How does that make sense? How many ubdrilled locations do they have in the Permian? How is it better to buy stock than to invest in 80% ROR projects?
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2fbk, You shouldn’t feel, because you know you’re right. Chevron is not and never has been a leader in the industry. They follow the queue from the other majors.
Short-term stock price bumps are only for management with stock options they wish to cash in. Long term capital investors are looking for grow, not short cash out. Buy backs only make sense if we are cashing out of the game, a loser bet near the end of a downturn. We should be cash in big, getting ready for the next commodity upswing. Why do I feel Chevron management is always a year behind the ball?
@1biy, Do you mean Rate of Return (ROR) or Return on Investment (ROI)? I suppose you meant the later or maybe both. While making sound investments and achieving a good rate of return is important, the stock buybacks provide a more expedient result. Sometimes, it’s not so much to show investors you have a queue of investments that should provide returns down the road, but more about getting the stock price to go up now. Stock buybacks accomplishes the task of bolstering the stock price just in time for the 3rd quarter earnings call. It will come down to stockholders and investors in CVX whether today is more important than tomorrow. For me as an investor, looking forward is more important than any appearances today.
Interesting. Those all seem like solid answers. I still don’t understand how you forfeit a 80% ROR project in the Permian in exchange for stock......it pays back so quick.....how do you calculate ROR on stock buy back?
It’s a way to reward and meet shareholder expectations. Just one component of the “formula” for returning profits to investors. CVX has great mix of long term and short cycle projects. Investors and analysts recognize that, which is why CVX has traded at premium relative to peers.
Yearly metrics. Stock buybacks affect the stock price immediately whereas capital investments take time (maybe years) to start paying out and thus have a delayed impact on stock price. This is what happens when executive compensation plans focus on single year stock price (including dividends) appreciation vs. peers.
That or Sr. Management plans to retire in the near future and wants to bump the stock price to get a better parachute even if it hurts long term growth.
Stock buybacks is one way to strengthen the company stock when successful growth prospects are not in the plans. It’s a better investment for the shareholders than sitting on cash. If you are a CVX shareholder, it’s not a bad thing. Right now, Chevron is a little gun shy on making large and long term investments on the heels of Gorgon, Wheatstone, Big Foot, etc. The cash the company is making needs to go somewhere to sustain the stock price. Stock buybacks is one way to accomplish this.