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As the reinsurance industry meets in Baden-Baden, the rise of secondary perils are expected to be a key focus and with elevated loss activity there will be a lot of focus on catastrophe covers at the January 1st, 2026, renewals, according to Bertrand Romagne, CEO, International, AXA XL Reinsurance.

We spoke with Romagne around the 2025 Baden-Baden Reinsurance Meeting, where the industry gets together to accelerate discussions kicked off last month in Monte Carlo ahead of the 1.1 renewal season.

Romagne explained that, for him, the rise of secondary perils are key and he expects that to be one of the most pressing trends at this year’s Baden-Baden conference.

“As an industry, we need to think differently about what are traditionally referred to as secondary perils,” he said.

“Wildfire is now almost as big a risk in Europe as in the US. We are using our research partners to promote a better understanding of risk and allow us to speak to our clients comprehensively about the risks they face both in the shorter and longer term.

“The wildfire research commissioned from the Cambridge Centre for Risk Studies shows that building codes in California have had a positive impact on the risk – properties built to chapter 7a code are 2.8 times more likely to survive a wildfire.

“By raising awareness of this kind of research, we can help be part of the solution,” continued Romagne.

In light of elevated loss activity from secondary perils such as wildfires, floods, and severe convective storms, Romagne emphasised that there is greater demand for protection ahead of the key January renewals, with a lot of focus on catastrophe covers expected.

“Catastrophe is only part of our global portfolio. Casualty, Aviation, Marine, Credit and Surety are all just as important, each with its own technical issues,” said Romagne.

Overall, Romagne feels that the market “looks good” in the run up to 1.1.

In terms of the management of AXA XL Reinsurance’s natural catastrophe exposures ahead of the renewals, Romagne emphasised that the firm has a focus on aggregate risk diversification.

“We have put a lot of work into rationalising our portfolio and it has been effective for us. The market is not short of capacity but our appetite is unchanged, we assess on a case-by-case-basis, and evaluate the relevance and the value of our clients’ business” he said.

At the upcoming renewals, AXA XL Reinsurance is keen to grow with its strategic clients and work with them throughout the cycle, explained Romagne.

“We listen to, partner and find solutions that help our cedants manage volatility sustainably. Understand what’s changed in their portfolios, their underwriting policy, their Terms & Conditions. Transparency and data quality are key to allow us to offer the best service we can,” he said.

Throughout the second half of this year, noise of market softening has intensified, although numerous industry leaders have stressed that while rates have come down from the highs of 2023, it is still an attractive market with adequate returns in many areas.

This year, reinsurers are expected to once again meet their cost of capital, but in light of the softening environment, we asked Romagne what companies need to do to ensure they continue to meet their cost of capital in 2026 and beyond.

“It requires experience and expertise, financial and reputational capital, and robustness and discipline to be able to be active in the market and bring value to clients but that’s what we do,” he concluded.

This article first appeared on GuruFocus.

Chevron Corporation, which headquarter is in Houston (Texas), is a major oil company that traces its roots back to the renowned Standard Oil Company, founded by John D. Rockefeller in 1870.

In 1911, the Standard Oil Company was split into 34 smaller companies by the U.S. Supreme Court due to violation of federal antitrust laws. Chevron was one of these successor companies, originally known as Standard Oil of California.

In 1984, Standard Oil of California officially changed its name to Chevron Corporation.

Chevron is specialised in the production and sale of oil & gas products.

Its organisation is divided into two business segments:

• The upstream business unit, which primarily consists of the exploration, development, production and transportation of crude oil and natural gas (oil production is a consolidated business for the upstream segment, while natural gas is considered a growing activity).

• The downstream business unit, which primarily consists of the refining and marketing of oil and gas products.

During the first six months of 2025, company’s worldwide net oil-equivalent production averaged 3.37 million barrels per day (+2% compared to the same period of 2024), thanks to the increasing production in the Permian Basin, TCO, and the Gulf of America.

