CHEVRON U. S. A. INC. v. ECHAZABAL [2002] (United States Supreme Court), is a case showing that in today’s life, risks have become the order of the day due to their manner of inevitability. Personal independence is brought about through effective means of assessing and accepting the daily risks.
Case Facts
After congress understood the essence of individual autonomy, the Act of disabled Americans was formulated, and it states that there are many forms of discrimination, such as stereotyping and paternalism. The regulations to this Act were crucial for determining the CHEVRON U. S. A. INC. v. ECHAZABAL case in 2002 by the Supreme Court.
Case issues
The petitioner was Chevron U.S.A., Inc., and Echazabal was the respondent. Chevron refused to hire Echazabal, citing his health conditions would deteriorate due to the conditions at the workplace. The law court decided in errand of Chevron setting evidence from EEOC’s suggestions which elaborates the direct threat problem (CHEVRON U. S. A. INC. v. ECHAZABAL, [2002]). The effects of this particular decision of the Supreme Court are taking the course in today’s rulings considering that employers fail to employ qualified people because of their disabilities.
Case Holdings
The period was between 2000 and 2001 when the Supreme Court decided CHEVRON U. S. A. INC. v. ECHAZABAL. The court submitted to EEOC guidelines which allow employers to refute an engagement to any person if the position will openly impend the individual’s health. On the part of Chevron, the court reconsidered that a determination on the uninterrupted danger must be based on a personal assessment of the employee’s condition. The extent of the threat should be assessed considering the wellbeing condition hint provided by the person and no abolition can occur by sound space. Mario Echazabal had already performed several jobs in Chevron’s refinery without causing any harm to others or himself for twenty years (CHEVRON U. S. A. INC. v. ECHAZABAL, [2002]).
This shows that he was fit to make personal decisions regarding employment status and health conditions. All through this period, Chevron was aware of Echazabal’s disease through the continuous medical evaluations conducted on the employer. Many uncertainties arose among many Americans capable of working but cannot secure the opportunities due to the Chevron decision.
The rationale of the Case
The regulations of the Equal Employment Opportunity Commission were the basis of the Supreme Court decision. The court submitted to EEOC regulations that grant an employer the mandate to reject a work chance to any individual if the position will be a straight threat to the individual’s well-being. The respondent argued that a threat to self was not evident in the ADA’s language, contradicted a plain of the Act, and showed inconsistency in the intention of the congress. A threat to self-defense gives employers the right to decide on the magnitude of risk that a qualified but disabled individual can or should accept to take a job.
The defense allows job owners to dismiss the job workers who do not pose health threats to other employees but are risks to their health. In Echazabal’s case, the determination was so speculative and was based on a lame medical strategy. It was a decision that could later be enacted through several changes in the ADA. This was caused by some unjustified paternalism that congress aimed to eliminate.
Opinions
The court considered that Title 1 ADA creates a defense for employers based on related job qualification standards. An individual should not be a threat to the safety and health of other persons in the workplace. However, this is if the person is not in a position to act safely with reasonable accommodation. The EEOC allows the employer to exclude employees who are potential threats to themselves. In this case, Echazabal should not have been excluded as a direct threat without a direct assessment by Chevron on his ability to continue with his job. This was an immediate requirement in the EEOC regulations where Chevron ought to have proved the threat posed by Echazabal. A personal opinion is that it is essential to derive evaluations from existing medical objectives and knowledge.
Work Cited
CHEVRON U. S. A. INC. v. ECHAZABAL [2002] (United States Supreme Court).
Chevron Corporation (Chevron) is a leading multinational company operating in the integrated energy sector. The company deals in oil, gas, and geothermal energy. It was established in 1926 and is headquartered in San Ramon, California. It has an operation in 180 countries worldwide. It operates in the upstream and downstream markets. Though, historically the company has shown excellent performance, it has deteriorated considerably in the last two years (2014 and 2015).
The global oil and gas industry is highly volatile and susceptible to fluctuating energy prices. Both macro and microeconomic factors affect industry performance. High global crude prices since 2014 have affected the industry adversely. Further, the global financial crisis of 2007 that crippled most of the industries had also taken a toll on the energy sector. Notwithstanding the high industry pressure, Chevron has performed significantly vis-à-vis its closest competitors Dutch Shell Company (Shell) and Exxon.
The present financial analysis of the company demonstrates that Chevron has performed satisfactorily as compared to the industry averages. However, Free Cash Flow continues to give negative results. According to our analysis, this is probably due to the downward trend in oil prices. Overall, Chevron can be considered as a stable company for investment, though it cannot be considered completely risk-free.
The Industry
Chevron operates in the oil and gas sector. Its main operations are mining and refining of crude oil and gas. In addition, this sector includes all other industries that operate as ancillary industries. It is evident that this sector is highly important in establishing the infrastructural backbone of society.
History
The history of the oil and gas industry in the US dates back to the Industrial Revolution in the 19th century. The sudden rise in demand for oil due to the commercial usage of railroads, iron and steel industry, and construction industry, increased the necessity to supply energy. This resulted in the proliferation of oil drilling companies in the US. However, Standard Oil was the first company to secure the first contract to drill oil in Saudi Arabia (Wall).
This opened the road for other companies to operate globally. By the 1950s, four companies were the global leaders in the oil industry – Standard Oil, Exxon, Shell, and British Petroleum (Eden 73). These four companies retained the lion’s share (almost 70 percent) of the global oil market (Eden 73). Currently, the two main drilling destinations for the oil companies are the Middle Eastern region and Venezuela.
