CVX Chevron Corporation Sector: Energy SELL

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1 Analysts: Zachary Haller, Andrew Paley Brown and Sean Miller Washburn University Applied Portfolio Management CVX Sector: Energy SELL Report Date: 4/18/2016 Market Cap (mm) $157,566 Annual Dividend $ Yr Beta (S&P 500 Index) 1.32 Return on Capital 1.4% Dividend Yield 5.1% Annualized Alpha 9.1% Compared With: EPS (ttm) $2.46 Price/Earnings (ttm) 34.4 Institutional Ownership 6.3% ConocoPhillips Current Price $84.35 Economic Value Added (ttm) $20,215 Short Interest (% of Shares) 1. Exxon Mobil Corporation 12 mo. Target Price $95.00 Free Cash Flow Margin 7. Days to Cover Short 2.2 and the S&P 500 Index Business Description, through its subsidiaries, engages in integrated energy, chemicals, and petroleum operations worldwide. The company operates in two segments, Upstream and Downstream. The Upstream segment is involved in the exploration, development, and production of crude oil and natural gas; processing, liquefaction, transportation, and regasification associated with liquefied natural gas; transportation of crude oil through pipelines; and transportation, storage, and marketing of natural gas, as well as operates a gasto liquids plant. The Downstream segment engages in refining crude oil into petroleum products; marketing crude oil and refined products; transporting crude oil and refined products through pipeline, marine vessel, motor Investment Thesis Worldwide energy consumption continues to grow, however the supply of oil has outpaced demand causing prices to fall due to excessive supply. CVX has exposed itself to greater risk through its shift in focus to upstream oil production, which has resulted in greater losses than its downstream focused competitors. CVX was purchased in 2009 with strong dividend growth expected to continue. Under present conditions, CVX is not expected to grow its dividend until 2018, making it less attractive to dividend focused investors. ROIC has fallen significantly below the WACC, and CVX is not expected to earn returns above the cost of its invested capital through EVA has declined since 2011, reaching negative value added in 2014, a trend which is expected to continue through 2020, despite recovering oil prices. ANNUALIZED 3 YEAR CAGR Total Revenue 18. Free Cash Flow 356.3% EBIT 143.1% Total Invested Capital 7. NOPAT 151. Total Assets 4. Earnings Per Share 43.2% Economic Value Added 251.4% Dividends Per Share 6.8% Market Value Added 40.9% CVX COP XOM CVX ^SPX ROA ROE ROIC Margins and Yields Operating Margin Free Cash Flow Margin Earnings Yield Dividend Yield Per Share Metrics Earnings Dividends NOPAT Free Cash Flow 16.2% 15.7% % 2.3% N/A 0.2% 1.2% 0.8% % 12.4% 8.9% 9.1% 2.7% 2.9% 3.2% 3.1% 3.8% 4.8% (1.45) N/A 0.26 (1.35) (0.78) (4.60) $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $5,000 EBIT Net Operating Profit After Tax $15,000 $10,000 $5,000 $5,000 $10,000 $15,000 $20,000 $25,000 Economic Value Added Market Valued Added $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10, Price/Earnings Price/Free Cash Flow Datasource: Capital IQ

2 CVX Sector Energy ConocoPhillips COP Sector Energy Income Statement Highlights Income Statement Highlights Total Revenue 236, , , , ,566 Total Revenue 65,435 60,184 56,893 55,336 30,299 Cost of Goods Sold 163, , , ,770 85,207 Cost of Goods Sold 36,223 32,025 29,881 31,008 19,236 Gross Profit 72,799 67,254 60,833 55,538 37,359 Gross Profit 29,212 28,159 27,012 24,328 11,063 SG&A Expense 5,961 6,403 6,340 6,167 6,252 SG&A Expense 1,719 1,803 1,911 2,218 3,221 R&D Expense R&D Expense Dep. & Amort. 12,911 13,462 13,835 16,731 21,868 Dep. & Amort. 6,986 7,299 7,609 8,891 11,737 Other Oper. Exp. 15,628 12,370 13,072 12,572 12,033 Other Oper. Exp. 4,421 3,940 3,318 2,572 1,384 Operating Income 38,299 35,019 27,586 20,068 (2,794) Operating Income 16,086 15,117 14,174 10,647 (5,279) Interest Expense Interest Expense (954) (709) (612) (648) (920) Other Non Oper. Exp. 7,695 6,947 7,855 7,763 5,236 Other Non Oper. Exp. 70 (41) EBT ex Unusuals 46,139 42,132 35,577 27,976 2,561 EBT ex Unusuals 15,372 14,530 13,733 10,148 (6,079) Total Unusual Exp. 1,495 4, ,226 2,281 Total Unusual Exp (758) (1,160) Earnings Before Tax 47,634 46,332 35,905 31,202 4,842 Earnings Before Tax 15,396 15,423 14,446 9,390 (7,239) Income Tax Expense 20,626 19,996 14,308 11, Income Tax Expense 8,208 7,942 6,409 3,583 (2,868) Net Income 26,895 26,179 21,423 19,241 4,587 Net Income 12,436 8,428 9,156 6,869 (4,428) Earnings per Share $13.54 $13.43 $11.18 $10.21 $2.46 Earnings per Share $9.04 $6.78 $7.44 $5.55 $3.57 Dividends per Share $3.09 $3.51 $3.90 $4.21 $4.28 Dividends per Share $2.64 $2.64 $2.70 $2.84 $2.94 Effective Tax Rate % % 2.73% Effective Tax Rate 53.31% 51.49% 44.37% 38.16% Total Common Shares 1,986 1,950 1,917 1,884 1,868 Total Common Shares 1,375 1,244 1,231 1,237 1,242 Year end Stock Price $ $ $ $ $ Year end Stock Price $ $ $ $ $ Balance Sheet Highlights Balance Sheet Highlights Assets Assets Cash and Equivalents 15,864 20,939 16,245 12,785 11,022 Cash and Equivalents 5,780 3,618 6,246 5,062 2,368 Short Term Investments 4, Short Term Investments Total Cash & ST Invest. 