Chevron Corporation — Q3 2019 Form 10-Q
Business context and period. Chevron is a global integrated energy company with Upstream and Downstream reportable segments. This unaudited quarterly filing covers the three and nine months ended September 30, 2019, compared with the same 2018 periods.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Sales and operating revenue | $34.8B | $42.1B | $105.3B | $118.6B |
| Net income attributable to Chevron | $2.58B | $4.05B | $9.53B | $11.09B |
| Diluted earnings per share | $1.36 | $2.11 | $5.02 | $5.79 |
| Operating cash flow | Not separately presented | Not separately presented | $21.66B | $21.47B |
| Cash capital expenditures | Not separately presented | Not separately presented | $9.91B | $9.80B |
- Q3 segment earnings: Upstream $2.70B (down from $3.38B); Downstream $828M (down from $1.37B). Nine-month segment earnings were $9.31B and $1.81B, respectively, versus $10.03B and $2.94B.
- At September 30, cash and cash equivalents were $11.70B; current assets were $33.99B and current liabilities $30.23B, giving a 1.1 current ratio. Total assets were $256.54B and total liabilities $99.65B.
- Total debt and finance lease obligations were $32.9B, down from $34.5B at year-end 2018. The debt ratio was 17.4%, versus 18.2%. Commercial paper outstanding was $9.6B; committed credit facilities totaled $9.9B, with no facility borrowings.
- Cash dividends paid in the first nine months were $6.73B; the quarterly dividend was $1.19 per share. Chevron repurchased $2.8B of shares in the first nine months, including $1.25B in Q3.
- Worldwide net oil-equivalent production averaged 3.052 million barrels per day in the first nine months, up 6% year over year. Capital and exploratory expenditures, including affiliates’ spending, were $14.98B.
Changes versus prior year
- Q3 net income fell 36% and nine-month net income fell 14%. Revenue declined 17% in Q3 and 11% year to date, mainly reflecting lower crude oil, natural gas and refined-product prices, and lower volumes in some categories.
- Lower oil and gas realizations reduced Upstream earnings, partly offset by higher production in the U.S. and lower depreciation and exploration expense. International Upstream production was slightly lower in Q3, partly because of field declines and asset sales.
- Downstream earnings declined, reflecting weaker refined-product margins, higher operating and maintenance expenses, and the absence of prior-year asset-sale gains. International sales and refinery input were also affected by the 2018 sale of the southern Africa business.
- The effective tax rate rose to 36% in Q3 from 29%, and to 32% for the nine months from 29%, primarily due to a cash-repatriation tax charge and jurisdictional earnings mix. The Q3 repatriation charge was $430M.
Outlook, commentary and risks
- Management estimated 2019 production growth of 4%–7% versus 2018, assuming Brent crude at $60 per barrel and excluding the impact of 2019 asset sales. This outlook is subject to operational, market, political and other uncertainties; the filing gives no earnings guidance.
- Chevron’s 2018–2020 asset-sale program targets $5B–$10B in pretax proceeds. Proceeds from January 2018 through September 2019 were $3.0B. Approximately $3.05B of upstream assets were classified as held for sale, with sales anticipated within 12 months. Agreements to sell interests in Azerbaijan and the Philippines were signed after quarter-end.
- Key exposures include volatile oil and gas prices, refining and chemical margins, production and project execution, geopolitical events, sanctions, regulation, weather, foreign exchange, environmental obligations and litigation. Chevron reported Venezuelan production of 32,000 barrels per day in Q3 and investments with a carrying value of about $2.6B; U.S. authorization to continue specified activities was extended in October 2019 through January 22, 2020.
- The Ecuador judgment and related enforcement and arbitration proceedings remain uncertain; management said it could not estimate a reasonably possible loss. The filing also discusses MTBE claims, environmental liabilities, climate-related lawsuits and tax audits. Management does not expect known environmental obligations to materially affect consolidated financial position or liquidity, but future costs could materially affect results in the period recognized.
- Other notable items: the company received an Anadarko termination fee during the nine-month period (the amount is not stated in the provided text); two Permian pipeline and export-capacity throughput agreements totaling $3.2B were entered into in Q3; and adoption of the lease standard increased assessed lease commitments by approximately $2B.
Important facts for investors to verify
- Whether lower commodity prices and refined-product margins persist, and how they affect earnings and cash generation.
- Progress toward production growth guidance, including Permian performance, project ramp-ups, asset sales and the status of the shut-in Partitioned Zone production.
- Timing, proceeds and earnings effects of planned divestitures, and the company’s capital spending, dividends and share repurchases relative to operating cash flow.
- Debt and liquidity trends, including commercial-paper refinancing and the ability to maintain investment-grade ratings.
- Developments in Venezuela and material litigation, environmental, climate and tax contingencies; the filing does not provide a clear estimate of potential losses for several matters.