analysts do. However, we are confident in our expectation of Chevron’s cost structure, as discussed above in the Company Description section.

Dividends

One of the key questions facing Chevron and its investors is can it keep its historical dividend pace? We believe it can. Chevron is considered a dividend aristocrat, having increased its annual dividend for 29 consecutive years.viii

Source: suredividend.com

In terms of recent history, Chevron has kept raising its dividend despite the oil price headwinds. In fact, just last month Chevron announced that it would raise its dividend 1 cent, to $1.08, for the last quarter of 2016 to keep its streak going.

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Source: CVX 10K; Model Projections

As can be seen from above, both us and analysts are confident in Chevron’s ability to keep raising its dividend. Our specific forecast is that Chevron’s dividend will rise at 2.27% five-year CAGR through 2021. Our confidence stems from the same story we’ve discussed throughout – oil and gas prices will rise per the futures curves (in the $50-$58 range) and Chevron will maximize its production and sales in an efficient manner. This story will enable Chevron to churn out enough cash to pay a higher dividend without stressing its balance sheet. We forecast an average current ratio over the next five-years of 1.45, relative to a historical average of 1.07. This indicates the strong liquidity position Chevron will maintain. Additionally, despite issuing nearly $8B in new debt in 2016, Chevron maintains a low leverage point as its total debt only represents about 16% of total assets. Thus, even if Chevron is unable to generate the level of cash that we expect, it has the capacity to borrow money to help finance its dividend without tarnishing its balance sheet. Specifically, Chevron has nearly $30B in incremental debt capacity – enough to cover our projected dividend payouts through 2019.

Source: CVX November 2016 Investor Presentation

INDUSTRY NEWS

Make Energy Great Again?

The impact of the 2016 presidential election is still far from certain, but many in the oil and gas industry are cautiously optimistic.ix While President-elect Trump seems to support some deregulation of the oil and gas industry, which could help drilling activity, he has yet to release specific policy details in this regard. Nevertheless, even if the US ushers in an era of pro-drilling deregulation, it does not necessarily mean drilling will increase. Ultimately, economics and the state of oil prices have a far greater impact on drilling activity than regulatory changes.x Thus, while we will keep an eye legislation and executive orders pertaining to oil and gas, we will watch the oil and gas futures curves much more closely.

OPEC and shut case?

Given the supply and demand economics of crude oil, OPEC decisions – real or perceived – tend to move the needle. On September 28, OPEC preliminarily agreed to cut production by about a million barrels per day to 32.5MM.xi In response, oil prices jumped nearly 6% in the hours following the announcement.xii However, given the lack of specifics, it is unclear whether this was more of a handshake agreement instead of a legitimate deal.xiii OPEC is meeting again on November 30th, and that should provide a more definitive outcome. In fact, the Venezuelan President stated that “OPEC countries are ready to reach a ‘forceful’ agreement on cutting oil output.”xiv Since there remains a shroud of uncertainty surrounding OPEC’s decision, it is likely that the oil and gas futures curve have not fully priced in the benefits of a production cut or freeze. Thus, if OPEC does in fact follow through, it is likely that spot and futures prices would react positively, further bolstering our growth story for Chevron.

MARKETS AND COMPETITION

International Integrated Oil & Gas

In the oil and gas industry, there upstream, midstream, and downstream companies – and then there are those that do all the above, and that’s where Chevron lies. Chevron is considered an international integrated oil and gas company, because it partakes in nearly every part of the oil and gas value chain and operates globally. Other publicly traded international integrated oil and gas

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companies include BP plc (BP), ExxonMobil (XOM), Royal Dutch (RDS.B), and Total SA (TOT).xv There are also state owned enterprises, such as Saudi Aramco that would be considered an international integrated company, but we focus on the publicly traded firms. Additionally, there are other non-integrated firms that Chevron competes with in certain segments. For example, Phillips 66 (PSX) may not be fully-integrated but it still competes with Chevron and the others in the downstream space. Thus, on one level Chevron competes with only a handful of other behemoths when it comes to “doing it all”, but on other levels it competes with a wide-range of firms on specific segments.

Competition among the international integrated companies is not very steep, as this particular group is concentrated and powerful.xvi While these firms compete on price to some extent (i.e., what they charge third-party refiners for crude oil and natural gas), they also try to differentiate their products based on crude oil grades and impurity levels (i.e., “light” vs. “dark”, “sweet” vs. “sour”, etc.).xvii Overall, the international integrated companies are really the suppliers to the rest of the industry. Since there are so few of them, and so many other smaller non-integrated companies, Chevron and its closest peers have a high degree of bargaining power. Moreover, the capital investment, reserve access, and government relationships required to be an international integrated company make it very difficult for new firms to enter this upper echelon of the oil and gas world.

If we were to view the international integrated oil companies as a distinct market, and used the combined revenue as a proxy for market size, Chevron has the smallest market share at 13%.

Source: FactSet

When we look beyond the international integrated firms, Chevron has a 5% share of the entire upstream market and a 7% share of the entire downstream market.xviii

Peer Comparisons

For Chevron’s peer group, we included the other major international integrated firms, as well as one key upstream player (Conoco Phillips, COP) and one key downstream player (Phillips 66, PSX).

Source: FactSet

As can be seen from the table above, Chevron compares favorably to its competitors. It has the second highest gross margin of all the companies displayed, and the second highest operating margin (behind TOT) of the international integrated firms. It’s also the second least levered, behind XOM, indicating its relatively strong balance sheet. However, for 2015, Chevron’s capex was relatively high, which could indicate that it was late to the game in terms of capex tightening. This would make sense given the guidance reductions for 2016-2018, further supporting our case for lower capex through 2021. Additionally, it seems that Chevron has some catching up to do in terms of production (both liquids and gas) and sales volume. Although, Chevron does outsell PSX, which is strictly downstream. Lastly, Chevron is developing its reserves at a solid pace, higher than BP, but still lags XOM and RDS.B.

Overall, Chevron is who we thought they were. A well-capitalized, profitable, and efficient operator relative to its peers. Where it needs to improve – production, sales, and capex – we have seen a good start in 2016 and forecast an even better continuation through 2021. Thus, Chevron’s story bodes well relative to its peers.

CVX BP XOM RDS.B TOT COP PSXMarket Cap (USD, billions) 200 102 354 201 115 54 42Gross Margin (5 yr. avg.) 19% 8.70% 22.87% 10.28% 10.94% 17.61% 5.29%Operating Margin (5 yr. avg.) 10% 3.82% 9.80% 6.53% 10.87% 10.62% 2.48%ROA (5 yr. avg.) 8.68% 3.92% 10.00% 5.23% 4.73% 4.21% 8.85%ROE (5 yr. avg.) 14.94% 10.14% 20.50% 10.58% 11.36% 9.80% 18.55%LT Debt/Equity (2015) 22% 48% 12% 32% 45% 59% 38%CapEx (2015 MMUSD) 30,000 18,648 31,051 26,131 24,875 10,050 5,764Production (2015 MBOED) 1,744 2,045 2,345 1,509 1,237 962 N/AProduction (2015 MMCFD) 5,269 7,146 10,515 8,380 6,043 4,060 N/ASales Volume (2015 MBD) 2,735 5,605 5,754 6,342 N/A N/A 2,174Developed Reserves (2015 % of total proved)

62% 55% 73% 74% N/A 63% N/A

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ECONOMIC OUTLOOK

Oil and gas companies, including Chevron, are very cyclical, capital intensive and sensitive to the price of crude oil. Thus, GDP and unemployment (key business cycle indicators), interest rates, and oil inventories are the economic variables worth examining.

