Chevron Corporation — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Interim financial statements are unaudited. Comparisons are with Q1 2015 unless otherwise noted.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Sales and other operating revenues | $23.070 billion | $32.315 billion |
| Net income (loss) attributable to Chevron | $(725) million; diluted EPS $(0.39) | $2.567 billion; diluted EPS $1.37 |
| Operating cash flow | $1.141 billion | $2.319 billion |
| Cash capital expenditures | $5.566 billion | $7.602 billion |
| Common dividends paid | $2.000 billion | $1.997 billion |
- Revenue declined primarily because of lower crude oil and refined-product prices. The filing does not provide a clear consolidated margin measure.
- Income tax benefit was $1.004 billion, versus tax expense of $305 million; reported effective tax rates were 59% and 10%, respectively. Q1 2015 included a one-time U.K. statutory tax-rate reduction benefit.
- Cash, cash equivalents and marketable securities totaled $8.9 billion at quarter-end, down $2.5 billion from year-end 2015. The current ratio was 1.1, down from 1.4.
- Total debt and capital lease obligations were $42.3 billion, up from $38.5 billion at year-end; the reported debt ratio rose to 22.0% from 20.2%. Commercial paper outstanding was $12.1 billion. Chevron had $8.0 billion of committed credit facilities, with no amounts drawn.
- Operating cash flow was below cash capital expenditures and dividends combined. The company funded part of its needs with $3.8 billion of net short-term borrowings.
Material changes and segment performance
- Upstream: Loss of $1.459 billion versus earnings of $1.560 billion. Lower oil and gas realizations, unfavorable currency effects and the absence of the prior-year U.K. tax benefit were major factors. Average worldwide net production was 2.666 million barrels of oil equivalent per day, down 1%.
- Downstream: Earnings of $735 million versus $1.423 billion, mainly due to lower refined-product margins, an impairment and unfavorable currency effects.
- Worldwide capital and exploratory expenditures, including equity affiliates, were $6.469 billion, down from $8.583 billion. Sales and other operating revenues fell by $9.2 billion.
Outlook, commentary and risks
- Management estimated full-year 2016 net oil-equivalent production would be flat to 4% above 2015. The estimate is subject to low-price conditions, project timing, field declines, disruptions and other uncertainties.
- Management expected oil markets to move toward balance as demand grows and supply growth slows, but said the timing of any price increase was unknown. Chevron was reducing operating costs and capital spending and increasing asset sales.
- Gorgon Train 1 had achieved first LNG production and a first cargo shipment; production start-up at Angola LNG was ongoing, and the Chuandongbei project in China had achieved first production.
- Production in the Saudi Arabia-Kuwait Partitioned Zone remained shut in; restart timing was uncertain. Moody’s downgraded Chevron’s debt ratings from Aa1 to Aa2 in April 2016; S&P ratings remained AA- for public bonds.
- Significant uncertainties include commodity prices, refining margins, currency movements, access to credit, operational and geopolitical disruptions, environmental obligations, tax audits and litigation. The company said it could not estimate a reasonably possible loss for the Ecuador litigation. It continued to dispute the judgment and related enforcement actions.
- Other notable items included $96 million of upstream restructuring charges before tax, a downstream asset impairment, and a South Coast Air Quality Management District proposal that could result in a civil penalty of $100,000 or more.
Most important facts for investors to verify
- Whether operating cash generation, asset sales and available credit can support investment and the $1.07-per-share quarterly dividend if weak prices persist.
- Progress toward the 2016 production outlook, including ramp-ups and the unresolved Partitioned Zone shutdown.
- Debt, commercial-paper exposure, liquidity and the implications of the April Moody’s downgrade.
- Developments in Ecuador litigation and other environmental, tax and legal contingencies.