Challenges
The oil and gas sector faces high demand due to increasing developmental needs around the globe. However, the companies that operate in the industry are large, as operations require large infrastructural investment. This increases the rivalry in the market. Further, the industry also faces the threat of new entrants who want to make their mark in the industry. Further, crude oil prices have been declining since 2014. Crude oil prices have recorded a 10-year low in 2016 increasing the challenges for the oil and gas industry (Chevron, “Chevron Annual Report”). This has reduced profit margin of most of the companies. As the profit margin of the incumbents reduced considerably, this has attracted many new operators, further increasing competitive pressure on the industry.
Another challenge faced by the industry is the political unrest in the Middle Eastern countries that raises the risk of drilling in the region. The Middle East is one of the main drilling grounds for the industry. The proliferation of violence in the region escalates risk for the company operating in the region.
Environmental regulations and litigations pose a big challenge to the continuation of operation in the industry. Laws pertaining to greenhouse gas and safer environment have continually increased pressure on the industry to become more environment-friendly. Further, increased environmental awareness raises the possibility of alternate sources of energy as a potential competitor.
Outlook
According to the World Energy Outlook 2016, published by the EIA (US Energy Agency), the industry will face increased challenge from the environmental lobby to push lesser emission and clear air. In its 2016 edition, it forecasted the rise of global energy demand by 48 percent from 2012 to 2040 (EIA 7). The demand for oil will increase drastically from the OECD and the developing countries in Asia (EIA).
Overall, the WEO for 2016 provide the three key areas of important for energy and climate trends in the energy sector. First, the achievement of “universal energy access”; second, the development in “subsidies to fossil fuels and renewables”; and last but not least the impact of “energy use on climate change” (EIA). The 2016 report suggests that the energy sector will grow tremendously due to the development in the Asian and Latin American countries, boosting the energy sector as more energy will become a necessity for rapid industrialization (EIA). The OECD report on energy outlook suggests that there will be an increase in consumption of fuel but a large amount of investment in the sector is necessary to revamp the capacity to meet the future demand (OECD).
Current Position
The oil and gas industry has generated $1823.5 billion in 2015 in revenue at a compound annual growth rate (CAGR) of -14 percent between 2011 and 2015 (MarketLine 7). The fall in the crude oil prices since 2014 has adversely affected the industry growth rate. Further, the global oil and gas market has reduced by 44 percent in 2015 but has increased marginally in terms of volume trade (MarketLine 9-10). The energy sector is adversely affected due to the low prices of oil. This has adversely affected the performance of the industry.
Therefore, as the global economy recovers from the financial crisis, the energy sector finds itself in unstable grounds as the recession has reduced prices and consumer demand affecting both production and demand in the market. Currently the industry has shown sluggish growth, however, the market forecast predicts that it will increase by 27 percent from 2015 to 2020 and attain a CAGR of 4.9 percent (MarketLine 13).
Influences
The industry is affected by three main factors –
political,
regulatory,
economic.
Economic and political stability play a major role in the stability of the industry. The recent economic crisis from 2007-2008 has profoundly affected the industry. The sharp decrease in investments has led to a decrease in demand (MarketLine 7). When the economy faced a global financial crisis, dampening consumer demand, the demand for oil also fell sharply, adversely affecting the industry. Similar situations have been encountered during the 1973 oil crisis and the 1979 oil crisis.
Political stability also plays a key role in the functioning of the industry. During the Gulf War of 1990, the whole oil industry was negatively affected as the Suez Canal one of the main routes for cargo ships was closed. The industry was severely affected. The energy crisis puts the industry in a volatile situation, as the industry has to face political and economic instability.
The oil and gas industry faces issues of the environmental regulations and changes. Some of the key factors influencing it are the “micro and macroeconomic downturns, demographics, and government regulations” (Clark et al. 7). Governments have employed varying regulations to protect the environment and this has put immense pressure on the oil and gas industry. A few of the regulations formulated by the governments are the “Climate Change Agreement (CCAs) and the EU Emissions Trading System (EU ETS)” (Clark et al. 9).
Chevron – about the company
Chevron is world’s second largest oil and gas company in the world and the largest in the US with a market capitalization of $190.2 billion (Carmichael). Exxon Mobile is its biggest competitor. The company has a market share of 6.9 percent in 2016 (CSI Market).
The business segments of Chevron are – upstream and downstream. The upstream business of Chevron consists of 88 percent of the company’s net income and the downstream segment forms 23 percent of its business (Chevron, “Chevron Annual Report”). The upstream business segment mainly looks into the production and sale of crude oil, while the downstream segment deals with the market operations.
Earnings from the downstream segment are from refining, manufacturing, and marketing of the products, which primarily include gasoline, diesel, jet fuel, lubricants, petrochemicals, fuel oil, and additives (Chevron, “Chevron Annual Report”). The profitability of the segment is often affected by the volatile condition of demand and supply for petrochemical and refined oil products in the regional and global market. Further, the level of inventory, geopolitical events, the cost of raw material, and optimal plant utilization affect profit margins (Chevron, “Chevron Annual Report”). Further, customer perception and reliability on the company’s refineries also play a major role in increasing revenue.
The company has also started expanding its operations in the midstream segment. This segment consists of drilling and marketing of LNG. They are committed to making the largest LNG ship carrier by 2017 to show their commitment to expanding in this segment (Chevron, “Chevron Annual Report”).
Figure 1 demonstrates the key financial highlights of Chevron. It shows that the company has undertaken a structural shift by streamlining its operations. Chevron has posted a fall in the net income and revenue from sales. This is presumably due to the uncontrollable macroeconomic and geopolitical factors that affect the operations of the company. The company reported a loss of $497 million in 2016 as opposed to a profit of $4.6 billion in 2015 (Chevron, “Chevron Annual Report”).
