Chevron Corporation — 2013 Form 10-K
Business context and reporting period: Chevron is an integrated energy company with upstream, downstream, chemicals, and other operations worldwide. This is the annual report for the fiscal year ended December 31, 2013; it also presents fourth-quarter results. Unless noted otherwise, financial amounts below are in U.S. dollars.
Key financial and operating metrics
| Metric | 2013 | 2012 |
|---|---|---|
| Sales and other operating revenues | $220.2 billion | $230.6 billion |
| Net income attributable to Chevron | $21.4 billion | $26.2 billion |
| Diluted earnings per share | $11.09 | $13.32 |
| Cash from operating activities | $35.0 billion | $38.8 billion |
| Capital expenditures, cash-flow statement | $38.0 billion | $30.9 billion |
| Capital and exploratory expenditures, including affiliates | $41.9 billion | $34.2 billion |
| Cash, cash equivalents, time deposits, and marketable securities | $16.5 billion | $21.9 billion |
| Total debt and capital lease obligations | $20.4 billion | $12.2 billion |
| Current ratio | 1.5 | 1.6 |
| Worldwide net oil-equivalent production, including affiliates | 2.597 million barrels per day | 2.610 million barrels per day |
| Proved oil-equivalent reserves, including affiliates | 11.203 billion barrels | 11.347 billion barrels |
Chevron did not provide a single consolidated operating-margin measure in the cited filing text. Its reported earnings were heavily weighted toward upstream: segment earnings were $20.8 billion, versus $2.2 billion downstream; All Other recorded net charges of $1.6 billion. The effective income tax rate was 39.9%, down from 43.2%.
For fourth-quarter 2013, sales and other operating revenues were $54.0 billion and net income attributable to Chevron was $4.93 billion, or $2.57 per diluted share. Fourth-quarter 2012 figures were $56.3 billion, $7.25 billion, and $3.70 per diluted share, respectively.
Material changes versus the prior comparable period
- Annual net income attributable to Chevron declined about 18% and revenue declined about 5% from 2012. Operating cash flow fell by $3.8 billion.
- Upstream earnings declined to $20.8 billion from $23.8 billion. The company cited lower crude oil prices, higher operating costs, and the absence of significant 2012 asset-sale and exchange gains; production was broadly stable year over year.
- Downstream earnings fell to $2.2 billion from $4.3 billion. U.S. results were pressured by weaker refined-product margins and higher refinery repair and maintenance costs; international earnings also reflected lower gains on asset sales.
- Capital and exploratory expenditures, including affiliate spending, increased to $41.9 billion from $34.2 billion, with 90% allocated to upstream activities. Debt and capital lease obligations rose $8.2 billion, including a $6.0 billion bond issuance.
- Cash returned to shareholders included $7.5 billion of common dividends and $5.0 billion of share repurchases. The annual dividend per share rose to $3.90 from $3.51.
Outlook, management commentary, and risks
- For 2014, Chevron estimated average worldwide production of approximately 2.610 million barrels of oil-equivalent per day, based on 2013’s average Brent price of $109 per barrel. The estimate is subject to project timing, mature-field declines, OPEC actions, fiscal and political conditions, weather, and operational disruptions.
- 2014 capital and exploratory expenditures were budgeted at $39.8 billion, including $4.8 billion for affiliates; about 90% was directed to exploration and production. Major projects included Gorgon and Wheatstone LNG, deepwater developments, and projects in Kazakhstan, Nigeria, and other regions.
- Management described crude oil prices as the largest influence on results. 2013 average Brent was $109 per barrel versus $112 in 2012; U.S. Henry Hub natural gas averaged $3.70 per thousand cubic feet versus $2.71.
- Major execution exposures included the Gorgon project, approximately 75% complete at year-end with first LNG planned for mid-2015, and Wheatstone, approximately 25% complete with first-train start-up expected in 2016. Cost, schedule, construction, and ramp-up risks remain relevant.
- The company identified commodity-price volatility, unsuccessful reserve replacement, project delays or cost overruns, political and regulatory changes, operational incidents, environmental obligations, litigation, and greenhouse-gas regulation as risks. At year-end, 21% of net proved reserves were in Kazakhstan and 21% were in OPEC countries.
- The Ecuador litigation remained a material uncertainty: Ecuador’s National Court ratified a judgment of approximately $9.5 billion after nullifying punitive damages; Chevron appealed to Ecuador’s Constitutional Court and disputes enforcement in other jurisdictions. Management said a reasonably possible loss range could not be estimated.
- In the Brazil Frade matter, civil lawsuits were dismissed under a settlement involving approximately $43 million in social and environmental programs. Two criminal allegations were reinstated on appeal; the company said ultimate exposure was not determinable and could be significant in a period.
- Environmental remediation reserves were $1.456 billion and asset retirement obligations were $14.3 billion at year-end. Management did not expect environmental costs to materially affect liquidity or financial position, but acknowledged potential period-to-period earnings impacts.
- Chevron reported effective disclosure controls and internal control over financial reporting as of December 31, 2013; the independent auditor also opined that internal control was effective.
Important facts for investors to verify
- Review the causes and sustainability of the earnings and operating-cash-flow declines, particularly crude realizations, refining margins, and higher operating expenses.
- Track delivery against the 2014 production estimate and the schedules, costs, and ramp-up assumptions for Gorgon, Wheatstone, and other major projects.
- Assess whether rising capital spending, dividends, and repurchases remain supportable if commodity prices or cash generation weaken; monitor the increase in debt.
- Follow developments in the Ecuador and Brazil matters, including enforcement proceedings, appeals, and any change in the company’s ability to estimate or recognize exposure.
- Examine proved-reserve movements, the decline in total proved reserves, and the development plans supporting the substantial proved-undeveloped reserve base.