Chevron Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2010. Financial statements are unaudited. Amounts are U.S. dollars; financial figures are in millions unless otherwise noted.
Business context and results
Chevron operates through Upstream (oil and gas exploration and production, among other activities) and Downstream (refining, marketing and chemicals). Effective January 1, 2010, chemicals were moved into Downstream and certain enabling operations into Upstream; 2009 segment figures were revised for comparison.
| Metric | Q3 2010 | Q3 2009 | 9M 2010 | 9M 2009 |
|---|---|---|---|---|
| Sales and operating revenues | $48,554 | $45,180 | $146,346 | $119,814 |
| Income from equity affiliates | $1,242 | $1,072 | $4,127 | $2,418 |
| Net income attributable to Chevron | $3,768 | $3,831 | $13,729 | $7,413 |
| Diluted earnings per share | $1.87 | $1.92 | $6.84 | $3.71 |
| Dividend per share | $0.72 | $0.68 | $2.12 | $1.98 |
Third-quarter earnings declined $63 million year over year, while nine-month earnings rose $6.3 billion. Nine-month 2010 results benefited mainly from higher crude oil and natural gas prices and increased production. The 2009 comparisons included substantial one-time items: Q3 gains of $400 million after tax related to Australian asset sales and tax items, and nine-month gains of $540 million after tax from sales of marketing businesses outside the U.S.
Segment performance and operations
- Upstream: Earnings were $3.56 billion in Q3 versus $3.74 billion; nine-month earnings were $12.83 billion versus $6.77 billion. Q3 included the absence of 2009 Australian project gains and higher costs, partly offset by improved realizations. Nine-month growth reflected higher prices and production.
- Downstream: Earnings were $565 million in Q3 versus $262 million; nine-month earnings were $1.74 billion versus $1.15 billion. Improved refined-product margins and chemicals earnings helped, though management described refining and marketing margins as relatively weak amid excess supply and capacity.
- Production: Worldwide net oil-equivalent production averaged 2.738 million barrels per day in Q3 and 2.755 million for nine months, compared with 2.702 million and 2.678 million, respectively, in 2009. U.S. Q3 production fell 7% year over year, while international production increased.
The filing does not provide a consolidated profit-margin measure. It reports improved downstream margins but characterizes the market environment as weak.
Cash flow, liquidity and debt
- Nine-month operating cash flow was $23.1 billion, up from $12.4 billion. Investing cash outflow was $16.9 billion, including $14.1 billion of capital expenditures; financing cash outflow was $4.0 billion, including $4.2 billion of dividends.
- Cash, cash equivalents, time deposits and marketable securities totaled approximately $14.5 billion at September 30, up $5.7 billion from year-end 2009. Cash and cash equivalents alone were $11.0 billion; time deposits were $3.5 billion.
- Total debt and capital lease obligations were $10.6 billion, versus $10.5 billion at year-end 2009. The reported debt ratio was 9.4%, down from 10.3%; the current ratio was 1.7, up from 1.4.
- Chevron had $6.0 billion of committed credit facilities, with no borrowings outstanding under them. Management said it had substantial borrowing capacity and flexibility to adjust capital spending.
- Capital and exploratory expenditures, including affiliates, were $15.5 billion for nine months, compared with $16.0 billion. Dividends paid totaled $4.2 billion.
Outlook, management commentary and notable items
- Management estimated full-year 2010 production at 2.75 million barrels of oil equivalent per day, based on the nine-month average oil price of $78 per barrel. The estimate is subject to quotas, project delays, field declines, weather, political conditions, demand and other operating factors.
- In October 2010, Chevron said it expected to begin share repurchases in Q4 under a new ongoing program, at a pace of $500 million to $1 billion per quarter. No shares had been purchased under that program through September 30. The prior $15 billion program was terminated in July.
- Chevron recorded a $244 million pre-tax ($175 million after-tax) restructuring charge in Q1 for employee reductions in Downstream and corporate staffs. Approximately 3,600 total terminations were then expected, with programs expected to conclude by the end of 2011.
- After the Deepwater Horizon accident, federal drilling restrictions delayed some Chevron Gulf of Mexico activity; Chevron stated it was not a participant in the well and did not expect a material full-year 2010 production impact. The company and other firms committed to fund an initial $1 billion rapid-response containment system.
- Pension contributions were estimated at $1.5 billion for full-year 2010, versus an earlier estimate of $900 million; $895 million had been contributed through September. Additional funding may be needed if investment returns do not offset obligation increases.
- Key risks include volatile oil and gas prices and refining margins; political, regulatory and operational disruptions; project execution and production declines; environmental liabilities; and litigation. Management cited no material market or credit risk from derivatives.
Contingencies and unusual exposures
- Ecuador litigation: Plaintiffs asserted damages of approximately $16 billion to $76 billion and additional unjust-enrichment damages of $5 billion to $38 billion. Chevron disputed liability, and management said a reasonably possible loss or range could not be estimated. In October 2010, a new judge took over and revoked the prior order closing the evidentiary phase.
- Other legal and environmental matters: Chevron disclosed 19 pending MTBE lawsuits and claims, a Richmond refinery permitting dispute, environmental indemnities and other contingencies. Their ultimate costs may be material to earnings in an individual period, though management did not expect certain environmental costs to materially affect consolidated financial position or liquidity.
- Asset retirement obligations were approximately $11.4 billion, up $1.2 billion from year-end 2009, primarily reflecting higher estimated abandonment costs.
Important facts for investors to verify
- Whether production tracks the 2.75 million barrels-per-day full-year estimate and how field declines, project timing and regulatory restrictions affect volumes.
- Whether higher commodity prices and improved downstream margins persist, given management’s warning of weak refining conditions.
- Developments and potential enforcement consequences in the Ecuador litigation; Chevron reported no estimable loss range.
- Actual restructuring costs, pension contributions, and the timing and scale of planned share repurchases.
- Changes in environmental, tax, and other contingencies, including the Richmond refinery dispute and pending MTBE claims.