Chevron is Still Concerned With Side Shows
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Chevron (NYSE: CVX) for a long time has been one of my favorite energy stocks. I am usually bullish about the stock. Nonetheless, prevalent forces and conditions in the market are beginning to weigh on my slant. I really cannot say that I rally the same spirit that I did a while back. Why is this so? Competition from Exxon is simply overwhelming. To aggravate the situation, Chevron is doing the right things at the wrong time. What do I mean? While Exxon (NYSE: XOM), a core competitor, has streamlined its operation towards the ‘gold rush’ in Mexico while Chevron is still concerned with side shows.
Everyone Experiences Litigation but the End Determinant is Tact
The litigation drama between Chevron and Ecuador natives will forever haunt the petroleum heavyweight. This drama has spawned a lot of adversity and in the process contributed to movements that candidly display hate and bitterness. According to the plaintiffs, Chevron knowingly dumped toxins in the treasured rain forests. Judgment has already been passed on the case. Chevron is to part with a staggering $18 billion - this will definitely leave a scar as far as its market value is concerned.
Tact should have swiftly followed in the wake of the judgment. Unfortunately, it did not. For starters, Chevron made allegations of fraud before the dreaded $18 billion judgment was made and raised the tempo right after the judgment. It also pushed forward with a lawsuit on the account of fraud and made it crystal clear that it would not pay a single dime.
My take - quite an impressive, albeit tactless, display of protecting self interest. Chevron needs to remember that the public are also stakeholders. This does not mean that it should accept liability, but it suggests that it should tread carefully amid mounting pressure. Lashing out at the public is sometimes known to blow out of proportion. The only thing that adds weight to an expensive litigation is a heated pack of activists on your tail.
Taking a look at Exxon’s case with the Indonesians (which by the way is far much serious), you will be surprised by the contrast in behavior between Exxon and Chevron. Exxon has chosen to limit its contact with the case and exclusively leaves the talking to the lawyers in court. Unlike Chevron, it places all of its energy on its operations.
This issue of tact really casts a dark shadow on Chevron. I don’t have much of an issue with its operations; I am, however, worried that it does not balance the interests of its stakeholders. Apparently, I am not the only one who thinks in a similar fashion. A section of shareholders’ pleas to put a halt to the judgment follow up procedures have gone by unnoticed.
Tendencies of a Bearish Stock
Chevron has cut ties with Ogilvy Government Relations. It cited a material conflict of interest and to be honest gave no conclusive information on the actual cause of the early demise of its relationship with Ogilvy. This raises a lot of questions. On one end, it invites a question of doubt and dishonesty. Why isn’t Chevron exposing crucial details of the fall out? On another end, it questions Chevron’s stability. Is the big wig petroleum producer crumbling from within?
I don’t want to comment on these questions. Nonetheless, I am sure that this news is not doing Chevron any good.
Shred of Hope
In person, the only thing that in a way reassures and restores hope is Chevron’s eye for ‘gold’ in Mexico. Oil heavyweights have flooded the Mexican market following the cheap cost of natural gas. This bandwagon effect has not left Chevron out of the equation. Interestingly, Chevron has gone a step further than using cheap natural gas. It is looking for mature oil fields off Mexico. For me this is a good sign.
Mexico is in the process of luring in many oil majors. Its oil industry is likely to experience a buzz in the near future. It is important for Chevron to establish a solid platform right now. This platform will definitely act like a springboard to success when the Mexican market is cast into mainstream operations.
The harsh reality is that Chevron is not seeing its best of days. Nonetheless, there is some logical sense in placing some confidence in a player with a reputable track record and favorable fundamentals.
muhammadbazil owns shares of ExxonMobil. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.