Chevron Corporation — 2017 Form 10-K Summary
Business context and reporting period
Chevron is an integrated energy company with upstream oil and gas, downstream refining and marketing, and chemicals operations. This Form 10-K reports the fiscal year ended December 31, 2017; comparisons are primarily with fiscal 2016.
Financial and operating performance
| Metric | 2017 | 2016 |
|---|---|---|
| Sales and other operating revenues | $134.7 billion | $110.2 billion |
| Net income (loss) attributable to Chevron | $9.2 billion | $(497) million |
| Diluted earnings (loss) per share | $4.85 | $(0.27) |
| Cash from operating activities | $20.5 billion | $12.8 billion |
| Cash capital expenditures | $13.4 billion | $18.1 billion |
| Cash and cash equivalents | $4.8 billion | $7.0 billion |
| Debt and capital lease obligations | $38.8 billion | $46.1 billion |
| Current ratio | 1.0 | 0.9 |
- Revenue rose about 22 percent, primarily reflecting higher crude oil and refined-product prices and higher crude oil and natural gas volumes. Net income improved substantially, supported by stronger upstream results and a lower impairment burden.
- Upstream earnings were $8.2 billion, versus a $2.5 billion loss in 2016. Downstream earnings were $5.2 billion, up from $3.4 billion. “All Other” net charges rose to $4.2 billion from $1.4 billion, including higher tax and interest items.
- Worldwide net oil-equivalent production increased 5 percent to 2.728 million barrels per day. Refinery utilization averaged 93 percent, compared with 92 percent in 2016.
- Net cash from operations less cash capital expenditures was approximately $7.1 billion, below the $8.1 billion of common dividends paid. Asset-sale proceeds and financing activities also contributed to the year’s funding mix.
- The filing does not provide a clear consolidated operating-margin measure in the supplied text. It reports improved U.S. refined-product margins and higher crude oil realizations.
Material changes, outlook, and risks
- Crude oil prices strengthened: Brent averaged $54 per barrel in 2017 versus $44 in 2016. Asset-sale proceeds were $5.2 billion, compared with $2.8 billion in 2016. After-tax gains on property sales were approximately $1.8 billion; upstream impairments and other asset write-offs generated approximately $0.9 billion in after-tax charges.
- Chevron forecast 2018 worldwide oil-equivalent production growth of 4 to 7 percent versus 2017, assuming Brent at $60 per barrel and excluding anticipated 2018 asset sales. The company budgeted 2018 capital and exploratory expenditures of $18.3 billion, including affiliate spending.
- Management said it would continue cost control and investment high-grading, and could further restrict capital outlays if oil prices deteriorate. The annual dividend was $4.32 per share; the board approved a quarterly increase to $1.12 beginning in 2018.
- The 2017 effective income tax rate was negative 0.5 percent, affected by U.S. tax reform, including a provisional $2.02 billion tax benefit, and the geographic mix of earnings. Management cautioned that the final tax-reform impact could change when the 2017 U.S. tax return was filed.
- Material risks include commodity-price and refining-margin volatility, project cost or schedule delays, production declines, geopolitical and permitting risks, operational and cyber incidents, litigation, and environmental and greenhouse-gas regulation. The Partitioned Zone remained shut in, with restart timing uncertain.
- Chevron disclosed substantial unresolved litigation, notably the Ecuador judgment and related enforcement proceedings; management said the ultimate outcome and any financial effect could not be estimated. Environmental remediation reserves were $1.4 billion, and asset-retirement obligations were $14.2 billion. The filing also lists significant contractual commitments and $1.1 billion of affiliate guarantees.
Most important facts for investors to verify
- How much of 2017’s earnings improvement came from higher commodity prices, asset-sale gains, reduced impairments, and tax-reform effects, and whether these factors are repeatable.
- Whether forecast production growth and major project ramp-ups are achieved, particularly in the Permian, Gorgon, Wheatstone, and Tengiz projects.
- Whether operating cash flow can sustainably fund capital investment and dividends while maintaining liquidity and reducing debt.
- The final tax-reform accounting, tax-audit developments, and any material changes in deferred tax assets or valuation allowances.
- Developments in the Ecuador litigation, environmental matters, asset-retirement estimates, and other contingencies that could change reported costs or liabilities.