Chevron Corporation — FY2010 Form 10-K
Reporting period: Year ended December 31, 2010. This is an annual report, not a standalone fourth-quarter filing. Chevron is an integrated global energy company with upstream, downstream and other operations.
Financial performance and position
| Metric | FY2010 | FY2009 |
|---|---|---|
| Sales and other operating revenues | $198.2 billion | $167.4 billion |
| Net income attributable to Chevron | $19.0 billion | $10.5 billion |
| Diluted earnings per share | $9.48 | $5.24 |
| Cash from operating activities | $31.4 billion | $19.4 billion |
| Capital and exploratory expenditures, including affiliates | $21.8 billion | $22.2 billion |
| Cash, cash equivalents, time deposits and marketable securities | $17.1 billion | $8.8 billion |
| Total debt and capital lease obligations | $11.5 billion | $10.5 billion |
| Current ratio | 1.7 | 1.4 |
| Debt ratio | 9.8% | 10.3% |
- Operating cash flow funded the capital program, $5.7 billion of dividends and $750 million of share repurchases. The reported current ratio was affected by LIFO inventory accounting; inventory book value was about $7.0 billion below replacement cost at year-end.
- Upstream earnings were $17.7 billion, up from $10.9 billion; downstream earnings were $2.5 billion, up from $0.5 billion. “All Other” recorded net charges of $1.1 billion.
- Worldwide oil-equivalent production was reported at 2.763 million barrels per day, about 2% above 2009 in the business overview. Growth reflected project start-ups and ramp-ups, partly offset by natural declines and contractual effects.
- Refining and marketing margins improved from 2009 but remained relatively weak. Worldwide refined-product sales fell to 3.113 million barrels per day from 3.254 million.
- Net proved reserves at year-end were 7.729 billion oil-equivalent barrels for consolidated operations and 2.816 billion for affiliates, both below 2009. The filing attributes reserve movements to production, revisions, prices and contractual terms.
- Cash dividends were $2.84 per share for the year; the quarterly dividend rose 5.9% in April to $0.72. Chevron began a new ongoing repurchase program and bought $750 million of shares in 2010.
Material changes and notable items
- Higher oil and gas prices were the principal earnings driver: WTI averaged $79 per barrel in 2010 versus $62 in 2009. Upstream production and improved downstream margins also contributed.
- Other income included approximately $1.1 billion of net asset-sale gains; about $700 million related to nonstrategic property sales. The sale of Chevron’s Colonial Pipeline interest generated a nearly $400 million gain.
- Operating, selling, general and administrative expenses rose to $24.0 billion from $22.4 billion, including higher fuel, compensation, maintenance and transportation costs and $234 million of employee-reduction charges.
- The Gulf of Mexico drilling moratorium and subsequent permitting slowdown delayed activity and reduced Chevron’s Gulf production by about 10,000 barrels per day for the year. Chevron was not involved in the BP-operated Macondo well.
- In February 2011, Chevron completed its Atlas Energy acquisition for $4.47 billion, including assumed debt. The 2011 capital-spending estimate excludes Atlas acquisition costs.
Outlook, risks and contingencies
- Chevron estimated 2011 capital and exploratory expenditures of $26.0 billion, including $2.0 billion by affiliates; about 85% was budgeted for exploration and production. It estimated 2011 oil-equivalent production at approximately 2.790 million barrels per day, using 2010 average WTI of $79 per barrel as the basis. Both estimates are subject to substantial operational, price, regulatory and geopolitical uncertainty.
- Management identified commodity-price volatility, project execution and reserve replacement, political instability, operational incidents, environmental rules and litigation as key risks. The company’s exposure includes greenhouse-gas regulations and possible added compliance costs.
- The Ecuador Lago Agrio case resulted in an adverse judgment on February 14, 2011, after the fiscal year-end: approximately $8.6 billion in damages, about $0.9 billion for plaintiffs’ representatives and an additional approximately $8.6 billion in punitive damages unless Chevron issued a public apology. Chevron said it would appeal and contest enforcement. Management stated it could not estimate a reasonably possible loss; the outcome and financial effect remain uncertain.
- Environmental remediation reserves were $1.507 billion at year-end. Management warned additional costs could be material to results in an individual period, while not expecting a material effect on consolidated financial position or liquidity. Asset-retirement obligations were $12.5 billion.
- Unconditional purchase, throughput and take-or-pay commitments included approximately $17.2 billion due in 2011. A terminal-use guarantee was approximately $613 million; other indemnities and claims remain contingent.
- The filing reported effective disclosure controls and internal control over financial reporting; the independent auditor gave an unqualified opinion on the financial statements and internal controls.
Investor verification priorities
- Verify the 2011 production and capital-spending estimates against subsequent project start-ups, permitting, commodity prices and actual results.
- Assess the reserve decline, reserve replacement, proved-undeveloped development schedule and concentration of reserves in Kazakhstan and other higher-risk jurisdictions.
- Track the Ecuador judgment, appeals, arbitration and enforcement proceedings, including any change in Chevron’s ability to estimate or accrue a loss.
- Review the Atlas acquisition’s final purchase accounting, assumed debt, integration and contribution to production and cash flow.
- Reconcile cash generation and uses with rising debt, large 2011 contractual commitments, dividends, repurchases and planned capital expenditures.
- Monitor refining-margin recovery, asset-sale proceeds and gains, restructuring costs, Gulf of Mexico permitting, and environmental and retirement obligations.