01—Abstract
Summary
Summary of the 10-K/A filed March 27, 2008. Cited figures are marked; the original filing is the authoritative source.
Chevron's 2007 Form 10-K (filed March 27, 2008) shows a company at a high point of earnings and cash generation.
Net income rose to $18.7 billiona in 2007, up about 9% from $17.1 billion in 2006, and diluted EPS was $8.77 versus $7.80. Sales and other operating revenues reached $214.1 billion, and net cash from operations was $25.0 billion. Upstream (exploration and production) drove the results, contributing $14.8 billion of segment income, with international upstream at $10.3 billion.
Downstream earnings fell sharply to $3.5 billionb from $4.0 billion, largely because of weaker U.S. refining margins caused by planned and unplanned refinery downtime, including fire damage at the Richmond and Pascagoula refineries. Those pressures were partly offset by roughly $1 billion of asset-sale gains in the Benelux region and a $680 million gain on the sale of the Dynegy stake. The company is investing heavily for growth.
Total 2007 capital and exploratory expenditures were $20.0 billionc, 78% of it upstream, and 2008 spending is budgeted at $22.9 billion, 15% higher. Major projects include the Tahiti and Blind Faith deepwater Gulf of Mexico fields, the Angola LNG plant, the Gorgon LNG project in Australia, Tengizchevroil's expansion in Kazakhstan, and the Piceance tight-gas development. Production was roughly flat, with 2007 oil-equivalent output of 2.59 million barrels per day including affiliates, and 2008 is guided to about 2.65 million.
Proved reserves declined to 7.9 billion barrels of consolidated oil-equivalent reserves from 8.6 billion, partly because of higher year-end prices affecting production-sharing and variable-royalty contracts. Capital returns and balance sheet strength stand out. Chevron paid $4.8 billiond in dividends, raised the quarterly dividend 11.5% to $0.58, and bought back $7.0 billion of stock, with a new $15 billion repurchase authorization over up to three years.
Total debt fell to $7.2 billion from $9.8 billion, and the debt-to-capital ratio dropped to 8.6% from 12.5%. Key risks include crude price volatility, exposure to OPEC-member countries (28% of net proved reserves), concentration in Kazakhstan (26% of proved reserves), rising greenhouse-gas regulation, and an unresolved MTBE litigation exposure that could be material to net income in any single period.
02—Key points
Key Highlights
- Net income rose 9% to $18.7 billion in 2007; diluted EPS was $8.77 versus $7.80 in 2006, with return on average stockholders' equity of 25.6%.
- Upstream income reached $14.8 billion (international $10.3 billion, U.S. $4.5 billion), while downstream income fell to $3.5 billion from $4.0 billion due to weaker U.S. refining margins and refinery downtime.
- Capital and exploratory spending was $20.0 billion in 2007 (78% upstream), with 2008 budgeted at $22.9 billion, 15% higher, including major deepwater, LNG and Kazakhstan projects.
- Shareholder returns were strong: $4.8 billion in dividends, a 11.5% dividend increase to $0.58 per quarter, $7.0 billion in share repurchases, and a new $15 billion buyback authorization.
- The balance sheet strengthened, with total debt falling to $7.2 billion from $9.8 billion and the debt-to-total-capitalization ratio falling to 8.6% from 12.5%; operating cash flow was $25.0 billion.
- Proved consolidated reserves declined to 7.9 billion oil-equivalent barrels from 8.6 billion, and 2007 oil-equivalent production was 2.59 million barrels per day, with 2008 guidance of about 2.65 million.
- Material risks include commodity price exposure, 28% of net proved reserves in OPEC countries, 26% in Kazakhstan, new greenhouse-gas regulation, and MTBE litigation that could be material to net income in a given period.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-K/AFY2007filed March 27, 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, driven mainly by higher crude oil and natural gas prices in upstream operations, where international income rose $1.4 billion. Results also included about $2.7 billion of other income, mostly from asset sales including Dynegy and Benelux downstream assets. Partly offsetting this, downstream earnings fell because of weaker U.S. refining margins and planned and unplanned refinery downtime.
Is Chevron's capital spending plan for 2008 expected to grow, and where will the money go?
Yes. Management estimates 2008 capital and exploratory expenditures of $22.9 billion, 15% above 2007's $20.0 billion, including $2.6 billion from affiliates. About $17.5 billion is for exploration and production, with $12.7 billion of that outside the United States. Key targets include deepwater Gulf of Mexico and West African exploration, development in Angola, Australia, Brazil, Indonesia, Kazakhstan, Nigeria and Thailand, the Piceance Basin, and an Athabasca oil sands project in Canada.
How much is Chevron returning to shareholders and is the dividend secure?
Chevron paid about $4.8 billion in common dividends in 2007 and increased its quarterly dividend 11.5% to $0.58 per share in April 2007, its 20th consecutive annual increase. It also bought about $4.9 billion of stock under a completed $5 billion program and had repurchased $2.1 billion under a new $15 billion program authorized in September 2007, to be executed over up to three years. Management says the company has substantial borrowing capacity and can adjust spending to maintain the dividend during low-price periods.
What are the main risks to Chevron's future results disclosed in this filing?
The filing highlights crude oil price volatility as the single largest factor affecting results, and the company generally does not hedge this exposure outside normal integrated operations. Other risks include depletion of reserves if new projects are not developed, geopolitical exposure (26% of proved reserves in Kazakhstan and 28% of net proved reserves in OPEC member countries), potential climate-change regulation that could raise costs or reduce product demand, and litigation including MTBE lawsuits whose ultimate exposure is not determinable and could be material to net income in any one period.
Why did proved reserves decline in 2007 and what does that mean for the outlook?
Consolidated proved oil-equivalent reserves fell to 7.9 billion barrels from 8.6 billion at year-end 2006. Much of the decline reflects higher year-end prices reducing reserves under production-sharing and variable-royalty contracts, along with the conversion of Venezuelan operating service agreements into joint-stock companies, which moved related reserves to equity affiliates. Chevron's reserve life and project pipeline remain substantial, but investors should note that several large projects, including Gorgon and Greater Gorgon, have no proved reserves booked yet and depend on securing LNG sales agreements and government approvals.
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