Chevron Corporation — FY2016 Form 10-K
Reporting period: Year ended December 31, 2016. The filing also reports fourth-quarter results; this is an annual report, not a standalone quarterly filing. Chevron is an integrated energy company with upstream, downstream, chemicals and related operations worldwide.
Financial and operating performance
| Metric | FY2016 | FY2015 |
|---|---|---|
| Sales and other operating revenues | $110.2 billion | $129.9 billion |
| Net income (loss) attributable to Chevron | $(497) million | $4.6 billion |
| Diluted earnings (loss) per share | $(0.27) | $2.45 |
| Cash provided by operating activities | $12.8 billion | $19.5 billion |
| Capital expenditures (cash flow statement) | $18.1 billion | $29.5 billion |
| Cash and cash equivalents | $7.0 billion | $11.0 billion |
| Total debt and capital lease obligations | $46.1 billion | $38.5 billion |
| Current ratio | 0.9 | 1.3 |
| Dividend per share | $4.29 | $4.28 |
Cash from operations less cash capital expenditures was approximately negative $5.3 billion. Chevron funded the cash shortfall and investment program in part through borrowing and asset sales. No operating or net margin figure is stated in the supplied filing text.
Upstream reported a $2.5 billion loss, improving from a $2.0 billion loss in 2015; downstream earnings were $3.4 billion, down from $7.6 billion. Worldwide net oil-equivalent production averaged 2.594 million barrels per day, down 1% year over year. Year-end proved reserves were 11.1 billion barrels of oil-equivalent; the reported reserve replacement ratio was 95%.
Material changes versus the prior comparable period
- Revenue declined about 15% and operating cash flow declined about 34%, primarily reflecting lower crude oil and refined-product prices.
- Chevron moved from attributable net income of $4.6 billion in 2015 to a $497 million loss in 2016. The 2016 result included approximately $2.9 billion of after-tax upstream impairments and other asset write-offs, partly offset by approximately $800 million of after-tax asset-sale gains.
- Upstream realizations fell: U.S. liquids averaged $35.00 per barrel versus $42.70; international liquids averaged $38.61 versus $46.52. Downstream earnings also fell, including from lower refining margins and the absence of the prior-year Caltex Australia sale gain.
- Capital and exploratory expenditures, including affiliate spending, fell 34% to $22.4 billion. Operating and administrative expenses fell $2.5 billion, or 9%, and asset-sale proceeds were $2.8 billion, compared with $5.7 billion in 2015.
- Debt and capital lease obligations increased $7.6 billion, while the current ratio fell from 1.3 to 0.9. The company paid $8.0 billion in common dividends and raised its quarterly dividend by $0.01 per share in October.
In fourth-quarter 2016, Chevron reported attributable earnings of $415 million, or $0.22 per diluted share, compared with a $588 million loss, or $(0.31) per diluted share, in fourth-quarter 2015. Fourth-quarter revenue was $30.1 billion versus $28.0 billion.
Outlook, management commentary, risks and contingencies
- Management forecast 2017 oil-equivalent production growth of 4% to 9% over 2016, assuming Brent crude at $50 per barrel and before asset sales. Expected 2017 divestitures could reduce full-year production by 50,000 to 100,000 barrels of oil-equivalent per day, depending on closing timing.
- Planned 2017 capital and exploratory expenditures were $19.8 billion, including $4.7 billion by affiliates. Management said spending could be further restricted if oil prices deteriorated. Major project milestones included Gorgon LNG Train 3 and Wheatstone start-up preparations, with first production anticipated in 2017.
- Management attributed the prolonged industry downturn to high inventories and production, and said the timing of any oil-price recovery was uncertain. Its response included cost reductions, project pacing and asset sales.
- Principal risks include commodity-price and refining-margin volatility; project delays, cost overruns and reserve replacement; political instability, civil unrest and partner funding; operational, environmental and cybersecurity incidents; changing regulation, including greenhouse-gas rules; and reduced liquidity or access to debt markets.
- Chevron disclosed ongoing Ecuador litigation and enforcement proceedings. Management said the outcome and any financial effect were uncertain and that a reasonably possible loss or range could not be estimated. The filing also describes environmental remediation reserves of $1.467 billion and asset-retirement obligations of $14.2 billion.
- Refinery-related regulatory matters remained under negotiation, including potential civil penalties of $100,000 or more for several proceedings. The 2012 Richmond refinery fire and related agency investigations are among the matters described.
Most important facts for investors to verify
- Whether production growth, project start-ups and the stated 2017 production outlook were achieved, accounting for asset sales and disruptions.
- How sensitive cash flow, impairments, reserve values and the dividend are to crude prices, refining margins and capital-spending needs.
- Debt maturities, refinancing capacity and liquidity: year-end current liabilities exceeded current assets, while management relied on committed facilities to refinance certain short-term obligations.
- The final proceeds, timing and production impact of announced or pending asset sales, and the effect of any sale gains on reported earnings.
- Developments in Ecuador litigation, environmental remediation, regulatory proceedings and other contingencies; the filing states that some outcomes cannot be reliably estimated.