Chevron Corporation (CVX) — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing also reports fourth-quarter results. Chevron is an integrated global energy company, with Upstream and Downstream as its principal reportable segments. Financial statements were audited by PricewaterhouseCoopers LLP, which issued an unqualified opinion.
Financial and operating performance
| Metric | 2014 | 2013 |
|---|---|---|
| Sales and other operating revenues | $200.5 billion | $220.2 billion |
| Net income attributable to Chevron | $19.2 billion | $21.4 billion |
| Diluted earnings per share | $10.14 | $11.09 |
| Cash provided by operating activities | $31.5 billion | $35.0 billion |
| Cash and cash equivalents at year-end | $12.8 billion | $16.2 billion |
| Debt and capital lease obligations | $27.8 billion | $20.4 billion |
| Current ratio | 1.3 | 1.5 |
| Debt ratio | 15.2% | 12.1% |
Net income fell about 10% and revenues about 9% year over year. Fourth-quarter 2014 sales and other operating revenues were $42.1 billion versus $54.0 billion in fourth-quarter 2013; net income attributable to Chevron was $3.47 billion versus $4.93 billion, and diluted EPS was $1.85 versus $2.57.
- Segment earnings: Upstream earned $16.9 billion, down from $20.8 billion. Downstream earned $4.3 billion, up from $2.2 billion. All Other net charges increased to $2.0 billion from $1.6 billion.
- Cash generation and investment: Operating cash flow declined to $31.5 billion. Cash capital expenditures were $35.4 billion; total capital and exploratory expenditures, including affiliates, were $40.3 billion. The difference between operating cash flow and cash capital expenditures was negative $3.9 billion, before asset-sale proceeds and other investing items.
- Production and reserves: Worldwide net oil-equivalent production averaged 2.571 million barrels per day, down 1% from 2013. Year-end proved reserves were 11.1 billion barrels of oil equivalent, down 1%; the reserve replacement ratio was 89%.
- Shareholder returns: Dividends paid were $7.9 billion; the annual dividend per share was $4.21. Chevron repurchased $5.0 billion of shares in 2014 and said it would suspend repurchases in 2015.
Material changes versus 2013
- Crude prices weakened sharply in the second half of 2014. Brent averaged $99 per barrel for the year versus $109 in 2013; by mid-February 2015 it was $60. Management attributed the decline to strong non-OPEC supply, softer demand growth, and OPEC’s decision to maintain its production ceiling.
- Lower crude prices and sales volumes reduced Upstream earnings. Worldwide production declined amid field declines, entitlement effects, and asset sales, partly offset by new project ramp-ups and U.S. shale growth.
- Downstream earnings improved, primarily due to higher U.S. refined-product margins and asset-sale gains.
- Other income included $3.6 billion of pretax net gains from asset sales, compared with $710 million in 2013. The company reported approximately $3.0 billion in after-tax gains on nonstrategic property sales and approximately $1.0 billion in after-tax impairment and other asset write-off charges.
- Debt and capital lease obligations rose by $7.4 billion, largely to fund the capital program; the company issued $4.0 billion of bonds in November. Cash balances declined, and the current ratio fell.
Outlook, commentary, risks and contingencies
- 2015 outlook: Chevron estimated oil-equivalent production would be flat to 3% higher than 2014. Planned 2015 capital and exploratory expenditures were $35.0 billion, including $4.0 billion of affiliate spending, a reduction reflecting market conditions. Management said spending could be adjusted further if conditions warrant.
- Management expected crude oil markets to rebalance over time but said the timing of any price recovery was unknown. It identified prolonged low prices as a risk to earnings, cash flow, investment, production, and reserves; possible responses included further cost and capital-spending reductions and asset sales.
- Major projects included Gorgon, 88% complete at year-end with first LNG start-up planned for 2015, and Wheatstone, 53% complete with first-train start-up expected in late 2016. Project schedules, costs, approvals, partner funding, and market conditions remain uncertainties.
- Other key risks include commodity-price and refining-margin volatility; political and regulatory changes; operational disruptions, accidents and severe weather; environmental and climate-related regulation; litigation; and uncertainty in reserve, impairment, pension, tax, and remediation estimates. The company is substantially self-insured against catastrophic operational losses.
- Environmental remediation reserves were $1.7 billion at year-end, and asset retirement obligations were $15.1 billion. Chevron stated that additional environmental costs could be material to results in the period recognized, although it did not expect them to materially affect consolidated liquidity or financial position.
- The Ecuador litigation remained a significant unresolved contingency. Chevron disputed the judgment and was contesting enforcement actions and related proceedings; management said the ultimate outcome and any financial effect were uncertain and could not be reasonably estimated.
- Other notable items include the extended shutdown of the Angola LNG plant after a piping failure, with restart expected in late 2015; and regulatory proceedings related to refinery and well incidents. The filing also reports a $485 million guarantee related to an equity affiliate, with no liability recorded.
Investor facts to verify
- Whether the 2015 production outlook and the reduced capital budget were achieved, and whether major projects started on schedule and within expected costs.
- How sustained lower crude prices affected cash flow, upstream earnings, asset values, reserves, and the dividend’s funding.
- The composition and repeatability of the 2014 asset-sale gains, and the effects of reported impairments and write-offs.
- Debt maturities, refinancing plans, liquidity, and the effect of suspending share repurchases while maintaining dividend payments.
- Developments in Ecuador litigation, environmental remediation, and other legal or regulatory proceedings, including any changes to recorded provisions.