20,071 21,913 16,516 13,215 11,332 Total Cash & ST Invest. 6,361 3,618 6,518 5,062 2,368 Total Receivables 21,660 20,940 21,600 16,335 12,660 Total Receivables 16,526 9,182 8,480 6,807 4,514 Inventory 5,543 6,144 6,380 6,505 6,334 Inventory 4, ,194 1,331 1,124 Prepaid Expenses 4,678 5,301 4,391 4,705 3,904 Prepaid Expenses 2,688 7, , Total Current Assets 53,234 55,720 50,250 42,232 35,347 Total Current Assets 30,218 23,989 19,023 15,068 8,789 Net PPE 122, , , , ,396 Net PPE 60,614 67,263 72,827 75,444 66,446 Total Assets 209, , , , ,103 Total Assets 153, , , ,539 97,484 Liabilities and Equity Liabilities and Equity Accounts Payable 22,147 22,776 22,815 19,000 13,516 Accounts Payable 18,921 9,241 9,314 8,026 4,933 Accrued Expenses 6,529 6,968 6,737 6,561 5,658 Accrued Expenses 3,182 1,017 1,082 1,642 1,046 Short Term Debt ,762 3,424 Short Term Debt Total Current Liab. 33,600 34,212 33,018 31,926 26,464 Total Current Liab. 28,068 17,443 15,129 11,537 9,256 Long Term Debt 9,684 11,966 19,960 23,960 33,584 Long Term Debt 25,192 23,564 21,073 22,383 22,697 Total Liabilities 87,293 95, , , ,217 Total Liabilities 87,481 68,717 65,565 64,266 57,402 Preferred Equity Preferred Equity Common Stock & APIC 16,988 17,329 17,545 17,873 18,162 Common Stock & APIC 44,742 45,342 45,708 46,089 46,375 Retained Earnings 140, , , , ,578 Retained Earnings 49,049 35,338 41,160 44,504 36,414 Treasury Stock (29,685) (33,884) (38,290) (42,733) (42,493) Treasury Stock (31,787) (36,780) (36,780) (36,780) (36,780) Total Common Equity 121, , , , ,716 Total Common Equity 65,239 47,987 52,090 51,911 39,762 Total Equity 122, , , , ,886 Total Equity 65,749 48,427 52,492 52,273 40,082 Total Liab. and Equity 209, , , , ,103 Total Liab. and Equity 153, , , ,539 97, Margins and Profitability CVX, Page 2 of 17 Copyright Robert A. Weigand, Ph.D., 2016

3 CVX COP ConocoPhillips Profit Margins Profit Margins Gross Profit Margin 30.8% 30.2% 28.7% 28.9% 30. Gross Profit Margin 44.6% 46.8% Operating Profit Margin 16.2% 15.7% % 2.3% Operating Profit Margin 24.6% 25.1% 24.9% 19.2% 17.4% Net Profit Margin 11.4% 11.8% 10.1% % Net Profit Margin % 12.4% 14.6% Free Cash Flow Margin N/A 0.2% 1.2% 0.8% 7. Free Cash Flow Margin N/A 4.3% 0.1% 11.3% 17.2% Gross Profit Margin Operating Profit Margin Gross Profit Margin CVX COP Gross Profit Margin Operating Profit Margin Operating Profit Margin CVX COP Net Profit Margin CVX COP Free Cash Flow Margin CVX COP Analyst Comments: Profit margins measure a company's ability to convert revenue to profits. Gross and operating profit margins have been drifting downward. Cost of goods sold declined at a rate of 5.8 percent from 2011 to 2014, while revenues are falling at a rate of 6.6 percent over the same period, causing gross profit to fall faster than revenue. The downtrend in profit margins has occurred because CVX increased its exposure to the more volatile and expensive upstream segment of the oil industry. They now lead the industry in upstream operations. Depreciation expenses have increased as CVX pumps more oil, depleting their oil reserves, in order to generate revenues. CVX's declining net profit margins are reflective of these trends in gross and operating margins. COP s gross and operating profit margins have remained steady from 2011 to 2014, due to heavier exposure to the less volatile downstream segment; though COP's net profit margin has experienced volatility in an overall declining trend since COP achieved higher profit margins than CVX from 2011 to 2014, outperforming CVX by 1 to 1 in both net and operating profit margins. Both CVX and COP have realized negative operating profit margins in 2015 as a result of increased depreciation and impairment expenses. CVX was still able to recover profits through investing activities to maintain a positive net profit margin, while COP s net profit margin was negative. Low conversion of revenues to profits shows inefficient expense management with declining revenues. 1. Margins and Profitability CVX, Page 3 of 17 Copyright Robert A. Weigand, Ph.D., 2016

