Chevron Corporation — Q1 2009 Form 10-Q
Reporting period: Three months ended March 31, 2009. Unaudited consolidated results; comparisons are with Q1 2008 unless noted. Dollar amounts are in millions except per-share data and where specified.
Financial performance
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Sales and other operating revenues | $34,987 | $64,659 |
| Income before income taxes | $3,173 | $9,705 |
| Net income attributable to Chevron | $1,837 | $5,168 |
| Diluted earnings per share | $0.92 | $2.48 |
| Net margin, calculated as Chevron earnings divided by revenue | Approximately 5.3% | Approximately 8.0% |
| Operating cash flow | $2,404 | $8,107 |
| Capital expenditures | $5,984 | $4,452 |
Revenue fell sharply, primarily because of lower crude oil, natural gas and refined-product prices. The effective income-tax rate was 42%, versus 46%; management attributed the decrease to a greater proportion of earnings from lower-taxed international downstream businesses. Quarterly dividends were $0.65 per share, compared with $0.58.
Operating cash flow was below investing cash outflow of $4,609 million. Cash and cash equivalents ended the quarter at $9,150 million, down from $9,347 million at year-end; cash, cash equivalents and marketable securities totaled about $9.3 billion. The company reported a current ratio of 1.4, up from 1.1 at year-end.
Total debt and capital-lease obligations were $12.2 billion, up from $8.9 billion at December 31, 2008. The increase included a $5.0 billion bond issuance, partly offset by lower commercial paper and debt repayments. The debt ratio was 12.3%, versus 9.3% at year-end. Chevron had $5.1 billion of committed credit facilities, with no borrowings outstanding under them.
Material changes and operating results
- Upstream: Earnings fell to $1,269 million from $5,128 million, mainly due to lower oil and gas prices. Worldwide net oil-equivalent production rose to 2.663 million barrels per day from 2.599 million. Average crude and natural-gas-liquids realizations were about $36 per barrel in the U.S. and $39 internationally, versus about $87 and $86, respectively, a year earlier.
- Downstream: Earnings increased to $823 million from $252 million, including $400 million of after-tax gains on international downstream asset sales. Refining and marketing margins were generally weak amid subdued demand and ample product supply.
- Chemicals: Earnings were $39 million, compared with $43 million.
- Equity affiliates and costs: Equity-affiliate income declined to $611 million from $1,244 million, largely reflecting lower upstream-related earnings. Depreciation, depletion and amortization increased to $2,867 million from $2,215 million; exploration expense rose to $381 million from $253 million.
- Investment and financing: Capital and exploratory expenditures, including Chevron’s share of affiliate spending, were $6.466 billion, up from $5.127 billion. This included a $2 billion payment to extend an upstream concession. Cash dividends paid were $1.295 billion. No shares were bought under the public repurchase program; reported share purchases were for employee tax withholding and option exercises.
Outlook, risks and unusual items
- Management said lower industry costs could continue in 2009 if crude prices do not rebound significantly, and reported actively managing work schedules, contracting and procurement to benefit from lower costs. The filing provides no specific earnings or production guidance.
- Management highlighted the global economic slowdown, weak oil and gas prices, refined-product margins, OPEC quotas, project delays, operating disruptions, political and regulatory changes, and currency movements as factors that could affect results. Q1 production was constrained by about 50,000 barrels per day from OPEC quotas; approximately 35,000 barrels of oil-equivalent per day remained offline following Gulf of Mexico hurricane damage.
- Quarterly unusual items included the $400 million after-tax gain on international downstream asset sales and $154 million of pre-tax property impairments. The company also reported $100 million of U.S. upstream exploration-related write-offs.
- Chevron faced 36 pending MTBE lawsuits and claims; management said ultimate exposure was not determinable and could materially affect earnings in a period. In the Ecuador case, a court-appointed engineer recommended $18.9 billion in purported damages and $8.4 billion for alleged unjust enrichment; the report was nonbinding, Chevron disputed it, and management said a reasonably possible loss could not be estimated.
- Other exposures include environmental contingencies, guarantees and indemnities. A Shell letter purported to preserve certain Equilon indemnity claims with no amount stated; related Motiva environmental indemnities have no stated maximum. Chevron said environmental costs could materially affect results when recognized, but were not expected to materially affect consolidated financial position or liquidity.
- Chevron reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing also disclosed a California Air Resources Board enforcement action concerning alleged 2007 gasoline-additive violations at the Sacramento terminal.
Important facts for investors to verify
- How far lower commodity prices and weak product demand persist, and their effect on upstream earnings, downstream margins and cash generation.
- Whether production growth from new projects offsets natural declines, OPEC curtailments and hurricane-related outages.
- How the $6.466 billion quarterly capital and exploratory spending level, including the concession payment, affects full-year investment and financing needs.
- Debt maturities and refinancing assumptions, including the company’s expectation that obligations reclassified as long-term will not require working capital within one year.
- Developments and potential exposure in the Ecuador litigation, MTBE claims, and Equilon, Motiva and other environmental indemnities.
- Progress on planned asset sales and whether the Q1 downstream earnings benefit from asset-sale gains is repeatable.