Chevron Corporation — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. The interim financial statements are unaudited. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Financial performance
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Sales and other operating revenues | $54,296 | $58,896 |
| Income before income tax | $10,283 | $12,069 |
| Net income attributable to Chevron | $6,178 | $6,471 |
| Diluted earnings per share | $3.18 | $3.27 |
| Cash from operating activities | $5,714 | $8,387 |
| Cash capital expenditures | $8,192 | $5,895 |
- Net income attributable to Chevron fell about 5%; revenue declined about 8%. The effective income tax rate decreased to 39% from 46%, primarily due to non-recurring international upstream tax benefits and foreign currency remeasurement effects.
- Upstream earnings were $5.916 billion, down from $6.171 billion; lower crude realizations and volumes were partly offset by favorable tax items and lower exploration expense. Downstream earnings were $701 million, versus $804 million, with U.S. weakness partly offset by higher international margins.
- No consolidated operating-margin figure is provided. Segment earnings and drivers are reported, but should not be treated as directly comparable to a consolidated margin.
- Operating cash flow declined, primarily reflecting working-capital requirements. Capital and exploratory expenditures, including Chevron’s share of affiliate spending, were $8.882 billion, up from $6.417 billion.
Balance sheet and liquidity
- At March 31, cash and cash equivalents were $17.374 billion; time deposits and marketable securities brought the combined total to approximately $19.0 billion, down from $21.9 billion at year-end 2012.
- Total debt and capital lease obligations were $14.1 billion, compared with $12.2 billion at year-end. The reported current ratio was 1.6, unchanged from year-end; the debt ratio rose to 9.2% from 8.2%.
- Chevron had $6.0 billion in committed credit facilities, with no amounts drawn. Management said it had the capacity to meet unanticipated cash requirements and could adjust capital spending during extended periods of weaker prices or margins.
- Common dividends paid were $1.735 billion. The quarterly dividend was increased 11.1% in April to $1.00 per share, payable in June. Chevron repurchased $1.25 billion of shares during the quarter.
Changes, outlook and management commentary
- Worldwide net oil-equivalent production averaged 2.645 million barrels per day, versus 2.631 million a year earlier. Management estimated 2013 average production of approximately 2.650 million barrels per day, based on Brent crude at $112 per barrel. This outlook was subject to project timing, field declines, prices, fiscal terms, weather, political conditions and other operating factors.
- Q1 average Brent crude was $113 per barrel; WTI averaged $94. U.S. Henry Hub natural gas averaged $3.45 per thousand cubic feet, compared with $2.47 in Q1 2012.
- International upstream production was broadly flat year over year; project ramp-ups and improved operations were offset by the Frade Field shutdown in Brazil and normal field declines. U.S. upstream production increased about 2%.
- U.S. downstream earnings were pressured by refinery turnarounds, repairs at Richmond and lower refined-product margins. International downstream earnings benefited from higher margins, partly offset by the absence of prior-year asset-sale gains.
- Notable developments included progress on the Wheatstone LNG project, a final investment decision for Moho Nord in the Republic of Congo, and discoveries or production testing in Australia and the U.S. Gulf of Mexico.
Risks, contingencies and unusual items
- Ecuador litigation: Chevron described an Ecuadorian judgment and related enforcement actions that it disputes and is appealing. The filing states the ultimate outcome and financial effect are uncertain and that management cannot estimate a reasonably possible loss or range.
- Brazil/Frade: Brazil’s regulator approved partial restoration of production in April 2013. Two civil lawsuits seek $10.7 billion each in connection with the two reported seeps; Chevron said its ultimate exposure is not determinable and could be significant in a period.
- Tax uncertainty: Tax audits and the company’s assessment of a U.S. court ruling on historic rehabilitation tax credits could lead to a significant change in unrecognized tax benefits and affect the effective tax rate.
- Environmental matters, MTBE claims, guarantees, indemnities and other commitments may result in future costs; the filing notes amounts or timing can be uncertain. Management did not expect environmental costs to materially affect consolidated financial position or liquidity.
- Results are exposed to oil and gas prices, refining and chemicals margins, project execution, production disruptions, political and regulatory developments, foreign exchange, and litigation. Management cautioned that forward-looking statements are not guarantees of future performance.
Important facts for investors to verify
- Whether production reaches the 2013 estimate and whether key project ramp-ups proceed as planned.
- How crude-price movements, realizations and refining margins affect segment earnings and cash generation.
- Capital spending and working-capital needs relative to operating cash flow, dividends and repurchases.
- Developments in Ecuador enforcement proceedings and Brazil’s Frade-related litigation and production restoration.
- Tax-audit outcomes and any change in unrecognized tax benefits or the effective tax rate.