Chevron Corporation — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016. Financial statements are unaudited. Chevron operates primarily through Upstream and Downstream segments.
Financial performance and position
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Sales and operating revenues | $27.844 billion | $36.829 billion | $50.914 billion | $69.144 billion |
| Net income (loss) attributable to Chevron | $(1.470) billion | $571 million | $(2.195) billion | $3.138 billion |
| Diluted earnings (loss) per share | $(0.78) | $0.30 | $(1.17) | $1.67 |
| Cash provided by operating activities | Not presented by quarter | $3.672 billion | $9.539 billion |
- Revenue fell primarily because of lower crude oil and refined-product prices. The filing does not provide a clear consolidated margin percentage.
- Q2 Upstream lost $2.462 billion, versus a $2.219 billion loss a year earlier. Downstream earned $1.278 billion, down from $2.956 billion.
- Six-month Upstream loss widened to $3.921 billion from $659 million; Downstream earnings declined to $2.013 billion from $4.379 billion.
- Cash and marketable securities were $9.084 billion at June 30, down from $11.332 billion at year-end 2015. Current assets were $32.471 billion and current liabilities $24.927 billion; the current ratio was 1.3 versus 1.4.
- Total debt and capital lease obligations were $45.1 billion, up from $38.5 billion at year-end; the reported debt ratio rose to 23.5% from 20.2%. Chevron had $8.0 billion in committed credit facilities, with no borrowings outstanding under them.
- Six-month capital and exploratory expenditures, including the company’s share of affiliate spending, were $11.992 billion versus $17.307 billion. Common dividends paid were $4.002 billion. The quarterly dividend was maintained at $1.07 per share, with a July declaration payable in September.
Material changes and unusual items
- Lower commodity realizations were the principal earnings headwind. Worldwide net oil-equivalent production averaged 2.597 million barrels per day for the first half, down from 2.638 million a year earlier.
- Other income was $686 million in Q2, compared with $2.359 billion in Q2 2015. The prior-year period included a $1.6 billion gain from selling Chevron’s interest in Caltex Australia; 2016 included $420 million of international downstream asset-sale gains.
- The company reported $2.8 billion of noncash reductions to property, plant and equipment associated with impairments and other noncash charges in the first half. Second-quarter property impairments reflected reservoir performance and lower oil prices, primarily in Brazil and the United States.
- Chevron issued $6.8 billion of long-term notes in May and repaid $750 million of notes at maturity in June. Short- and long-term debt increased during the period.
- Assets held for sale totaled $3.216 billion at June 30; the related assets were expected to be sold within 12 months, and their prior-period revenue and earnings contributions were not material.
Outlook, risks and contingencies
- Management expected full-year 2016 oil-equivalent production near the bottom of its previously stated range of flat to 4% growth versus 2015. The estimate was affected by the Partitioned Zone shut-in, Gorgon start-up issues and other external events.
- Management expected lower oil prices to continue affecting earnings, cash flow, leverage and investment. It cited operating-cost reductions, employee reductions, lower capital spending and increased asset sales as responses. Management anticipated eventual oil-price recovery but said timing was unknown.
- Operating developments included restarted Angola LNG shipments and Gorgon Train 1 production, start-up of the third Chuandongbei train in China, and a final investment decision at Tengizchevroil on a project expected to increase field production by about 260,000 barrels per day.
- The Ecuador litigation remained unresolved. Ecuador’s National Court had left a judgment of approximately $9.5 billion in place after nullifying punitive damages; appeals and enforcement proceedings were ongoing. Chevron disputed the judgment and said it could not estimate a reasonably possible loss or range of loss. A separate $96 million arbitration award, plus interest, was paid to Chevron by Ecuador in July 2016.
- Other exposures include MTBE claims, environmental matters, tax audits, guarantees and purchase commitments. The filing notes that some future environmental costs could be material to results in the period recognized, while management did not expect them to materially affect consolidated financial position or liquidity.
- Key risks include volatile oil and gas prices, refining and chemicals margins, project delays and production disruptions, political and regulatory developments, litigation and environmental obligations, and access to capital markets. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether lower commodity prices, upstream losses and reduced operating cash flow persist, and how they affect leverage and dividend coverage.
- Progress against production guidance, including Gorgon ramp-up and the timing of a restart in the Partitioned Zone.
- Actual asset-sale proceeds and the effect of planned divestitures and impairments on cash flow and earnings.
- Debt maturities, refinancing needs and continued access to credit facilities and commercial-paper markets.
- Developments in the Ecuador litigation and other legal, environmental and tax contingencies, for which outcomes or potential exposure may remain uncertain.