Earlier this year, with Iranian navy helicopters closing in, the Advantage Sweet, a 274-meter-long crude-oil tanker cruising in international waters through the Gulf of Oman en route from Kuwait to Houston, sent out a distress signal. <\/p>\n
To no avail. <\/p>\n
The next day, April 28, Iranian state TV released a chilling video showing armed, masked commandos rappelling down from their chopper to seize the ship, one of them raising his fist in apparent triumph. <\/p>\n
Three months later, the U.S. Navy guided-missile destroyer USS McFaul received another distress call, this time from the Richmond Voyager, a very large crude carrier also in the Gulf of Oman. An Iranian naval vessel was stalking the ship and subsequently \u201cfired multiple, long bursts from both small arms and crew-served weapons,\u201d the Navy said, strafing the ship, with several rounds hitting the ship\u2019s hull near crew living spaces. Fortunately, the ship sustained no casualties or significant damage, and the McFaul drove off the Iranian navy vessel.<\/p>\n
Yes, this high-stakes geopolitical drama sits squarely in the remit of the Pentagon and the State Department. But as both tankers were managed or chartered by oil giant
\n Chevron
\n (ticker: CVX), it falls directly in the lap of Mike Wirth, Chevron\u2019s CEO, for whom this is almost just another day at the office.<\/p>\n
We\u2019ve all heard how manifold the supply chain is for a company like
\n Apple
\n (AAPL) or
\n Ford Motor
\n (F), but when it comes to sheer global complexity, nothing comes close to running an international integrated oil-and-gas company like Chevron and other oil majors like archrival
\n Exxon Mobil
\n (XOM),
\n BP
\n (BP), and
\n Shell
\n (SHEL).<\/p>\n
<\/p>\n Chevron\u2019s capital ($14 billion in capital expenditure), manpower (43,846 employees), scale (more than 100 countries), technology, chemistry, and processes (6,900 patents or patents pending)\u2014and, yes, the accompanying political risk, including in the company\u2019s home state of California\u2014is ginormous. But when all of this works\u2014as it is now, with the price of crude oil spiking from $67 a barrel in late June to $93 this past week\u2014there are tens of billions of dollars to be made for shareholders. And Chevron has stood out from the pack in recent years.<\/p>\n \u201cChevron has done a better job over the last decade on capital allocation,\u201d says Roger Read, an analyst at Wells Fargo, who has an Overweight rating on Chevron stock. \u201cThey\u2019ve invested in their organic businesses. They\u2019ve walked away from acquisitions when they didn\u2019t make sense but also made the right deals.\u201d<\/p>\n Read points to Chevron\u2019s estimated free cash flow per share of $11.57 this year and $16.11 in 2024. Return on average capital employed, which indicates how profitable a company\u2019s investments are, hit 22.7% last year. It has dipped to 15.3% this year because oil prices have been down, but, as Read says, a \u201cmidteens performance is a very good result.\u201d<\/p>\n And Chevron stock has done well since Wirth took the reins on Feb. 1, 2018, outperforming the Buffett first bought some 48 million shares of Chevron in 2020s fourth quarter, then massively boosted his stake to 159 million in the first quarter of 2022 and topped off the holding to 165 million shares in the third quarter of last year. Since then, Buffett has pared back to 123 million shares, still a 6.3% stake worth over $20 billion. I recently wrote about a bet between Buffett and Wirth, with Buffett emailing me, \u201cI entered into this speculation knowing Mike was far smarter than I am in finding oil and gas and who knows what other mental endeavors.\u201d<\/p>\n Chevron and To compete with Exxon and myriad other players, Chevron operates in a number of challenging environments, including Venezuela.<\/p>\n You may not realize it, but that country has the world\u2019s largest oil reserves (bigger than Saudi Arabia), with some 17.5% of the world\u2019s supply (303.8 billion barrels). Venezuela is also a barely functioning basket case and under sanctions by the U.S. Treasury and State Department. <\/p>\n How the heck does Chevron operate there?<\/p>\n \u201cWe\u2019ve been in Venezuela for the better part of the last 100 years,\u201d Wirth told me in an interview as part of our At Barron\u2019s<\/em> series. \u201cMost other Western companies have actually left. We\u2019ve got a number of Venezuelan employees, and we\u2019re believers in the country. The rules that had been put in place by the U.S. government have recently been modified to encourage the flow of some of the wealth from Venezuela to the U.S. Funds from those oil exports can only be used for prescribed purposes. We\u2019ve had to put in place a financial architecture to ensure that the cash [goes] to pay taxes, royalties, [and] legitimate expenses. We\u2019re seeing Venezuelan oil come here, which has helped improve U.S. energy security.\u201d<\/p>\n Then there\u2019s Kazakhstan, where Chevron has a significant presence but had to reduce production for a time last year after a spate of violence. Also last year, the company pulled out of Myanmar because of \u201cviolence and human rights abuses.\u201d Chevron has a 39.66% stake in Israel\u2019s mega-Leviathan gas field, located some 80 miles offshore from Haifa. (Fun fact: Chevron\u2019s predecessor discovered the massive Ghawar Field in Saudi Arabia, with its subsidiary becoming the predecessor of Saudi Aramco.)