Business context and reporting period
Chevron Corporation’s Form 10-K covers the fiscal year ended December 31, 2012. Chevron is an integrated global energy company with upstream oil and gas operations, downstream refining and marketing, chemicals, and other businesses. Results are reported in U.S. dollars.
Key financial metrics
| Metric | 2012 | 2011 |
|---|---|---|
| Sales and other operating revenues | $230.6 billion | $244.4 billion |
| Net income attributable to Chevron | $26.2 billion | $26.9 billion |
| Diluted earnings per share | $13.32 | $13.44 |
| Cash from operating activities | $38.8 billion | $41.1 billion |
| Capital and exploratory expenditures, including affiliate share | $34.2 billion | $29.1 billion |
| Cash, cash equivalents, time deposits and marketable securities | $21.9 billion | $20.1 billion |
| Total debt and capital lease obligations | $12.2 billion | $10.2 billion |
| Current ratio | 1.6 | 1.6 |
| Debt ratio | 8.2% | 7.7% |
| Dividends per share | $3.51 | $3.09 |
Worldwide oil-equivalent production, including affiliates, averaged 2.610 million barrels per day, down about 2% from 2011. The effective income tax rate was 43.2%. The filing does not provide a single company-wide operating margin measure; segment earnings were $23.8 billion upstream and $4.3 billion downstream.
Material changes versus the prior comparable period
- Revenue declined 5.6% and Chevron-attributable net income declined 2.7% year over year. Operating cash flow fell about 5.6%, while capital and exploratory spending rose about 18%.
- Upstream earnings fell to $23.8 billion from $24.8 billion, as lower U.S. upstream earnings more than offset a modest increase internationally. Downstream earnings increased to $4.3 billion from $3.6 billion, supported by improved refining margins.
- Other income was $4.4 billion, including approximately $4.2 billion of net asset-sale gains, compared with $2.0 billion of other income in 2011. These gains materially supported reported results.
- International upstream production was affected by field declines, the Frade suspension in Brazil and a planned Tengizchevroil turnaround; new production in Thailand and Nigeria partly offset the declines.
- Year-end total assets increased to $233.0 billion from $209.5 billion, while total equity increased to $137.8 billion from $122.2 billion.
Outlook, management commentary, risks and unusual items
- Management estimated 2013 production at approximately 2.650 million barrels of oil-equivalent per day, based on a 2012 average Brent price of $112 per barrel. The estimate is subject to project timing, mature-field declines, commodity prices, weather, geopolitical conditions, regulation and other operating risks.
- Chevron budgeted 2013 capital and exploratory expenditures of $36.7 billion, including $3.3 billion of affiliate spending; about 90% was expected to support exploration and production.
- Large projects remained central to the growth plan, including Gorgon and Wheatstone LNG in Australia, with expected first production or start-up dates extending from 2014 to 2016. Delays, cost escalation and commercial or partner issues could affect returns.
- In Brazil, Frade production was suspended after two reported seeps. Prosecutors sought $10.7 billion in damages for each seep; Chevron disputed liability, and the filing states the company’s ultimate exposure was not determinable and could be significant to net income in a period.
- The Ecuador litigation includes a reported judgment calculated at $19.1 billion, which Chevron says is illegitimate and unenforceable. Appeals, enforcement actions and international arbitration remained pending; management said a reasonably possible loss could not be estimated.
- Environmental remediation reserves were $1.4 billion, and asset retirement obligations were $13.3 billion at year-end. The company reported 2012 environmental spending of approximately $2.8 billion and estimated 2013 environmental capital expenditures of $1.2 billion.
- Major risks include volatile crude and natural-gas prices, refining-margin changes, project execution, political and fiscal changes, operational and environmental incidents, litigation, and evolving greenhouse-gas regulation. Chevron also stated it is substantially self-insured for catastrophic operational losses.
Most important facts for investors to verify
- How much of 2012 earnings and cash generation depended on asset-sale gains, and whether those gains are repeatable.
- Whether the production forecast and major project schedules remain achievable, particularly for Gorgon, Wheatstone and other long-lead developments.
- The status, potential financial consequences and appeal or enforcement developments in the Ecuador and Brazil matters.
- Whether production declines, higher capital spending and project costs affect future operating cash flow, dividends or repurchases.
- The composition and refinancing of debt: $12.2 billion of debt and capital lease obligations included $5.9 billion of short-term obligations classified as long-term based on the company’s intent and ability to refinance.
- Whether environmental, retirement, pension and tax estimates change materially; the filing identifies these as areas involving significant assumptions and uncertainty.