Chevron Corporation (CVX) — 2023 Q3 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. The interim financial statements are unaudited.
Business context and results
Chevron operates through Upstream and Downstream segments, with other corporate activities. Third-quarter results were lower year over year, primarily reflecting lower upstream realizations and weaker international refining margins. PDC Energy was acquired on August 7, 2023.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Sales and other operating revenues | $51.9 billion | $63.5 billion | $148.0 billion | $181.2 billion |
| Net income attributable to Chevron | $6.5 billion | $11.2 billion | $19.1 billion | $29.1 billion |
| Diluted earnings per share | $3.48 | $5.78 | $10.14 | $14.95 |
| Upstream segment earnings | $5.8 billion | $9.3 billion | $15.9 billion | $24.8 billion |
| Downstream segment earnings | $1.7 billion | $2.5 billion | $5.0 billion | $6.4 billion |
Cash flow, liquidity and capital
- Nine-month operating cash flow was $23.2 billion, down from $37.1 billion. Capital expenditures were $11.5 billion, up from $8.1 billion; reported free cash flow was $11.7 billion, versus $29.0 billion.
- Cash, cash equivalents and marketable securities totaled $5.9 billion at quarter-end, compared with $17.9 billion at December 31, 2022. Cash and restricted cash combined was $7.0 billion.
- Short- and long-term debt totaled $20.6 billion on the balance sheet; management reported debt and finance lease liabilities of $20.6 billion, down from $23.3 billion at year-end 2022. The current ratio was 1.3, versus 1.5; the net debt ratio was 8.1%, versus 3.3%.
- Chevron paid $8.5 billion in common dividends in the first nine months and repurchased $7.8 billion of shares under its $75 billion repurchase authorization. It declared a $1.51 quarterly dividend payable in December 2023.
Material changes and operating performance
- Q3 net income attributable to Chevron fell about 42% year over year. Lower crude and natural gas realizations were the primary upstream headwind; lower refined-product margins reduced international Downstream earnings. U.S. Downstream earnings increased slightly in Q3.
- Nine-month worldwide net oil-equivalent production averaged 3.03 million barrels per day, slightly above the prior-year period. Q3 production was 3.146 million barrels per day. PDC contributed production growth, partly offset by international declines, including the end of the Erawan concession in Thailand.
- Brent averaged $87 per barrel in Q3. U.S. Henry Hub gas averaged $2.49 per thousand cubic feet in the first nine months, versus $6.61 a year earlier; international gas realizations averaged $7.81 per thousand cubic feet, versus $9.56.
- PDC’s purchase price was approximately $6.5 billion, paid primarily in Chevron shares. The acquisition added assets in the Denver-Julesburg and Permian basins; provisional fair values are subject to adjustment. Chevron assumed $1.5 billion of PDC debt and repaid or funded the redemption of the specified acquired obligations.
Outlook, commentary and risks
- Chevron expected Q4 2023 share repurchases of about $3 billion, plus or minus 20%, with timing affected by the Hess transaction process. The company said repurchases would be restricted in connection with the pending transaction.
- The October 2023 agreement to acquire Hess is an all-stock transaction valued at approximately $53 billion, subject to Hess shareholder and regulatory approvals and other closing conditions. Chevron anticipated closing in the first half of 2024; completion, timing and expected benefits are uncertain.
- In Kazakhstan, the Wellhead Pressure Management Project was expected to begin start-up in the first half of 2024; the Future Growth Project was expected to start in the first half of 2025. The filing cites slower-than-expected commissioning progress.
- Following the Israel-Hamas conflict, Israel directed a shutdown of Tamar gas field production in early October; Leviathan remained operational. Chevron said the financial impact was not then material but duration and further effects were uncertain.
- Key risks include volatile commodity prices and refining margins, production disruptions, inflation and supply constraints, regulatory and energy-transition changes, and integration and approval risks for PDC and Hess. Chevron disclosed climate-related lawsuits and 39 Louisiana coastal lawsuits; management disputes the claims and intends to defend them. The Ecuador arbitration’s final compensation and cost phases remained pending. Environmental and tax contingencies may also lead to future costs; the filing does not provide a clear estimate of possible adjustments for open tax matters.
- Management stated that disclosure controls were effective at September 30, 2023, and that there were no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether lower commodity realizations and refining margins persist, and how they affect earnings and cash generation.
- Production trends, including PDC integration and the timing and ramp-up of Kazakhstan projects.
- Cash use, liquidity and the pace of buybacks and dividends, particularly as Hess-related restrictions take effect.
- Hess shareholder and regulatory approvals, transaction timing, financing implications and realizable synergies.
- Developments in climate and Louisiana litigation, the Ecuador arbitration, and other environmental and tax contingencies.