<\/p>\n That laundry list of locales reminds me of what an oil analyst once told me about yet-to-be discovered oil. \u201cOh, there\u2019s plenty out there still,\u201d he said. \u201cLots in Libya, Iran, and Iraq.\u201d All the garden spots, I thought.<\/p>\n Chevron does operate in some friendlier environs, Australia being one of them, except that the company recently had to face down labor strife at its massive Gorgon liquid-natural-gas facility off the coast of northwest Australia, which provides much of Japan\u2019s natural gas and some 5% of the world\u2019s supply. In late September, Chevron and striking union workers agreed in principle to a deal that will raise wages and improve job security. <\/p>\n A major portion of Chevron\u2019s production, though\u201439.4%\u2014is right here in the good ol\u2019 USA, including in the Permian Basin, which has created its own set of worries. Though Tom Loughrey, president of oil-and-gas research firm FLOW Partners, calls Chevron\u2019s acreage in the Permian \u201cone of the best oil and gas assets in the world,\u201d he says that \u201cChevron has a relatively small acreage position for the size of their company.\u201d And he says that \u201ctheir performance is going down as their wells are getting closer together. Their capital efficiency has been dropping.\u201d <\/p>\n Read disagrees. \u201cWe don\u2019t worry about Chevron\u2019s performance in the Permian,\u201d he says. \u201cYes, some of the results may be underwhelming. The market had reasons for doubt. But we recognize there\u2019s good and bad quarters, relative to expectations, relative to the most recent performance.\u201d<\/p>\n Chevron pioneered the oil business in California through its early incarnations Star Oil and Pacific Coast Oil, the latter of which John D. Rockefeller bought in 1900 for a bargain $761,000, or $27.8 million in today\u2019s dollars. Rockefeller then formed Standard Oil of California, which went on to become Chevron, later merging with Gulf Oil (1984) and buying Texaco (2001) and Unocal (2005). Chevron has kept its headquarters in California, that bluest of blue states, for 144 years, which made it particularly galling when earlier this month, its home state\u2019s attorney general, Rob Bonta, sued five oil companies; Exxon, Shell, BP, Wirth was raised in purple state Colorado. His father worked at Coors, then owned by the conservative Coors family. Wirth attended the University of Colorado (majoring in chemical engineering) in crunchy granola Boulder, so he knows all about the game of red state\/blue state. <\/p>\n \u201cClimate change is real, there\u2019s no doubt about it,\u201d Wirth says. \u201cOur company accepts the findings of the IPCC [Intergovernmental Panel on Climate Change of the United Nations] and is taking steps to decarbonize our business [to] help address the challenge. We\u2019ve committed to spend $10 billion over just the next few years on hydrogen, renewable fuels, carbon capture and storage. For those who say, \u2018You\u2019re not doing enough,\u2019 throwing more money at technologies that have not yet been proven at scale, that are not cost competitive, doesn\u2019t necessarily make them better, it just throws more money at something.\u201d <\/p>\n \u201cThere [are] millions of people who need access to energy in a cost-effective, clean, as well as a reliable way,\u201d Chevron board member Baroness Dambisa Moyo told me in an At Barron\u2019s <\/em>interview earlier this year.<\/p>\n Some people have moral qualms about investing in oil stocks, which is understandable. Truth is, though, if we shut down Chevron et al., our economy would shut down, too. Looking just at the costs of what Chevron does\u2014producing and selling hydrocarbons\u2014without looking at the benefits reminds me of what Buffett\u2019s partner Charlie Munger told me about Berkshire\u2019s investment in \u201cPeople have to take in this immense amount of water every day or they will die. One of the things you can do to add to daily pleasure is flavor the water and get a tiny touch of stimulation from it. That basically does more good than harm, in my opinion….If the average life on the planet is one week shorter because everybody is drinking soft drinks, I think that\u2019s a choice people ought to be allowed to make.\u201d <\/p>\n Munger continued, \u201cWhat could be more asinine than making a judgment about something without taking into account both the advantages and disadvantages? What kind of a nut would just look at one side and not the other?\u201d<\/p>\n Wirth and his investors have discovered that some folks may be doing that, bringing big risk right to Chevron\u2019s front door. <\/p>\n
\n <\/figcaption><\/figure>\n<\/p><\/div>\n
\n Energy Select Sector SPDR
\n exchange-traded fund (XLE), of which Chevron is a 18% component, and the
\n SPDR S&P Oil & Gas Exploration & Production
\n ETF (XOP). Chevron is lagging behind the S&P 500 index during Wirth\u2019s tenure, but it handily outperformed the index last year\u2014which is when Warren Buffett loaded up the
\n Berkshire Hathaway
\n (BRK.A) truck with Chevron stock.<\/p>\n
\n Occidental Petroleum
\n (OXY) were Buffett\u2019s two big oil plays as of late, with Exxon being conspicuously absent\u2014although Exxon outperformed Chevron over the past year. \u201cIt\u2019s not so much that Chevron did anything wrong; it\u2019s more like Exxon corrected course,\u201d Read explains.<\/p>\n
\n ConocoPhillips
\n (COP), and Chevron\u2014accusing them of knowingly downplaying the damaging effects of fossil fuels. <\/p>\n
\n Coca-Cola
\n (KO):<\/p>\n