4 CVX COP ConocoPhillips Profitability Ratios Profitability Ratios Net Profit Margin 11.4% 11.8% 10.1% % Net Profit Margin % 12.4% 14.6% Total Asset Turnover Total Asset Turnover = Return on Assets 12.8% 11.2% 8.4% 7.2% 1.7% = Return on Assets 8.1% 7.2% 7.8% 5.9% 4. Equity Multiplier Equity Multiplier = Return on Equity % 12.3% 3. = Return on Equity 18.9% 17.4% 17.4% 13.1% Return on Assets Return on Equity Total Asset Turnover CVX COP Return on Assets Return on Equity Equity Multiplier CVX COP Return on Assets CVX COP Return on Equity CVX COP Analyst Comments: Profitability ratios express net income in proportion to equity or assets, indicating the returns generated from deployment of assets or equity. CVX's ROA and ROE have fallen dramatically since 2011, with ROA reaching a low of 1.7% and ROE reaching a low of 3% in 2015, due to declining profits as well as simultaneously increasing total assets and equity. COP's ROA and ROE have also drifted downward since 2011, as total assets and equity have been reduced as net income declined, falling to negative levels in 2015 due to recorded losses. CVX's ROA has consistently outperformed COP s ROA. CVX s ROE fell below COP s ROE in 2013 and 2014, but CVX has outperformed COP s ROE in CVX's profitability ratios decline, driven by a multi year decline in net income is a negative sign for investors as it indicates lower return per unit of asset and equity. 1. Margins and Profitability CVX, Page 4 of 17 Copyright Robert A. Weigand, Ph.D., 2016

5 CVX COP ConocoPhillips Multiples and Yields Multiples and Yields Price/Earnings Price/Earnings N/A Price/Book Price/Book Price/Free Cash Flow N/A N/A N/A N/A Price/Free Cash Flow N/A Earnings Yield 12.7% 12.4% 8.9% 9.1% 2.7% Earnings Yield 12.4% 11.7% % Dividend Yield 2.9% 3.2% 3.1% 3.8% 4.8% Dividend Yield 3.6% 4.6% 3.8% 4.1% 6.3% Price/Earnings Price/Free Cash Flow Price to Earnings CVX COP 3,00 2,50 2,00 1,50 1,00 50 Price/Earnings Price/Free Cash Flow Earnings Yield Dividend Yield Earnings Yield CVX COP Earnings Yield Dividend Yield Price to Book CVX COP Dividend Yield CVX COP 3,00 2,50 2,00 1,50 1,00 50 Price to Free Cash Flow CVX COP Analyst Comments: Relative valuation ratios express the company's stock price as a multiple of fundamentals that support the firm's intrinsic value, including revenues, profits, the book value of assets and dividends. Both CVX and COP maintained relatively stable P/E ratios from 2012 to 2014 due to generally proportionate declines in stock prices and earnings. CVX s P/E ratio increased dramatically in 2015 as earnings declined much faster than stock price, though earnings remained positive. COP had negative earnings in 2015 so there is no P/E ratio. Dividend yield growth for COP and CVX in recent years have been fueled by falling stock prices and consistently rising dividends, making both companies more attractive to dividend focused investors, despite declining earnings. In first quarter 2016, COP has cut its dividend by 66 percent, the first reduction in 25 years, while CVX's dividend has remained steady at $7/quarter for the last eight quarters. While CVX's and COP's profits have been in a multi year decline, the dramatic decline in earnings in 2015 caused CVX s P/E to more than triple. The rising P/E ratio driven by falling earnings is a negative sign for investors. 2. Relative Valuation and Debt CVX, Page 5 of 17 Copyright Robert A. Weigand, Ph.D., 2016

6 CVX COP ConocoPhillips Liquidity and Debt Liquidity and Debt Current Ratio Current Ratio Quick Ratio Quick Ratio Days Sales Outstanding Days Sales Outstanding Inventory Turnover Inventory Turnover Total Debt to Assets 4.8% 5.2% % 13.9% Total Debt to Assets 16.4% 20.1% 17.8% 19.2% 23.3% Long Term Debt to Equity % 13.4% Long Term Debt to Equity 38.6% 49.1% % 57.1% Times Interest Earned N/A N/A N/A N/A N/A Times Interest Earned Current Ratio Quick Ratio Current Ratio CVX COP Current Ratio Quick Ratio Days Sales Outstanding Inventory Turnover Total Debt to Assets CVX COP Days Sales Outstanding Inventory Turnover Total Debt to Assets Long-Term Debt to Equity Long-Term Debt to Equity CVX COP Total Debt to Assets Long-Term Debt to Equity Analyst Comments: Debt ratios measures the company s balance of financing activities through debt and equity. CVX's current and quick ratios have steadily declined since 2011, and are currently at levels which are healthier than COP. As of 2015, both ratios are well above, presenting no reason for immediate concern. Neither days sales outstanding or inventory turnover have changed significantly enough to warrant concern. CVX is collecting receivables in 37.7 days, which is acceptable. CVX s inventory turnover is down by 18 percent from 2011, but this change is not significant enough to warrant any concern. CVX's debt to assets and long term debt to equity ratios have nearly doubled over the past three years, as the firm invests in PPE. A continuation of this trend could present reason for concern, however CVX remains significantly less leveraged than COP. Compared to COP, CVX remains in a relatively strong position in terms of debt. 2. Relative Valuation and Debt CVX, Page 6 of 17 Copyright Robert A. Weigand, Ph.D., 2016

