Chevron Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Financial statements are unaudited. Comparisons are with Q1 2018 unless noted; amounts are in U.S. dollars.
Financial performance
- Revenue: $34.19 billion, down 4.9% from $35.97 billion. Management attributed the decline mainly to lower crude oil and refined-product prices.
- Net income attributable to Chevron: $2.65 billion, down 27.2% from $3.64 billion. Diluted EPS was $1.39, versus $1.90. Calculated net margin was approximately 7.7%, versus 10.1%.
- Operating cash flow: $5.06 billion, versus $5.04 billion. Cash capital expenditures were $2.95 billion; total capital and exploratory expenditures, including affiliate spending, were $4.73 billion.
- Cash and liquidity: Cash, cash equivalents and marketable securities totaled $8.8 billion at quarter-end, versus $10.3 billion at year-end 2018. Current assets were $33.67 billion and current liabilities $29.95 billion; the reported current ratio was 1.1, down from 1.3.
- Debt: Total debt and finance lease obligations were $33.1 billion, down from $34.5 billion at year-end. Debt ratio was 17.6%, versus 18.2%. Commercial paper outstanding was $8.5 billion; $9.9 billion of committed credit facilities were available and undrawn.
- Shareholder returns: Cash dividends were $2.24 billion, or $1.19 per share. Chevron repurchased 4.7 million shares for $537 million during the quarter.
- Taxes: Effective tax rate rose to 33% from 28%, primarily reflecting the mix of earnings across jurisdictions.
Segments and material changes
- Upstream earnings: $3.12 billion, down from $3.35 billion. Lower crude prices and unfavorable currency effects were partly offset by higher production and natural-gas sales volumes.
- Downstream earnings: $252 million, down from $728 million, mainly because of lower refined-product margins.
- Production: Worldwide net oil-equivalent production averaged 3.038 million barrels per day, up 7%. U.S. production rose 21% to 884,000 barrels per day; international production increased 2% to 2.154 million barrels per day.
- All Other net charges increased to $726 million from $442 million, mainly due to higher corporate charges and interest expense. Income from equity affiliates declined to $1.06 billion from $1.64 billion, with lower upstream-related earnings from Venezuelan affiliates cited as a key factor.
Outlook, risks and unusual items
- Chevron estimated 2019 net oil-equivalent production growth of 4%–7% versus 2018, assuming Brent crude at $60 per barrel and excluding anticipated 2019 asset sales. The estimate is subject to operational, market, geopolitical and other uncertainties.
- The company’s 2018–2020 asset-sale program targets $5–$10 billion in pretax proceeds; $2.3 billion had been realized from January 2018 through March 2019. $2.65 billion of assets, primarily upstream properties, were classified as held for sale at March 31.
- On April 12, 2019, after quarter-end, Chevron announced a proposed Anadarko acquisition valued at approximately $33 billion, with consideration of $16.25 cash and 0.3869 Chevron shares per Anadarko share, plus assumed debt. Chevron expected to fund the cash portion with cash on hand and commercial-paper borrowings. Completion requires shareholder, regulatory and other approvals; the filing identifies delay, non-completion, integration and failure to achieve expected benefits as risks.
- Key exposures include oil and gas prices, refining margins, production and project execution, foreign exchange, political instability and sanctions, environmental obligations, and litigation. The Ecuador judgment and related enforcement actions remain contested; management said it could not estimate a reasonably possible loss. The filing also discusses MTBE claims and climate-related proceedings.
- The Richmond refinery consent decree became effective March 7, 2019, requiring a $2.95 million civil penalty, $10 million in environmental projects and estimated process-safety investments of $150 million.
- Chevron adopted the new lease accounting standard on January 1, 2019. At March 31, operating and finance lease liabilities were $4.13 billion and $286 million, respectively; the filing also identifies $1.0 billion of future undiscounted operating-lease payments for leases not yet commenced.
Important facts for investors to verify
- Whether production growth and the 4%–7% full-year outlook are achieved, and how asset sales affect reported production.
- Whether oil prices, foreign-exchange movements and downstream margins improve or further pressure earnings.
- Funding, regulatory approval, closing terms and expected benefits of the proposed Anadarko acquisition, including its implications for debt and liquidity.
- Progress and potential financial exposure from Ecuador enforcement proceedings, tax examinations, environmental claims and other contingencies.
- Capital spending, share repurchases, dividends and cash levels relative to operating cash flow and upcoming obligations.