Chevron Corporation — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; comparative period is Q1 2016. The interim financial statements are unaudited.
Financial results and key metrics
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Sales and other operating revenues | $31.524 billion | $23.070 billion |
| Net income (loss) attributable to Chevron | $2.682 billion | $(725) million |
| Diluted earnings (loss) per share | $1.41 | $(0.39) |
| Operating cash flow | $3.879 billion | $1.141 billion |
| Cash capital expenditures | $3.315 billion | $5.566 billion |
| Common dividends paid | $2.029 billion | $2.000 billion |
- Net income margin, calculated as Chevron-attributable earnings divided by reported sales, was approximately 8.5%, versus a loss margin of approximately 3.1% in Q1 2016.
- Cash and cash equivalents were $6.983 billion; marketable securities were $11 million. Current assets were $29.568 billion and current liabilities $28.426 billion; the reported current ratio was 1.0.
- Total debt and capital lease obligations were $45.3 billion, down from $46.1 billion at year-end 2016. The debt ratio was 23.6%, versus 24.1%. Commercial paper outstanding was $6.5 billion; $9.0 billion of committed credit facilities were undrawn.
- Worldwide net oil-equivalent production averaged 2.676 million barrels per day, up 0.4% from 2.666 million in Q1 2016.
Changes versus Q1 2016
- Earnings returned to profit, primarily on higher crude oil realizations, higher asset-sale gains, lower operating costs, and increased natural gas volumes. Upstream earnings were $1.517 billion versus a $1.459 billion loss; Downstream earnings rose to $926 million from $735 million.
- Revenue increased 37%, mainly reflecting higher crude and refined-product prices. Operating, selling, general and administrative expenses fell by $876 million; exploration expense declined by $226 million.
- Operating cash flow increased by $2.738 billion. Cash capital expenditures declined by $2.251 billion, while asset-sale proceeds and deposits increased to $2.087 billion from $82 million.
- Upstream production was broadly stable overall: international growth more than offset lower U.S. production. Refinery inputs and U.S. refined-product sales were lower, partly reflecting asset divestitures and planned maintenance.
Outlook, management commentary and risks
- Management expected full-year 2017 net oil-equivalent production to grow 4%–9% versus 2016, assuming Brent crude at $50 per barrel and before anticipated asset sales. Asset sales were expected to reduce production by 50,000–100,000 barrels per day, depending on transaction timing.
- The 2016–2017 asset-sale program targets $5–$10 billion in before-tax proceeds. Chevron reported $2.1 billion of proceeds and deposits in Q1 2017. The company also said it did not plan share repurchases for the remainder of 2017 and described maintaining dividend capacity and investment-grade ratings as priorities.
- Management said crude prices had recovered from 2016 levels but the timing and extent of future increases were uncertain. Key sensitivities include commodity prices, refining and chemicals margins, production and project execution, costs, political and regulatory conditions, foreign exchange, and environmental and litigation exposure.
- Unusual earnings contributors included an approximately $600 million gain from the sale of the Indonesian geothermal business and higher gains on asset sales overall. The effective tax rate was 14%, compared with 59% in Q1 2016; management attributed the change to earnings levels and geographic mix.
- Chevron could not estimate a reasonably possible loss or range for the Ecuador litigation. The company continued to dispute the judgment and related enforcement actions. An adverse Australian court decision on interest rates for certain intercompany loans was under assessment and could affect unrecognized tax benefits and the effective tax rate; the filing did not establish its impact.
- Other contingencies include MTBE claims, environmental obligations, guarantees and purchase commitments. An EPA order concerning water-permit compliance at the former Questa mine could result in civil penalties of $100,000 or more. Management stated that the Q1 results are not necessarily indicative of future results.
Important facts for investors to verify
- Whether production growth and project ramp-ups meet the 4%–9% outlook, considering planned asset sales and operational disruptions.
- How sustainable operating cash flow is relative to capital spending, dividends, debt needs, and asset-sale proceeds.
- Progress and realized proceeds from the $5–$10 billion asset-sale program, including the effects of dispositions on production and earnings.
- The outcome and potential financial effects of the Ecuador proceedings, Australian tax matter, and environmental and other contingencies; amounts or timing remain uncertain.
- Future oil prices, downstream margins, and tax-rate variability, which materially influence results and are not assured by management’s outlook.