7 CVX COP ConocoPhillips Total Invested Capital Total Invested Capital Total Cash and ST Investments 20,071 21,913 16,516 13,215 11,332 Total Cash and ST Investments 6,361 3,618 6,518 5,062 2,368 + Receviables 21,660 20,940 21,600 16,335 12,660 + Receviables 16,526 9,182 8,480 6,807 4,514 + Inventory 5,543 6,144 6,380 6,505 6,334 + Inventory 4, ,194 1,331 1,124 Accounts Payable 22,147 22,776 22,815 19,000 13,516 Accounts Payable 18,921 9,241 9,314 8,026 4,933 Accrued Expenses 6,529 6,968 6,737 6,561 5,658 Accrued Expenses 3,182 1,017 1,082 1,642 1,046 = Net Oper. Working Capital 18,598 19,253 14,944 10,494 11,152 = Net Oper. Working Capital 5,415 3,507 5,796 3,532 2,027 + Net Property, Plant & Equip. 122, , , , ,396 + Net Property, Plant & Equip. 60,614 67,263 72,827 75,444 66,446 = Total Invested Capital 141, , , , ,548 = Total Invested Capital 66,029 70,770 78,623 78,976 68,473 Total Weighted Shares 1,986 1,950 1,917 1,884 1,868 Total Weighted Shares 1,375 1,244 1,231 1,237 1,242 = Total Invested Capital/Share $71.10 $82.36 $93.78 $ $ = Total Invested Capital/Share $48.02 $56.90 $63.87 $63.83 $55.13 Net Property, Plant & Equip. Total Invested Capital Net Property, Plant & Equip. Total Invested Capital $250,000 $200,000 $150,000 $100,000 $50,000 Total Invested Capital per Share CVX COP $120 $100 $80 $60 $40 $20.00 $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 CVX COP ConocoPhillips NOPAT and Free Cash Flow NOPAT and Free Cash Flow Operating Income (EBIT) 38,299 35,019 27,586 20,068 (2,794) Operating Income (EBIT) 16,086 15,117 14,174 10,647 (5,279) (1 Effective Tax Rate) 43.3% 43.2% 39.8% 38.1% 2.7% (1 Effective Tax Rate) 53.3% % 38.2% 0. = Net Oper. Profit After Tax 21,715 19,905 16,593 12,419 (2,718) = Net Oper. Profit After Tax 7,510 7,333 7,886 6,584 (5,279) Total Invested Capital N/A 19,395 19,172 13,894 5,881 Total Invested Capital N/A 4,741 7, (10,503) = Free Cash Flow N/A 510 (2,579) (1,475) (8,599) = Free Cash Flow N/A 2, ,231 5,224 NOPAT per Share $10.93 $10.21 $8.66 $6.59 ($1.45) NOPAT per Share $5.46 $5.90 $6.41 $5.32 ($4.25) Free Cash Flow per Share N/A.26 ($1.35) (.78) ($4.60) Free Cash Flow per Share N/A $ $5.04 $4.21 $25,000 $20,000 $15,000 $10,000 $5,000 ($5,000) ($10,000) ($15,000) Net Operating Profit After Tax Free Cash Flow $12.00 $10 $8.00 $6.00 $4.00 $ ($2.00) ($4.00) ($6.00) NOPAT per Share CVX COP $10,000 $8,000 $6,000 $4,000 $2,000 ($2,000) ($4,000) ($6,000) Net Operating Profit After Tax Free Cash Flow Analyst Comments: NOPAT measures a company's pre tax operating profit, and free cash flow measures NOPAT less the year over year change in invested capital, or the remaining cash available to pay out to investors. CVX's NOPAT has declined by over $24 Billion since 2011, reaching negative $2.7 Billion in The decline in NOPAT is driven by the decline in EBIT. CVX's declining NOPAT is unable to support the heavy long term investment required by its focus to the upstream segment. This has forced CVX's free cash flow to fall below zero. COP maintained steady NOPAT from 2011 to 2014, as declining EBIT was offset by its reduced effective tax rate. COP s NOPAT fell steeply in 2015 to negative $5.2 Billion. Due to COP's downstream focused model it maintains greater control over investing activity, allowing COP to keep their year over year change in total invested capital below NOPAT, except during the exceptionally difficult market conditions of This has allowed COP to generate positive free cash flows in all years except 2013 and CVX's heavy investment coupled with declining NOPAT is consistently reducing free cash flow, while COP's comparatively more controlled investing activities have allowed it to outperform CVX with positive free cash flows in most years. CVX's investment into long term, capital demanding activities are locking NOPAT into investments that are declining in value, leaving no free cash flow for investors. 3. Value Creation and DCF Model CVX, Page 7 of 17 Copyright Robert A. Weigand, Ph.D., 2016

