Chevron Corporation — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Financial statements are unaudited. Dollar figures are in U.S. dollars; financial amounts are generally in millions unless noted.
Business context and results
Chevron operates through Upstream and Downstream segments, with additional corporate and other activities. COVID-19-related restrictions and economic disruption sharply reduced energy demand and commodity prices, weighing on results and cash flow.
| Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 |
|---|---|---|---|---|
| Sales and operating revenue | $15,926 | $36,323 | $45,631 | $70,512 |
| Net income (loss) attributable to Chevron | $(8,270) | $4,305 | $(4,671) | $6,954 |
| Diluted earnings (loss) per share | $(4.44) | $2.27 | $(2.51) | $3.66 |
| Operating cash flow | Not separately presented for the quarter | $4,802 | $13,840 | |
| Capital expenditures | Not separately presented for the quarter | $5,225 | $6,537 | |
| Free cash flow | Not separately presented for the quarter | $(423) | $7,303 |
Q2 segment earnings (losses): Upstream $(6,089), versus $3,483 a year earlier; Downstream $(1,010), versus $729. H1 Upstream was $(3,169), versus $6,606; Downstream was $93, versus $981. The filing does not provide a consolidated profit-margin figure.
Liquidity, debt and capital
- At June 30, cash and cash equivalents were $6.855 billion; cash, cash equivalents and restricted cash totaled $7.779 billion.
- Total debt and finance lease liabilities were $34.1 billion, up from $27.0 billion at year-end 2019. Chevron issued $8.0 billion of long-term bonds in May and repaid $3.8 billion of long-term debt during H1.
- Current ratio was 1.1; debt ratio was 20.2% and net debt ratio 16.8%, compared with 15.8% and 12.8%, respectively, at year-end 2019.
- Chevron reported $7.5 billion outstanding under its commercial paper program and $9.75 billion of committed credit facilities, with no facility borrowings outstanding. Management cited continued access to commercial paper and debt markets and reaffirmed investment-grade ratings.
- H1 dividends paid were $4.796 billion. The quarterly dividend was $1.29 per share; a July declaration scheduled another $1.29-per-share payment for September. Share repurchases were suspended in March 2020.
Material changes and unusual items
- Revenue fell 56% in Q2 and 35% in H1 year over year, mainly from lower crude and refined-product prices and lower sales volumes.
- Q2 included $1.015 billion of pretax restructuring and severance charges. The company said its employee-reduction and enterprise-transformation programs were expected to be substantially completed by the end of 2021.
- Chevron recorded a $2.6 billion impairment of its Venezuelan investments, including Petropiar and Petroboscan; the filing also reports substantial upstream impairments, write-offs and severance charges. Lower prices and impairments drove higher depreciation, depletion and amortization and a large loss from equity affiliates.
- World-wide net oil-equivalent production averaged 3.111 million barrels per day in H1, up 2% year over year. Q2 refining margins were described as near historic lows; late-July refining crude utilization was about 75%.
- H1 cash capital and exploratory expenditures, including Chevron’s share of affiliate spending, were $7.730 billion, down from $10.022 billion. The affiliate portion does not require cash outlays by Chevron.
Outlook, risks and contingencies
- Management cut planned 2020 capital expenditures by up to 30% from the original budget, to as low as $14 billion, and targeted a $1 billion reduction in 2020 operating costs versus 2019. Production was expected to be relatively flat versus 2019, subject to significant uncertainties.
- Management reported production curtailments of about 165,000 barrels of oil equivalent per day in Q2 and expected about 150,000 in Q3. Lower planned spending was estimated to reduce proved reserves by about 10%, primarily in the Permian Basin and Australia.
- COVID-19 duration and recovery, oil and gas prices, demand, OPEC+ actions, operating restrictions and supplier constraints could materially affect results, liquidity, production and asset values. The Tengiz project construction pace was slowed by workforce demobilization; the cost and schedule effects remained uncertain.
- Chevron announced a proposed all-stock acquisition of Noble Energy on July 20, 2020, valued at about $5 billion, with $8.7 billion of Noble debt reported at March 31. Closing was anticipated in Q4 2020, subject to stockholder, regulatory and other approvals.
- Significant unresolved exposures include Ecuador-related litigation and arbitration, MTBE and environmental claims, climate-related lawsuits, Louisiana coastal erosion cases, tax examinations and other contingencies. Management said it could not estimate a reasonably possible loss for the Ecuador matter.
- Chevron’s Venezuela license at the filing date authorized limited maintenance and asset-preservation activities through December 1, 2020. The company removed about 160 million barrels of proved reserves and said it would stop reporting Venezuelan production from July 2020.
Important facts for investors to verify
- Whether demand, commodity prices and refining margins recovered enough to improve operating cash flow and free cash flow.
- Progress against the $14 billion capital-spending floor, $1 billion cost-reduction target, dividend commitment and suspended repurchase program.
- Actual effects of impairments, lower investment spending and curtailments on proved reserves, production and future asset values.
- Status, financing and expected benefits of the Noble Energy transaction, including assumed debt and integration risks.
- Developments in Venezuela authorizations and the company’s legal, environmental, tax and other contingent exposures.