GDP

On the most macro-level, economists expect real US GDP and real global GDP to grow at approximately 2%-2.50% and 3%-3.50%, respectively over the next three years.xix We foresee similar growth domestically, as our November Economic Outlook produced a median two-year real US GDP of 2%. In other words, the post-crisis status quo of sluggish growth is likely to endure. Although, there does appear to be some thought that President-elect Trump will implement infrastructure plans and corporate tax breaks that could fuel higher short-term growth. But there are also some who think that his trade policies could plunge us into a recession. With the election just over a week old, and a ton of uncertainty still surrounding potential new policies, we feel comfortable staying between the two extremes – hence our 2% real US GDP expectation. Given the cyclical nature of oil and gas companies, our macroeconomic expectations align well with our Chevron story of solid growth for the next five years.

Labor Market

This summer the US unemployment rate fell below 5% for the first time since before the Great Recession. Our two-year forecast produced a median unemployment rate of 5.10%. In other words, the US labor market has rebounded well from the crisis and we expect that to continue. In fact, the labor market hast tightened so much in the past year or so, that it is starting to flow through to wages and income. In fact, median household income grew 5.2% YOY in 2015, the largest jump since 2007.xx This indicates a healthier domestic economy, which helps a cyclical company like Chevron.

In terms of global unemployment, it stood at ~5.8% for 2015, down from ~6.2% in 2009.xxi However, while the rate is expected to stay steady, the number of unemployed people globally is expected to rise, at least through 2017.xxii Thus, while the global labor market picture is murkier than the US, we do not believe it is pessimistic

enough to detract from our overall economic growth expectations.

Interest Rates

Due to the high capital intensity of oil and gas endeavors, the cost of funding for such projects is crucial. As such, interest rates warrant attention. The Federal Reserve raised rates for the first time since the financial crisis last December. In our November Economic Outlook, we forecasted another 25 bps rate hike this year and another one to two 25 bps hikes through 2018. From there, we could see anywhere from zero to two more 25 bps rate hikes through 2020. These expectations are based on the Fed’s cautious tone, and indications that rate normalization will be a slow and steady process. However, we should note that the Bank of Japan and the European Central Bank continue to ease their monetary policy, with Japan even veering into negative rate territory. Thus, while domestically rates will likely be [slightly] higher, globally rates will likely be lower. On balance, we expect a low-rate environment over the next two years, not much different than we’ve had since the Great Recession.

Oil

We’ve already covered our expectations on oil prices and OPEC supply above. A quick recap: $50-58 WTI 2017-2021 and too much uncertainty clouding OPEC “agreement” so freeze possibility discounted and only partially priced in.

After a sharp decrease this summer, US crude oil inventories are back on the rise – adding 5.3MM barrels the week of November 11 for a year-over-year growth of 7.7%.xxiii

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Source: Bloomberg

Going forward, the EIA expects US inventories to decline through Q1 2017, but this will be more than offset by increases internationally, leading to a higher global inventory through 2Q 2017.xxiv If not already priced in by the futures curve, this could create downward pressure on oil prices for 2017 and could cause our production and revenue forecasts to miss. However, as the EIA notes, “sustained opposite movements of domestic and international crude oil and petroleum product inventories are rare, but that divergence is currently supported by differences in the shapes of the Brent and WTI futures curves.” xxv Consequently, it seems the futures curves are already pricing in 2017 inventory expectations, and if international inventories surprisingly converge with domestic, then oil prices could rise higher than expected. Such a scenario would likely make our forecasts conservative. Thus, on the one hand, we could be underestimating inventories and on the other, we could be overestimating them. Overall, we are confident the result will be somewhere in-between, which is in-line with our current forecasts.

VALUATION

CVX currently trades at a market price of $108.35, and our models (all dated 11/4/2016) produce an intrinsic value in the range of $98 to $122. We favor our DDM model, which gives a price of about $112. This indicates that CVX is currently reasonably priced. Hence, our HOLD recommendation.

Income Statement: Our predictions and underlying reasoning for our revenue and cost projections are discussed at length in the Company Description. Other line

items worth mentioning include “taxes other than on income” and “depreciation, depletion, and amortization.” We used historical averages for both. For taxes other than on income, the historical average, as a percentage of revenue, was about 6.50%, but there was an upward trend in recent years, so we used an average of 8% for our forecasts. Regarding depreciation, the historical average, as a percentage of net PP&E, was about 10.50%, and we adjusted that slightly down to 10% for our forecast.

Balance Sheet: We covered capex in the Company Description. We kept long-term debt constant as a percentage of non-cash assets, to maintain a consistent capital structure. We paid debt off according to the repayment schedule provided in the latest 10K. We grew marketable securities by 2.5% – essentially the risk-free rate. We grew other assets and liabilities, such as accounts receivable, inventories, accounts payable, short-term taxes payable, prepaid expenses, etc. as percentages of revenue in-line with historical averages. We did begin repurchasing shares, increasing the treasury stock account, in 2018 at a pace of $2.5B per year. We did this because we expect Chevron to generate enough cash to return some to shareholders via repurchases, without effecting its dividend or liquidity.

Risk premium: The Henry Fund consensus is 5%.

Beta: We used a Beta of 1.17 because this was the median of the weekly Betas over the last ten years, as calculated by Bloomberg.

CV growth: We believe long-term nominal US GDP will be about 3.50%-4.00% and nominal global GDP about 5.00%-5.50%. Thus, we set CVX’s NOPLAT CV growth rate at 3.00% since we do not expect it to outgrow the US nor the global economy. Using US and global nominal GDP is appropriate here because CVX has both domestic and international operations. As for the EPS CV growth rate, we set it at slightly higher 3.25% due to future repurchases.

DDM: The DDM produced a price of $112.32. We discussed our dividend projections in the Company Earnings section. We are confident in our dividend projections for numerous reasons. Chevron has raised its dividend every year for the past 29 years, over the next five-years oil prices should range in the $50-58 range – still far below peak, but good enough for Chevron to generate strong earnings, and Chevron has become a more efficient

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and cost disciplined producer. Moreover, our dividend expectations are in-line with analyst projections.

Relative valuation: The relative valuation models all produce approximately the same price of $122. We covered our peer selection in the Markets and Competition section above. Given the negative earnings of many oil and gas companies for 2016, P/E was not a proper multiple. Thus, we used P/S and EV/EBITDA, which both indicate that Chevron is currently underpriced. This indicates that the market is pricing in a slightly more aggressive growth story for Chevron, relative to its peers. This makes sense based on the estimated long-term growth rates:

Source: FactSet

Clearly, the market is more optimistic about Chevron’s prospects than others in the oil and gas industry. Like us, it seems that the market is bullish on Chevron’s production potential, cost-discipline, and overall efficiency.

Henry Fund vs. other analysts: Our EPS and revenue projections relative to analyst estimates was analyzed in the Company Description and Company Earnings sections. Our forecasts and target price do not differ materially from the analysts. More specifically, the average target price on FactSet for CVX is about $115, while our current target price is $112.

Model evaluation: We used the DDM model to determine our target price. While the DCF/EP is the most comprehensive model, we believe the DDM fits Chevron’s profile best – especially because it is a dividend aristocrat. In terms of robustness, we tested several variables, including beta, risk premium, growth rates, tax-rates, etc. and in most scenarios Chevron’s DDM price was higher than the model-date market price. For example, under all plausible dividend yield and CV growth EPS scenarios CVX is a buy. However, the model does remain sensitive to the risk premium and beta combination. For example, it would take a 50 bps increase in risk premium, at the same beta level, for the price to turn bearish – not an implausible scenario.

Overall, the DDM value best reflects the Chevron’s story and our beliefs about its future. Accordingly, we used it to

arrive at a price of $112. This represents about a 3.4% upside to current market price.

Reasons to Sell

• Fails to generate positive economic profit, even beyond 2020

• Oil prices do not rebound as we forecast, or perhaps even decline

• Chevron is unable to lower its capex to the level we expect ($10B in 2021), thereby squeezing its already thin ROIC

• Chevron cannot churn the amount of cash we forecast, thereby adversely effecting its dividend payouts and balance sheet

• Global economy dips into recession, halting the current business cycle and adding stress to an already tight oil environment

• Overall, production growth lower than 3.5% CAGR, revenues below 10% CAGR, and/or dividends below 2% CAGR would be problematic

Ultimately, CVX will return to profitability by 2017 and has solid growth prospects overall. The market seems to be appreciating these aspects, as CVX is currently reasonably priced. Thus, while there is not a ton of appreciable upside today, we believe CVX has even better days ahead of it, and recommend a HOLD.

