Chevron Corporation — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2014. The interim financial statements are unaudited.
Financial results and position
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Sales and operating revenues | $55.6 billion | $55.3 billion | $106.6 billion | $109.6 billion |
| Net income attributable to Chevron | $5.665 billion | $5.365 billion | $10.177 billion | $11.543 billion |
| Diluted earnings per share | $2.98 | $2.77 | $5.34 | $5.95 |
| Dividend per share | $1.07 | $1.00 | $2.07 | $1.90 |
| Cash provided by operating activities | Not separately presented here | $16.298 billion | $14.234 billion |
- Q2 income attributable to Chevron rose about 6% year over year; first-half income fell about 12%. Revenue was nearly flat in Q2 and declined about 3% for the first half.
- Q2 upstream earnings were $5.264 billion versus $4.949 billion; downstream earnings were $721 million versus $766 million. First-half upstream earnings fell to $9.571 billion from $10.865 billion; downstream earnings were $1.431 billion versus $1.467 billion.
- First-half operating cash flow increased by about $2.1 billion, principally reflecting lower working-capital requirements. Capital expenditures were $17.475 billion in cash-flow reporting; capital and exploratory expenditures including equity affiliates were $19.616 billion, up from $18.334 billion.
- At June 30, cash and cash equivalents were $13.959 billion; cash, time deposits and marketable securities totaled $14.2 billion. Current assets were $48.920 billion and current liabilities $36.328 billion; the current ratio was 1.3, compared with 1.5 at year-end 2013.
- Total debt and capital lease obligations were $23.5 billion, up from $20.4 billion at year-end; the reported debt ratio was 13.3%, versus 12.1%. Commercial paper outstanding under the $20 billion program was $8.3 billion. Chevron reported $8 billion of committed credit facilities with no amounts drawn.
- The effective income tax rate was 37% in each second quarter and 40% for the first half of 2014 versus 38% in the comparable 2013 period. The filing does not provide a single consolidated operating-margin percentage.
Material changes and operating developments
- Q2 upstream improvement reflected higher crude realizations and sales volumes and a $430 million earnings contribution from selling Chad and Cameroon interests. Higher depreciation and exploration expenses and adverse foreign-currency effects partly offset the improvement.
- First-half upstream earnings declined despite the asset-sale gain, reflecting higher depreciation, exploration and operating expenses and unfavorable currency effects. Total first-half net oil-equivalent production averaged 2.567 million barrels per day, down from 2.613 million a year earlier.
- U.S. downstream earnings improved substantially, supported by stronger refined-product margins, higher chemical-affiliate earnings and asset-sale gains. International downstream earnings weakened, principally from lower refined-product margins, derivative effects and adverse currency movements.
- First-half exploration expense rose to $1.109 billion from $576 million; depreciation, depletion and amortization rose to $7.972 billion from $6.893 billion. The filing attributes increases to well write-offs and geological/geophysical costs, higher depreciation rates, and certain impairments.
- Chevron completed the sale of its Chad and Cameroon interests for approximately $1.3 billion. Gorgon and Wheatstone construction continued; Jack/St. Malo remained targeted for fourth-quarter 2014 start-up, and Tubular Bells for third-quarter start-up. Initial product was achieved at Nigeria’s Escravos gas-to-liquids facility.
Outlook, risks and contingencies
- Management estimated full-year 2014 net oil-equivalent production at about 98%–99% of the previously announced 2.610 million barrels-per-day target, based on an average Brent price of $109 per barrel. The estimate is subject to production entitlements, project timing, field declines, maintenance, weather, political conditions and other uncertainties.
- Chevron declared a $1.07-per-share quarterly dividend in July, payable in September. Its ongoing repurchase program has no set term or monetary limit; the company said it expects quarterly repurchases of $500 million to $2 billion, subject to market conditions and other factors. It repurchased about $1.25 billion of shares in Q2.
- Results are sensitive to crude and natural-gas prices, refining and chemicals margins, production volumes, foreign exchange, operating costs, project execution, regulation and geopolitical disruption. Brent averaged $110 per barrel in Q2; U.S. Henry Hub gas averaged $4.86 per thousand cubic feet in the first half.
- The Ecuador litigation remained a major unquantified contingency. Ecuador’s National Court had left a $9.5 billion judgment in place after nullifying punitive damages; Chevron appealed to Ecuador’s Constitutional Court. The company disputed the judgment and stated it could not estimate a reasonably possible loss or range. Enforcement proceedings and related arbitration and U.S. litigation were ongoing.
- Other matters include MTBE claims, environmental obligations, tax audits, and the Brazil Frade incident. Chevron said the ultimate exposure from Frade was not determinable and could be significant to income in a period. It also disclosed a Richmond refinery air-permit settlement offer that could involve a penalty of $100,000 or more; a separate renewable-fuel-credit matter was settled for $168,787.
- The Richmond City Council certified a revised environmental impact report and approved a conditional use permit on July 29, 2014, after quarter-end; further approvals were still needed before construction could resume. Management said project outcomes remained uncertain.
Key facts for investors to verify
- Whether production and major-project start-up assumptions support the 2014 production outlook, particularly given first-half production declines and project delays or downtime risks.
- How much of reported earnings and cash generation depends on asset-sale gains, and whether higher exploration, depreciation and operating costs persist.
- Whether working-capital improvements continue to support operating cash flow while capital spending, dividends and share repurchases remain substantial.
- Changes in debt, commercial-paper usage, liquidity and the company’s ability to refinance short-term obligations.
- Developments in the Ecuador case and other legal, environmental and tax matters, for which ultimate outcomes or potential financial effects are uncertain.