Chevron Corporation (CVX) — 2019 Form 10-K
Business context and reporting period. This is Chevron’s annual report for the fiscal year ended December 31, 2019; the filing also reports fourth-quarter results. Chevron is an integrated energy company with Upstream and Downstream segments and global operations. Its 2019 average worldwide oil-equivalent production was 3.058 million barrels per day, up 4% from 2018.
Financial performance
| Metric | 2019 | 2018 |
|---|---|---|
| Sales and other operating revenues | $139.9 billion | $158.9 billion |
| Net income attributable to Chevron | $2.9 billion; $1.54 diluted EPS | $14.8 billion; $7.74 diluted EPS |
| Cash from operating activities | $27.3 billion | $30.6 billion |
| Free cash flow (operating cash flow less cash capital expenditures) | $13.2 billion | $16.8 billion |
| Total debt | $27.0 billion | $34.5 billion |
| Cash, cash equivalents, marketable securities and time deposits | $5.7 billion | $10.3 billion |
| Current ratio | 1.1 | 1.3 |
- Reported return on average capital employed and return on average stockholders’ equity were each 2.0%, versus 8.2% and 9.8%, respectively, in 2018.
- Upstream earnings fell to $2.6 billion from $13.3 billion. U.S. Upstream recorded a $5.1 billion loss, while International Upstream earned $7.7 billion. Downstream earnings were $2.5 billion, down from $3.8 billion.
- Fourth-quarter net loss attributable to Chevron was $6.6 billion, or $3.51 per diluted share, versus earnings of $3.7 billion, or $1.95 per diluted share, in fourth-quarter 2018.
Material changes and unusual items
- 2019 earnings included approximately $10.4 billion of after-tax upstream impairments and asset write-offs; pretax impairment charges were approximately $10.8 billion. Major exposures included Appalachia shale, Big Foot, Kitimat LNG and other gas projects. The company cited capital-allocation decisions and a lower long-term commodity-price outlook.
- Lower commodity realizations reduced earnings: Brent averaged $64 per barrel in 2019 versus $71 in 2018; U.S. and international crude and natural-gas realizations also declined.
- Sales and operating revenue declined 12%. Equity-affiliate income decreased to $4.0 billion from $6.3 billion, including lower earnings from Tengizchevroil, Venezuelan affiliates and GS Caltex.
- Worldwide production increased, led by U.S. shale and tight assets and Wheatstone in Australia, while international production was essentially flat. Year-end proved reserves declined 5% to 11.4 billion barrels of oil-equivalent; the 2019 reserve replacement ratio was 44%.
- Asset-sale proceeds were $2.8 billion. Chevron reported about $1.5 billion of after-tax property-sale gains, including a $1.2 billion gain on the U.K. Central North Sea assets. It wrote off its Kitimat LNG and Pacific Trail Pipeline investments and decided not to proceed with those projects.
Outlook, capital allocation and risks
- Management estimated 2020 oil-equivalent production growth of up to 3% versus 2019, assuming Brent at $60 per barrel and excluding anticipated 2020 asset sales. The estimate is subject to operational, market, political and other uncertainties.
- Planned 2020 organic capital and exploratory spending was $20 billion, including $6.2 billion of affiliate spending. Management said spending could be adjusted if oil-price conditions deteriorated.
- Chevron expected to repurchase $5 billion of common stock in 2020. It repurchased $4 billion in 2019. The 2019 annual dividend was $4.76 per share; in January 2020, the board approved a quarterly increase to $1.29 per share.
- Management identified commodity-price volatility, project execution and reserve replacement, political and regulatory changes, cybersecurity, operational incidents, climate and greenhouse-gas regulation, litigation, and environmental obligations as material risks. The company is substantially self-insured for some catastrophic operational losses.
- Environmental remediation reserves were $1.234 billion at year-end; asset-retirement obligations were $12.8 billion. Climate-related lawsuits and the Ecuador litigation remain unresolved; management said the ultimate outcomes and financial effects could not be reliably estimated. Venezuela operations were subject to U.S. sanctions authorizations, then extended through April 22, 2020.
- At mid-February 2020, management noted Brent at $57 per barrel and Henry Hub gas at $1.84 per thousand cubic feet, with oil-demand concerns following the coronavirus outbreak. These were contemporaneous observations, not a quantified revision to the production outlook.
Important facts for investors to verify
- Whether the 2019 impairments signal further asset-value reductions, and the assumptions on commodity prices, reserves and project economics underlying them.
- Whether production growth, major project schedules and reserve replacement can meet management’s outlook, particularly after planned asset sales.
- Cash generation after dividends, capital spending and repurchases, given lower operating cash flow and cash balances than in 2018.
- Progress and proceeds from announced divestitures, and the effect of any delayed or uncompleted transactions on earnings and production.
- Developments in Venezuela sanctions, environmental and climate litigation, tax matters, and other contingencies that could affect results or liquidity.