Chevron Corporation (Nyse:cvx) Is One Thesis

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A. (RECOPE, S.A), based on Costa Rica. There is also the Columbian nationalized oil conglomerate operating under the name Empresa Colombiana de Petroleos (ECOPETROL). Both of Chevron's largest global competitors are nationalized by the nations they operate in, which make pricing and market execution strategies in these specific countries difficult. In addition, there are significant cultural differences between the U.S. And these countries as well. As a result, there continues to be a strong push towards creating more co-ownership of oil refineries, production centers and operations between U.S..-based companies working in the area and national governments. In the case of the Brazilian government, who approached Chevron about such an arrangement in 2008 specifically for partnership with Petroleo Brasileiro S.A., Chevron declined to enter into a nationalized-based alliance with the company and nation and instead sold the assets of their refineries to Brasileiro S.A. instead (Wall Street Journal, 2008). In Mexico, Chevron competes with Petroleos Mexicanos (Pemex), another partially nationalized oil producer, which has sought to have an alliance with Chevron to gain access to American markets through the NAFTA Agreement. Latin American and Mexican oil producing companies however are more focused on how to gain access to American markets while attaining the economies of scale achievable through nationalization, which makes the level of competition in these alliances formidable. Chevron therefore has been reluctant to create partnerships with nationalized oil producers as a result (DataMonitor: Oil & Gas Exploration & Production Industry Profile, 2008).

Additional competitors globally include the entirely nationalized Russian oil producer Surgutneftegaz OAO, which Chevron is relying on Unocal's assets and fields in that region to provide competitive parity.

There are nearly a dozen other competitors Chevron has globally including Royal Dutch Shell Plc, China Petroleum & Chemical Corp. Inc., Jinzhou Petrochemical Co Ltd., PetroChina Co Ltd., all in China. StatoilHydro ASA, Valero Energy Corp., Repsol YPF, S.A., Nippon Oil Corp, SK Corp. (Korea), Marathon Oil Corp., and PTT Public Co Ltd. In total, Chevron has eighteen competitors over $50B in sales in 2008, each with significantly different levels of performance and process efficiency as indicated by the employee headcounts shown in Table 3, Chevron Global Competitors Financial Results, 2008. Provided in the analysis are Revenues, Net Income, Total Assets, Total Liabilities, and Total Employee Count. With nearly 40% of competitive revenues coming out of the highly nationalized regions of South America and Mexico, it is clear that Chevron faces significant competitive challenge in this region of the world (DataMonitor: Oil & Gas Industry Profile, 2008) yet cannot specifically participate in nationalization efforts or risk impacting their own profitability. Instead, Chevron will need to selectively compete in key Latin American and Mexican markets by first focusing on their innate efficiencies in diesel products (National Petroleum News, 2006) and redefine the role of all competitors in this industry by embracing global eco-friendly, sustainability and "green" initiatives (Harding, 2007). Instead of concentrating then on global competition on price, Chevron is successfully changing the focus to its core strengths of diesel (National Petroleum News, 2006) and sustainability or green marketing (Harding, 2007).

Table 3: Chevron Global Competitors Financial Results

Revenues Net Income Total Assets Total Liabilities Empl. Refinadora Costarricense de Petroleos S.A. (RECOPE, S.A) (Costa Rica)

Empresa Colombiana de Petroleos - ECOPETROL (Colombia)

Petroleos Mexicanos (Pemex) (Mexico)

Surgutneftegaz OAO (Russia)

Exxon Mobil Corp.

Royal Dutch Shell Plc

Chevron Corporation $

220,904,000,000 $

148,786,000,000 $

65,000 ConocoPhillips

China Petroleum & Chemical Corp. Inc. Jinzhou Petrochemical Co Ltd.

PetroChina Co Ltd.

StatoilHydro ASA

Petroleo Brasileiro S.A.

Valero Energy Corp. (New)

Repsol YPF, S.A.

Nippon Oil Corp

SK Corp. (Korea)

Marathon Oil Corp.

PTT Public Co Ltd.

Domestic Competitors

Exxon is the largest competitor that Chevron has in the U.S. with $404B in revenues attained during 2008. Conoco-Phillips is just below Chevron with $194M in revenue during 2008 as well. The majority of competitors have annual revenues below $100B in the U.S., lead by Valero Energy and Marathon Oil. Table 4, Chevron U.S. Competitors, 2008 provides an analysis of 2008 Revenues, Net Income, Total Assets, Total Liabilities and Employees.

Table 4: Chevron U.S. Competitors, 2008

Revenues

Net Income

Total Assets

Total Liabilities

Employees

Exxon Mobil Corp.