Chevron CEO, John S. Watson mentions in his letter to the shareholders printed in the Annual Report of 2016 that the fall in the revenue and profit was due to the low commodity prices in 2016 that have “reduced earnings across the industry” (Chevron, “Chevron Annual Report”).
Currently, the main aim of the company is to finish the projects it has such as those in Gorgon, Chuandongbei, Bangka and Alder, reducing capital spending and increasing revenue for the company (Chevron, “Chevron Annual Report”). Further, the company has undertaken cost cutting measures to reduce operating expenses (Chevron, “Chevron Annual Report”). In 2016, the company reported the lowest operating expense in last six years (Chevron, “Chevron Annual Report”).
They aim to reduce capital spending and complete asset sales (Chevron, “Chevron Annual Report”). Further, Chevron refineries and drilling projects have reported no accidents making it one of the safest oil and petroleum company. In addition, the company has reported the highest stockholder return when compared to its competitors in the last 25 years (Chevron, “Chevron Annual Report”). See figure 2 to understand how Chevron’s stock has yielded a higher return than its competitors mainly Exxon, Shell, and BP (British Petroleum).
Figure 2: Total stockholder return from 2011 to 2016, source: Chevron Annual Report 2016 (Chevron, “Chevron Annual Report”).
Challenges
The political and economic condition of the global oil and gas market and volatile market demand poses a great challenge to the company’s performance. Further, pressure from environmental groups and regulations for a safer environment also poses a challenge to the company’s operations.
Chevron has faced a lot of challenges in the past few years. The most recent being the fall in the crude oil prices since 2014. The average oil prices have hit a10-year low. The prices have been persistently low even in 2016. The energy sector overall could be accepted as an inherently risky one to be operating in due to the harnessing fossil fuels. Therefore, one of Chevron main goals has always been the safety of the employees, suppliers and the environment overall. However, employing more than 64,500 employees and 200,000 contractors and maintaining the overall environmental health and safety parameters becomes an extremely difficult job (Chevron, “Chevron Annual Report”).
The company is subject to various international, federal, local, regional environmental, safety laws, and regulations. These laws are increasing in number every year and are expected to become more complex in future. The company has to follow the regulation stipulated by international treaties such as Paris Agreement and the Kyoto Protocol as well as follow national laws such as carbon tax, cap-and-trade, etc. Further, the company is also subject to local and state laws such as California AB32 (Chevron, “Renewable Energy and Emerging Technology”).
The company is subject to strict environmental regulations and has faced lawsuits for environmental contamination (Chevron, “Renewable Energy and Emerging Technology”). Chevron is facing a lawsuit for contaminating the Ecuadorian Amazon rainforest and had to pay $27 billion to the plaintiff in 2015 (Chevron, “Renewable Energy and Emerging Technology”). It has also faced problems due to the political instability in Nigeria (Chevron, “Renewable Energy and Emerging Technology”). Thus, maintaining energy efficiency standards and adherence to the environment and climate-related policies if a huge challenge for the company.
Another challenge faced by the company is the rising competition from natural oil substitute such as renewable for of energy. A rising environmental awareness has pushed many governments and organizations to adopt renewable sources of energy that poses a direct threat to the operations of Chevron. Nevertheless, Chevron is one of the few petrochemical companies that have pledged to undertake alternate sources of energy (Chevron, “Renewable Energy and Emerging Technology”). It has made investments in wind energy and biofuels. However, in 2014, the company has sold its stake in Chevron Energy Solutions (Elgin). It has also sold two geothermal units in Thailand (Richter). This raises questions regarding the company’s commitment towards alternate sources of energy.
Time Trend, Peer Group Analysis
Figure 3 shows the ratio analysis of Chevron from 2009 through 2015 along with the industry average. The industry average is calculated as the average of the ratios of 3 companies namely Exxon, Shell, and Chevron. According to our analysis, we have selected Royal Dutch Shell Company. Exxon was chosen as a supplementary company to provide an approximate average of the industry ratios because it is difficult to find ratios for the whole industry.
When the ratios of 2015 for the industry average and Chevron are compared, it shows that the performance of the company has been better than that of its peers in most of the cases in 2015.
Figure 3: Ratio Analysis of Chevron. Source: Own calculations.Figure 4: Ratio analysis of Shell. Source: Own calculations.
Figure 4 shows the ratio analysis of Royal Dutch Shell Company. The 2015 performance of Shell when compared to the industry average and that of Chevron shows that the company’s performance had failed badly. Shell has shown a downturn in all its critical ratios.
The following section undertakes a comparison of the two selected companies, Chevron and Shell, using time-trend analysis.
Liquidity performance
Figure 5: Current Ratio comparison between Chevron, Shell and Exxon. Note: Industry Average in 2015 was 1.5. Source: Own calculations.Figure 6: Quick Ratio. Note: Industry Average in 2015 was 0.92. Source: Own calculations.
Figure 5 and 6 demonstrate that Chevron has been consistently performing better than the industry. Chevron’s quick ratio has been between 1.1 and 1.49, indicating that the company would not have had problems with solving its current debt with its current inventory as it has a lot of liquid cash in hand. Further, in the case of both the liquidity ratios, Chevron is higher than Shell or Exxon through the period under analysis.
Asset Management
The company has a high amount of receivable, atypical of the industry. Further, Chevron keeps a high amount of assets, which the company is trying to reduce according to its annual report (Chevron, “Chevron Annual Report”). As has been observed in the case of the liquidity ratios, in asset management too, Chevron maintains a higher ratio than the industry and immediate rivals. The inventory turnover rate demonstrates that though Chevron has very high inventory, it has the capability to dispose of it rather quickly due to a high turnover. This implies inventories do not become an impediment to outstanding current debt.
