01—Abstract
Summary
Summary of the 10-K filed February 28, 2008. Cited figures are marked; the original filing is the authoritative source.
Chevron's 2007 Form 10-K (filed February 28, 2008) reports a year of record-level earnings driven by high commodity prices.
Net income rose 9% to $18.7 billiona (diluted EPS $8.77, up from $7.80), on sales and other operating revenues of $214.1 billion. Upstream was the engine, with segment income of $14.8 billion (up 13%), and international upstream contributed $10.3 billion. Downstream earnings fell sharply to $3.5 billion from $4.0 billion, as U.S. downstream income dropped to $966 million from $1.9 billion due to weaker refined-product margins and planned and unplanned refinery downtime.
2007 results also included roughly $2 billionb of gains on asset sales, including the $680 million Dynegy stake sale and about $1.1 billion from downstream divestitures in the Benelux countries. The company's capital program is growing. Total 2007 capital and exploratory spending was $20.0 billion, 78% of it upstream.
Management guides 2008 spending up 15% to $22.9 billionc, with about $17.5 billion for exploration and production, and projects 2008 oil-equivalent production of about 2.65 million barrels per day, versus 2.62 million in 2007. Shareholder returns were also significant: dividends rose 11.5% to $0.58 per quarter, dividends paid totaled about $4.8 billion, and a new $15 billion buyback program was authorized in September 2007, of which $2.1 billion had been used by year-end. Balance sheet strength improved, with total debt down to $7.2 billion from $9.8 billion and a debt-to-capital ratio of 8.6%, compared with 12.5% a year earlier.
Key risks include exposure to crude-oil prices (WTI averaged about $72d per barrel in 2007 and was near $93 in mid-February 2008), geopolitical and fiscal-term risk (26% of proved reserves in Kazakhstan, 28% in OPEC countries), Venezuela's conversion of Orinoco projects to PDVSA-controlled structures, and the pending MTBE litigation. Proved reserves at year-end 2007 were 7.9 billion oil-equivalent barrels consolidated, plus 2.9 billion barrels for affiliates.
02—Key points
Key Highlights
- Net income rose 9% to $18.7 billion in 2007 (diluted EPS $8.77 vs. $7.80), supported by higher crude oil realizations and about $2 billion in asset-sale gains.
- Upstream segment income reached $14.8 billion (up 13%), with international upstream at $10.3 billion, offsetting weaker downstream results.
- Downstream income fell to $3.5 billion from $4.0 billion; U.S. downstream plunged to $966 million from $1.9 billion on weaker margins and refinery outages at Richmond, Pascagoula, and El Segundo.
- 2008 capital and exploratory budget set at $22.9 billion, up 15%, with major projects including Tahiti, Jack/St. Malo, Agbami, Tengiz expansion, and the Piceance Basin.
- Dividend increased 11.5% to $0.58 per quarter (20th consecutive annual increase), and a $15 billion share repurchase program was authorized, with $2.1 billion used by year-end 2007.
- Balance sheet strengthened: total debt fell to $7.2 billion from $9.8 billion, and the debt-to-capital ratio dropped to 8.6% from 12.5%.
- Worldwide oil-equivalent production averaged 2.62 million barrels per day, down about 2% from 2006 mainly due to the Venezuela Boscan conversion, with 2008 guidance of about 2.65 million barrels per day.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 28, 2008Financial Statements
| Revenue | $220.90B |
| SG&A Expenses | $5.93B |
| Operating Expenses | $188.63B |
| Interest Expense | $166.00M |
| Net Income | $18.69B |
| EPS (Basic) | $8.83 |
| EPS (Diluted) | $8.77 |
05—Questions
Frequently Asked Questions
How did Chevron's profitability change in 2007 and what drove it?
Net income increased to $18.7 billion from $17.1 billion, and diluted EPS rose to $8.77 from $7.80. Higher crude oil and natural gas prices boosted upstream earnings, and 2007 included about $2 billion of gains from asset sales, including the Dynegy stake and Benelux downstream assets. These gains helped offset weaker downstream margins and higher operating expenses.
Why did downstream earnings decline, and is this a concern?
U.S. downstream income fell about $1 billion to $966 million because higher crude costs compressed refined-product margins and planned and unplanned downtime at three major U.S. refineries reduced output. Crude unit fires at Richmond and Pascagoula were key factors, and the Pascagoula unit returned to service in February 2008. Investors should watch whether margins and refinery reliability recover in 2008.
What is Chevron's capital spending plan for 2008 and where is it focused?
Management estimates 2008 capital and exploratory expenditures of $22.9 billion, about 15% higher than 2007's $20 billion. About $17.5 billion is for upstream, with $12.7 billion of that outside the U.S. Major focus areas include deepwater Gulf of Mexico, western Africa, Angola, Australia, Brazil, Kazakhstan, Nigeria, Thailand, the Piceance Basin, and Canadian oil sands.
How much is Chevron returning to shareholders, and how secure is the dividend?
Chevron paid about $4.8 billion in dividends in 2007 and raised its quarterly dividend 11.5% to $0.58 per share. It also completed a $5 billion buyback in September 2007 and authorized up to $15 billion more over three years, with $2.1 billion used by year-end. The company's strong credit ratings (AA by S&P, Aa1 by Moody's) and reduced debt suggest the dividend is well covered, though returns depend on continued high oil prices.
What are the main risks to Chevron's outlook?
The most significant risk is crude-oil price volatility, as the company does not generally hedge. Other key risks include political and fiscal changes in producing countries (26% of proved reserves in Kazakhstan, 28% in OPEC countries), Venezuela's transfer of Orinoco projects to PDVSA, OPEC quota decisions, project delays such as the Tahiti start-up slipping about a year, and environmental and litigation exposure including MTBE lawsuits and greenhouse-gas regulation in California.
06—Continue