Chevron Corporation — Q1 2010 Form 10-Q
Reporting period: Three months ended March 31, 2010; filed May 5, 2010. Interim financial statements are unaudited. Comparisons are with Q1 2009 unless noted.
Business context and results
Chevron is an integrated energy company reporting Upstream, Downstream and All Other activities. Earnings improved substantially as oil and gas prices rose and upstream production increased; Downstream remained pressured by weak margins and lower sales volumes.
Key financial metrics
| Metric | Q1 2010 | Q1 2009 / prior date |
|---|---|---|
| Sales and operating revenues | $46.741 billion | $34.987 billion |
| Income from equity affiliates | $1.235 billion | $611 million |
| Net income attributable to Chevron | $4.552 billion | $1.837 billion |
| Diluted EPS | $2.27 | $0.92 |
| Dividend per share paid | $0.68 | $0.65 |
| Cash from operating activities | $7.517 billion | $2.404 billion |
| Cash capital expenditures | $3.967 billion | $5.984 billion |
| Capital and exploratory expenditures, including affiliates | $4.382 billion | $6.466 billion |
| Cash, cash equivalents, time deposits and marketable securities | $11.155 billion | $8.822 billion at December 31, 2009 |
| Total debt and capital leases | $10.4 billion | $10.5 billion at December 31, 2009 |
| Current ratio | 1.5 | 1.4 at December 31, 2009 |
| Debt ratio | 9.8% | 10.3% at December 31, 2009 |
Income before tax was $7.650 billion and income tax expense was $3.070 billion; the effective tax rate was 40%, compared with 42%. The filing does not state a consolidated profit-margin measure. Chevron reported $96.052 billion in total equity and $72.880 billion in total liabilities at March 31, 2010. Operating cash flow rose primarily with earnings; the company used $1.431 billion in financing activities, including $1.357 billion of dividends. It invested $3.695 billion in time deposits with maturities over 90 days.
Business segment performance and changes
- Upstream earnings: $4.724 billion, up from $1.378 billion. Higher crude-oil and natural-gas prices were the principal drivers, with increased production and international tax benefits also contributing. Worldwide net oil-equivalent production averaged 2.783 million barrels per day, up about 4.5% from 2.663 million.
- Downstream earnings: $196 million, down from $753 million. The comparison reflects the absence of approximately $400 million of prior-year asset-sale gains, 2010 employee-reduction charges, weak refining margins and lower product sales.
- All Other net charges: $368 million, compared with $294 million, primarily due to higher corporate tax expense and restructuring charges.
- Segment reporting was reclassified effective January 1, 2010: chemicals moved into Downstream, while certain upstream-enabling operations moved into Upstream. Prior-period segment figures were recast.
- Q1 2010 included $175 million of after-tax employee-reduction charges. Q1 2009 included $400 million of after-tax gains from international Downstream asset sales.
Outlook, risks and contingencies
- Chevron estimated 2010 oil-equivalent production of approximately 2.73 million barrels per day, below Q1’s 2.783 million. The estimate is subject to project timing, field declines, OPEC quotas, production-sharing terms, demand, weather, political conditions and operational disruptions.
- Management cited crude-oil and natural-gas prices, refining and chemical margins, geopolitical and regulatory developments, project execution, costs, and environmental and litigation exposure as material uncertainties. Industry costs had leveled off in Q4 2009 and were essentially unchanged in Q1 2010.
- Downstream restructuring was expected to eliminate about 3,800 positions across Downstream and corporate staffs; approximately 2,400 terminations were anticipated in 2010, with programs expected to conclude by the end of 2011. The company was also seeking bids for 13 U.S. terminals and certain international operations. Such actions could produce future gains or losses.
- In April 2010, Chevron raised its quarterly dividend 5.9% to $0.72 per share, payable in June. It said it did not plan share repurchases in Q2; no purchases under its public repurchase program occurred in Q1.
- The Ecuador environmental lawsuit could result in a judgment at any time. Court-appointed engineer reports recommended very large assessments, but were not binding; Chevron disputed them. Management said a reasonably possible loss or range could not be estimated and the ultimate outcome remained uncertain.
- Other exposures include 51 pending MTBE lawsuits and claims; environmental obligations; certain indemnities, including uncapped potential environmental indemnities; and an Elk Hills equity redetermination with an estimated maximum net pretax liability of about $200 million (or a possible maximum receivable of about $150 million).
- After quarter-end, an April 26 California appeals-court ruling concerning permits for the Richmond refinery upgrade created uncertain potential financial effects that management could not estimate. The April 20 Gulf of Mexico drilling-rig incident involved a BP-operated well in which Chevron said it had no participation; future regulatory effects were unknown.
- Management said committed bank facilities totaled $5.1 billion, with no borrowings outstanding, and described the company as having substantial borrowing capacity. Planned 2010 pension contributions remained $900 million; $306 million had been contributed through March 31.
Most important facts for investors to verify
- Whether higher upstream prices and production can sustain earnings and cash generation, and whether 2010 production approaches the approximately 2.73 million barrels-per-day estimate.
- Downstream margin recovery, restructuring execution and costs, and the financial impact of planned asset or market exits.
- Cash deployment and liquidity, including the time-deposit strategy, capital spending, dividend commitments and debt refinancing needs.
- Developments in the Ecuador case, Richmond refinery permits, environmental claims and indemnities, and any resulting liabilities.
- That reported earnings included $175 million after-tax restructuring charges in 2010, while the prior period included $400 million after-tax asset-sale gains.