Chevron focuses its business mainly in the United States (no other country accounted for 10% or more of the company’s total sales and other operating revenues), where more than half of its workforce is also employed (Chevron reported a total of 45,298 employees at the end of 2024).

In the first six months of 2025, Chevron recorded sales and other operating revenues for an amount of $90,476m ($96,154m for the same period of 2024) and cost of revenues for an amount of $63,935m ($66,703 in 2024).

The gross profit result was $26,541 million, EBIT was recorded at $12,772 million, and the net income for the period was $6,027 million.

The American-based Company has a leading position in a mature business, and it generates solid cash flows from its operating activities that it uses to pay dividends, repurchase its stock and invest in long-term projects.

It is a stock that well-respected investors select for the dividend income it offers to its shareholders like Warren Buffet, Bill Gates, and Arnold Van Den Berg who have Chevron inside their portfolio in this moment.

In this article, we analyse the CAPEX investments made by the Company over the last five years and explain which businesses we expect will support cash generation in the future.

The analysis support investors’ decision by identifying the risks and expected returns Chevron will be able to offer in the coming years.

Capital expenses (CAPEX) include the purchase of items such as new equipment, machinery, land, plants, buildings, furniture and fixtures and intangible assets such as patents or licences.

The main characteristic of these assets is their ability to benefit the company organisation for more than one year; for this reason, they are listed in the balance sheet as “non-current assets” and not in the Income Statement.

Capital expenses refer to investments that are often very expensive and will influence the productivity of the Company and its competitiveness for many years.

When a company establishes a long-term strategy, it determines which business will be its future cash engine and sets up the CAPEX budgets accordingly (for instance, as explained below, Chevron’s long-term strategy focuses on the oil sector, with CAPEX budgets dedicating significant resources to projects in the Permian Basin, Kazakhstan, and Guyana).

CAPEX investments (particularly in the upstream sector) require substantial cash resources, necessitate a long period to reach the break-even point, and generate significant profit margins only over an extended timeframe.

CAPEX can create barriers to entry in industries such as oil, providing a competitive advantage to established companies (new competitors should invest significant capital resources in a high-risk activity to enter into the business).

However, these CAPEX investments also pose risks for companies already leading in the sector, as such investments can limit their flexibility, making it challenging to adapt their strategies if market trends shift (as explained below, we view Chevron’s long-term strategy as a risky approach for investors, particularly given the challenges currently facing the energy sector).

An analysis of CAPEX investments identifies the following key factors:

• The risks associated with the business and the implications for investing in the company’s stock.

• The anticipated cash flow that the target company is expected to generate in the future.

• The potential returns from both the business and stock investments.

CAPEX analysis is an essential job for investors because CAPEX investments are the engine for future cash generation and the return to investors (dividends + stock buy back programs) depends on the cash the company will generate, not the net income it will record in the income expenditure.

We have analysed Chevron CAPEX investments from 2021 to the first six months of 2025.

Based on our analyses, more than 80% of the CAPEX budgets have been allocated to the upstream segment.

In the last five years, Chevron has significantly increased its CAPEX budget from $8.056mln in 2021 to $16,448mln in 2024. The American firm estimates CAPEX investments in the range of $14.5-15.5 billion in 2025 (it is $7,639 mln at the end of June 2025).

The Company has dedicated about 80% of its budget to investments in the upstream business unit every year since 2021; in 2023, 2024 and for the first six months of 2025, the allocation was 86.41%, 87.13%, and 92.43% (If we consider the total CAPEX investments, more than half has been allocated in favour of the upstream assets in the USA).

During the period of analysis, total investments in the downstream business segment represented only 10-12% of the total budget (except 2022, which percentage was 17.32%), while the allocation of resources in favour of low-carbon activities was only $1.5-2 billion per year.

At the end of 2024, Chevron sold its assets in the Athabasca oil sands and the Duvernay shale formation to Canadian Natural Resources for $6.5 billion. This all-cash deal is part of Chevron’s strategy to reshape its investment portfolio and divest assets for about $10-15 billion by 2028.

