Chevron Corporation (CVX) — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. The interim financial statements are unaudited. Chevron is an integrated energy company with Upstream and Downstream segments.
Financial and operating performance
| Metric | Q1 2020 | Q1 2019 or comparison |
|---|---|---|
| Sales and other operating revenues | $29.7 billion | $34.2 billion |
| Net income attributable to Chevron | $3.60 billion; diluted EPS $1.93 | $2.65 billion; diluted EPS $1.39 |
| Income before income tax | $4.15 billion | $3.96 billion |
| Effective tax rate | 14% | 33% |
| Operating cash flow | $4.72 billion | $5.06 billion |
| Capital expenditures | $3.13 billion | $2.95 billion |
| Free cash flow, as presented by Chevron | $1.59 billion | $2.10 billion |
| Cash and cash equivalents at period end | $8.49 billion | $5.69 billion at Dec. 31, 2019 |
| Total debt and finance lease liabilities | $32.4 billion | $27.0 billion at Dec. 31, 2019 |
| Current ratio | 1.0 | 1.1 at Dec. 31, 2019 |
The filing does not provide a clear consolidated profit-margin measure. The reported debt ratio was 18.4% and net debt ratio 14.2%, compared with 15.8% and 12.8%, respectively, at year-end 2019. The company paid $2.4 billion in common dividends, or $1.29 per share, during the quarter.
- Upstream earnings: $2.92 billion versus $3.12 billion. Lower oil and gas prices weighed on results; higher production, favorable foreign-exchange effects and tax items partly offset the decline.
- Downstream earnings: $1.10 billion versus $252 million, mainly reflecting higher refined-product margins, partly offset by higher operating expenses.
- Production: Worldwide net oil-equivalent production averaged 3.235 million barrels per day, up 6% year over year. Average Brent crude was $50 per barrel in Q1; it ended April at about $20.
Material changes and unusual items
- Net income increased despite lower revenue, supported by higher Downstream earnings, a favorable swing in other income, and lower income-tax expense. The tax rate fell primarily because of the resolution of international uncertain tax positions and foreign-exchange and asset-sale gains with limited tax impact.
- Other income was $831 million, compared with a $51 million loss a year earlier; the change reflected foreign-exchange effects and asset-sale gains. International Upstream earnings included a $240 million gain on the Philippines asset sale.
- Chevron borrowed more under short-term obligations: short-term debt on the balance sheet rose to $8.69 billion from $3.28 billion at year-end. Total debt and finance lease liabilities increased to $32.4 billion.
- Q1 share repurchases were $1.75 billion; Chevron suspended its repurchase program in March. In April, Chevron completed the sale of its Azerbaijan interests, reporting expected proceeds of $1.3 billion and an after-tax gain of about $300 million for Q2.
Outlook, management commentary and risks
- Management said COVID-19 restrictions and an oil-market oversupply sharply reduced demand and prices, with further negative effects on results and cash flows expected. The duration and magnitude remained uncertain.
- Chevron reduced its 2020 capital-spending outlook, first to $16 billion and then, on May 1, to as low as $14 billion—up to 30% below the original plan. It targeted $1 billion of operating-cost reductions versus 2019 and prioritized protecting the dividend, investment-grade ratings and balance sheet.
- Management expected production, excluding asset sales, curtailments and price-related contractual effects, to be relatively flat versus 2019, subject to substantial uncertainty. It anticipated production curtailments of 200,000–300,000 barrels of oil equivalent per day in May and potentially 200,000–400,000 in June.
- By late April, refinery utilization was about 60%; year-over-year sales were down approximately 50% for gasoline, 75% for jet fuel and 25% for diesel. Lower activity, storage constraints, supplier disruption, project delays and potential asset impairments were identified as risks.
- Chevron reported available committed credit facilities of nearly $10 billion in its market-response discussion; separately, it disclosed $9.75 billion in 364-day facilities supporting refinancing and commercial paper. No borrowings were outstanding under those facilities at March 31. Management said ratings were reaffirmed and expected liquidity and market access to remain sufficient.
- Material contingencies include Ecuador-related litigation, MTBE claims, environmental matters and climate-related and Louisiana coastal erosion lawsuits. Management said the ultimate outcomes and financial effects of the Ecuador matters could not be reasonably estimated. Venezuela operations and investment values remain exposed to U.S. sanctions and changing license terms.
Important facts for investors to verify
- Whether oil and refined-product demand, prices and margins recover, and how that affects cash flow, production and asset values.
- Execution and cash-flow effects of the reduced capital plan, cost-reduction target and expected production curtailments.
- Debt, commercial-paper usage, liquidity and dividend capacity if weak market conditions persist.
- Q2 impact of the Azerbaijan sale and other asset dispositions, including whether planned proceeds are realized.
- Developments in tax audits, Ecuador and other litigation, environmental obligations, and Venezuela sanctions and licenses.