Business context and reporting period
Chevron Corporation’s Form 10-K covers the fiscal year ended December 31, 2020. Chevron operates globally in integrated energy and chemicals, principally through Upstream exploration and production and Downstream refining, marketing and chemicals. The year was heavily affected by COVID-19 restrictions, weaker energy demand and lower commodity prices. Chevron acquired Noble Energy in October 2020.
Key financial and operating metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Sales and other operating revenues | $94.5 billion | $139.9 billion |
| Net income (loss) attributable to Chevron | $(5.5) billion; $(2.96) per diluted share | $2.9 billion; $1.54 per diluted share |
| Cash provided by operating activities | $10.6 billion | $27.3 billion |
| Free cash flow (company-defined) | $1.7 billion | $13.2 billion |
| Capital and exploratory expenditures | $13.5 billion, including $4.0 billion of affiliate spending | $21.0 billion, including $6.1 billion of affiliate spending |
| Total debt and finance lease liabilities | $44.3 billion | $27.0 billion |
| Cash, cash equivalents, marketable securities and time deposits | $5.6 billion | $5.7 billion |
| Current ratio | 1.2 | 1.1 |
| Net debt ratio | 22.7% | 12.8% |
| Worldwide net oil-equivalent production | 3.083 million barrels per day | 3.058 million barrels per day |
Chevron paid $9.7 billion in common dividends in 2020, or $5.16 per share for the year. It suspended its share repurchase program in March. The annual return on average capital employed was negative 2.8%, versus positive 2.0% in 2019.
Material changes versus the prior comparable period
- Revenue fell about 32% year over year, primarily due to lower crude oil, natural gas and refined-product prices and reduced product volumes.
- Operating cash flow declined by $16.7 billion. The company reported a net loss, compared with 2019 earnings.
- Upstream reported a $2.4 billion loss, compared with $2.6 billion in earnings in 2019. Downstream earnings fell to $47 million from $2.5 billion.
- After-tax upstream impairment and asset write-off charges were approximately $4.8 billion, compared with approximately $10.4 billion in 2019. The 2020 charges included a $2.6 billion full impairment of Venezuelan investments.
- Debt rose primarily from $12.0 billion of bond issuance and debt assumed in the Noble acquisition. Chevron’s debt ratio increased to 25.2% from 15.8%.
- Production rose about 1%, with U.S. growth and Noble contributing, partly offset by OPEC+ and market-related curtailments and asset sales. Year-end proved reserves were 11.1 billion barrels of oil equivalent, down 3%; the reserve replacement ratio was 74%.
- Fourth-quarter 2020 net loss attributable to Chevron was $665 million, compared with a $6.6 billion loss in fourth-quarter 2019.
Outlook, management commentary, risks and unusual items
- Management estimated 2021 worldwide oil-equivalent production growth of up to 3% versus 2020, assuming Brent at $50 per barrel and excluding anticipated 2021 asset sales. The estimate is subject to substantial operational and market uncertainties.
- Organic capital and exploratory expenditures for 2021 were estimated at $14 billion, including $4.2 billion of affiliate spending. Management said spending could be adjusted if oil-price conditions deteriorate.
- Management described the balance sheet, flexible capital program and investment-grade credit ratings as supporting liquidity. Chevron reported access to nearly $10 billion of committed credit facilities. Management’s priorities included protecting the dividend, funding long-term-value projects and maintaining a strong balance sheet.
- COVID-19 continued to weigh on demand, prices, refinery margins and operations. Management said demand had not returned to pre-pandemic levels and the duration and financial impact remained uncertain. Refining utilization and product sales remained depressed, particularly for jet fuel.
- The company recorded $859 million of pre-tax restructuring charges, mainly severance, and expects the enterprise-wide program to be substantially completed by the end of 2021.
- Major risks include commodity-price volatility, pandemic-related disruption, reserve replacement and project execution, geopolitical and regulatory changes, cybersecurity and operational incidents, environmental and climate-related regulation, and the financial health of suppliers, partners and affiliates.
- Environmental remediation reserves were $1.1 billion; asset retirement obligations were $13.6 billion. Climate-change and Louisiana coastal erosion lawsuits remain unresolved. Chevron stated it believes the claims lack merit; the Ecuador arbitration’s damages phase remains ongoing, and management said a reasonably possible loss estimate could not be made.
Important facts for investors to verify
- Whether production growth, asset-sale assumptions and the $14 billion 2021 capital program remain consistent with actual results and commodity prices.
- How quickly operating cash flow recovers relative to dividends, capital spending, debt maturities and refinancing needs.
- Whether the Noble acquisition delivers anticipated cost synergies and returns; Noble was excluded from the 2020 internal-control assessment because of the acquisition timing.
- The scale and timing of further impairment or reserve revisions, particularly given lower prices, capital reductions and the 74% reserve replacement ratio.
- Developments in environmental, climate-related, Ecuador and other litigation, and any resulting changes in provisions or potential exposure.