Asset Management Performance
Figure 7: Inventory turnover ratio. Industry Average in 2015 is 23.82. Source: Own calculations.
Figure 7 show that Chevron has outperformed its closest peers in inventory turnover ratio. A high level of turnover indicates high demand for Chevron products in the market resulting in reduced inventory.
Figure 8: Days sales outstanding ratio. Industry Average (2015) is 30.30. Source: Own calculations.
The lower the DSO ratio, the better is the company’s debt clearance mechanism. According to this ratio, Chevron has outdone Exxon and Shell, as the company’s DSO is much lower than that of the industry average and that of its peers.
Figure 9: Fixed asset turnover ratio. Industry Average (2015) is 1.49. Source: Own calculations.
Figure 9 show that Shell has more revenue generating assets. This may be because Shell has operated since 1907 and Chevron since 1984. As the latter is a younger company, its assets have not matured enough to translate into a high turnover.
Figure 10: Total assets turnover ratio. Industry Average (2015) is 0.88. Source: Own calculations.
Here Shell’s performance is better than that of Chevron since the fixed assets are used much more intensively while Chevron has remained a back runner due to their fewer revenue generating assets.
Debt Management
Figure 11: Debt ratio. Industry Average (2015) is 0.47. Source: Own calculations.
Chevron’s debt ratio has been consistently good as the company maintained a lower ratio than the industry average indicating a greater capability to pay off debtors. Although the company’s competitors are close to the industry average, yet they are in a worse position vis-à-vis Chevron.
Figure 12: Time-interest-earned ratio. Industry Average (2015) is 1.43. Source: Own calculations.
Over the years, Chevron had a larger cushion when it came to fulfilling its interest payments as opposed to its competitor. However, in 2015, the situation drastically changed when Chevron’s time-interest-earned ratio fell below the market average. This implies debt payments would reduce a large amount of the company’s pre-tax income in 2015.
The EBITDA coverage of Chevron is lower than that of the industry average. That of Shell is much lower. All the three companies are capable of paying off their debt at ease. However, their capability of paying it off faster differs. Shell’s is the lowest and then comes Chevron. Exxon has the best EBITDA ratio. This may be due to the organizational restructuring Chevron is undergoing which shift a lot of their profit to revamping its infrastructure and equipment.
Figure 13: EBITDA coverage ratio. Industry Average (2015) is 61.96. Source: Own calculations
Profitability
Figure 14: Profit margin on sales ratio. Industry Average (2015) is 0.03. Source: Own calculations.
Chevron’s profit margin on sales is 4 percent, marginally higher than that of the industry in 2015. Shell’s profit margin has been at 3 percent in 2015. However, these numbers may not be accurate as to the interest expense on Chevrons income statements has been absent for the last 5 years.
Figure 15: BEP ratio of Chevron. Industry Average (2015) is 0.05. Source: Own calculations.
BEP or basic earning power ratio shows earning power of the business to total assets before tax. In this category, Exxon’s earnings are greater than that of Chevron. Shell’s performance has been low throughout, however, it has increased than that of Chevron in 2015 (see figure 15).
Figure 16: Return on Total Assets Ratio. Industry Average (2015) is 0.02. Source: Own calculations.
Return on total assets shows the company’s earning before tax as a ratio of total net assets. This shows if the company assets are effectively being used to generate income. Chevron has been at par with the industry standard. However, the performance of Exxon has been much better. Shell’s ratio has been lower than the industry average and that of Chevron. This may be because it has a larger amount of asset.
Figure 17: Return on common equity ratio. Industry Average (2015) is 0.04. Source: Own calculations.
Chevron has successfully generated profit for its shareholders from 2009 through 2014 (figure 17). However, its performance in 2015 dwindled below the industry average. However, it has outperformed Shell but has been below Exxon’s performance.
Both the return ratios show a reliance on debt indicating that Chevron performs better than Shell in this area. Further, in both the cases Chevron has continually posted a ratio over and above the industry average representing the company’s consistent performance.
Market Value Evaluation
Figure 18: Price/Earning ratio. Industry Average (2015) is 46.53. Source: Own calculations.Figure 19: Price/Cash flow ratio. Industry Average (2015) is 9.36. Source: Own calculations.
The above figure shows that Chevron has performed below the industry average on both Price/Earnings and Price/Cash Flow Ratios. This shows that Chevron has increased its growth, which may be due to its initiative towards structural change. However, both the ratios are lower than the industry average in 2015, though its performance has been better than that of Shell.
Figure 20: market/Book ratio. Industry Average (2015) is 1.49. Source: Own calculations.
The market to book value ratio of Chevron shows below average performance. However, a market to book value ratio greater than 1 indicates that the market considers Chevron a reliable investment option.
Free Cash Flow and Net Cash Flow
Figure 21: Free cash flow and Net cash flow of Chevron and Shell. Source: Own calculations.
The above figure shows that Chevron has posted a negative result for Free Cash Flow as well as Net Cash Flow in 2015. This may be due to the increase in expenditure in Fixed and Long Term Assets, which would explain the negative outcome. A negative cash flow may indicate that Chevron has been ineffectively managing its credit. This may not attract investors.
Conclusion
The financial analysis of Chevron indicates that the company has a solid foundation, though its current financial ratios are not very attractive. This may be due to the persistent low prices of crude oil and other macroeconomic factors over which the company has no control. Comparison with its closest competitors demonstrates that almost all companies operating in the oil and gas industry have been affected by the bad market conditions. However, the company’s low reliance on debt and high profitability show that its restructuring initiative to face the market conditions is helping it to improve its performance. Further, the analysis shows that Chevron has a loyal customer base, which Shell definitely lacks. Further, we would recommend Chevron to continue its initiative to adapt to and invest in forward-looking projects to increase shareholder reliability on the company.