Chevron’s overall strategy is to divest assets and focus resources on investments with higher returns, such as Hess aquisition, making capital efficiency the key differentiator.

Based on our analysis, the future cash flow generation (and return for investors) will mostly depend on the production in Kazakhstan, the activities in the Gulf of Mexico, the production in the Permian Basin and in Guyana.

The production in Kazakhstan through Tengizchevroil LLP is expected to add high-margin oil volumes at low break-even prices (Tengizchevroil LLP is a Kazakhstani partnership owned by Chevron, 50%; KazMunayGas, 20%; ExxonMobil, 25%; and Lukoil, 5%) while the activities in the Gulf of Mexico present significant economic brownfield development opportunities for Chevron, given the past exploration success in this region, particularly at costs below $45 per barrel (overall production volumes in the Gulf are expected to increase by 50% by 2027). The importance of the activities in the Permian Basin and in Guyana are explained in more details below.

The Q2/2025 results have confirmed the importance of these projects.

During this period, U.S. net oil-equivalent production was up 123,000 barrels per day from a year earlier, primarily due to higher production in the Permian Basin and Gulf of America.

In general, worldwide and U.S. net oil-equivalent production set quarterly records, thanks to increases at the Company’s Tengizchevroil (TCO) affiliate (34%), in the Gulf of America (22%), and in the Permian Basin (14%).

Chevron has been active in the Permian Basin since 1920.

The Company has one of the largest positions, and it is one of the largest producers.

The Company’s advantaged portfolio of development areas in West Texas and Southeast New Mexico comprises stacked formations, enabling production from multiple geologic zones from a single surface location. Chevron has implemented a Permian factory development strategy utilising multi-well pads to drill a series of horizontal wells that are subsequently completed concurrently using hydraulic fracture stimulation.

New techniques and improved production efficiency have been made based on the fact that Chevron has decided to prioritize returns over volume.

While many competitors target 5-10% annual production growth, Chevron maintains a measured 3% annual growth rate through 2025, focusing instead on generating superior returns from each barrel.

This strategic approach has yielded remarkable results: Chevron’s Permian operations achieve break-even costs of $30-$40 per barrel, which is significantly below the industry average of $45-$55.

In the period 2020-2022, the Company has successfully reduced CAPEX investments in the Permian while maintaining the same output levels. In contrast, several competitors (such as Pioneer Resources, now part of ExxonMobil group) have increased production by 12%, but they have also generated negative free cash flow.

During the presentation of the Q2/2025 results, Chevron announced that it has achieved the goal of 1 million barrels of oil equivalent per day in the Permian Basin, which it expects to sustain through 2040.

Permian Basin activity is moving now into a new phase, as Chevron approaches a production plateau in the Area; the activity is shifting from growth to cash generation.

Chevron has reduced its rigs from 13 to 9 and frack crews from four to three this year. These cutbacks are expected to boost free cash flow from the Permian by $2 billion over this year and next, reaching $5 billion annually by 2027 (assuming Brent crude averages $60 a barrel).

As the Permian Basin has been the Area where Chevron has dedicated a significant portion of its CAPEX budgets in the last few years, achieving a production plateau is important information for investors because the assets are now becoming a cash flow generator and an important source to support dividend returns.

In July 2025, Chevron completed its $53 billion acquisition of Hess, which provided the opportunity to expand its drilling operations from North Dakota to Southeast Asia.

However, the most important part of this acquisition is the lucrative oil project off the shores of Guyana, in South America, which is strategic for its portfolio of investments; if we consider that the production of oil in the Permian Basin appears to be approaching a plateau, CAPEX investments can be re-direct to the production in near Guyana, which is still ramping up.

Guyana, situated on South America’s northern coast neighbouring Venezuela, Suriname, and Brazil, has emerged as a significant contributor to growth in the global supply of crude oil. Since starting production in 2019, Guyana has increased its crude oil production to 645,000 barrels per day (b/d) as of early 2024, all from the Stabroek block.