8 CVX COP ConocoPhillips Cost of Capital 2015 Weight % Cost Weighted % Cost of Capital 2015 Weight % Cost Weighted % Equity Capitalization $168, % 7.891% Equity Capitalization $57, % % 7.436% + Total Debt $37, % + Total Debt $22, % % + Preferred Stock Preferred Stock = Value of All Securities $205, = Value of All Securities $80, Effective Tax Rate 2.73% Alternative RF Rate: Effective Tax Rate 46.83% Alternative RF Rate: Risk Free Rate 1.766% 1.766% Risk Free Rate 1.766% 1.766% Beta (5 Yr) Alternative Beta: Beta (5 Yr) Alternative Beta: Market Risk Premium 7. Market Risk Premium 7. CAPM Cost of Equity 9.628% CAPM Cost of Equity % Weighted Average Cost of Capital: 8.768% Weighted Average Cost of Capital: 8.184% 8.768% 8.768% 8.768% 8.768% 8.768% CVX COP ConocoPhillips ROIC, EVA and MVA ROIC, EVA and MVA Return on Invested Capital 15.4% 12.4% 9.2% 6.4% 1.4% Return on Invested Capital 11.4% 10.4% % 7.7% Economic Value Added 9,334 5, ,562 20,215 Economic Value Added 2,106 1,541 1, ,883 Market Valued Added 89,928 74,349 90,339 56,319 15,329 Market Valued Added 34,960 24,141 34,878 33,539 18,223 EVA per Share $4.70 $ ($2.42) ($10.82) EVA per Share $1.53 $1.24 $ ($8.76) MVA per Share $45.28 $38.13 $47.13 $29.89 $8.21 MVA per Share $25.42 $19.41 $28.33 $27.11 $ ,000 10,000 5, ,000 10,000 15,000 20,000 25,000 Economic Value-Added Market Valued-Added 100,000 80,000 60,000 40,000 20,000 0 $6.00 $4.00 $ $2.00 $4.00 $6.00 $8.00 $10 $12.00 EVA per Share CVX COP 4,000 2, ,000 4,000 6,000 8,000 10,000 12,000 Economic Value-Added Market Valued-Added 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, Return on Invested Capital Return on Equity Return on Invested Capital CVX COP Return on Invested Capital Return on Equity Analyst Comments: EVA measures how well CVX is creating value each year, while ROIC and ROE measure the firm's return generated for every dollar of invested capital and equity. CVX's outlook is bleak, as EVA has fallen below zero since 2013, their ROIC fell below their WACC in 2014, and ROE has fallen from 22 percent in 2011 to 3 percent in CVX s ROIC has fallen below its WACC since 2013, indicating a lower return on capital than the cost of capital. COP had negative EVA in 2015, though slightly less than CVX. COP s ROIC has fallen below its WACC in 2015, earning a return on its investments less than the cost of capital. In terms of EVA, ROIC, and ROE, both CVX and COP are generating negative economic profit. 3. Value Creation and DCF Model CVX, Page 8 of 17 Copyright Robert A. Weigand, Ph.D., 2016

9 Long Term Growth Rate: Long Term Growth Rate: CVX COP ConocoPhillips Intrinsic Value Model Intrinsic Value Model PV of Future FCFs 79,066 86,509 91,515 98,065 98,065 PV of Future FCFs 57,758 59,893 64,762 63,831 63,831 + Value of Non Oper. Assets 20,071 21,913 16,516 13,215 11,332 + Value of Non Oper. Assets 6,361 3,618 6,518 5,062 2,368 = Total Intrinsic Firm Value 58,995 64,596 74,999 84,850 86,733 = Total Intrinsic Firm Value 64,119 63,511 71,280 68,893 66,199 Total Debt 9,953 12,035 20,300 27,722 37,008 Total Debt 25,192 23,564 21,073 22,383 22,697 = Intrinsic Value of Equity 68,948 76,631 95, , ,741 = Intrinsic Value of Equity 38,927 39,947 50,207 46,510 43,502 Total Weighted Shares 1,986 1,950 1,917 1,884 1,868 Total Weighted Shares 1,375 1,244 1,231 1,237 1,242 = Per Share Intrinsic Value $34.72 $39.30 $49.71 $59.75 $66.24 = Per Share Intrinsic Value $28.31 $32.12 $40.79 $37.59 $35.03 vs. Year End Stock Price $ $ $ $ $89.96 vs. Year End Stock Price $72.87 $57.99 $70.65 $69.06 $46.69 Over (Under) Valuation/Share $ $ $ $ $ Over (Under) Valuation/Share $44.56 $25.87 $29.86 $31.47 $11.66 % Over (Under) Valued % 351.3% 287.7% 235.8% % Over (Under) Valued 157.4% 80.6% 73.2% 83.7% 33.3% $150 $100 $50 $50 $100 Year-End Stock Price Per Share Intrinsic Value $50 $40 $30 $20 $10 MVA per Share CVX COP $80 $70 $60 $50 $40 $30 $20 $10 Year-End Stock Price Per Share Intrinsic Value $200 $150 $100 $50 $ Over (Under) Valued % Over (Under) Valued Return on Invested Capital WACC $50 $40 $30 $20 $10 $ Over (Under) Valued % Over (Under) Valued Analyst Comments: Per share intrinsic value represents the present value of expected future cash flows, allowing investors to select stocks that are undervalued with beliefs that the market will realize the true intrinsic value of a company and raise the price. Per this model, CVX has a negative intrinsic value, therefore the stock is consistently overvalued against its market price. COP has been undervalued since 2013, making it a more attractive investment than CVX. CVX s ROIC has fallen below the WACC, meaning that CVX is earning a return on its invested capital lower than what is required by investors, thus not creating value. CVX must increase its ROIC by increasing NOPAT and/or decreasing invested capital, in order to return to value creation. 3. Value Creation and DCF Model CVX, Page 9 of 17 Copyright Robert A. Weigand, Ph.D., 2016