CVX BP XOM RDS.B TOT COP PSXLT Est. Growth Rate 44% 29% 6.10% 27% 6% -16% 7%

Page 13

i Chevron 10K, February 2016 ii Chevron 10K, see i iii ThompsonONE, BMO Capital Markets, “Chevron: Short Cycle – Long Sighted”, September 2016, iv BMO Capital Markets, see iii v FactSet, CVX, All Estimates vi FactSet, see v vii FactSet, see v viii Chevron Press Release, October 2016, https://www.chevron.com/stories/chevron-announces-quarterly-dividend-3q-2016 ix Loveless, Bill, “What Trump’s pro-drilling stance means for industry”, USA Today, November 2016, http://www.usatoday.com/story/money/columnist/2016/11/13/what-trumps-pro-drilling-stance-means-oil-gas-industry/93650360/ x Loveless, see ix xi DiChristopher, Tom, CNBC, September 2016, http://www.cnbc.com/2016/09/29/opec-oil-deal-is-not-really-a-deal-its-more-of-an-agreement-to-agree.html xii Krishnan, Barani, Reuters, September 2016, http://www.reuters.com/article/us-global-oil-idUSKCN11X03E xiii DiChristopher, see xi xiv Tay, Mark, Reuters, November 2016, http://www.reuters.com/article/us-global-oil-idUSKBN13C04L xv NetAdvantage, S&P Capital Industry Surveys, “Oil, Gas & Consumable Fuels”, November 2016 xvi Investopedia, “The Industry Handbook: The Oil Services Industry”, November 2016, http://www.investopedia.com/features/industryhandbook/oil_services.asp xvii IBISWorld, “Global Oil and Gas Exploration and Production”, November 2016 xviii CSIMarket.com, November 2016, http://csimarket.com/stocks/competitionSEG2.php?code=CVX xix FactSet, Economics, US, Estimates, Country Summary, September 2016; Statista, IMF https://www.statista.com/statistics/273951/growth-of-the-global-gross-domestic-product-gdp/

REFERENCES

xx Mutikani, Lucia and Heavey, Susan. “U.S. household income posts record surge in 2015, poverty falls”, Reuters, September 2016, http://www.reuters.com/article/us-usa-economy-poverty-idUSKCN11J1PP?il=0 xxi International Labour Organization, World Employment and Social Outlook – Trends 2016, January 2016, http://www.ilo.org/global/research/global-reports/weso/2016/lang--en/index.htm xxii ILO, see xxxvii xxiii Bloomberg Economic Calendar, November 2016, https://b-us.econoday.com/byshoweventfull.asp?fid=471924&cust=b-us&year=2016&lid=0&containerId=eco-iframe-container&prev=/bymonth.asp#top xxiv EIA, Short-Term Energy Outlook, November 2016, http://www.eia.gov/forecasts/steo/marketreview/crude.cfm xxv EIA, see xxiv

IMPORTANT DISCLAIMER

Henry Fund reports are created by student enrolled in the Applied Securities Management (Henry Fund) program at the University of Iowa’s Tippie School of Management. These reports are intended to provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of Henry Fund students. Henry Fund analysts are not registered investment advisors, brokers or officially licensed financial professionals. The investment opinion contained in this report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold a financial interest in the companies mentioned in this report.

ChevronRevenue Decomposition (in millions)

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E

Upstream RevenueUS 8,052 7,455 4,117 3,338 4,065 5,664 5,807 6,198 6,553

YOY growth 25.50% -7.41% -44.78% -18.92% 21.77% 39.35% 2.52% 6.73% 5.72%International 17,607 23,808 15,587 13,353 16,259 22,657 23,227 24,791 26,210

YOY growth -9.52% 35.22% -34.53% -14.33% 21.77% 39.35% 2.52% 6.73% 5.72%Total upstream 25,659 31,263 19,704 16,691 20,324 28,321 29,034 30,989 32,763

YOY growth -0.83% 21.84% -36.97% -15.29% 21.77% 39.35% 2.52% 6.73% 5.72%

Downstream RevenueUS 85,064 78,575 52,846 45,550 58,977 64,715 67,109 71,247 74,630

YOY growth -3.01% -7.63% -32.74% -13.81% 29.48% 9.73% 3.70% 6.16% 4.75%International 109,072 90,401 57,229 49,346 63,891 70,108 72,702 77,184 80,849

YOY growth -6.48% -17.12% -36.69% -13.77% 29.48% 9.73% 3.70% 6.16% 4.75%Total downstream 194,136 168,976 110,075 94,896 122,868 134,823 139,811 148,431 155,479

YOY growth -4.99% -12.96% -34.86% -13.79% 29.48% 9.73% 3.70% 6.16% 4.75%

Other operationsUS 358 252 141 130 208 227 236 250 265

YOY growth -5.29% -29.61% -44.05% -7.77% 60.11% 9.01% 3.85% 6.17% 5.81%International 3 3 5 4 6 7 7 8 8

YOY growth -25.00% 0.00% 66.67% -19.56% 60.11% 9.01% 3.85% 6.17% 5.81%Total other 361 255 146 134 215 234 243 258 273

YOY growth -5.50% -29.36% -42.75% -8.17% 60.11% 9.01% 3.85% 6.17% 5.81%

Total Sales and Other Operating Revenues 220,156 200,494 129,925 111,721 143,407 163,379 169,089 179,678 188,515 YOY growth -4.52% -8.93% -35.20% -14.01% 28.36% 13.93% 3.49% 6.26% 4.92%

ChevronIncome Statement (in millions)

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021ESales and other operating revenues 220,156 200,494 129,925 111,721 143,407 163,379 169,089 179,678 188,515Income from equity affiliates 7,527 7,098 4,684 2,483 3,920 5,085 5,265 5,595 5,871Other income / loss 1,165 4,378 3,868 1,519 2,800 3,814 3,949 4,196 4,403Total Revenue 228,848 211,970 138,477 115,723 150,127 172,278 178,302 189,469 198,789

Purchased crude oil and products 134,696 119,671 69,751 58,965 76,723 89,041 92,153 97,924 102,741Operating expenses 24,627 25,285 23,034 20,200 21,511 22,873 23,672 24,257 24,507Selling, general and administrative expenses 4,510 4,494 4,443 4,122 4,302 4,084 4,058 4,043 4,053Exploration expenses 1,861 1,985 3,340 1,104 1,424 1,307 1,353 1,437 1,508Depreciation, depletion and amortization 14,186 16,793 21,037 20,029 18,837 18,653 18,288 17,659 17,093Taxes other than on income 13,063 12,540 12,030 12,074 13,511 13,954 12,481 13,263 13,915Interest and debt expense 0 0 0 186 269 325 372 410 408Total expenses 192,943 180,768 133,635 116,680 136,577 150,238 152,377 158,993 164,225

Income / loss before income tax expense 35,905 31,202 4,842 (957) 13,550 22,039 25,925 30,476 34,564

Income tax expense / benefit 14,308 11,892 132 (1,698) 4,742 7,714 9,074 10,667 12,098

Income from continuing operations 21,597 19,310 4,710 741 8,807 14,326 16,851 19,809 22,467

Income from discontinued operations 0 0 0 0 0 0 0 0 0

Net income / loss 21,597 19,310 4,710 741 8,807 14,326 16,851 19,809 22,467

Net income attributable to noncontrolling interests (174) (69) (123) (50) (56) (76) (17) (11) (15)

Net income / loss attributable to Chevron Corporation 21,423 19,241 4,587 691 8,751 14,249 16,834 19,799 22,452

