Chevron Corporation — Q3 2014 Form 10-Q
Reporting period: Three and nine months ended September 30, 2014; filed November 7, 2014. Interim financial statements are unaudited. Chevron operates primarily in Upstream and Downstream, with other corporate and related activities.
Financial performance and position
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Sales and other operating revenues | $51.8 billion | $56.6 billion | $158.4 billion | $166.2 billion |
| Net income attributable to Chevron | $5.6 billion | $5.0 billion | $15.8 billion | $16.5 billion |
| Diluted earnings per share | $2.95 | $2.57 | $8.29 | $8.52 |
| Dividends per share | $1.07 | $1.00 | $3.14 | $2.90 |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $25.0 billion | $24.6 billion |
- Q3 income before tax was $8.9 billion; income tax expense was $3.2 billion and the effective tax rate was 37%, versus 44% a year earlier. The nine-month effective tax rate was 39%, versus 40%.
- Cash and cash equivalents were $14.2 billion at September 30, 2014. Cash, time deposits and marketable securities totaled $14.5 billion, down $2.0 billion from year-end 2013.
- Total debt and capital lease obligations were $25.7 billion, versus $20.4 billion at year-end 2013. The company reported $10.4 billion of commercial paper outstanding and $8.0 billion of unused committed credit facilities; no borrowings were outstanding under those facilities.
- Current ratio was 1.3, versus 1.5 at year-end 2013; the reported debt ratio rose to 14.1% from 12.1%.
- Capital expenditures were $25.7 billion for the nine months. Cash used in investing activities was $23.2 billion, including $2.6 billion of asset-sale proceeds. Cash dividends paid were $5.9 billion and net purchases of treasury shares were $3.2 billion.
- The filing does not provide a single consolidated operating-margin measure.
Changes versus comparable periods
- Q3 net income rose 13% while revenue fell about 8%, primarily as stronger Downstream earnings and favorable foreign-currency effects more than offset lower Upstream earnings. Revenue declined mainly because of lower crude oil sales.
- Nine-month net income declined about 4%. Upstream earnings fell to $14.2 billion from $16.0 billion, while Downstream earnings increased to $2.8 billion from $1.8 billion.
- Q3 Upstream earnings were $4.6 billion, down from $5.1 billion, reflecting lower crude realizations and higher depreciation, partly offset by favorable currency effects and lower exploration expense. Nine-month production averaged 2.567 million barrels of oil equivalent per day, down from 2.604 million.
- Q3 Downstream earnings increased to $1.4 billion from $380 million, supported by improved refined-product margins, derivative effects and asset-sale gains. Nine-month U.S. Downstream results improved substantially; International Downstream earnings declined to $1.1 billion from $1.3 billion, mainly on weaker product margins.
- Depreciation, depletion and amortization increased to $11.9 billion for the nine months from $10.6 billion. Other income rose to $2.0 billion from $781 million, principally due to higher asset-sale gains.
Outlook, commentary and risks
- Management estimated full-year 2014 net oil-equivalent production at about 98%–99% of its previously announced 2.610 million barrels per day target, based on an average Brent price of $109 per barrel. The filing emphasizes uncertainty from project timing, field declines, prices, entitlement effects, weather, political events and other operating disruptions.
- Brent averaged $102 per barrel in Q3 and $106 for the nine months, and was about $84 at the end of October. Management identified weaker global recovery, strong U.S. production, refinery maintenance and increased Libyan production as factors pressuring crude prices. No earnings guidance was provided.
- Q3 developments included progress at the Gorgon and Wheatstone projects, first gas from Bangladesh’s Bibiyana Expansion Project, a final investment decision for the Stampede deepwater project, and announced sales of a Duvernay interest and certain pipeline assets. Chevron Phillips Chemical’s Texas project was reported on schedule and on budget.
- Chevron reported a $9.5 billion Ecuadorian judgment after Ecuador’s National Court removed the punitive-damages component. Chevron contests the judgment and related enforcement actions; management said it could not estimate a reasonably possible loss or range. Appeals and international enforcement proceedings remained unresolved.
- Other significant uncertainties include MTBE claims, environmental obligations, tax audits and the Brazil Frade incident. The company said exposure from the Frade matter was not determinable and could be significant to income in a period. Environmental and other contingencies could affect future results.
- Management cited exposure to oil and gas prices, refining margins, political and regulatory changes, project delays, operating disruptions, foreign exchange and litigation. It stated that risk factors had not materially changed from the 2013 Form 10-K. Disclosure controls were concluded to be effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether production meets the 2014 estimate, and how crude-price declines affect realizations, earnings and cash generation.
- How sustainable the Q3 Downstream improvement is, separating recurring margins from derivative effects and asset-sale gains.
- Capital-spending and asset-sale cash flows, alongside dividend and share-repurchase commitments; Q3 repurchases were $1.25 billion.
- Changes in short-term borrowing, commercial paper usage, liquidity and the company’s ability to refinance obligations.
- Developments in the Ecuador and Brazil proceedings, tax matters, and environmental or other contingencies that could alter exposure.
- Progress, timing and cost of major projects and announced asset transactions.