Chevron Corporation — 2011 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2011. Although the request identifies 2011 Q4, this filing is an annual report; it also provides unaudited fourth-quarter comparisons. Amounts are U.S. dollars unless stated otherwise.
Business context and reporting period
Chevron is an integrated global energy company operating in upstream oil and gas, refining and marketing, chemicals, transportation, and other businesses. Its results are highly sensitive to crude prices, production volumes, refining margins, taxes, and political and regulatory conditions. The company employed approximately 61,000 people at year-end.
Financial and operating performance
| Metric | 2011 | 2010 |
|---|---|---|
| Sales and other operating revenues | $244.4 billion | $198.2 billion |
| Net income attributable to Chevron | $26.9 billion | $19.0 billion |
| Diluted earnings per share | $13.44 | $9.48 |
| Cash from operating activities | $41.1 billion | $31.4 billion |
| Capital and exploratory expenditures, including affiliate share | $29.1 billion | $21.8 billion |
| Cash, cash equivalents, time deposits and marketable securities | $20.1 billion | $17.1 billion |
| Total debt and capital lease obligations | $10.2 billion | $11.5 billion |
| Current ratio | 1.6 | 1.7 |
- Net income attributable to Chevron rose 41% year over year. The filing attributes the improvement principally to higher crude oil prices; upstream earnings increased to $24.8 billion from $17.7 billion, while downstream earnings increased to $3.6 billion from $2.5 billion.
- Net income margin, calculated as net income attributable to Chevron divided by reported sales and other operating revenues, was approximately 11.0% in 2011 versus 9.6% in 2010. The filing does not provide a single consolidated operating-margin measure.
- Operating cash flow exceeded the $27.4 billion cash portion of capital and exploratory spending and $6.1 billion of common dividends. Chevron also funded the Atlas Energy acquisition with operating cash flows.
- Worldwide oil-equivalent production, including affiliates, averaged 2.673 million barrels per day, down approximately 3% from 2010. The company cited field declines, maintenance downtime, and price-related entitlement effects; project ramp-ups and acquisitions partly offset the decline.
- Worldwide refinery inputs were 1.787 million barrels per day, down from 1.894 million in 2010. Refining capacity utilization averaged 89%, compared with 92%.
- Year-end total assets were $209.5 billion and total equity was $122.2 billion. The debt ratio was 7.7%, down from 9.8%. The company reported $6.0 billion of committed credit facilities, with no borrowings outstanding under them at year-end.
Fourth-quarter comparison
Fourth-quarter 2011 sales and other operating revenues were $58.0 billion, compared with $51.9 billion in fourth-quarter 2010. Net income attributable to Chevron was $5.1 billion, or $2.58 diluted per share, versus $5.3 billion, or $2.64 per diluted share, in the prior-year quarter.
Material changes and notable items
- Revenue growth and higher earnings were driven mainly by stronger crude oil realizations: international upstream crude and liquids realizations averaged $101.53 per barrel, versus $72.68 in 2010. U.S. realizations averaged $97.51, versus $71.59.
- Costs also increased: operating, selling, general and administrative expenses rose to $26.4 billion from $24.0 billion, including higher fuel costs and employee compensation. The effective income tax rate increased to 43.3% from 40.3%.
- Other income included approximately $1.5 billion of net gains on asset sales. International downstream earnings included about $700 million of asset-sale gains, primarily from the Pembroke refinery and related U.K. and Ireland assets.
- Chevron acquired Atlas Energy in February 2011 for approximately $4.5 billion of aggregate consideration, adding Marcellus and Utica shale positions. The company repurchased $4.25 billion of shares and paid $6.1 billion in dividends during 2011; annual dividends per share were $3.09.
- Proved reserves at year-end were 8.5 billion barrels of oil-equivalent for consolidated operations and 2.7 billion barrels for affiliates. Consolidated natural gas reserves increased materially, including additions from Wheatstone and Atlas-related U.S. shale assets; reserve estimates remain subject to technical and economic assumptions.
Outlook, management commentary, and risks
- Chevron estimated 2012 production at approximately 2.680 million barrels of oil-equivalent per day, using the 2011 average Brent price of $111 per barrel as its basis. Management cautioned that prices, OPEC quotas, mature-field declines, project timing, weather, unrest, and regulatory or fiscal changes could alter actual production.
- 2012 capital and exploratory spending was budgeted at $32.7 billion, including $3.0 billion for affiliates. Approximately $28.5 billion was allocated to exploration and production, with $22.3 billion of that amount for projects outside the United States.
- Major growth projects included Gorgon, Wheatstone, Jack/St. Malo, and other developments. These projects entail significant execution, construction-cost, partner-funding, permitting, and start-up risks. Gorgon’s first production was expected in late 2014; Wheatstone’s first LNG train was expected in 2016.
- In November 2011, an incident at Brazil’s Frade Field released approximately 2,400 barrels of oil. The source was contained within four days and the company reported no material 2011 earnings impact, but potential fines and penalties were not determinable and could be significant in a period.
- In January 2012, a natural-gas release and fire occurred while drilling in Nigeria; a relief well was started and the root-cause investigation was ongoing.
- The Ecuador litigation was a major contingency. An Ecuadorian judgment, affirmed by a provincial appellate panel in January 2012, assessed approximately $9.5 billion in damages and plaintiffs’ representatives’ awards, with a further approximately $8.6 billion in punitive damages if Chevron did not issue an apology. Chevron disputes the judgment and appealed; management said a reasonably possible loss could not be estimated. Related arbitration and enforcement proceedings were also ongoing.
- Environmental remediation reserves were $1.4 billion at year-end; asset retirement obligations were $12.8 billion. Management noted additional environmental costs may be material to results in a particular period. The company is substantially self-insured for catastrophic operational losses.
- Other uncertainties include commodity-price and refining-margin volatility, political and fiscal risk in producing countries, greenhouse-gas regulation, litigation, and pension assumptions. The company reported a net pension and other postretirement funded-status liability of approximately $5.4 billion.
Most important facts for investors to verify
- Whether production meets the 2012 estimate and major projects remain on schedule and within budget.
- How much of 2011 earnings and cash generation reflects oil prices and asset-sale gains, and how results respond to lower prices or weaker downstream margins.
- The status and potential financial consequences of the Ecuador case, Frade incident, and Nigeria drilling incident.
- Reserve additions, development timing, and the conversion of proved undeveloped reserves, including the concentration of affiliate reserves in Kazakhstan.
- Whether the $32.7 billion capital program, dividends, and repurchases remain supportable while maintaining liquidity and low leverage.
- Potential changes to environmental liabilities, asset retirement obligations, pension funding, tax exposures, and other disclosed contingencies.