Chevron Corporation

ConocoPhillips

Valero Energy Corp. (New)

Marathon Oil Corp.

Sunoco, Inc.

Hess Corp

Tesoro Corporation

PDV America, Inc.

Shell Oil Co.

Murphy Oil Corp

United States Steel Corp. (New) Anadarko Petroleum Corp

Premcor Refining Group, Inc.

Chevron Global Marketing

Chevron has specifically organized their global marketing function into a specific cross-functional resource that all other product divisions rely on. Appropriately called the Global Marketing Division, this organization serves 26 nations and has a structure that aligns marketing directors to each region of the world in addition to marketing staffs for executing strategies and tactics.

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One of the global marketing initiatives has been the defining of a more performance-oriented unique value proposition for the company (National Petroleum News, 2006) in addition to the sustainability and green initiatives the company has successfully launched for low-emissions fuels (Harding, 2007). One of the core strengths of Chevron is their ability to execute from a marketing standpoint globally. Figure 4, Global Market Share of the Oil, Gas and Exploration Markets, 2007, shows Chevron with a 2.4% globally as a result. Considering the fact that its top three global competitors benefit from heavy nationalization this is a significant accomplishment.

Figure 4: Global Market Share of the Oil, Gas and Exploration Markets, 2007

Company

Market Share Range

Saudi Arabian Oil Company

National Iranian Oil Company

Petroleos Mexicanos

Exxon Mobil Corporation

Chevron Corporation

PetroChina Company Limited

Royal Dutch Shell plc

Source: (DataMonitor: Oil & Gas Exploration & Production Industry Profile, 2008)

Within the Oil and Gas Exploration industry Chevron is considered a global leader in marketing execution, specifically in the area of events (Lofstock, 2007). In addition, Chevron Global Marketing's research unit has been responsible for the development of several marketing initiatives globally to integrate refinery operations into communities as part of a Corporate Social Responsibility (CSR) initiative (Franco, 2008) the company has created. In addition, Chevron Global Marketing also has one of the industry's most well planned and executed retail networks comprised of approximation 25,800 retail outlets globally (DataMonitor: Oil & Gas Industry Profile, 2008). As Chevron Global Marketing is one of the company's core strengths it is discussed in the next section in greater detail. The greatest challenge the company has faced however from a marketing standpoint are the difficult issues of Corporate Social Responsibility (CSR) (Agrawal, Lemos, 2007).

SWOT Analysis

The following is an analysis of the strengths, weaknesses, opportunities and strengths of Chevron.

Strengths

First, the company has attained strong market position globally, against competitors who have in the majority of cases, been nationalized and therefore benefit from significant infusions of cash from their home nations. Second, Chevron has worked to define a very efficient energy value chain globally (DataMonitor: Oil & Gas Exploration & Production Industry Profile, 2008) that has served as the foundation for the company achieving predictable and steady financial performance (Haldis, 2008). Fourth and most significant, the Chevron Global Marketing organization is considered one of the most in the industry (DataMonitor: Oil & Gas Industry Profile, 2008) due to its distribution network mentioned earlier, and its aviation fuel sales in nearly 1,000 different airports. Chevron commands an 11% market share in aviation fuel globally as well (DataMonitor: Oil & Gas Exploration & Production Industry Profile, 2008). The marketing and distribution of Havoline, Delo Ursa, Meropa and Taro are all leading brands in the markets served as well.

Weaknesses

Weaknesses that Chevron faces globally is the need for greater CSR-based programs in Nigeria, where there has been a strong push for nationalization in addition to worker unrest, which led to the sale of refineries to the nation (Corrin, 2008). Second, the company is facing a series of lawsuit from the Iraqi government, which has accused and now sued 70 different corporations accusing them of paying kickbacks to Saddam Hussein, specifically as part of the Oil-for-Food program initiated by the U.N. Third, the weaknesses of declining oil and gas reserves globally and the reduction in the quality of high grade oil (DataMonitor: Oil & Gas Industry Profile, 2008) and the reduction in sales of aftermarket refined products (ibid) are also significant weaknesses that the company is facing globally as it enters 2009.

Opportunities

Opportunities for Chevron are many, with the three most significant globally being the opportunity to capitalize on biofuels and the increasing emphasis on sustainability (Harding, 2007) in addition to low-emission fuels. The second is the continual growth for liquefied natural gas that Chevron is well positioned to capitalize on globally due to its production and distribution centers in regions of the world where this resource is mined. This includes Russia and the Eastern European nations that have since become accessible with the Unocal acquisition (Stone, Leary, 2007). Third, demand for refined products continues to increase significantly….....

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