10 CVX COP ConocoPhillips Piotroski Financial Fitness Scorecard Piotroski Financial Fitness Scorecard Positive Net Income Positive Net Income Positive Free Cash Flow Positive Free Cash Flow Growing ROA (% change NI > % change TA) Growing ROA (% change NI > % change TA) Earnings Quality (Operating Income > Net Income) Earnings Quality (Operating Income > Net Income) Total Assets Growing Faster Than Total Liabilities Total Assets Growing Faster Than Total Liabilities Increasing Liquidity (Current Ratio) Increasing Liquidity (Current Ratio) % Change Shares Outstanding < % Change Shares Outstanding (Diluted) < Expanding Operating Margin Expanding Operating Margin Asset Turnover (% change sales > % change assets) Asset Turnover (% change sales > % change assets) Total Liabilities to Operating Cash Flow (EBIT) < Total Liabilities to Operating Cash Flow (EBIT) < Piotroski Score (max = 10) Piotroski Score (max = 10) CVX COP ConocoPhillips Altman Probability of Bankruptcy Z Score Altman Probability of Bankruptcy Z Score (Current Assets Current Liabilities)/Total Assets ## (Current Assets Current Liabilities)/Total Assets Retained Earnings/Total Assets ## Retained Earnings/Total Assets Earnings Before Interest & Tax/Total Assets ## Earnings Before Interest & Tax/Total Assets Market Value Equity/Total Liabilities ## Market Value Equity/Total Liabilities Sales/Total Assets ## Sales/Total Assets Altman Score Altman Score Altman Z Score Scale: Safe Zone = Z > 2.9, Grey Zone = 1.23 < Z < 2.9, Distress Zone = Z < 1.23 Altman Z Score Scale: Safe Zone = Z > 2.9, Grey Zone = 1.23 < Z < 2.9, Distress Zone = Z < Value Creation and DCF Model CVX, Page 10 of 17 Copyright Robert A. Weigand, Ph.D., 2016

11 31 Dec Dec Dec Dec Dec 15 CVX Energy Report Date: April 18, 2016 Historical Income Statement Drivers Average Forecasted Income Statement Drivers E 2017E 2018E 2019E 2020E Total Revenue 236, , , , ,566 Total Revenue 125, , , , ,314 % growth N/A 5.8% 4.9% 9.1% 36.3% 15.1% % growth Gross Profit 72,799 67,254 60,833 55,538 37,359 Gross Profit 38,130 40,693 43,830 46,530 47,460 Gross Margin (% of sales) 30.8% 30.2% 28.7% 28.9% % Gross Margin (% of sales) Operating Income (EBIT) 38,299 35,019 27,586 20,068 (2,794) Operating Income (EBIT) 6,251 8,532 11,132 14,541 17,798 Operating Margin (% of sales) 16.2% 15.7% % 2.3% 10.6% Operating Margin (% of sales) Earnings Before Tax 47,634 46,332 35,905 31,202 4,842 Income Tax Expense 20,626 19,996 14,308 11, Forecasted Effective Tax Rate 38.1% 38.1% 38.1% 38.1% 38.1% Effective Tax Rate 43.3% 43.2% 39.8% 38.1% 2.7% 33.4% Effective Tax Rate Adjustment 38.1% 38.1% 38.1% 38.1% 38.1% Net Income 26,895 26,179 21,423 19,241 4,587 Net Income 5,626 8,532 11,132 13,668 13,942 Net Margin (% of sales) 11.4% 11.8% 10.1% % 9.4% Net Margin (% of sales) % 9.4% Total Common Shares 1,986 1,950 1,917 1,884 1,868 Total Common Shares 1,868 1,868 1,868 1,868 1,868 % growth N/A 1.8% 1.7% 1.7% 0.8% 1. % growth Earnings per Share $13.54 $13.43 $11.18 $10.21 $2.46 Earnings per Share $3.01 $4.57 $5.96 $7.32 $7.46 Dividends per Share $3.09 $3.51 $3.90 $4.21 $4.28 Dividends per Share $4.28 $4.28 $4.49 $4.72 $4.81 % growth N/A 13.6% 11.1% 7.9% 1.7% 8. % growth Year end Stock Price $ $ $ $ $ Historical Balance Sheet Drivers Forecasted Balance Sheet Drivers 2016E 2017E 2018E 2019E 2020E Cash + ST Investments 20,071 21,913 16,516 13,215 11,332 Cash + ST Investments 11,502 11,158 11,827 12,359 12,607 % of sales % 7.8% 6.9% 9.2% 8. % of sales 9.2% Total Receivables 21,660 20,940 21,600 16,335 12,660 Total Receivables 11,877 12,470 13,219 13,814 14,090 % of sales 9.2% 9.4% 10.2% % 9. % of sales Inventory 5,543 6,144 6,380 6,505 6,334 Inventory 6,876 6,563 4,870 4,798 4,894 % of sales 2.3% 2.8% % 5.2% 3.3% % of sales % 3.3% Net PPE 122, , , , ,396 Net PPE 188, , , , ,257 % of sales 51.9% % 95.2% 153.7% 88.4% % of sales Total Assets 209, , , , ,103 Total Assets 262, , , , ,999 % of sales 88.7% 104.7% 119.9% 138.3% 217.1% 133.7% % of sales Payables and Accruals 28,676 29,744 29,552 25,561 19,174 Payables and Accruals 19,503 20,478 21,707 22,683 23,137 % of sales 12.1% 13.4% % 15.6% 13.7% % of sales 15.6% 15.6% 15.6% 15.6% 15.6% ST Debt plus LT Debt 9,953 12,035 20,300 27,722 37,008 ST Debt plus LT Debt 37,755 35,442 34,786 33,443 32,629 % of sales 4.2% 5.4% 9.6% 14.4% 30.2% 12.8% % of sales 30.2% Total Equity 122, , , , ,886 Total Equity 152, , , , ,044 % of sales 51.7% 61.9% 71.1% 81.2% 125.6% 78.3% % of sales $250,000 $200,000 $150,000 $100,000 $50,000 ($50,000) Total Revenue Operating Income (EBIT) Analyst Comments: According to S&P's Capital IQ, CVX is expected realize positive revenue growth beginning in 2016 and increasing in 2017 and 2018, fueled by LNG projects, Gorgon (2016) and Wheatstone (mid 2017), becoming operational. According to the EIA, Oil prices, the number one driver of revenues in the upstream segment, are expected to bottom at the current $32.78/bbl and begin to rebound in 2016, increasing to $50/bbl by 2017 although there is substantial volatility in the consensus of oil price forecasts. Operating margin fell to 2.3 percent in 2015 primarily caused by excessive impairment and depreciation of assets. As oil prices recover, impairment and depreciation will decrease significantly allowing more revenue to flow to operating profit. CVX has announced that they will not increase dividends in 2016 and 2017, and has halted their buyback program with no plans to resume in order to free up cash for dividend payments. CVX is valued for their dividend growth and is expected to resume dividend growth in E 2017E 2018E 2019E 2020E 4. Forecasting and Valuation CVX, Page 11 of 17 Copyright Robert A. Weigand, Ph.D., 2016

