Chevron Corporation — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011; compared with the three months ended March 31, 2010. Financial statements are unaudited.
Financial results
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Sales and other operating revenues | $58.4 billion | $46.7 billion | +25% |
| Net income attributable to Chevron | $6.21 billion | $4.55 billion | +36% |
| Diluted EPS | $3.09 | $2.27 | +36% |
| Operating cash flow | $9.81 billion | $7.52 billion | +31% |
| Capital and exploratory expenditures, including affiliates | $5.05 billion | $4.38 billion | +15% |
Net margin, calculated as Chevron-attributable income divided by sales and other operating revenues, was approximately 10.6%, versus 9.7%. The filing does not present this as a reported company margin.
- Segment earnings: Upstream was $5.98 billion, up from $4.72 billion; Downstream was $622 million, up from $196 million. All Other net charges were $388 million versus $368 million.
- Cash and liquidity: Cash, cash equivalents, time deposits and marketable securities totaled $16.9 billion at quarter-end. Current assets were $50.9 billion and current liabilities $33.3 billion; the current ratio was 1.5, down from 1.7 at year-end 2010.
- Debt: Debt and capital lease obligations totaled $11.6 billion, compared with $11.5 billion at year-end. Debt ratio was 9.5%, versus 9.8%. Chevron had $6.0 billion of committed credit facilities and no borrowings under them.
- Cash use: Investing activities used $8.35 billion, including the Atlas Energy acquisition and $4.65 billion in capital expenditures. Financing activities used $2.43 billion, including $1.44 billion in dividends and $750 million of share repurchases. Cash declined by $911 million during the quarter.
Changes and operating drivers
- Higher crude oil realizations were the principal earnings driver: international upstream earnings benefited by about $1.4 billion from higher realizations. Total worldwide production averaged 2.76 million barrels of oil-equivalent per day, down from 2.783 million a year earlier.
- Downstream earnings improved on stronger refined-product margins and higher earnings from Chevron Phillips Chemical, and because Q1 2010 included employee-reduction charges. International downstream results were partly offset by unfavorable derivative mark-to-market effects.
- Revenue growth reflected higher crude oil and refined-product prices. Operating, selling, general and administrative expenses increased by $532 million, mainly due to higher fuel expense. Income tax expense rose to $4.88 billion from $3.07 billion; the effective tax rate increased to 44% from 40%.
- On February 17, Chevron acquired Atlas Energy for approximately $4.5 billion, including assumed debt. The provisional purchase accounting included $3.44 billion of net assets acquired; valuation remains subject to adjustment.
Outlook, risks and unusual items
- Management estimated 2011 net oil-equivalent production would average 2.79 million barrels per day. The estimate is subject to OPEC quotas, project timing, field declines, weather, maintenance, political conditions and other operating risks.
- In April 2011, Chevron increased its quarterly dividend 8.3% to $0.78 per share, payable in June. The company said it expected to repurchase $500 million to $1 billion of shares per quarter, subject to market conditions and other factors.
- Chevron agreed to sell the Pembroke refinery and other U.K. and Ireland assets for $730 million plus estimated additional proceeds of $1 billion for inventory and working capital; closing was expected in the second half of 2011. It also agreed, after quarter-end, to acquire additional Marcellus Shale assets, expected to close in Q2 2011.
- Ecuador litigation: A February 2011 Ecuador court judgment assessed about $8.6 billion in damages and $0.9 billion for plaintiffs’ representatives, plus $8.6 billion in punitive damages because Chevron did not issue an apology. Both sides appealed. Chevron disputes the judgment; management said a reasonably possible loss or range could not be estimated. A U.S. court issued a preliminary injunction against enforcement actions pending resolution of Chevron’s separate lawsuit.
- Other material uncertainties include MTBE claims, environmental obligations and a Richmond refinery project injunction; their financial effects may be significant in an individual period, though some cannot be estimated. The filing also identifies commodity-price, refining-margin, geopolitical, regulatory, project-execution, tax and foreign-exchange risks.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether oil prices and realizations, production volumes and the stated 2011 production estimate support sustained earnings growth.
- How the Ecuador judgment, appeals and enforcement proceedings develop, and whether the company’s inability to estimate a potential loss changes.
- Atlas acquisition valuation adjustments, integration and subsequent Marcellus transaction terms and closing.
- Progress, proceeds and timing of the Pembroke disposal and other downstream portfolio exits.
- Capital spending, share repurchases, dividend commitments and liquidity as cash balances and short-term obligations change.