Weighted average shares outstanding - basic 1,917 1,884 1,868 1,877 1,893 1,901 1,899 1,888 1,872Year end shares outstanding 1,914 1,866 1,869 1,885 1,901 1,901 1,897 1,880 1,864

Net earnings (loss) per share - basic $11.18 $10.21 $2.46 $0.37 $4.63 $7.50 $8.87 $10.49 $12.00YOY growth -16.72% -8.62% -75.95% -85.00% 1156.00% 62.04% 18.27% 18.27% 14%

Total dividends paid 7,474 7,928 7,992 8,051 8,287 8,516 8,735 8,913 8,984Dividends per share $3.90 $4.21 $4.28 $4.29 $4.38 $4.48 $4.60 $4.72 $4.80

ChevronIncome Statement (in millions)

Fiscal Years Ending Dec. 31 Q1 2015 Q2 2015 Q3 2015 Q4 2015 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016E 2016E Q1 2017E Q2 2017E Q3 2017E Q4 2017E 2017E

Sales and other operating revenues 32,315 36,829 32,767 28,014 129,925 23,070 27,844 29,159 31,648 111,721 34,064 35,654 36,433 37,255 143,407Income from equity affiliates 1,401 1,169 1,195 919 4,684 576 752 555 600 2,483 980 980 980 980 3,920Other income / loss 842 2,359 353 314 3,868 (93) 686 426 500 1,519 700 700 700 700 2,800Total Revenue 34,558 40,357 34,315 29,247 138,477 23,553 29,282 30,140 32,748 115,723 35,744 37,334 38,113 38,935 150,127

Purchased crude oil and products 17,193 20,541 17,447 14,570 69,751 11,225 15,278 15,842 16,620 58,965 20,715 18,413 19,181 18,413 76,723Operating expenses 5,395 6,077 5,592 5,970 23,034 5,404 5,054 4,666 5,076 20,200 5,110 5,348 5,465 5,588 21,511Selling, general and administrative expenses 944 1,170 1,026 1,303 4,443 998 1,033 1,109 982 4,122 1,022 1,070 1,093 1,118 4,302Exploration expenses 592 1,075 315 1,358 3,340 370 214 258 262 1,104 357 373 343 350 1,424Depreciation, depletion and amortization 4,411 6,958 4,268 5,400 21,037 4,403 6,721 4,130 4,775 20,029 4,291 5,270 4,125 5,151 18,837Taxes other than on income 3,118 3,173 2,883 2,856 12,030 2,864 2,973 2,962 3,275 12,074 3,217 3,360 3,430 3,504 13,511Interest and debt expense 0 0 0 0 0 0 79 64 43 186 66 76 66 62 269Total expenses 31,653 38,994 31,531 31,457 133,635 25,264 31,352 29,031 31,033 116,680 34,778 33,910 33,703 34,187 136,577

Income / loss before income tax expense 2,905 1,363 2,784 (2,210) 4,842 (1,711) (2,070) 1,109 1,715 (957) 966 3,424 4,411 4,749 13,550

Income tax expense / benefit 305 755 727 (1,655) 132 (1,004) (607) (192) 105 (1,698) 338 1198 1544 1662 4,742

Income from continuing operations 2,600 608 2,057 (555) 4,710 (707) (1,463) 1,301 1,610 741 628 2,226 2,867 3,087 8,807

Income from discontinued operations 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Net income / loss 2,600 608 2,057 (555) 4,710 (707) (1,463) 1,301 1,610 741 628 2,226 2,867 3,087 8,807

Net income attributable to noncontrolling interests (33) (37) (20) (33) (123) (18) (7) (18) (7) (50) (17) (14) (12) (13) (56)

Net income / loss attributable to Chevron Corporation 2,567 571 2,037 (588) 4,587 (725) (1,470) 1,283 1,603 691 611 2,211 2,855 3,074 8,751

Weighted average shares outstanding - basic 1,867 1,872 1,868 1,867 1,868 1,870 1,873 1,887 1,877 1,877 1,894 1890 1891 1893 1,893Year end shares outstanding 1,869 1,885 1,901

Net earnings (loss) per share - basic $1.38 $0.30 $1.09 ($0.31) $2.46 ($0.39) ($0.78) $0.68 $0.85 $0.37 $0.32 $1.17 $1.51 $1.62 $4.63YOY growth -42% -90% -63% -117% -76% -128% -357% -38% -371% -85% -183% -249% 122% 90% 1156%

Total dividends paid 1,997 2,003 1,999 1,998 7,992 2,001 2,004 2,019 2,027 8,051 2,046 2,079 2,080 2,082 8,287Dividends per share $1.07 $1.07 $1.07 $1.07 $4.28 $1.07 $1.07 $1.07 $1.08 $4.29 $1.08 $1.10 $1.10 $1.10 $4.38

ChevronBalance Sheet (in millions except par value data)

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021ECurrent assetsCash & cash equivalents 16,245 12,785 11,022 8,609 16,470 25,059 36,070 47,521 64,242Time deposits 8 8 0 0 0 0 0 0 0Marketable securities 263 422 310 325 333 341 350 359 368Accounts & notes receivable, net 21,622 16,736 12,860 11,520 13,887 15,936 16,493 17,526 18,388Crude oil & petroleum products 3,879 3,854 3,535 3,103 3,753 4,307 4,458 4,737 4,970Chemicals 491 467 490 450 525 603 624 663 696Materials, supplies & other inventories 2,010 2,184 2,309 2,239 2,777 3,187 3,299 3,505 3,678Total inventories 6,380 6,505 6,334 5,792 7,056 8,097 8,380 8,905 9,343Prepaid expenses & other current assets 5,732 5,776 4,821 2,500 3,984 4,572 4,732 5,028 5,276Total current assets 50,250 42,232 35,347 28,746 41,731 54,006 66,025 79,339 97,616

1373 1503Non-current assets 1,784$ 1,410$ 198$ 2622Long-term receivables, net 2,833 2,817 2,412 2,420 2,627 3,015 3,120 3,316 3,479Investments & advances 25,502 26,912 27,110 28,105 29,089 30,107 31,161 32,251 33,380Property, plant & equipment, at cost 296,433 327,289 340,277 360,277 377,277 392,277 404,277 416,277 426,277Less accumulated depreciation, depletion & amortization (131,604) (144,116) (151,881) (171,910) (190,747) (209,400) (227,687) (245,346) (262,439)Property, plant & equipment, net 164,829 183,173 188,396 188,367 186,530 182,877 176,590 170,931 163,838Deferred charges & other assets 5,120 6,299 6,801 6,840 7,182 7,541 7,918 8,314 8,730Goodwill 4,639 4,593 4,588 4,588 4,588 4,588 4,588 4,588 4,588Assets held for sale 580 0 1,449 0 0 0 0 0 0Total non-current assets 203,503 223,794 230,756 230,320 230,016 228,128 223,377 219,399 214,014

Total assets 253,753 266,026 266,103 259,066 271,747 282,134 289,402 298,739 311,630

Current liabilities Short-term debt 374 3,790 4,928 6,250 5,978 3,273 4,581 726 3,902Accounts payable 22,815 19,000 13,516 12,756 17,640 20,243 20,951 22,263 23,358Accrued liabilities 5,402 5,328 4,833 4,263 4,646 4,852 4,991 5,094 5,141Federal & other taxes on income 3,092 2,575 2,069 2,000 2,349 2,696 2,790 2,965 3,111Other taxes payable 1,335 1,233 1,118 1,050 1,280 1,697 1,815 1,920 1,936Total current liabilities 33,018 31,926 26,464 26,319 31,895 32,761 35,128 32,968 37,447

Non-current liabilities Total debt 19,960 23,960 35,071 41,384 43,285 43,753 43,182 42,920 42,361