Guyana increased its crude oil production by an annual average of 98,000 barrels per day (b/d) from 2020 to 2023, making it the third-fastest-growing non-OPEC producing country during this period.

Guyana’s most recent estimate of recoverable oil and natural gas resources exceeds 11 billion oil-equivalent barrels, and developers continue to explore the country’s offshore waters.

Why Chevron is interested in the Guyana project

Access to the Stabroek Block in Guyana, one of the world’s largest and most promising offshore oil developments, gives Chevron the opportunity to have access to a high-growth, low-cost oil basin, bolstering its long-term production outlook and addressing concerns about declining reserves in other regions.

Guyana is one of the most prized oil and gas projects on the planet. It was developed in record time and provides comparatively low-emissions oil; the oil production in the Area is still ramping up, offering Chevron a significant opportunity for growth and increased production capacity in a Region with massive untapped reserves.

The oil in Guyana is relatively cheap to extract, with production costs below $35 per barrel, making it highly profitable and attractive for oil companies like Chevron. We believe the Company will focus on growing the activity in the area and also on production efficiency (as it does in the Permian Basin) to reduce the breakeven point below $30. If Chevron achieves these goals, Guyana can offer substantial cash support for an estimate annual dividend increase of 6-7% in the long-term period (considering also the reshaping of its portfolio and the increasing returns on assets from the other CAPEX investments).

Finally, the oil extract from the Stabroek Block in Guyana is a medium to light crude, which is considered a good quality of oil because companies can extract a decent amount of gasoline and diesel from it.

Chevron Corporation is a big oil company specialised in the production and sale of oil and gas products. The American-based firm organises its activity through the upstream and downstream business segments.

During the first six months of 2025, the company’s worldwide net oil-equivalent production averaged 3.37 million barrels per day (+2% compared to the same period in 2024), thanks to increasing production in the Permian Basin, TCO, and the Gulf of America.

Chevron focuses its business mainly in the United States (no other country accounted for 10% or more of the company’s total sales and other operating revenues), where more than half of its workforce is also employed (Chevron reported a total of 45,298 employees at the end of 2024).

Since 2021, the American Company has allocated approximately 80% of its budget to investments in the upstream business unit each year, with this figure reaching 92.43% during the first six months of 2025.

When considering total capital expenditures (CAPEX), more than half has been directed toward upstream assets in the USA.

Chevron Corporation has continued to focus on the oil business, dedicating significant CAPEX investments to its projects in Kazakhstan, the Gulf of Mexico, and the Permian Basin. In the Permian Basin, the American Company has successfully reached its production goal of 1 million barrels, and this location is now set to become a source of cash flow.

In our opinion, the restructuring of its investment portfolio to focus on higher-return assets, along with the fact that the Permian Basin has now become a significant source of cash flow, will support a reasonable 5% increase in dividends in the short to mid-term.

We also believe that the dividend policy will remain unchanged in the event of a short-term recession. In our opinion, Chevron is likely to leverage its resources to maintain the return to investors, as it successfully did during the COVID-19 pandemic.

The Hess acquisition is a significant success for Chevron, which now has access to the Guyana development that offers low production costs and potential high profit margins.

Thanks to this acquisition, Chevron now has the opportunity to increase its reserves (which represent a major concern at the moment) and predict a significant injection of cash flow from this development after 2030.

For this reason, we expect that Chevron will allocate significant part of its CAPEX budget to the development of the Guyana project which is expected to enhance Chevron’s cash generation after 2030 and potentially enable the company to increase its dividends to 6-7% annually.

However, investors should also be aware of the increasing risks associated with Chevron’s long-term stock investment. While the company has a solid balance sheet that can withstand a potential recession in the short term, its long-term strategy, which focuses heavily on the oil business, may pose limitations.

If market trends shift, Chevron might lack the flexibility to adapt its strategy due to the significant cash resources already committed to projects that are expected to yield returns only in the long-term. As climate change becomes a pressing issue for public opinion, and with the growing importance of low-carbon energy sources, investors should view Chevron’s focus on the oil sector as a potential long-term risk.