Chevron Corporation — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Financial statements are unaudited. Amounts are in U.S. dollars unless noted.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Sales and other operating revenues | $36.323B | $40.491B | $70.512B | $76.459B |
| Net income attributable to Chevron | $4.305B | $3.409B | $6.954B | $7.047B |
| Diluted earnings per share | $2.27 | $1.78 | $3.66 | $3.68 |
| Cash provided by operating activities | — | $13.840B | $11.898B | |
| Capital expenditures (cash flow statement) | — | $6.537B | $6.223B |
Second-quarter revenue declined mainly because of lower refined-product prices and lower refined-product and crude-oil volumes. Chevron’s Q2 earnings rose, principally reflecting a $1B Anadarko merger termination fee, higher production and lower tax items; lower oil and gas realizations partly offset those gains. For the first half, earnings were slightly lower year over year.
First-half operating cash flow less cash capital expenditures was approximately $7.3B, calculated from reported figures. Cash dividends were $4.494B in the first half, and share repurchases under the program were approximately $1.537B.
Segments and operating trends
- Upstream: Q2 earnings were $3.483B, up from $3.295B; first-half earnings were $6.606B, slightly below $6.647B. First-half worldwide net oil-equivalent production averaged 3.061 million barrels per day, up 8%. Lower realizations and unfavorable foreign-currency effects weighed on results.
- Downstream: Q2 earnings were $729M, versus $838M; first-half earnings were $981M, versus $1.566B. Lower refined-product margins were the main drag. U.S. refinery input and sales rose in Q2, while international volumes were lower, in part following the sale of the southern Africa business.
- All Other: Q2 earnings were $93M versus charges of $724M a year earlier, largely due to the Anadarko termination fee and lower corporate expenses. First-half charges were $633M versus $1.166B.
Balance sheet and liquidity
- At June 30, cash and cash equivalents were $8.513B; current assets were $33.087B and current liabilities were $28.829B. The current ratio was 1.1, compared with 1.3 at year-end 2018.
- Total debt and finance lease obligations were $30.6B, down from $34.5B at December 31, 2018. The reported debt ratio was 16.4%, versus 18.2% at year-end.
- Chevron had $9.9B of committed credit facilities and no borrowings under them at quarter-end. Commercial paper outstanding was $7.3B. The company stated that its investment-grade ratings supported substantial borrowing capacity.
- Capital and exploratory expenditures, including Chevron’s share of affiliate spending, were $10.022B for the first half, compared with $9.221B. Affiliate spending included in that total did not require cash outlays by Chevron.
Outlook, material items and risks
- Chevron estimated 2019 net oil-equivalent production growth of 4% to 7% versus 2018, assuming Brent crude at $60 per barrel and excluding the impact of 2019 asset sales. The estimate is subject to operational, market, geopolitical and other uncertainties.
- The company’s 2018–2020 asset-sale program targeted $5B–$10B of before-tax proceeds; proceeds from January 2018 through June 2019 totaled $2.9B. At June 30, $2.985B of assets, primarily upstream properties, were classified as held for sale.
- The Anadarko acquisition agreement was terminated after Anadarko accepted a superior proposal; Chevron received the $1B termination fee. Chevron also completed the purchase of a Pasadena, Texas refinery in May 2019.
- Key exposures include volatile crude and natural-gas prices, refining and chemicals margins, project execution and production performance, regulatory and environmental obligations, litigation, and political or sanctions risks. Venezuela operations were subject to U.S. sanctions-related general licenses; the filing cited a license then effective through October 25, 2019, and warned that future events could affect operations and investment values.
- Chevron disclosed ongoing MTBE and environmental matters, climate-related lawsuits, and the Ecuador litigation and enforcement proceedings. The company said it could not estimate a reasonably possible loss for the Ecuador matters. It reported that an Ontario enforcement action was dismissed with prejudice in July 2019 and that a related arbitration award favored Chevron, but the arbitration damages phase was scheduled for 2021.
- Management said the quarter’s results were not necessarily indicative of future results. The filing provides no specific earnings guidance.
Investor verification priorities
- Assess how much Q2 earnings depended on the nonrecurring $1B Anadarko termination fee and compare underlying segment trends.
- Track whether production growth meets the 4%–7% estimate and how lower commodity realizations, Permian infrastructure and project performance affect cash generation.
- Review downstream margins, affiliate earnings and the impact of the Pasadena refinery acquisition and prior asset sales.
- Monitor debt, commercial-paper funding, capital spending, dividends and repurchases against operating cash flow and liquidity.
- Follow asset-sale execution, Venezuela license developments, litigation and environmental exposures, and open tax matters.