Less: debt due within one year 0 0 (1,487) (6,187) (5,836) (2,650) (4,054) (440) (3,000)Total long-term debt, net of current portion 19,960 23,960 33,584 35,197 37,449 41,103 39,128 42,480 39,361Capital lease obligations 97 68 80 60 76 71 72 70 72Deferred credits & other noncurrent obligations 22,982 23,549 23,465 23,674 23,418 23,526 23,521 23,535 23,500Noncurrent deferred income taxes 21,301 21,920 20,689 17,512 20,356 20,119 19,669 19,414 19,889Reserves for employee benefit plans 5,968 8,412 7,935 7,405 7,430 7,796 7,641 7,568 7,609Total non-current liabilities 70,308 77,909 85,753 83,848 88,728 92,615 90,031 93,067 90,431

Total liabilities 103,326 109,835 112,217 110,167 120,623 125,376 125,159 126,034 127,878

EquityCommon stock and APIC 17,545 17,873 18,162 19,726 21,421 23,259 25,073 25,073 25,073Retained earnings 173,677 184,987 181,578 174,219 174,683 180,416 188,515 199,401 212,869Accumulated other comprehensive income (loss) (3,579) (4,859) (4,291) (3,625) (3,625) (3,625) (3,625) (3,625) (3,625)Deferred compensation & benefit plan trust (240) (240) (240) (240) (240) (240) (240) (240) (240)Treasury stock, at cost (38,290) (42,733) (42,493) (42,493) (42,493) (44,500) (47,000) (49,500) (52,000)Total Chevron Corporation stockholders' equity 149,113 155,028 152,716 147,586 149,745 155,310 162,723 171,109 182,077Noncontrolling interests 1,314 1,163 1,170 1,313 1,379 1,448 1,520 1,596 1,676Total equity 150,427 156,191 153,886 148,899 151,124 156,757 164,243 172,705 183,752

Total liabilities and equity 253,753 266,026 266,103 259,066 271,747 282,134 289,402 298,739 311,630

ChevronCash Flow Statement (in millions)

Fiscal Years Ending Dec. 31 2013 2014 2015Operating Activities Net Income 21,597 19,310 4,710

Depreciation, depletion & amortization 14,186 16,793 21,037Dry hole expense 683 875 2,309Distributions less than income from equity affiliates (1,178) (2,202) (760)Net before-tax losses (gains) on asset retirements & sales (639) (3,540) (3,215)Net foreign currency effects (103) (277) (82)Deferred income tax provision 1,876 1,572 (1,861)Accounts & notes receivable (1,101) 4,491 3,631Inventories (237) (146) 85Prepaid expenses & other current assets 834 (407) 713Accounts payable & accrued liabilities 160 (3,737) (5,769)Income & other taxes payable (987) (741) (639)Operating working capital (1,331) (540) (1,979)Long-term receivables 183 (9) (59)Other deferred charges (321) 263 25Cash contributions to employee pension plans (1,194) (392) (868)Other operating activities, net 1,243 (378) 199Net cash flows from operating activities 35,002 31,475 19,456

Investing Activities Capital expenditures (37,985) (35,407) (29,504)Proceeds & deposits related to asset sales 1,143 5,729 5,739Net sales (purchases) of time deposits 700 0 8Net sales (purchases) of marketable securities 3 (148) 122Repayment of loans by equity affiliates 314 140 (217)Net sales (purchases) of other short-term investments 216 (207) 44Net cash flows used in investing activities (35,609) (29,893) (23,808)

Financing Activities Net borrowings (payments) of short-term obligations 2,378 3,431 (335)Proceeds from issuances of long-term debt 6,000 4,000 11,091Repayments of long-term debt & other financing obligations (132) (43) (32)Cash dividends-common stock (7,474) (7,928) (7,992)Distributions to noncontrolling interests (99) (47) (128)Net sales (purchases) of treasury shares (4,494) (4,412) 211Net cash flows used in financing activities (3,821) (4,999) 2,815

Effect of exchange rate changes on cash & equivalents (266) (43) (226)Net change in cash & cash equivalents (4,694) (3,460) (1,763)Cash & cash equivalents at beginning of year 20,939 16,245 12,785Cash & cash equivalents at end of year 16,245 12,785 11,022Income taxes paid 12,898 10,563 4,645

VisaCash Flow Statement (in thousands)

Fiscal Years Ending Sept. 30 2016E 2017E 2018E 2019E 2020E 2021EOperating Activities Net Income 691 8,751 14,249 16,834 19,799 22,452Adjustments to reconcile net income to net cash provided by operating activities:

Deferred charges & other assets (39) (342) (359) (377) (396) (416)Federal & other taxes on income (69) 349 347 94 175 146Other taxes payable (68) 230 417 118 105 16Deferred credits & other noncurrent obligations 209 (257) 109 (6) 14 (35)Noncurrent deferred income taxes (3,177) 2,844 (236) (450) (255) 475

Change in operating assets and liabilities:Accounts & notes receivable, net 1,340 (2,367) (2,049) (557) (1,033) (862)Total inventories 542 (1,264) (1,041) (283) (525) (438)Prepaid expenses & other current assets 2,321 (1,484) (588) (160) (296) (247)Long-term receivables, net (8) (207) (388) (105) (195) (163)Accounts payable (760) 4,884 2,603 708 1,312 1,095Accrued liabilities (570) 383 206 139 102 47Reserves for employee benefit plans (530) 25 366 (154) (73) 41

Net cash flows from operating activities (118) 11,546 13,634 15,800 18,733 22,110

Investing ActivitiesMarketable securities (15) (8) (8) (9) (9) (9)Investments & advances (995) (984) (1,018) (1,054) (1,091) (1,129)Property, plant & equipment, net 29 1,837 3,653 6,288 5,659 7,093Assets held for sale 1,449 0 0 0 0 0Accumulated other comprehensive income (loss) 666 0 0 0 0 0Noncontrolling interests 143 66 69 72 76 80Net cash flows used in investing activities 1,277 911 2,696 5,298 4,636 6,035

Financing Activities Short-term debt 1,322 (272) (2,705) 1,308 (3,855) 3,176Total debt 1,613 2,252 3,654 (1,975) 3,352 (3,119)Capital lease obligations (20) 16 (5) 1 (2) 2Common stock and APIC 1,564 1,695 1,838 1,814 0 0Treasury stock, at cost 0 0 (2,007) (2,500) (2,500) (2,500)Dividends paid (8,051) (8,287) (8,516) (8,735) (8,913) (8,984)Net cash flows used in financing activities (3,572) (4,595) (7,741) (10,087) (11,918) (11,425)

Increase (decrease) in cash & cash equivalents (2,413) 7,861 8,589 11,011 11,451 16,720Cash & cash equivalents at beginning of year 11,022 8,609 16,470 25,059 36,070 47,521Cash & cash equivalents at end of year 8,609 16,470 25,059 36,070 47,521 64,242

ChevronCommon Size Income Statement(as % of sales)Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E

Sales and other operating revenues 96.20% 94.59% 93.82% 96.54% 95.52% 94.83% 94.83% 94.83% 94.83%Income from equity affiliates 3.29% 3.35% 3.38% 2.15% 2.61% 2.95% 2.95% 2.95% 2.95%Other income / loss 0.51% 2.07% 2.79% 1.31% 1.87% 2.21% 2.21% 2.21% 2.22%Total Revenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Purchased crude oil and products 58.86% 56.46% 50.37% 50.95% 51.11% 51.68% 51.68% 51.68% 51.68%Operating expenses 10.76% 11.93% 16.63% 17.46% 14.33% 13.28% 13.28% 12.80% 12.33%Selling, general and administrative expenses 1.97% 2.12% 3.21% 3.56% 2.87% 2.37% 2.28% 2.13% 2.04%Exploration expenses 0.81% 0.94% 2.41% 0.95% 0.95% 0.76% 0.76% 0.76% 0.76%Depreciation, depletion and amortization 6.20% 7.92% 15.19% 17.31% 12.55% 10.83% 10.26% 9.32% 8.60%Taxes other than on income 5.71% 5.92% 8.69% 10.43% 9.00% 8.10% 7.00% 7.00% 7.00%Interest and debt expense 0.00% 0.00% 0.00% 0.16% 0.18% 0.19% 0.21% 0.22% 0.21%Total expenses 84.31% 85.28% 96.50% 100.83% 90.97% 87.21% 85.46% 83.92% 82.61%