Chevron is the second largest U.S. oil company after Exxon Mobil. In 2001, Chevron expanded dramatically by acquiring Texaco and subsequently in 2005 after acquiring Unocal. It has interests in chemicals, gas, fossil fuel explorations, geothermal power, and many other sources of energy. In addition, the company owns “stakes in over 25,000 gas stations around the globe, which operate with brands such as Texaco, Chevron, and Caltex” (Chevron Corporation, 2014). Chevron’s sustainable and continuous growth has been contributed by its compliance to its codes of ethics touching on issues such as operational excellence, human rights, antitrust/competition laws, internal laws, and company records. Other issues tackled in the codes of ethics include anti-bribery, anti-boycotts laws, and data privacy among other issues that are discussed in depth in this paper.
The Nature, Structure, Types Of Products Or Service of Chevron
Chevron is one of the major American multinational energy corporations, which is based in San Ramon, California, and has subsidiaries in more than 180 countries worldwide. In addition, Chevron is involved in “exploration, production, refining, marketing and transportation of oil, gas, and geothermal energy” (Chevron Corporation, 2014). It is also engaged in the manufacturing and sale of chemicals, electric power generation, lubricants, additives, petrochemicals, fuel cells, and hydrogen. Chevron has its main operations in areas such as the West Coast of North America, the United States Gulf, South Korea, Australia, South East Asia, and South Africa.
It is estimated that in 2010, the company managed to sell an average of 3.12 million barrels on a daily basis of refined products including gasoline and jet fuel. The three key issues that are critical for the success of Chevron as a multinational energy producing company include operational excellence through the protection of the environment, safety and health of people, and reliable and efficient operations. In addition, Chevron derives much of its success from its participation in government affairs and political involvement in accordance with high ethical standards. Finally, the company is one of the US organizations operating within the antitrust/competition laws (Chevron Corporation, 2014).
Codes of Conduct of Royal Dutch Shell Plc. and British Petroleum (BB) Plc.
The two companies that are also highly involved in the energy sector similar to Chevron are the Royal Dutch Shell Plc. based in the Netherlands and the British Petroleum (BB) Plc, which is a British multinational company with headquarters in London (British Petroleum, 2014). Chevron’s policy of operational excellence intends to protect the safety and health standards of employees and other people in community where it conducts its business, with major emphasis being on protecting the environment when conducting its operations (Chevron Corporation, 2014). This policy is also regarded as the secret behind the success of the two rival oil companies, BP and Shell. However, there is a slight contrast to Chevron’s policy in the sense that, whereas BP and Shell clearly tend to comply with Health Safety Environment (HSE) in operational countries, Chevron only stresses on endeavoring its operational excellence management system (OEMS).
The second policy involves government affairs and political involvement (Trevino & Nelson, 2010) where Chevron strives to maintain the highest ethical standards in its participation in the political arena in all countries in which it operates. Additionally, both BP and Shell also maintain transparent and legal standards in their interaction with governments in countries where their operations are present. The only contrast is that, whereas Chevron engages in lobbying activities, both Bp and Shell do not. The third issue concerns competition and antitrust laws where all three companies promote aspects of free market and fair competition. However, Chevron’s policy contrasts those of the other two companies in that it does not promote mergers and association unlike Bp and Shell (Chevron Corporation, 2014).
How Shell and BP have addressed Operational Issues
In both companies, the policy of operational excellence is highly regarded in the sense that, the safety of their workforce and the communities around their operations is given top priority. The protection of the environment is also emphasized. On the issue of government affairs and political involvement, both BP and Shell respect laws and regulations of the governments where they operate, and they do not involve themselves in any political contributions or corruption activities. The policies of competition and antitrust laws are highly regarded in that, both Bp and Shell comply with those laws and promote the obligation of free markets and fair competition (Shell International Limited, 2006).
If the two companies, BP and Shell, follow these policies, they are most likely to preserve the environment, avoid corruption scandals, and enhance fair competitions; this would boost their sales and profits. Failure to adhere to these policies would make the two companies likely to face environmental law suits as well as termination of business contracts and licenses by the governments due to breach of public integrity compliance in cases where they get involved in corruption. Lack of adherence to antitrust laws and fair competition may lead to cancelation of licenses or financial penalties by governments of the affected countries (British Petroleum, 2014),
Techniques to ensure Relevance of Code of Conduct
There are several techniques that Chevron can use to ensure that its codes of conduct remain relevant. These techniques include review and monitoring compliance techniques where Chevron can embed the condition of compliance in employment contracts when recruiting its employees (Morrison, 2011). This should be enforced to all employees to comply with the codes of ethics and report a conduct that might be in breach of those laws. A penalty or subsequent termination of employment can be arrived upon in case of failure to adhere to codes of ethics.
Another technique is the review technique, which can be applied regularly to give Chevron an opportunity to assess its codes of conduct in terms of current and emerging needs. The review should involve the entire stakeholders who are affected by those codes of conduct (Chevron Corporation, 2014). Chevron has implemented the OEMS to meet the required standards, ISO certification; this is complemented by Environmental Performance Standards in its exploration and production organization. Chevron also increased its focus on minimization of oil spills, subsequently reducing spill incidents to 41 percent from the number of spills in 2008 (Chevron Corporation, 2014).