12 Earnings per Share Dividends per Share Gross Profit Margin Operating Profit Margin Net Profit Margin Effective Tax Rate (right axis) $16.00 $14.00 $12.00 $10 $8.00 $6.00 $4.00 $ E 2017E 2018E 2019E 2020E E 2017E 2018E 2019E 2020E 14% 12% 1 8% 6% 4% 2% 2016E 2017E 2018E 2019E 2020E Historical Performance Forecasted Performance Total Invested Capital Total Invested Capital 2016E 2017E 2018E 2019E 2020E Cash and ST Investments 20,071 21,913 16,516 13,215 11,332 Cash and ST Investments 11,502 11,158 11,827 12,359 12,607 + Receviables 21,660 20,940 21,600 16,335 12,660 + Receviables 11,877 12,470 13,219 13,814 14,090 + Inventory 5,543 6,144 6,380 6,505 6,334 + Inventory 6,876 6,563 4,870 4,798 4,894 Payables and Accruals 28,676 29,744 29,552 25,561 19,174 Payables and Accruals 19,503 20,478 21,707 22,683 23,137 = Net Oper. Working Capital 18,598 19,253 14,944 10,494 11,152 = Net Oper. Working Capital 10,751 9,714 8,210 8,288 8,454 + Net Property, Plant & Equip. 122, , , , ,396 + Net Property, Plant & Equip. 188, , , , ,257 = Total Invested Capital 141, , , , ,548 = Total Invested Capital 199, , , , ,711 Total Common Shares 1,986 1,950 1,917 1,884 1,868 Total Common Shares 1,868 1,868 1,868 1,868 1,868 = Total Invested Capital/Share $71.10 $82.36 $93.78 $ $ = Total Invested Capital/Share $ $ $ $ $ $250,000 $200,000 $150,000 $100,000 $50,000 Total Invested Capital Net Fixed Assets 2016E 2017E 2018E 2019E 2020E $250,000 $200,000 $150,000 $100,000 $50,000 Total Invested Capital Net Operating Working Capital 2016E 2017E 2018E 2019E 2020E $25,000 $20,000 $15,000 $10,000 $5,000 ($5,000) ($10,000) ($15,000) NOPAT Free Cash Flow 2016E 2017E 2018E 2019E 2020E Historical Performance Forecasted Performance NOPAT and Free Cash Flow NOPAT and Free Cash Flow 2016E 2017E 2018E 2019E 2020E Operating Income (EBIT) 38,299 35,019 27,586 20,068 (2,794) Operating Income (EBIT) 6,251 8,532 11,132 14,541 17,798 (1 Effective Tax Rate) 43.3% 43.2% 39.8% 38.1% 2.7% (1 Effective Tax Rate) 38.1% 38.1% 38.1% 38.1% 38.1% = Net Oper. Profit After Tax 21,715 19,905 16,593 12,419 (2,718) = Net Oper. Profit After Tax 3,869 5,282 6,890 9,001 11,017 Total Invested Capital N/A 19,395 19,172 13,894 5,881 Total Invested Capital (20) (788) 97 5,749 1,125 = Free Cash Flow N/A 510 (2,579) (1,475) (8,599) = Free Cash Flow 3,890 6,069 6,793 3,252 9,891 NOPAT per Share $10.93 $10.21 $8.66 $6.59 ($1.45) NOPAT per Share $2.07 $2.83 $3.69 $4.82 $5.90 Free Cash Flow per Share N/A.26 ($1.35) (.78) ($4.60) Free Cash Flow per Share $2.08 $3.25 $3.64 $1.74 $5.30 Analyst Comments: Total invested capital and net fixed assets are expected to peak and begin consolidation in 2015, as Gorgon and Wheatstone become operational. Positive NOPAT growth combined with little change in total invested capital is expected to generate positive and growing FCF beginning in Projected free cash flow per share will be able to support CVX dividend growth beginning in Growing free cash flows will send a positive signal to investors. 4. Forecasting and Valuation CVX, Page 12 of 17 Copyright Robert A. Weigand, Ph.D., 2016

13 Cost of Capital 2015 Weight % Cost Weighted % Dividend Discount Valuation Model Equity Capitalization $168, % 7.471% + Total Debt $37, % Year 2016E 2017E 2018E 2019E 2020E = Value of All Securities $205, Dividend Growth Rates Expected Future Dividends $4.28 $4.28 $4.49 $4.72 $4.81 Effective Tax Rate 38.1 Alternative RF Rate: Risk Free Rate 1.766% 1.766% PV Dividends 1 4 $14.30 Dividend Yield 5.1% Beta (5 Yr) 50 Alternative Beta: PV Perpetual Div. $47.71 Market Risk Premium Intrinsic Value $62.02 If Purchased For: $84.35 CAPM Cost of Equity 9.116% Current Price $84.35 Expected Return = 0.3% Weighted Average Cost of Capital: 8.029% 8.029% 8.029% 8.029% 8.029% 8.029% ($84.35) $ % $ % $ % $ % $ % Historical Performance Forecasted Performance ROIC, EVA and MVA ROIC, EVA and MVA 2016E 2017E 2018E 2019E 2020E Return on Invested Capital 15.4% 12.4% 9.2% 6.4% 1.4% Return on Invested Capital 1.9% 2.7% % 5.4% Economic Value Added 10,377 7,010 2,159 3,131 18,740 Economic Value Added 12,151 10,676 9,075 