Income / loss before income tax expense 15.69% 14.72% 3.50% -0.83% 9.03% 12.79% 14.54% 16.08% 17.39%

Income tax expense / benefit 6.25% 5.61% 0.10% -1.47% 3.16% 4.48% 5.09% 5.63% 6.09%

Income from continuing operations 9.44% 9.11% 3.40% 0.64% 5.87% 8.32% 9.45% 10.46% 11.30%

Income from discontinued operations 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Net income / loss 9.44% 9.11% 3.40% 0.64% 5.87% 8.32% 9.45% 10.46% 11.30%

Net income attributable to noncontrolling interests -0.08% -0.03% -0.09% -0.04% -0.04% -0.04% -0.01% -0.01% -0.01%

Net income / loss attributable to Chevron Corporation 9.36% 9.08% 3.31% 0.60% 5.83% 8.27% 9.44% 10.45% 11.29%

ChevronCommon Size Balance Sheet (as % of sales)

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021ECurrent assetsCash & cash equivalents 7.10% 6.03% 7.96% 7.44% 10.97% 14.55% 20.23% 25.08% 32.32%Time deposits 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Marketable securities 0.11% 0.20% 0.22% 0.28% 0.22% 0.20% 0.20% 0.19% 0.18%Accounts & notes receivable, net 9.45% 7.90% 9.29% 9.95% 9.25% 9.25% 9.25% 9.25% 9.25%Crude oil & petroleum products 1.70% 1.82% 2.55% 2.68% 2.50% 2.50% 2.50% 2.50% 2.50%Chemicals 0.21% 0.22% 0.35% 0.39% 0.35% 0.35% 0.35% 0.35% 0.35%Materials, supplies & other inventories 0.88% 1.03% 1.67% 1.93% 1.85% 1.85% 1.85% 1.85% 1.85%Total inventories 2.79% 3.07% 4.57% 5.01% 4.70% 4.70% 4.70% 4.70% 4.70%Prepaid expenses & other current assets 2.50% 2.72% 3.48% 2.16% 2.65% 2.65% 2.65% 2.65% 2.65%Total current assets 21.96% 19.92% 25.53% 24.84% 27.80% 31.35% 37.03% 41.87% 49.11%

Non-current assetsLong-term receivables, net 1.24% 1.33% 1.74% 2.09% 1.75% 1.75% 1.75% 1.75% 1.75%Investments & advances 11.14% 12.70% 19.58% 24.29% 19.38% 17.48% 17.48% 17.02% 16.79%Property, plant & equipment, at cost 129.53% 154.40% 245.73% 311.33% 251.31% 227.70% 226.74% 219.71% 214.44%Less accumulated depreciation, depletion & amortization -57.51% -67.99% -109.68% -148.55% -127.06% -121.55% -127.70% -129.49% -132.02%Property, plant & equipment, net 72.03% 86.41% 136.05% 162.77% 124.25% 106.15% 99.04% 90.22% 82.42%Deferred charges & other assets 2.24% 2.97% 4.91% 5.91% 4.78% 4.38% 4.44% 4.39% 4.39%Goodwill 2.03% 2.17% 3.31% 3.96% 3.06% 2.66% 2.57% 2.42% 2.31%Assets held for sale 0.25% 0.00% 1.05% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Total non-current assets 88.92% 105.58% 166.64% 199.03% 153.21% 132.42% 125.28% 115.80% 107.66%

Total assets 110.88% 125.50% 192.16% 223.87% 181.01% 163.77% 162.31% 157.67% 156.76%

Current liabilities Short-term debt 0.16% 1.79% 3.56% 5.40% 3.98% 1.90% 2.57% 0.38% 1.96%Accounts payable 9.97% 8.96% 9.76% 11.02% 11.75% 11.75% 11.75% 11.75% 11.75%Accrued liabilities 2.36% 2.51% 3.49% 3.68% 3.09% 2.82% 2.80% 2.69% 2.59%Federal & other taxes on income 1.35% 1.21% 1.49% 1.73% 1.56% 1.56% 1.56% 1.56% 1.56%Other taxes payable 0.58% 0.58% 0.81% 0.91% 0.85% 0.99% 1.02% 1.01% 0.97%Total current liabilities 14.43% 15.06% 19.11% 22.74% 21.25% 19.02% 19.70% 17.40% 18.84%

Non-current liabilities Total debt 8.72% 11.30% 25.33% 35.76% 28.83% 25.40% 24.22% 22.65% 21.31%

Less: debt due within one year 0.00% 0.00% -1.07% -5.35% -3.89% -1.54% -2.27% -0.23% -1.51%Total long-term debt, net of current portion 8.72% 11.30% 24.25% 30.41% 24.94% 23.86% 21.95% 22.42% 19.80%Capital lease obligations 0.04% 0.03% 0.06% 0.05% 0.05% 0.04% 0.04% 0.04% 0.04%Deferred credits & other noncurrent obligations 10.04% 11.11% 16.95% 20.46% 15.60% 13.66% 13.19% 12.42% 11.82%Noncurrent deferred income taxes 9.31% 10.34% 14.94% 15.13% 13.56% 11.68% 11.03% 10.25% 10.01%Reserves for employee benefit plans 2.61% 3.97% 5.73% 6.40% 4.95% 4.52% 4.29% 3.99% 3.83%Total non-current liabilities 30.72% 36.75% 61.93% 72.46% 59.10% 53.76% 50.49% 49.12% 45.49%

Total liabilities 45.15% 51.82% 81.04% 95.20% 80.35% 72.78% 70.20% 66.52% 64.33%

EquityCommon stock and APIC 7.67% 8.43% 13.12% 17.05% 14.27% 13.50% 14.06% 13.23% 12.61%Retained earnings 75.89% 87.27% 131.13% 150.55% 116.36% 104.72% 105.73% 105.24% 107.08%Accumulated other comprehensive income (loss) -1.56% -2.29% -3.10% -3.13% -2.41% -2.10% -2.03% -1.91% -1.82%Deferred compensation & benefit plan trust -0.10% -0.11% -0.17% -0.21% -0.16% -0.14% -0.13% -0.13% -0.12%Treasury stock, at cost -16.73% -20.16% -30.69% -36.72% -28.30% -25.83% -26.36% -26.13% -26.16%Total Chevron Corporation stockholders' equity 65.16% 73.14% 110.28% 127.53% 99.75% 90.15% 91.26% 90.31% 91.59%Noncontrolling interests 0.57% 0.55% 0.84% 1.13% 0.92% 0.84% 0.85% 0.84% 0.84%Total equity 65.73% 73.69% 111.13% 128.67% 100.66% 90.99% 92.11% 91.15% 92.44%

Total liabilities and equity 110.88% 125.50% 192.16% 223.87% 181.01% 163.77% 162.31% 157.67% 156.76%

ChevronValue Driver Estimation

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021EKey assumptions:

Marginal tax rate 35% 35% 35% 35% 35% 35% 35% 35% 35%WACC 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50%Normal Cash (% of sales) 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%Cost of Debt 3.67% 3.67% 3.67% 3.67% 3.67% 3.67% 3.67% 3.67% 3.67%

NOPLAT Computation

Sales and other operating revenues 220,156 200,494 129,925 111,721 143,407 163,379 169,089 179,678 188,515Total operating revenues 220,156 200,494 129,925 111,721 143,407 163,379 169,089 179,678 188,515

