The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
is one of the world's largest energy companies that is engaged in the exploration and production of oil and natural gas as well as refining, transportation and trading.
It competes with oil producers such as
Our price estimate for Chevron stands at $104, which is in line with market price.
We have previously talked about Chevron trimming down its downstream business and focusing more on upstream, with a push into natural gas. It seems that Chevron is on a spree to better align its resources to focus on profitability. This could well be the reason behind its recent announcement in which the company expressed interest in selling its coal mining business.
Chevron's Mining Business At a Glance
Chevron operates both coal and molybdenum mining businesses. The production occurs in the U.S. while sales are conducted globally. Chevron owns and operates a surface coal mine in Wyoming, an underground coal mine in Alabama and a surface coal mine in New Mexico. Chevron is thinking about selling these three mines.
At the end of 2009, Chevron controlled about 193 million tons of coal reserves (proven and probable) in the U.S. The company produced about 10 million tons of coal in the same year.
How big is the coal mining business for Chevron? This is a tricky question, but it's very small compared to its upstream and downstream oil and natural gas operations. The company reports its multiple small businesses like mining, power generation and energy solutions together, and these generate a mere 1% of Chevron's overall revenues.
And if we apply the rough coal pricing of competitors like
, and use Chevron's production volume of 10 million tons, it seems that coal mining revenues could actually be less than 0.5% of Chevron's overall revenues.
Moreover, it's not clear is whether Chevron's mining operations are even profitable. According to Chevron's reporting, its "other" business segment that includes mining, power generation and energy solutions, is a money-losing usiness. We include this in the form of indirect costs in our valuation model.
If mining operations are generating losses on a stand-alone basis for the company, then it makes all the more sense for Chevron to sell this segment and focus on core operations that effectively carry its entire stock value.
Chevron might want to further align itself with its core businesses of oil and natural gas exploration and production. The company also noted that new coal technologies were developing too slowly to inspire further pursuit of the coal industry.
Another possibility is that mining may not have been profitable for Chevron, although this cannot be confirmed with available data. But if trimming of downstream operations is any indicator, it seems that Chevron wants to reduce investments in low-margin businesses.
See our full analysis and $104 price estimate for Chevron
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