Did Chevron's 1994 earnings improve because of underlying business strength?

Not primarily. Reported net income rose 34% to $1.693 billion, but this was largely due to non-recurring items, most notably a $344 million prior-year tax adjustment from settling IRS issues for 1979 through 1987 and a $319 million reversal of accrued interest reserves in SG&A. Excluding special items, earnings were $1.671 billion, down 22% from 1993, reflecting lower oil and gas prices and weak refined product margins. Chemicals was the main bright spot.

What are the main risks to Chevron's future earnings and cash flow?

Key risks include volatile crude oil and natural gas prices, which had fallen for four consecutive years; weak U.S. refining margins and the costs of reformulated gasoline and California clean-fuel rules; environmental liabilities, with a $1.219 billion remediation reserve and exposure across 238 Superfund-designated sites; political and civil unrest in Nigeria, Angola and Zaire; and export constraints limiting Tengizchevroil's output in Kazakhstan. Litigation includes the Cities Service suit, which originally sought at least $2.7 billion, though management believes it will not result in significant liability.

Where is Chevron directing its capital spending, and what does it expect in 1995?

Chevron expects total capital and exploratory spending of about $5.1 billion in 1995, including affiliates, up about 5%. Consolidated spending is roughly flat at $3.9 billion, and about 70% of the $2.7 billion E&P budget is for international projects such as Hibernia, Tengiz, Britannia, the North West Shelf and Congo developments. Refining, marketing and transportation spending is about $1.9 billion, with about $900 million in the U.S. for clean-fuel upgrades at Richmond and El Segundo.

How strong is Chevron's financial position and dividend capacity?

Chevron's senior debt is rated AA by S&P and Aa2 by Moody's, and total debt to total debt plus equity was 35.8% at year-end 1994, up slightly. The company had $4.4 billion of committed credit facilities with no borrowings outstanding, and $1.8 billion of commercial paper was classified as long-term based on refinancing intent. Dividends paid were $1.85 per share in 1994, up from $1.75, and the company has paid dividends for 83 consecutive years. Operating cash flow was $2.9 billion, which covered dividends of $1.2 billion and capital expenditures of $3.4 billion only with increased borrowing and asset sales.

What changed in Chevron's downstream and non-core operations?

Chevron sold its Philadelphia refinery to Sun Company in August 1994 and its Port Arthur, Texas refinery to Clark Refining in February 1995, removing about 350,000 barrels per day of capacity and avoiding significant Clean Air Act capital spending. It also exited non-coal minerals, selling its Stillwater interest and Irish zinc-lead prospects, and is seeking buyers for its California real estate and reviewing its western Canada oil and gas operations. Chevron retained environmental cleanup obligations at Port Arthur, with $282 million accrued.

CVX 10-K FY1994 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 30, 1995. Cited figures are marked; the original filing is the authoritative source.

Chevron's 1994 results reflected a weak commodity price environment offset by strong chemicals earnings and a one-time tax benefit.

Net income rose 34% to $1.693 billion^a ($2.60 per share) from $1.265 billion in 1993, but this was flattered by $344 million of prior-year tax adjustments, including a $301 million reversal of tax reserves from an IRS global settlement, and a $319 million reversal of accrued interest reserves. Excluding special items, 1994 earnings of $1.671 billion actually declined 22% from 1993 operating earnings of $2.148 billion. Sales fell to $35.1 billion from $36.2 billion as crude oil, natural gas and refined product prices declined, while U.S. crude realizations dropped to $13.86 per barrel and Henry Hub gas averaged $1.86 per MCF.

Management's strategy centers on shifting capital toward international upstream growth, which now accounts for about 71% of E&P spending, and on exiting non-core businesses. Chevron sold its Philadelphia refinery in 1994 and Port Arthur refinery in February 1995, lowered its U.S. upstream cash generation target from $1 billion to $800 million^b annually, and plans roughly $5.1 billion of capital and exploratory spending in 1995, including affiliates. Major growth projects include Hibernia, Tengizchevroil in Kazakhstan, the North West Shelf in Australia, Britannia in the North Sea and expanded Caltex refining in Asia.

Chemicals earnings rebounded sharply to $206 million^c from $143 million. Balance sheet metrics remain solid: total debt to total capital was 35.8%, senior debt is rated AA by S&P, and the company held $4.4 billion of committed credit facilities.