Purchased crude oil and products 134,696 119,671 69,751 58,965 76,723 89,041 92,153 97,924 102,741OpEx 24,627 25,285 23,034 20,200 21,511 22,873 23,672 24,257 24,507SG&A 4,510 4,494 4,443 4,122 4,302 4,084 4,058 4,043 4,053Exploration 1,861 1,985 3,340 1,104 1,424 1,307 1,353 1,437 1,508Depreciation & amortization 14,186 16,793 21,037 20,029 18,837 18,653 18,288 17,659 17,093Taxes on production 13,063 12,540 12,030 12,074 13,511 13,954 12,481 13,263 13,915Total operating expenses 192,943 180,768 133,635 116,494 136,308 149,913 152,005 158,583 163,817Implied interest on op. leases 116 120 114 110 110 109 107 103 100EBITA 27,329 19,846 (3,596) (4,663) 7,209 13,574 17,190 21,198 24,798

Income tax provision 14,308 11,892 132 (1,698) 4,742 7,714 9,074 10,667 12,098(-)Tax shield on income from equity affiliates 2,634 673 598 869 1,372 1,780 1,843 1,958 2,055

(-)Tax shield on non-operating income (expense) 408 1,532 1,354 532 980 1,335 1,382 1,469 1,541(+) Tax shield on interest expense 0 0 0 (65) (94) (114) (130) (144) (143)(+) Tax shield on implied interest 40 42 40 39 38 38 37 36 35Adjusted Taxes 11,306 9,729 (1,780) (3,125) 2,335 4,524 5,756 7,132 8,394

Change in deferred taxes 3,629 619 (1,231) (3,177) 2,844 (236) (450) (255) 475

NOPLAT: EBITA - Adjusted Taxes + Change in DT 19,651 10,736 (3,047) (4,714) 7,717 8,814 10,984 13,811 16,879

Invested Capital Computation:Normal cash 11,008 10,025 6,496 5,586 7,170 8,169 8,454 8,984 9,426Accounts receivable, net 21,622 16,736 12,860 11,520 13,887 15,936 16,493 17,526 18,388Inventories 6,380 6,505 6,334 5,792 7,056 8,097 8,380 8,905 9,343Prepaid expenses and other current assets 5,732 5,776 4,821 2,500 3,984 4,572 4,732 5,028 5,276Operating Current Assets 44,742 39,042 30,511 25,398 32,097 36,774 38,060 40,443 42,433

Accounts payable 22,815 19,000 13,516 12,756 17,640 20,243 20,951 22,263 23,358Accrued liabilities 5,402 5,328 4,833 4,263 4,646 4,852 4,991 5,094 5,141Operating Current Liabilities 28,217 24,328 18,349 17,019 22,286 25,095 25,942 27,356 28,499

Net Operating WC 16,525 14,714 12,162 8,379 9,811 11,679 12,118 13,087 13,934

PP&E, net 164,829 183,173 188,396 188,367 186,530 182,877 176,590 170,931 163,838PV of operating leases 3,280 3,105 2,998 2,997 2,968 2,910 2,810 2,720 2,607

LT receivables, net 2,833 2,817 2,412 2,420 2,627 3,015 3,120 3,316 3,479Deferred charges and other assets 5,120 6,299 6,801 6,840 7,182 7,541 7,918 8,314 8,730Other LT operating assets 7,953 9,116 9,213 9,260 9,809 10,556 11,038 11,630 12,209

Deferred credits and other noncurrent obligations 22,982 23,549 23,465 23,674 23,418 23,526 23,521 23,535 23,500Other LT operating liabilities 22,982 23,549 23,465 23,674 23,418 23,526 23,521 23,535 23,500

Invested Capital 169,604 186,558 189,304 185,329 185,701 184,496 179,035 174,832 169,087

ROIC 13% 6% -2% -2% 4% 5% 6% 8% 10%Ending NOPLAT 19,651 10,736 (3,047) (4,714) 7,717 8,814 10,984 13,811 16,879Beg. Invested Capital 147,376 169,604 186,558 189,304 185,329 185,701 184,496 179,035 174,832Ending NOPLAT/Beg. Invested Capital 13% 6% -2% -2% 4% 5% 6% 8% 10%

EP 8,596 (1,986) (17,041) (18,915) (6,185) (5,116) (2,856) 381 3,765Beg. Invested Capital 147,376 169,604 186,558 189,304 185,329 185,701 184,496 179,035 174,832ROIC 13% 6% -2% -2% 4% 5% 6% 8% 10%WACC 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50%Beg. Invested Capital*(ROIC - WACC) 8,596 (1,986) (17,041) (18,915) (6,185) (5,116) (2,856) 381 3,765

FCF (2,577) (6,218) (5,793) (740) 7,346 10,020 16,444 18,013 22,624Ending NOPLAT 19,651 10,736 (3,047) (4,714) 7,717 8,814 10,984 13,811 16,879Beg. Invested Capital 147,376 169,604 186,558 189,304 185,329 185,701 184,496 179,035 174,832Ending Invested Capital 169,604 186,558 189,304 185,329 185,701 184,496 179,035 174,832 169,087Ending NOPLAT - (Ending Invested Capital - Beg. Invested Capital)

(2,577) (6,218) (5,793) (740) 7,346 10,020 16,444 18,013 22,624

ChevronCapital Structure

Coupon Maturity Rating Price YTM Bond MV (in millions) Op. Lease PV (in millions) MV Debt (in millions) MV Equity (in millions) Total MV (in millions) Debt % Equity %0.89% 2016 AA- 100.01 0.89% 7000.91% 2017 AA- 100.07 0.88% 9011.34% 2017 AA- 100.32 1.02% 10031.15% 2017 AA- 100.30 0.85% 5020.99% 2017 AA- 100.04 0.95% 6501.35% 2017 AA- 100.18 1.16% 11021.10% 2017 AA- 100.05 1.05% 20011.37% 2018 AA- 100.31 1.13% 17551.01% 2018 AA- 99.88 1.10% 5491.32% 2018 AA- 100.47 1.00% 8541.72% 2018 AA- 100.73 1.24% 20151.33% 2018 AA- 100.29 1.18% 2511.79% 2018 AA- 101.08 1.25% 12644.95% 2019 AA- 108.10 1.38% 16221.56% 2019 AA- 100.51 1.34% 13571.23% 2019 AA- 100.04 1.22% 4002.19% 2019 AA- 102.11 1.46% 7661.96% 2020 AA- 101.08 1.62% 17692.43% 2020 AA- 102.72 1.63% 10272.42% 2020 AA- 102.62 1.73% 12832.10% 2021 AA- 101.01 1.86% 13641.77% 2021 AA- 101.87 1.34% 2551.35% 2021 AA- 99.55 1.81% 3982.41% 2022 AA- 101.96 2.01% 7141.37% 2022 AA- 99.50 1.46% 3482.36% 2022 AA- 100.71 2.23% 20142.57% 2023 AA- 101.40 3.33% 7613.19% 2023 AA- 105.36 2.28% 23713.33% 2025 AA- 105.19 2.66% 7892.95% 2026 AA- 101.40 2.78% 2282

$33,064 $2,998 $36,061 $195,797 $231,858 15.55% 84.45%

Debt % Equity % 2016E 15.55% 84.45%

ChevronWeighted Average Cost of Capital (WACC) Estimation

Weekly Beta (Bloomberg) 2016E Firm Value 1 yr. 0.788 Equity MV $195,7972 yr. 1.273 Debt MV $36,0613 yr. 1.216 Total MV $231,8584 yr. 1.1525 yr. 1.196 Est. Capital Structure 2016E-2021E10 yr. 1.039 Equity % 84.45%

Debt % 15.55%Cost of equity 8.43%

Risk Free Rate 2.56% Implied Constant WACC 2016E-2021EBeta 1.17 7.50%Market Risk Premium 5%

Cost of debt 3.67% Marginal Tax Rate 35%Risk Free Rate 2.56%Spread over Risk Free Rate 1.11%Duration adjustment 0.12%Spread over 10-Year UST 0.99%10-Year UST 1.79%2026 Bond YTM 2.78%

ChevronDiscounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth 3.00% CV ROIC 9.65% WACC 7.50% Cost of Equity 8.43%

Fiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E 2020E 2021E1 2 3 4 5 6

DCF ModelNOPLAT (4,714) 7,717 8,814 10,984 13,811 16,879Beg. IC 189,304 185,329 185,701 184,496 179,035 174,832End IC 185,329 185,701 184,496 179,035 174,832 169,087Change in IC (3,975) 372 (1,205) (5,461) (4,202) (5,745)ROIC -2% 4% 5% 6% 8% 10%

FCF (740) 7,346 10,020 16,444 18,013 22,624CV 258,468PV of FCF (688) 6,356 8,065 12,313 12,547 180,027

Value of Operating Assets 218,620Excess Cash 4,526Pension surplus (4,516)Investment securities ST 310Bond MV (33,064)PV of Operating Leases (2,998)PV of ESOP (1,699)Noncontrolling Interest (1,170)Value of Equity 180,009Year End Shares Outstanding 1,869

Price (12/31/15) $96.33Price today $99.85

EP ModelNOPLAT (4,714) 7,717 8,814 10,984 13,811 16,879Beg. IC 189,304 185,329 185,701 184,496 179,035 174,832End IC 185,329 185,701 184,496 179,035 174,832 169,087ROIC -2% 4% 5% 6% 8% 10%

EP (18,915) (6,185) (5,116) (2,856) 381 3,765CV 83,636PV of EP (17,595) (5,352) (4,118) (2,138) 265 58,254

Sum PV of EP 29,316Beg. IC 189,304Value of Operating Assets 218,620

Excess Cash 4,526Pension surplus (4,516)Investment securities ST 310Bond MV (33,064)PV of Operating Leases (2,998)PV of ESOP (1,699)Noncontrolling Interest (1,170)Value of Equity 180,009Year End Shares Outstanding 1,869

Price (09/30/15) $96.33Price today $99.85

ChevronDividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E 2020E 2021E

1 2 3 4 5 6EPS $0.37 $4.63 $7.50 $8.87 $10.49 $12.00

Key Assumptions CV growth 3.25% CV ROE 8.39% Cost of Equity 8.43%

Future Cash Flows P/E Multiple (CV Year) 11.83 EPS (CV Year) $12.00 Future Stock Price $141.86 Dividends Per Share Future Cash Flows $4.29 $4.38 $4.48 $4.60 $4.72 $4.80

Discounted Cash Flows $3.96 $3.73 $3.51 $3.33 $3.15 $94.65

Intrinsic Value (12/31/2015) $108.37Price Today $112.32

ChevronRelative Valuation Models

Sales (B) Sales (B) EV (B) EBITDATicker Company Price Market Cap (B) 2016E 2017E P/S 16 P/S 17 2016E 2016E EV/EBITDABP BP p.l.c. $33.54 $104.00 $203.64 $242.04 0.51 0.43 $136.00 $10.22 13.31 XOM Exxon Mobil $83.57 $346.56 $226.04 $314.38 1.53 1.10 $402.00 $22.30 18.03 COP ConocoPhillips $42.76 $52.98 $24.94 $35.27 2.12 1.50 $79.23 $5.10 15.54 RDS.B Royal Dutch Shell $52.96 $201.00 $263.15 $274.85 0.76 0.73 $278.80 $24.00 11.62 TOT Total SA $46.43 $117.42 $129.08 $157.68 0.91 0.74 $151.30 $19.40 7.80 PSX Phillips 66 $78.60 $40.95 $87.50 $117.39 0.47 0.35 $51.35 $3.24 15.85

Average 1.1 0.8 13.7 Source: FactSet; Yahoo! Finance

CVX Chevron $104.78 $195.83 $115.72 $150.13 1.7 1.3 231.9 19.3 12.0

Implied Value: Relative P/S (2016) $ 121.70 Relative P/S (2017) 121.58$

EV/EBITDA (2016) 121.78$

DDM DCF/EP

CV Growth EPS Oil Price 2019E$112.32 2.00% 2.50% 3.25% 3.50% 4.00% $99.85 40.00 50.00 55.00 70.00 80.00

2% $114.37 $114.32 $114.22 $114.18 $114.09 40.00 $91.61 $94.31 $95.89 $101.53 $106.043% $113.47 $113.41 $113.31 $113.27 $113.18 50.00 $94.34 $97.05 $98.63 $104.27 $108.78

Dividend Yield 4% $112.48 $112.42 $112.32 $112.28 $112.19 Oil Price 2018E 54.01 $95.61 $98.32 $99.85 $105.53 $110.045% $111.65 $111.59 $111.50 $111.46 $111.36 70.00 $101.64 $104.35 $105.93 $111.57 $116.086% $110.73 $110.68 $110.58 $110.55 $110.45 80.00 $106.21 $108.91 $110.49 $116.13 $120.64

Risk Premium Oil Price 2020E$112.32 4.00% 4.50% 5.00% 5.50% 6.00% $99.85 40.00 50.00 56.67 70.00 80.00

1.00 $180.21 $155.49 $136.54 $121.54 $109.39 40.00 $93.61 $94.73 $95.61 $97.71 $99.571.10 $159.90 $138.23 $121.54 $108.30 $97.54 50.00 $96.32 $97.44 $98.32 $100.41 $102.28

Beta 1.17 $147.50 $127.64 $112.32 $100.14 $90.22 Oil Price 2019E 55.00 $97.90 $99.01 $99.85 $101.99 $103.851.27 $133.91 $116.02 $102.17 $91.13 $82.15 70.00 $103.53 $104.65 $105.53 $107.63 $109.491.37 $122.08 $105.87 $93.29 $83.25 $75.06 80.00 $108.04 $109.16 $110.04 $112.14 $114.00

Risk Free Rate$112.32 2.00% 2.25% 2.56% 3.00% 3.50%

25% $150.52 $142.19 $132.97 $121.66 $110.8030% $138.69 $131.07 $122.65 $112.30 $102.37

Marginal Tax Rate 35% $126.85 $119.95 $112.32 $102.95 $93.9440% $115.02 $108.83 $101.99 $93.59 $85.5245% $103.18 $97.71 $91.67 $84.23 $77.09

ChevronKey Management Ratios

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E

Liquidity RatiosQuick Ratio 1.15 0.94 0.91 0.78 0.96 1.26 1.51 1.98 2.22

(cash+ST investments+AR/current liabilities)

Current Ratio 1.52 1.32 1.34 1.09 1.31 1.65 1.88 2.41 2.61(current assets/current liabilities)

Activity or Asset-Management RatiosAR turnover 10.33 10.45 8.78 9.16 11.29 10.96 10.43 10.56 10.50

(operating rev/avg. AR)Asset turnover 0.90 0.77 0.49 0.43 0.54 0.59 0.59 0.61 0.62

(sales/avg. total assets)

Financial Leverage RatiosDebt as % of total assets 7.87% 9.01% 13.18% 15.97% 15.93% 15.51% 14.92% 14.37% 13.59%

(BV total debt/BV total assets) Debt-to-Equity Ratio 0.13 0.15 0.23 0.28 0.29 0.28 0.26 0.25 0.23

(BV total debt/BV equity)Interest Coverage Ratio 0.00 0.00 0.00 -12.11 50.37 67.89 69.71 74.29 84.77

(op. income/int. exp.)

Profitability RatiosGross Margin 41.14% 43.54% 49.63% 49.05% 48.89% 48.32% 48.32% 48.32% 48.32%

(total revs - cost of purchased oil/total revs)

Operating Margin 15.69% 14.72% 3.50% -0.67% 9.20% 12.98% 14.75% 16.30% 17.59%(total revs - operating expenses/total revs)

ROA 5.79% 1.15% 1.15% 0.18% 2.18% 3.41% 3.91% 4.46% 4.87%(NI/avg. BV assets)

ROE 9.86% 8.38% 1.99% 0.31% 3.91% 6.19% 7.00% 7.84% 8.39%(NI/avg. BV equity)

Payout Policy RatiosDividend payout 34.89% 41.22% 174.25% 1164.75% 94.68% 59.77% 51.89% 45.02% 40.01%