Approaches to Embrace Information Technology
Chevron’s partnership with the University of California assisted in creation of digital oil field at the Kern River operations. This has enabled Chevron to remotely manage thousands of pieces of equipment at operation in six continents, making the operations safer, cleaner, and highly productive. Secondly, the innovation of renewable (Conklin, 2012) forms of energy such as the one at Coalinga, the world‘s largest solar-to-steam generation project.
Three technological challenges that Chevron could face include the challenge to the provision of clean energy, deep water oil reserve exploration challenges to drilling and very thick and heterogeneous oil reservoirs. Strategies that Chevron could apply to Solve the problem of oil reservoirs is by providing complex reservoir management and surveillance solutions by recycling polluted water caused by deep water drilling. To provide clean energy, Chevron will need to improve on its primary oil recovery methods (Chevron Corporation, 2014).
Lobbying Strategy
Lobbying is a mechanism firms use to influence policy decisions through the provision of information to elected officials, either in government or private arena. It includes direct or indirect communication with public officials and providing support to them (Mine, Demirkan & Gokalp, 2013). Chevron has been involved in lobbying in the US on several occasions, and it is reported to be one of the largest oil company contributors to both the Republican and Democratic candidates for the position of Congress. It is estimated that the contributions total to about $481,715 to the 110th US congress. However, the largest contribution was to Rep. Roy Blunt, amounting to $23,300, who consistently voted in support of fossil fuel industry on energy, war and climate bills in the house (Mine, Demirkan & Gokalp, 2013). In lobbying for support of these bills, Chevron reiterated its interest of safeguarding its core raw materials and the availability of ready market of its energy products; to a large extent, this move was appropriate enough, as it led to improved performance of the company in subsequent years.
Global Corporate Citizenship Efforts
Corporate citizenship is simply defined as the means through which business enterprises improve standards of life of the communities in countries where they operate while still maintaining their core objective of making profits and maximizing returns for stockholders (Aras & Crowther, 2012). In the US Gulf of Mexico, Chevron’s commitment to the aspect of safety and leading operational excellence programs and new technology has enabled it to tap into the demanded energy supplies and at the same time providing jobs to the community and business within the Gulf (Chevron Corporation, 2014). The same can be said about Chevron’s experience and performance in other countries.
For example, in Angola, the aspect of conservation through collaboration of marine life has improved, thus conserving the country’s ecosystems. Chevron has operated for more than 75 years in Angola and it has provided energy to the country both in times of stability and in times of unrest. Importantly, Chevron’s Cabinda Gulf Oil Co. Ltd is the largest foreign oil-industry employer. The conservation has also greatly supported the livelihoods of Angola’s fishermen (Chevron Corporation, 2014). Chevron’s fundamental objective is to make profits. In this respect, its incursion in both the Gulf of Mexico and Angola has achieved a tremendous success and sustainability as an energy producer. Indeed, fulfillment of its primary goals is not in jeopardy for now (Chevron Corporation, 2014).
Conclusion
Chevron has been one of the leading multinational corporations that have contributed significantly in transformation of global society. As evidenced in this paper, Chevron is one of the leading energy producers and its activities in countries where it operates have changed lives of communities, especially when it participates in economic, political, social and environment agendas in those countries. Its consistency in maintaining compliance to codes of ethic in delivering and conducting activities has made it easier to sustain its operations and achieve tremendous growth and profitability.
It is also worth noting that, Chevron operates in an industry and market where competition is rife, thus calling for strategies that can enhance attainment of competitive advantage. Some of the major competitors, as discussed above are Royal Dutch Shell Plc. and BP Plc., both of which tend to use similar strategies and policies in advancing their operations. Nevertheless, Chevron would sustain its positive performance in global market by maintaining compliance to code of ethics, collaboration with research institutions for advancement of oil exploration, liaison with governments, and upholding of corporate citizenship in all its operations.
References
Aras, G., & Crowther, D. (2012). Corporate Governance and CSR. Surrey, England: Gower Publishing, Ltd.
British Petroleum. (2014). BP Code of Conduct. Web.
Chevron Corporation. (2014). Chevron Business Conduct and Ethics Code. Web.
Conklin, D. (2012). The global environment of business: new paradigms for international management. Strategic Direction, 28(2), 1-5.
Mine, O., Demirkan, I., & Gokalp, O. (2013). Collaboration networks and innovation: does corporate lobbying matter? Journal of Strategy and Management, 6(3), 286 – 308.
Morrison, J. (2011). The Global Business Environment: Meeting the Challenges. Hants, UK: Palgrave Macmillan.
Shell International Limited. (2006). Code of conduct. Web.
Trevino, L., & Nelson, K. (2010). Managing Business Ethics. NJ, USA: John Wiley & Sons.
Chevron Corporation is one of the largest firms in the world from the energy sector. It is included in the ranks of the six super major private oil companies that are assumed to control the majority of private oil production across the globe. Chevron participates in a variety of functions in the petroleum industry ranging from exploration and drilling to refining and power generation. This has led to the company being included among the top 25 in Forbes’ list. Chevron Corporation has continued to enjoy massive revenues and profits in recent years, on account of the upward mobility of the oil price and even bucked the downward trend during the current financial crisis.
Market Research
Market Trends
The global oil industry has been very active in influencing the world economy and has a wide impact on the policies and practices of many countries. The industry has seen changing trends since the dawn of the twenty first century. One of the biggest advantages for the industry has been the recent upsurge in oil prices, reaching a high of almost $147 a barrel. This has been a considerably profitable period for many companies considering the inflated revenues and this has been reflected in the stock prices of oil companies across global stock markets. This allowed the petroleum rich countries to get massive cash influx while heavily petroleum importing countries experienced a down turn. Thus the Middle East and a few countries in Europe and Latin America and the state run as well as private run oil companies observed considerably favorable figures during the years. This extravagant period was put to a halt however with the following decline in oil price.
