Chevron Corporation (CVX) — Q3 2021 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2021; comparisons are with the same 2020 periods. Chevron operates Upstream and Downstream businesses. Results improved sharply as commodity prices, sales volumes and refining margins recovered from pandemic-affected 2020 levels. Management cautions that interim results are not necessarily indicative of future performance.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Sales and other operating revenues | $42.6 billion | $24.0 billion | $109.7 billion | $69.6 billion |
| Net income attributable to Chevron | $6.11 billion | Loss of $207 million | $10.57 billion | Loss of $4.88 billion |
| Diluted earnings per share | $3.19 | Loss of $0.12 | $5.51 | Loss of $2.63 |
| Cash from operating activities | Not separately presented here | $19.73 billion | $8.34 billion | |
| Capital expenditures (cash flow statement) | Not separately presented here | $5.45 billion | $6.86 billion | |
| Free cash flow, as reported by Chevron | Not separately presented here | $14.28 billion | $1.48 billion |
Q3 net income was approximately 14.4% of revenue, versus a loss in the year-ago quarter; the nine-month figure was approximately 9.6% of revenue, versus a loss in 2020. These are simple calculations from reported revenue and attributable net income, not company-reported margin measures. Higher crude oil and natural gas realizations, upstream volumes, downstream margins and equity-affiliate earnings drove the recovery.
- Segments: Q3 Upstream earnings were $5.14 billion, versus $235 million; Downstream earnings were $1.31 billion, versus $292 million. For nine months, Upstream earned $10.66 billion versus a $2.93 billion loss; Downstream earned $2.15 billion versus $385 million.
- Production: Worldwide net oil-equivalent production averaged 3.034 million barrels per day in Q3, up about 7% year over year; the nine-month average was 3.093 million barrels per day, up about 2%. Noble Energy acquisition volumes contributed materially.
- Liquidity: At September 30, cash and cash equivalents were $6.0 billion; cash, cash equivalents and restricted cash totaled $7.0 billion. Current assets were $32.1 billion and current liabilities $25.2 billion; the reported current ratio was 1.3.
- Debt: Total debt and finance lease liabilities were $37.3 billion, down from $44.3 billion at year-end 2020. Chevron reported debt and net debt ratios of 21.6% and 18.7%, respectively, versus 25.2% and 22.7% at year-end.
- Shareholder returns: Chevron paid $7.6 billion in common dividends during the first nine months and repurchased $625 million of shares in Q3. The company declared a $1.34-per-share dividend in October.
Material changes versus 2020
- Revenue rose 77% in Q3 and 58% for the nine-month period. The filing attributes the increases mainly to higher crude oil, natural gas and refined-product prices and higher sales volumes.
- Q3 earnings improved across both segments, especially Upstream, reflecting higher realizations and volumes; Downstream benefited from higher refined-product margins and CPChem earnings. Nine-month results also benefited from the absence of substantial 2020 impairments and write-offs.
- Operating cash flow increased to $19.7 billion from $8.3 billion for the nine-month period, while cash capital expenditures fell to $5.45 billion from $6.86 billion.
- Debt and finance lease liabilities declined by approximately $7.0 billion from year-end 2020. The company resumed share repurchases in Q3 after suspending them in March 2020.
- Jet fuel demand remained below pre-pandemic levels. Q3 refinery utilization was approximately 80%; total refined-product sales were up year over year but remained about 3% below Q3 2019, primarily because of lower jet-fuel sales.
Outlook, commentary and risks
- In October, Chevron reduced its expected 2021 organic capital expenditures to $12–13 billion from an original estimate of $14 billion. It expected share repurchases to run at $2–3 billion annually.
- Chevron increased planned lower-carbon spending to approximately $10 billion through 2028: about $2 billion to reduce operational carbon intensity and $8 billion for lower-carbon investments. It stated an aspiration for net-zero Upstream production Scope 1 and 2 emissions on an equity basis by 2050, conditional on factors including technology, policy, partnerships, permits and available offsets.
- Management cited oil and gas prices, OPEC+ actions, demand recovery, supply-chain constraints, inflation and rising service costs as factors that may affect results. COVID-19 resurgence, logistics and workforce impacts remain risks; jet-fuel demand had not recovered to pre-pandemic levels.
- In October, Chevron completed a bond tender and redeemed bonds with a $3.4 billion book value. The transaction was expected to produce a nonrecurring after-tax debt-extinguishment loss of approximately $265 million in Q4 2021.
- Contingencies include MTBE-related claims, environmental obligations, climate-related lawsuits and Louisiana coastal erosion cases. Chevron disputes the claims; the filing says potential outcomes and financial effects are uncertain. The Ecuador judgment is approximately $9.5 billion, but management says it is illegitimate and unenforceable and that a reasonably possible loss estimate cannot be made. Arbitration over compensation from Ecuador remained ongoing.
- Tax audits and disputes in multiple jurisdictions may change unrecognized tax benefits; the company could not estimate a possible adjustment range. Environmental and litigation costs may be material to results in the period recognized, although management did not expect them to materially affect consolidated financial position or liquidity.
Important facts for investors to verify
- Whether higher commodity prices, refining margins and production levels persist, and how they affect segment earnings and cash generation.
- Progress toward the $12–13 billion 2021 capital-spending outlook, planned buybacks and debt reduction, including the Q4 impact of the bond redemption.
- The pace of jet-fuel demand recovery, supply-chain and cost inflation trends, and the effects of COVID-19 or OPEC+ production decisions.
- Developments in Ecuador arbitration, climate and coastal litigation, environmental matters, and tax audits, including any changes in estimated exposure.
- Execution, funding and measurable progress on lower-carbon investments and emissions aspirations; the filing notes that achievement depends on external conditions and commercially viable solutions.