Chevron Corporation — Q3 2009 Form 10-Q
Reporting period: Three and nine months ended September 30, 2009. The interim financial statements are unaudited. Chevron operates across upstream, downstream, chemicals and other energy-related businesses.
Financial results
| Metric | Q3 2009 | Q3 2008 | First 9 months 2009 | First 9 months 2008 |
|---|---|---|---|---|
| Sales and operating revenues | $45.18 billion | $76.19 billion | $119.81 billion | $221.81 billion |
| Net income attributable to Chevron | $3.83 billion | $7.89 billion | $7.41 billion | $19.04 billion |
| Diluted earnings per share | $1.92 | $3.85 | $3.71 | $9.23 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $12.35 billion | $24.42 billion |
Q3 income before tax was $6.19 billion and income tax expense was $2.34 billion; the effective tax rate was 38%, versus 45% a year earlier. The nine-month effective rate was 41%, versus 47%.
For the first nine months, capital expenditures were $14.49 billion and investing cash outflow was $11.92 billion. Operating cash flow exceeded investing outflow by about $430 million. Cash, cash equivalents and marketable securities were approximately $7.7 billion at quarter-end, down $1.9 billion from year-end 2008.
At September 30, total debt and capital lease obligations were $10.5 billion, compared with $8.9 billion at year-end 2008. Current assets were $35.54 billion and current liabilities $25.39 billion; the current ratio was 1.4, up from 1.1. Chevron reported $5.1 billion in committed credit facilities, with none drawn. The debt ratio was 10.4%, versus 9.3% at year-end.
Performance and changes versus prior year
- Revenue and earnings fell sharply, primarily reflecting lower crude-oil, natural-gas and refined-product prices. Nine-month diluted EPS declined from $9.23 to $3.71.
- Upstream earnings were $3.64 billion in Q3 and $6.43 billion year to date, down from $6.18 billion and $18.56 billion. Lower commodity prices were the main driver, partly offset by higher production and project contributions.
- Downstream earnings fell to $194 million in Q3 from $1.83 billion. Nine-month earnings were $1.18 billion versus $1.35 billion; 2009 included $540 million of first-half gains on international marketing-business sales. Weak refining and marketing margins weighed on results.
- Chemicals earnings improved to $164 million in Q3 and $311 million year to date, compared with $70 million and $154 million, helped by lower utility costs and improved lubricant and fuel-additive margins.
- Worldwide net oil-equivalent production averaged 2.678 million barrels per day for the first nine months, up from 2.526 million. Q3 production was 2.702 million barrels per day, up 11% year over year. Crude-oil and natural-gas realizations were substantially lower than in 2008.
- Cash flow from operations was about half the prior-year nine-month amount. Cash dividends were $3.95 billion; the quarterly dividend was raised to $0.68 per share, declared in October for payment in December.
Outlook, commentary and notable items
- Management estimated full-year 2009 production would be about the same as the first nine months. This was subject to OPEC quotas, project start-ups, demand, political and operating disruptions, and other factors. No earnings or commodity-price guidance was provided.
- Management cited ongoing economic weakness and weak refined-product demand, while noting that industry cost pressures had eased and the company was managing procurement and work schedules to capture lower costs.
- Third-quarter earnings included $400 million of after-tax gains related to asset sales and tax items associated with an Australian upstream project. Nine-month earnings also included $540 million of after-tax gains from first-half marketing-business sales. 2008 comparison periods included about $400 million of hurricane-related expenses, largely offset by about $350 million of U.S. upstream asset-sale gains.
- Chevron made a final investment decision on the Gorgon LNG project in Australia, where it expects an approximately 47% operated interest. The Tombua-Landana project in Angola started up; it is expected to reach approximately 100,000 barrels per day of total production in 2011.
- Chevron contributed $860 million to pension plans through September and estimated full-year contributions of about $1 billion; additional funding could be required depending on investment returns and obligations.
- The Ecuador environmental lawsuit remained unresolved and could produce a judgment at any time. Court-appointed reports recommended very large assessments, but Chevron disputed their validity; management said a reasonably possible loss could not be estimated. The company also disclosed 50 pending MTBE lawsuits and claims, with exposure not currently determinable and potentially material to earnings in a period.
- Other exposures include environmental obligations, indemnities and guarantees. Chevron said known probable environmental obligations had been provided for, but additional costs could materially affect results when recognized; it did not expect them to materially affect consolidated financial position or liquidity.
Important facts for investors to verify
- Whether lower oil and gas prices, weak refining margins and foreign-currency effects persist, and how they affect earnings and cash generation.
- Whether production tracks management’s full-year estimate and whether key project start-ups deliver expected volumes.
- How much of reported earnings and cash flow reflects one-time asset-sale and project-related tax gains rather than recurring operations.
- Funding needs for capital spending, pensions and debt maturities, including the continued availability of committed credit facilities.
- Developments in the Ecuador and MTBE litigation and other environmental or indemnification contingencies, for which potential losses are uncertain.