Chevron Corporation — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2012. The interim financial statements are unaudited. Chevron operates primarily through Upstream and Downstream segments.
Financial performance and position
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Sales and operating revenue | $55.66bn | $61.26bn | $174.34bn | $186.34bn |
| Net income attributable to Chevron | $5.25bn | $7.83bn | $18.93bn | $21.77bn |
| Diluted EPS | $2.69 | $3.92 | $9.62 | $10.86 |
| Cash from operating activities | — | $26.03bn | $32.03bn | |
| Capital expenditures | — | $20.45bn | $19.19bn |
Q3 income before tax was $9.93bn, with $4.62bn income tax expense and a 47% effective tax rate, versus 41% a year earlier. Nine-month effective tax rates were 45% and 42%, respectively. Common dividends were $0.90 per share in Q3 and $2.61 per share year to date, compared with $0.78 and $2.28 in 2011.
At September 30, cash and cash equivalents were $21.31bn; cash, time deposits and marketable securities together were about $21.6bn. Total assets were $226.86bn and total equity $134.22bn. Debt and capital lease obligations were $12.3bn, up from $10.2bn at year-end 2011; the reported debt ratio increased to 8.5% from 7.7%. The current ratio was 1.6, unchanged from year-end.
Operating cash flow declined year over year, partly reflecting a $2.95bn use of operating working capital, versus a $1.50bn source in 2011. Cash from operations less reported capital expenditures was approximately $5.58bn, compared with $12.83bn in the prior-year period. Capital and exploratory spending, including equity affiliates, was $22.67bn, up from $20.80bn; 90% was allocated to Upstream.
Material changes and operating results
- Q3 net income attributable to Chevron fell 33% year over year; nine-month earnings fell 13%. Revenue declined 9% in Q3 and 6% year to date.
- Upstream earnings were $5.14bn in Q3 and $16.93bn year to date, down from $6.20bn and $19.05bn. Q3 weakness reflected lower crude volumes and realizations; year-to-date results also reflected higher exploration and operating costs. A nearly $600m gain on the Wheatstone equity-interest sale partly offset declines.
- Downstream earnings fell to $689m in Q3 from $1.99bn, mainly on lower asset-sale gains, an unfavorable derivative impact and lower margins. Nine-month earnings were $3.37bn versus $3.65bn, mainly reflecting lower asset-sale gains.
- Worldwide net oil-equivalent production averaged 2.516m barrels per day in Q3 and 2.590m for the first nine months, down 3% in each comparison. Lower volumes reflected field declines, maintenance, and the Frade Field shut-in, partly offset by project ramp-ups.
- Sales and earnings comparisons were affected by 2011 UK and Ireland downstream asset sales. Q3 U.S. refinery crude input was also reduced after an early-August fire at the Richmond refinery.
Outlook, risks and contingencies
- Management estimated full-year 2012 net oil-equivalent production would average about 97% of the previously announced 2.680m barrels-per-day target, principally due to the Frade shut-in and timing of Angola LNG start-up.
- Management identifies crude prices as the largest single influence on results. Other sensitivities include natural gas prices, refining and chemical margins, production levels, project timing and costs, foreign exchange, tax and fiscal changes, political disruption, weather and operational outages. The filing provides no specific earnings or price guidance.
- Brazil’s Frade Field remained shut in following oil seeps. A court injunction barred production and transportation activities pending proceedings; it was later modified to permit containment and mitigation under regulatory supervision. Prosecutors sought $10.7bn in damages for each of two seeps and filed criminal charges against 11 employees. Chevron said exposure was not determinable and could materially affect a single period’s earnings.
- In Ecuador, a provincial court judgment and appeal assessed approximately $8.6bn in damages and an additional approximately $8.6bn in punitive damages because Chevron did not issue the requested apology. The company disputes the judgment and is pursuing appeals and other proceedings. It said a reasonably possible loss or range could not be estimated; the amounts are not presented as a recognized liability in this filing.
- Other uncertainties include pending MTBE claims, environmental obligations, indemnities, tax examinations and the Richmond refinery permitting matter. Chevron reported no material change to the risk factors in its 2011 Form 10-K. Management concluded disclosure controls were effective and reported no material change in internal control during the quarter.
Investor facts to verify
- Whether production recovers toward the company’s full-year estimate, including Frade restart timing and Angola LNG start-up.
- How refining margins, refinery utilization and the Richmond fire affect Downstream earnings and cash generation.
- Whether working-capital movements, capital spending and shareholder distributions sustain cash-flow coverage.
- Developments in the Brazil and Ecuador proceedings, including potential financial exposure and enforceability of judgments.
- Changes in debt, liquidity, tax matters and environmental or other contingent obligations in subsequent filings.