Chevron Corporation — Q2 2013 Form 10-Q
Business context and reporting period: Global integrated energy company reporting the unaudited quarter and six months ended June 30, 2013, compared with the corresponding 2012 periods. Operations are reported in Upstream, Downstream and All Other.
Financial and operating performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Sales and operating revenues | $55.3bn | $59.8bn | $109.6bn | $118.7bn |
| Net income attributable to Chevron | $5.4bn | $7.2bn | $11.5bn | $13.7bn |
| Diluted earnings per share | $2.77 | $3.66 | $5.95 | $6.93 |
| Operating cash flow | Not provided separately | Not provided separately | $14.2bn | $18.3bn |
- Segment earnings, Q2: Upstream $4.9bn, down from $5.6bn; Downstream $766m, down from $1.9bn. First-half earnings were $10.9bn and $1.5bn, respectively, versus $11.8bn and $2.7bn.
- Cash investment: First-half capital expenditures were $16.8bn; capital and exploratory expenditures including affiliates were $18.3bn, compared with $14.2bn in 2012. Operating cash flow less capital expenditures was approximately negative $2.5bn, calculated from reported figures.
- Liquidity and debt: Cash, cash equivalents, time deposits and marketable securities totaled $22.3bn. Current assets were $56.1bn and current liabilities $33.4bn; current ratio was 1.7. Debt and capital lease obligations totaled approximately $20.0bn, up from $12.2bn at year-end 2012. Debt ratio rose to 12.3% from 8.2%.
- Returns to shareholders: First-half common dividends were $3.7bn; dividends per share were $1.00 for Q2. Chevron repurchased $1.25bn of shares in Q2.
- Tax and margins: Effective tax rates were 37% for Q2 and 38% for the first half, versus 41% and 44% in 2012. The filing does not provide a consolidated profit-margin percentage.
Material changes versus prior periods
- Revenue and earnings fell in both the quarter and first half. Management cited lower crude oil realizations and volumes for Upstream, and lower refined-product margins, higher refinery costs and fewer asset-sale gains for Downstream.
- Q2 U.S. Downstream earnings fell to $138m from $802m; refinery crude input was reduced by the Richmond refinery outage and planned maintenance. International Downstream earnings were also lower, partly because 2012 included asset-sale gains.
- First-half operating cash flow declined by $4.1bn, principally reflecting lower earnings. Capital expenditures increased by $3.8bn as major projects advanced and resources were acquired.
- Debt increased following a $6bn bond issuance in June. Short-term borrowings included $4.6bn of commercial paper, which management expected to decline as bond proceeds were used to retire maturing paper.
Outlook, commentary and risks
- Management estimated 2013 net oil-equivalent production of approximately 2.650 million barrels per day, based on Brent at $112 per barrel. First-half production averaged 2.613 million barrels per day. The estimate is subject to project timing, field declines, prices, fiscal terms, demand, weather, political conditions and other disruptions.
- Brent averaged $102 per barrel in Q2 and $108 for the first half; U.S. Henry Hub gas averaged $3.76 per MCF in the first half, versus $2.36 in 2012. Management emphasized commodity prices and refining margins as major earnings drivers.
- Chevron issued $6bn of notes due 2016–2023 at stated coupon rates of 0.889%–3.191%. Management said it could adjust capital spending in a prolonged low-price or low-margin environment to support dividends and its credit ratings.
- Litigation and contingencies: Chevron disputes the Ecuador Lago Agrio judgment, which was reported at approximately $19.1bn; the company said the outcome and enforcement prospects were uncertain and that a reasonably possible loss could not be estimated. In Brazil, civil lawsuits sought $10.7bn for each of two oil seeps; the company likewise said ultimate exposure was not determinable. MTBE, environmental, tax and other matters also remain contingent.
- Tax examinations remain open in major jurisdictions. Chevron was assessing the potential effect of a court decision concerning Historic Rehabilitation Tax Credits; a significant increase in unrecognized tax benefits could affect the effective tax rate.
- The filing identifies risks from changing oil and gas prices, refining margins, political and regulatory developments, project delays, production performance, environmental matters and litigation. Management reported disclosure controls were effective and no material changes in internal control during the quarter.
Key facts for investors to verify
- Whether production ramps and project start-ups support the 2013 production estimate, and how actual volumes compare with the 2.650 million barrels-per-day outlook.
- Whether weaker crude realizations, refinery margins and maintenance costs persist, particularly at U.S. Downstream operations.
- How capital spending, operating cash flow, share repurchases and dividends affect cash balances and debt after the June bond issuance.
- Developments in Ecuador and Brazil litigation, including enforcement actions and any changes to management’s loss-estimate assessment.
- Tax-audit developments, including the Historic Rehabilitation Tax Credit assessment and potential effects on tax expense.