Chevron Corporation — Q1 2021 Form 10-Q
Business context and reporting period. Chevron is an integrated energy company with Upstream and Downstream segments. This unaudited report covers the three months ended March 31, 2021, compared with the same period in 2020. Results remain affected by the COVID-19 recovery, commodity prices, and energy demand.
Key financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Sales and operating revenues | $31.1 billion | $29.7 billion |
| Net income attributable to Chevron | $1.38 billion | $3.60 billion |
| Diluted earnings per share | $0.72 | $1.93 |
| Operating cash flow | $4.20 billion | $4.72 billion |
| Capital expenditures | $1.75 billion | $3.13 billion |
| Free cash flow, as presented by Chevron | $2.45 billion | $1.59 billion |
Net income was about 4.4% of sales, versus about 12.1% a year earlier. The effective tax rate rose to 36% from 14%, reflecting tax and earnings-mix factors. Upstream segment earnings were $2.35 billion, down from $2.92 billion; Downstream earnings fell to $5 million from $1.10 billion. All Other recorded net charges of $978 million, versus $424 million, largely due to higher employee benefit and pension settlement costs.
Cash, liquidity, and debt. Cash and cash equivalents were $7.08 billion at quarter-end, up from $5.60 billion at December 31, 2020; including restricted cash, total cash was $8.26 billion. The current ratio was 1.1, versus 1.2 at year-end. Short- and long-term debt on the balance sheet totaled $45.4 billion ($4.8 billion short-term and $40.6 billion long-term); Chevron separately reported total debt and finance lease liabilities of $45.4 billion. Its net debt ratio was 22.5%, versus 22.7%. Commercial paper outstanding was $6.9 billion, supported by $9.825 billion of undrawn committed credit facilities. Chevron paid $2.47 billion in common dividends during the quarter.
Operations. Worldwide net oil-equivalent production averaged 3.121 million barrels per day, down 4% year over year. Brent averaged $61 per barrel in Q1, versus $42 for full-year 2020; U.S. Henry Hub gas averaged $3.47 per MCF, versus $1.88 in Q1 2020. Refinery utilization was approximately 80%, and total refined-product sales were down about 5% year over year.
Material changes and drivers
- Revenue increased $1.37 billion, principally from higher crude oil, natural gas, and refined-product prices, partly offset by lower sales volumes.
- Profit declined despite higher prices: Downstream margins weakened sharply, international Upstream volumes and trading results were lower, and 2020 included a gain on the sale of Philippine assets. Unfavorable foreign-exchange effects also weighed on results.
- Operating cash flow fell by $526 million year over year, while cash capital expenditures declined by $1.39 billion. The resulting free cash flow measure reported by Chevron increased to $2.45 billion.
- Debt and finance lease liabilities increased from $44.3 billion at year-end, as Chevron increased commercial-paper borrowings. The company also exchanged $5.697 billion of Noble senior notes for CUSA notes guaranteed by Chevron.
- Other components of net periodic benefit costs rose to $337 million from $98 million, primarily because of pension settlement losses following lump-sum distributions.
Outlook, risks, and contingencies
- Chevron expects full-year 2021 net oil-equivalent production to increase by up to 3% versus 2020, assuming Brent at $50 per barrel and excluding anticipated asset sales. The estimate is subject to OPEC+ actions, project timing, asset sales, demand, and other operating factors.
- Management said demand and commodity prices showed signs of recovery, but demand remained below pre-pandemic levels and results could remain challenged. OPEC+ curtailments reduced Chevron production by about 30,000 barrels of oil equivalent per day in Q1, mostly in Kazakhstan.
- The Tengiz Future Growth Project/Wellhead Pressure Management Project continued to remobilize its construction workforce. Management said it was too early to provide meaningful estimates of schedule or cost impacts.
- In April 2021, Chevron raised its quarterly dividend by $0.05 to $1.34 per share, payable in June. Share repurchases remained suspended.
- Chevron announced 2028 upstream emissions-intensity reduction targets and a target of no routine flaring by 2030; it said it plans approximately $3 billion of energy-transition spending through 2028.
- Risks include oil and gas prices and demand, pandemic impacts, refining margins, OPEC+ restrictions, project execution, foreign exchange, regulation, and environmental and climate-related litigation. Chevron disclosed six pending MTBE lawsuits/claims and multiple climate-related proceedings. It described the Ecuador judgment of approximately $9.5 billion as illegitimate and unenforceable and said the possible loss could not be reasonably estimated; related arbitration proceedings continue.
- Tax audits and environmental, indemnification, and other legal matters remain uncertain. Management said known probable and estimable obligations had been provided for, but additional costs could be material to results in the periods recognized. No material change to previously disclosed risk factors was reported.
Important facts for investors to verify
- Whether the anticipated production increase and Tengiz project progress are achieved, considering OPEC+ curtailments and potential delays.
- Whether recovery in product demand and refining margins improves Downstream earnings and cash generation.
- How continued dividends, capital spending, commercial-paper borrowings, and refinancing needs affect leverage and liquidity.
- Actual pension contributions and costs, and any developments in the Ecuador, climate, MTBE, environmental, or tax matters.
- Progress toward the stated emissions targets and planned energy-transition investment.