Another challenge companies have faced has been natural. With the American and Mexican coasts being hit by hurricanes and insurgents targeting oil pipelines and drilling facilities in Iraq, the companies in the industry saw mounting challenges in terms of security and sustained production. This trend was bucked in part by the accompanying surge in oil price but it still presented a continuous problem. The Global Petroleum Survey conducted by the Fraser Institute in 2008 highlighted some trends in terms of investment in the industry. In particular, there has been the ever present competition between private run and state run oil companies, where the latter controls the majority of the world’s oil reserves. A certain level of hostility towards the private companies has been observed in Venezuela, Russia, Iran and Yemen where political instability, constant changes in regulations and legal framework and some cases of dishonoring contracts have discouraged private investment in the oil industry and further expansion.
The petroleum industry is one sector which has seen a continuous rise in demand over the years. The global demand for crude oil rose 1.76% from 1994 to 2006 and is speculated to go up nearly 37% up till the year 2030, largely spurred by the transportation sector. Developed countries have shown sustained high demand which is now being augmented by increased demand from India and China. The production of oil has been relatively steady, being constrained by the number of fields in operation and being drilled from. Global supply was nearly 84.5 million barrels per day by 2007 but can be said to fall steadily as the world’s biggest fields in Saudi Arabia and Kuwait mature and show decline in production.
Key Competitors
Chevron has been a part of the private oil industry and as such has had to face stiff competition for the finite oil reserves of the world. The five companies apart from Chevron that make up the world’s super major petroleum companies have all been vying for increased control over oil fields in the Middle East and Latin America and Africa.
Private Competitiors:
Exxon Mobil has been able to set itself at the top with the highest revenues and cash flow and has benefitted tremendously from the opening up of Iraq to private oil companies, getting rid of the state run monopoly.
The Royal Dutch Shell group has similarly enjoyed a very favorable position in the industry. There was a slight hiccup with the advent of fraud charges against the company in terms of its oil reserve valuation but it has managed to keep its position.
British Petroleum has seen fluctuating fortunes recently in Europe.
Conocco Phillips has been strong on the tales of the Chevron in terms of revenue figures.
Total S.A has been relatively restricted.
The private sector aside, the company faces stiff competition from state run oil companies that have access to majority of the global oil fields. Such monopolies pose the major threat in terms of competition to Chevron as all oil companies vie for the limited global oil reserve, access to which can only be granted by the local governments. Thus while the private sector has been able to get access in Africa and Europe, political changes and uncertainty accompanied by changing legislation has resulted in large parts of the Middle East difficult to access.
State-run Competitors:
Petrobras has gotten access to majority of Brazil’s oil reserves and is engaged in exploration in the South American continent.
Pemex, the company in Mexico has been going strong in North America.
Petróleos de Venezuela S.A has gotten exclusive access to Venezuelan oil reserves which is a trend bound to continue as the government attempts to expel foreign companies.
Indian Oil is going strong in India with its vast stretch of mineral abundant land.
Aramco in Saudi Arabia is a powerhouse in the industry with control of some of the biggest oil fields in the world.
Kuwait Oil Company enjoys sole access to the second largest oil field in the world.
National Iranian Oil Company, being the sole driller in closed up Iran.
Petrokazakhstan is a growing company with potential since it has access to some of the few unexplored and untapped oil reserves of the world.
Rosneft and Yukos in Russia have been the subject of state takeovers and enjoy access to the vast reserves of Siberia.
Marketing MIX
Product
Chevron’s primary product is crude oil which it pumps daily through its drilling facilities across the globe. It further boasts refining facilities which allow it to refine the crude oil into various other products. The company further has control over some gas production facilities and provides natural gas as a product to commuters and to companies as well as to households. Lastly, the company is involved in power generation and sale across three continents which all provides for the company’s involvement in nearly every aspect of oil and gas industry.
Price
The price of the products that Chevron provides has been largely dictated by cartels such as OPEC and the actions of the larger petroleum exporting countries across the globe. Thus it has enjoyed little control over the price of oil and gas. The price maintained itself below the $50 per barrel mark for quite some time before it hiked up to a high of nearly $147 per barrel following 2005 which signaled extravagant times for the company. However, easing of international political conditions and some intervention by global players and countries has resulted in a fall in oil prices once again, making the revenue forecasts relatively moderate for the company. The power generation and supply by Chevron has also seen a consistent dictation by government, providing little room for maneuver by the company.
Placement/Distribution
Chevron employs extensive distribution networks for its products. It handles its own retailing by employing nearly fifty nine thousand people worldwide with a global marketing network in nearly eighty four countries, handled by almost 24000 retail sites that are run by the Chevron Corporation, with a few being managed by affiliate companies. In addition, the company operates thirteen power generation facilities across the United States, Canada, and the European Union and in Asia. The merger of Texaco with Chevron resulted in Texaco branded oil products also being distributed by Chevron’s network of wholesalers.
Promotion
The company has been involved in promotion of its products through multiple avenues. First off, it makes use of television advertisement to promote the Chevron brand and particularly highlight features of appeal, such as Chevron’s commitment to stemming environmental pollution and the fact that the company is the highest spender in this regard in the US oil industry. This helps promote the oil provided by Chevron as well as appease those concerned about the pollution aspect of oil production and use. Furthermore, promotion is carried out through the gas and filling stations that the company owns and operates, allowing it to go to the consumers directly. Another strategy has been alliances with motor companies such as Toyota and General Motors which only use Chevron oil when testing automobiles.