Risks include the Cities Service lawsuit (seeking not less than $2.7 billion^d in original damages), environmental remediation reserves of $1.219 billion, a Superfund exposure across 238 sites, and political instability in Nigeria, Angola and Zaire. Investors should weigh the one-time tax and interest reserve reversals when judging underlying earnings power.

02—Key points

Key Highlights

Reported net income of $1.693 billion ($2.60/share) rose 34% from 1993, but special items added a net $22 million, and the increase was driven largely by a $344 million prior-year tax adjustment including a $301 million IRS settlement reversal
Excluding special items, 1994 earnings of $1.671 billion declined 22% from 1993's $2.148 billion, reflecting weaker crude and natural gas prices and refined product margins
Sales and other operating revenues fell to $35.13 billion from $36.19 billion; U.S. crude realizations averaged $13.86/bbl, down from $14.58, and U.S. natural gas realizations averaged $1.77/MCF
Chemicals rebounded strongly, with earnings of $206 million versus $143 million in 1993, as industry overcapacity was eliminated and commodity chemical prices firmed
Strategy emphasizes international upstream growth (about 71% of E&P capital spending) and divesting non-core assets, including the Philadelphia and Port Arthur refineries and non-coal minerals operations
Planned 1995 capital and exploratory spending of about $5.1 billion including affiliates, with the company targeting $800 million annual cash generation from U.S. upstream, lowered from $1 billion
Balance sheet remains investment grade (senior debt rated AA/Aa2), with total debt to total capital of 35.8% and $4.4 billion of committed bank credit facilities; dividends of $1.85/share were paid for 83 consecutive years

03—Questions

Frequently Asked Questions

Did Chevron's 1994 earnings improve because of underlying business strength?
Not primarily. Reported net income rose 34% to $1.693 billion, but this was largely due to non-recurring items, most notably a $344 million prior-year tax adjustment from settling IRS issues for 1979 through 1987 and a $319 million reversal of accrued interest reserves in SG&A. Excluding special items, earnings were $1.671 billion, down 22% from 1993, reflecting lower oil and gas prices and weak refined product margins. Chemicals was the main bright spot.
What are the main risks to Chevron's future earnings and cash flow?
Key risks include volatile crude oil and natural gas prices, which had fallen for four consecutive years; weak U.S. refining margins and the costs of reformulated gasoline and California clean-fuel rules; environmental liabilities, with a $1.219 billion remediation reserve and exposure across 238 Superfund-designated sites; political and civil unrest in Nigeria, Angola and Zaire; and export constraints limiting Tengizchevroil's output in Kazakhstan. Litigation includes the Cities Service suit, which originally sought at least $2.7 billion, though management believes it will not result in significant liability.
Where is Chevron directing its capital spending, and what does it expect in 1995?
Chevron expects total capital and exploratory spending of about $5.1 billion in 1995, including affiliates, up about 5%. Consolidated spending is roughly flat at $3.9 billion, and about 70% of the $2.7 billion E&P budget is for international projects such as Hibernia, Tengiz, Britannia, the North West Shelf and Congo developments. Refining, marketing and transportation spending is about $1.9 billion, with about $900 million in the U.S. for clean-fuel upgrades at Richmond and El Segundo.
How strong is Chevron's financial position and dividend capacity?
Chevron's senior debt is rated AA by S&P and Aa2 by Moody's, and total debt to total debt plus equity was 35.8% at year-end 1994, up slightly. The company had $4.4 billion of committed credit facilities with no borrowings outstanding, and $1.8 billion of commercial paper was classified as long-term based on refinancing intent. Dividends paid were $1.85 per share in 1994, up from $1.75, and the company has paid dividends for 83 consecutive years. Operating cash flow was $2.9 billion, which covered dividends of $1.2 billion and capital expenditures of $3.4 billion only with increased borrowing and asset sales.
What changed in Chevron's downstream and non-core operations?
Chevron sold its Philadelphia refinery to Sun Company in August 1994 and its Port Arthur, Texas refinery to Clark Refining in February 1995, removing about 350,000 barrels per day of capacity and avoiding significant Clean Air Act capital spending. It also exited non-coal minerals, selling its Stillwater interest and Irish zinc-lead prospects, and is seeking buyers for its California real estate and reviewing its western Canada oil and gas operations. Chevron retained environmental cleanup obligations at Port Arthur, with $282 million accrued.

04—Continue

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