Chevron, Bunge to Join Hands to Create Renewable Fuel Feedstocks

Oil major Chevron Corporation (CVX) recently announced that its subsidiary Chevron U.S.A. Inc. has signed a memorandum of understanding (MOU) for a proposed 50/50 joint venture with Bunge North America, Inc., a subsidiary of Bunge Limited, to help meet the demand for renewable fuels and develop lower carbon intensity feedstocks.

Following the news, shares of the company gained 2.1% on Thursday. It added to its gains marginally to close at $97.72 in extended trade.

The proposed venture is aimed at making the supply chain more efficient for both companies. While Bunge is likely to contribute its soybean processing facilities in Destrehan, Louisiana, and Cairo, Illinois, Chevron is expected to pump roughly $600 million cash into the joint venture. The joint venture will also explore new growth opportunities in lower carbon intensity feedstocks and consider feedstock pretreatment investments.

Executive Vice-President of Downstream & Chemicals for Chevron, Mark Nelson, said, “Chevron’s proposed joint venture with Bunge positions us to expand into the renewable fuel feedstock value chain, which will advance our higher returns, lower carbon strategy.” (See Chevron stock chart on TipRanks)

Recently, RBC Capital analyst Biraj Borkhataria reiterated a Hold rating on the stock. The analyst, however, lowered the price target from $135 to $130, which implies upside potential of 33.1% from current levels.

The analyst said, “Over the coming years, we expect investors to focus on rate-able reductions in emissions intensity for oil and gas producers, and we believe CVX could screen well on this basis. Its prized asset, the Permian, has a carbon intensity materially below the group average, and so allocating capital to its ramp up could improve the group’s metrics. CVX targets an upstream intensity of 24kg CO2/boe by 2028, however our calculations suggest this target could be brought forward. Ramping up the Permian would not only be positive for earnings and free cash flow, but it could also help reduce carbon intensity metrics materially.”

The Wall Street community is cautiously optimistic about the stock with a Moderate Buy consensus rating based on 10 Buys and 4 Holds. The average Chevron price target of $127.92 implies that the stock has upside potential of 30.9% from current levels.

Chevron scores a 7 out of 10 from TipRanks’ Smart Score rating system, indicating that the stock is likely to perform in line with market expectations. Shares have gained about 18.8% over the past year.