International Market Entry Strategy
Host Country Analysis
Pakistan could be a suitable country for Chevron Corporation to enter. The country is relatively unstable but enjoys a steady level of growth and a rise in commuters as the demand for automobiles rises, leading to expansion of the transportation market. The market is primarily catered to by the Royal Dutch Shell group and state run companies with a slight impact by Total as well. By bringing the Chevron name into the market, the company may not only be able to exploit a growing market in the company but many also be able to enjoy exploration opportunities in the country which is at the center of forecasted pipeline deals through Central Asia and oil rich Iran. It further enjoys a low level of regulation with regards to the oil industry which will pose less problems for the company.
Mode of Entry
The country’s oil demand is catered to primarily by Shell and state run companies but there is some level of presence of other brands. Chevron could exploit this by starting a joint venture with one of these low market share holders to enter the market and then follow it up by possible expansion of the filling stations under the Chevron name via franchising, once it is established in the country. This will not only allow it to get a strong foothold but also provide experience in dealing with the bureaucratic setup that accompanies most third world countries. Bringing its own name to the market is important as Chevron enjoys high rates of brand loyalty in North America which could be exploited to create the same in this country, in order to deal with the already established competitors.
It is important to note that evaluating the business climate and cost of doing business in a specific market is essential when making a strategic decision. Under such a framework, one should assess attitudes toward foreign investment, cost of doing business, tariffs, and fees on imported machinery or equipment, and risk factors. The given evaluation will be focused on the target location of Vietnam and Chevron’s positioning in the local market.
Chevron’s Positioning in Vietnam
The historical and current relationship between the United States and Vietnam is a complex one. However, the global business today is not solidified by such relations (Hill 153). Attitudes toward foreign investment, US oil investment in particular, in Vietnam, is positive due to numerous diplomatic development which took place in the last several decades (Samuel par. 1). The overall cost of doing business in the nation is attractive. It is stated that “due to its geographic proximity, lower wages, skilled labor, trade agreements, and regional connectivity, Vietnam has emerged as one of the most preferred alternatives for manufacturers” (Samuel par. 21). The country reached a trade agreement with the US in 2001, which “helped lift several non-tariff barriers while lowering tariffs on a variety of goods,” equipment, and machinery (Samuel par. 8). Vietnam is stable due to low political and exchange rate risks.
Conclusion
In conclusion, Chevron should pursue working with Vietnam, and its low-cost workforce is already skilled, which would require non-substantial investment into their training with a government’s collaboration and assistance. The overall rating of the project is high, and the final decision should lean towards doing business in Vietnam. Its labor is cheap, the government is stable, business costs are low, and attitudes are proven to be positive.
Works Cited
Hill, Charles. Global Business Today. 12th ed., McGraw Hill, 2021.
Samuel, Pritesh. “Why Vietnam Has Become a Promising Alternative for US Businesses in Asia.” Vietnam Briefing, Web.
The world is becoming more globalized daily, especially in business. The world economy has become more interdependent, which means that the economies of different countries are increasingly dependent on each other. This dependence has created a need for companies to operate internationally to expand their business and increase their market share. Many companies have realized this and have expanded overseas, but not all companies can or want to do this. This essay will describe Chevron and other international oil companies, or IOC, based on the Peng et al. article.
Concepts and Challenges of Chevron and Other International Oil Companies
There are many reasons a company would want to expand overseas, but one of the main reasons is growth potential. When a company expands overseas, it opens up new opportunities for growth and expansion that it may not have had when it was still domestically based (Peng et al. 042038). Traditional fossil fuel producers are under increasing pressure to adapt to the changing business environment brought on by the energy transition. The integrated global oil firms, or the peer group, which includes BP, Chevron, ExxonMobil, Equinor, Eni, Repsol, Shell, and Total, are discussed in this study (Peng et al. 042038). Due to their far higher cash levels, managerial abilities, and strategic thinking than the other participants, these corporations have more alternatives accessible to them. These factors also are the main differences between ordinary and international companies. Despite this, such companies as Chevron get more influence from governments of various countries, so they casually involve the opinions of ordinary people in their decisions.
These organizations have been instrumental in helping countries develop their economies through access to affordable fuel supplies. They also pose significant environmental concerns due to their extraction methods used during exploration phases. Consequently, leading governments worldwide try to make efforts towards reducing carbon emissions from fossil fuel consumption by promoting renewable energies such as solar power or wind farms instead (Peng et al. 042038). Governments worldwide recognize this growing threat posed by IOCs, so they have taken various measures to regulate them more closely than ever before. These regulations also include establishing nationalized agencies responsible for overseeing all exploration activities within specific countries’ borders.
This agency works closely with local authorities who oversee all aspects of petroleum development within specific regions, states, and provinces. It also supports local infrastructure projects required during petroleum development phases. The aim behind these initiatives is twofold. Firstly, it is hoped that nationalized agencies will reduce potential conflicts between local populations and multinational corporations working overseas related issues like pollution caused by drilling activities (Peng et al. 042038). The concept of such companies causes this challenge because it is mainly only possible to gather oil with pollution. Secondly, it is hoped that government regulation will help ensure transparency within operations carried out by multinational corporations, ensuring fair business practices from both sides (Peng et al. 042038). This problem is easiest to regulate by the international method because oil production on the water can take place in neutral territories, and the opinion of different states is essential in this matter.
Conclusion and Personal Reflection
This article discusses the challenges and opportunities for oil companies, especially Chevron, from international groups and environmental issues. The essence of such companies is well revealed in work on actual examples and statistics. Although this article is not entirely devoted to the concept of the specific internationally managed company, it does highlight the opportunities for practical improvement in these companies. In addition, the author concludes that IOCs, as the leading peer group have more options to adapt to the new business climate and respond with strategic moves.
