Chevron Corporation — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; quarterly comparisons include the fourth quarter. Chevron is an integrated energy company with upstream and downstream operations worldwide. The year was marked by a sharp decline in oil and gas prices.
Financial performance and liquidity
- Revenue: $129.9 billion, down 35% from $200.5 billion in 2014, primarily reflecting lower crude oil and refined-product prices.
- Net income attributable to Chevron: $4.6 billion, or $2.45 per diluted share, versus $19.2 billion, or $10.14 per diluted share, in 2014. Fourth-quarter net loss attributable to Chevron was $588 million, or $0.31 per diluted share.
- Operating segments: Upstream recorded a $2.0 billion loss, compared with $16.9 billion of earnings in 2014. Downstream earnings rose to $7.6 billion from $4.3 billion, supported by higher refining margins and asset-sale gains. The filing does not provide a single consolidated operating-margin figure.
- Cash flow and investment: Operating cash flow was $19.5 billion, down from $31.5 billion. Cash capital expenditures were $29.5 billion; reported capital and exploratory expenditures, including affiliates, were $34.0 billion. Asset-sale proceeds and deposits were $5.7 billion. Dividends paid were $8.0 billion.
- Liquidity: Cash, cash equivalents, time deposits and marketable securities totaled $11.3 billion at year-end, versus $13.2 billion a year earlier. Current assets were $35.3 billion and current liabilities $26.5 billion; the reported current ratio was 1.3.
- Debt: Debt and capital lease obligations totaled $38.6 billion, up from $27.8 billion. The debt ratio increased to 20.2% from 15.2%. Chevron issued $11 billion of long-term bonds during 2015. In February 2016, S&P lowered its rating from AA to AA-; Moody’s rated the securities Aa1.
- Operations and reserves: Worldwide oil-equivalent production averaged 2.622 million barrels per day, up 2%. Year-end proved reserves were 11.2 billion barrels of oil equivalent, up 1%; the reported reserve replacement ratio was 107%.
Material changes versus 2014
- Brent averaged $52 per barrel versus $99 in 2014; WTI averaged $49 versus $93. Chevron’s average crude and liquids realizations fell to $42.70 per barrel in the United States and $46.52 internationally.
- Upstream results deteriorated sharply as lower commodity realizations and higher depreciation and exploration charges outweighed higher production and lower operating costs. Downstream earnings improved, but included a $1.6 billion gain from the sale of Chevron’s Caltex Australia interest.
- Depreciation, depletion and amortization rose to $21.0 billion from $16.8 billion, including about $3.5 billion of impairments of oil and gas properties. The company reported approximately $3.0 billion of after-tax upstream impairment and asset write-off charges.
- Other income included $3.2 billion of pretax net asset-sale gains in 2015, compared with $3.6 billion in 2014. Total after-tax gains on sales of nonstrategic properties were approximately $2.3 billion, versus approximately $3.0 billion in 2014.
- Capital and exploratory expenditures fell to $34.0 billion from $40.3 billion. Cash and investment balances declined while debt increased. The annual dividend rose to $4.28 per share from $4.21; 2015 was the 28th consecutive year of an annual dividend increase.
Outlook, commentary and risks
- Management expected 2016 production to be flat to 4% above 2015. Estimated 2016 capital and exploratory expenditures were $26.6 billion, including $4.5 billion of affiliate spending; management said further restrictions could follow if low oil prices persisted.
- Management cited cost reductions, employee reductions and increased asset sales in response to the downturn. It expected oil markets eventually to rebalance, but stated that the timing of higher prices was unknown.
- Major projects carry execution and timing risk. Big Foot installation was suspended after mooring-tendon problems; no production was expected in 2016 or 2017. Gorgon’s first LNG cargo was expected in March 2016, while Wheatstone’s first train was targeted for mid-2017.
- Production in the Partitioned Zone had been shut in since May 2015 amid permit difficulties and remained shut in in early 2016; restart timing depended on Saudi Arabia-Kuwait dispute resolution. The filing said the financial effect was not expected to be significant in 2016.
- Key risks include prolonged low commodity prices, impairments, project delays or cost changes, political and regulatory developments, operational incidents, environmental and climate-related requirements, and litigation. Chevron said the ultimate outcome and financial effect of Ecuador-related proceedings remained uncertain and could not be reasonably estimated.
- Environmental remediation reserves were $1.6 billion at year-end; asset retirement obligations were $15.6 billion. The company reported no material weakness in internal control, and the independent auditor issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Whether operating cash flow, asset sales and financing can sustain dividends and investment if weak commodity prices continue.
- Progress against the 2016 spending plan and production outlook, including start-up timing and costs for Gorgon, Wheatstone and other major projects.
- Further impairments, reserve revisions and conversion of proved undeveloped reserves, especially under lower-price assumptions.
- Debt growth, refinancing needs, credit-rating developments and liquidity relative to the dividend and capital program.
- Developments in the Ecuador litigation, environmental obligations and other material contingencies.