7,426 5,500 Market Valued Added 89,129 73,041 89,025 55,156 14,159 Market Valued Added 5,045 32,159 32,279 25,701 24,732 EVA per Share $5.23 $3.60 $1.13 ($1.66) ($13) EVA per Share ($6.51) ($5.72) ($4.86) ($3.98) ($2.94) MVA per Share $44.88 $37.46 $46.44 $29.28 $7.58 MVA per Share $2.70 ($17.22) ($17.28) ($13.76) ($13.24) $12 $10 $8 $6 $4 $2 ($2) ($4) ($6) NOPAT per Share Free Cash Flow per Share 2016E 2017E 2018E 2019E 2020E 15,000 10,000 5, ,000 10,000 15,000 20,000 25,000 EVA MVA (right axis) 2016E 2017E 2018E 2019E 2020E 100,000 80,000 60,000 40,000 20, ,000 40,000 $6.0 $4.0 $2.0.0 $2.0 $4.0 $6.0 $8.0 $1 $12.0 EVA per Share MVA per Share (right axis) 2016E 2017E 2018E 2019E 2020E $50 $40 $30 $20 $10 $10 $20 $30 Perpetual Growth Rate: 2. Historical Performance Forecasted Performance DCF Intrinsic Value Model DCF Intrinsic Value Model 2016E 2017E 2018E 2019E 2020E PV of Future FCFs 91,392 98, , , ,030 PV of Future FCFs 144, , , , ,334 + Cash and ST Investments 20,071 21,913 16,516 13,215 11,332 + Cash and ST Investments 11,502 11,158 11,827 12,359 12,607 = Total Intrinsic Firm Value 111, , , , ,362 = Total Intrinsic Firm Value 155, , , , ,941 Total Debt 9,953 12,035 20,300 27,722 37,008 Total Debt 37,755 35,442 34,786 33,443 32,629 = Intrinsic Value of Equity 101, , , , ,354 = Intrinsic Value of Equity 117, , , , ,312 Total Common Shares 1,986 1,950 1,917 1,884 1,868 Total Common Shares 1,868 1,868 1,868 1,868 1,868 = Per Share Intrinsic Value $51.11 $55.43 $54.72 $55.40 $59.61 = Per Share Intrinsic Value $63.11 $67.11 $70.62 $76.54 $78.86 vs. Year End Stock Price $ $ $ $ $89.96 vs. Most Recent Stock Price $84.35 Over (Under) Valuation/Share $55.29 $52.71 $70.19 $56.78 $30.35 Over (Under) Valuation/Share $21.24 % Over (Under) Valued 108.2% 95.1% 128.3% % % Over (Under) Valued 33.7% Analyst Comments:Beta was decreased slightly, on the thesis that oil price volatility has to decline in 2016 even if the price of oil fails to rise significantly.the dividend discount model values a stock as the present value of its future stream of dividends. Based on the above forecasts, the dividend discount model values CVX's future stream of dividends at $62.02, well below the current price of $ EVA is expected to remain negative through 2020, indicating continued loss of economic value. The DCF intrinsic value model values a stock based on the present value of future free cash flows. Per this model, CVX is currently overvalued by $ Projected intrinsic value is expected to grow at an average annual rate of 5.7 percent from 2016 to In conclusion, CVX has been historically overvalued in terms of both the DDM and DCF; based on this forecast, CVX 's intrinsic value is expectedto remain below its current market price through With the oil industry expected to recover in the near term, CVX's stock price is expected follow the market and to continue its trend of overvaluation though Forecasting and Valuation CVX, Page 13 of 17 Copyright Robert A. Weigand, Ph.D., 2016

14 ROIC WACC Year-End Stock Price Per Share Intrinsic Value $ Over (Under) Valued % Over (Under) Valued E 2017E 2018E 2019E 2020E $140 $120 $100 $80 $60 $40 $ E 2017E 2018E 2019E 2020E $80 $70 $60 $50 $40 $30 $20 $ E Historical Performance Forecasted Performance Relative Valuation Relative Valuation 2016E 2017E 2018E 2019E 2020E Price to Earnings Price to Earnings Price to Free Cash Flow N/A Price to Free Cash Flow Price to Sales Price to Sales Price to Book Price to Book Earnings Yield 12.7% 12.4% 8.9% 9.1% 2.7% Earnings Yield 3.6% 6.8% 8.4% 9.6% 9. Dividend Yield 2.9% 3.2% 3.1% 3.8% 4.8% Dividend Yield 5.1% 6.4% 6.4% 6.2% 6.1% Price to Earnings Price to Free Cash Flow Price to Sales Price to Book (right axis) Earnings Yield Dividend Yield E 2017E 2018E 2019E 2020E E 2017E 2018E 2019E 2020E E 2017E 2018E 2019E 2020E Analyst Comments: Due to slow forecasted growth, ROIC is expected to remain below WACC through Price to earnings spiked in 2015 due to an exceptionally large decrease in earnings relative to change in stock price. P/E is expected to shift toward the historical average between 8 and 12 as earnings increase more quickly than intrinsic value. Free cash flow is expected to rise at a faster rate than intrinsic value, causing the P/FCF to decrease over time. Earnings yield is expected to increase to its historical average by 2018, while dividend yield is elevated due to the decline in stock price between 2012 and 2015; dividend yield is expected to remain steady through ROIC is projected to remain below WACC through 2020, meaning CVX will continue to lose economic value as its cost of capital exceeds the returns earned on capital. 4. Forecasting and Valuation CVX, Page 14 of 17 Copyright Robert A. Weigand, Ph.D., 2016