01—Abstract
Summary
Summary of the 10-K filed February 26, 2009. Cited figures are marked; the original filing is the authoritative source.
Chevron's 2008 Form 10-K (filed February 26, 2009) reports a year of record-level earnings driven by the commodity price cycle.
Net income rose 28% to $23.9 billiona (diluted EPS $11.67, up from $8.77), on operating revenues of $265.0 billion (up 24%). Upstream income reached $21.7 billion, up roughly 47%, with international upstream contributing $14.6 billion. Average WTI crude started 2008 at $96, peaked at $147 in early July, and closed the year near $45, averaging $100 for the full year versus $72 in 2007.
Downstream income was steady at $3.4 billion, while chemicals fell sharply to $182 millionb from $396 million, and 'All Other' posted a $1.4 billion net charge. The report also flags a deteriorating outlook. Worldwide oil-equivalent production declined about 3% to 2.53 million barrels per day, mainly due to Gulf of Mexico hurricane damage and higher prices reducing volumes under production-sharing and variable-royalty contracts.
Management projects 2009 production of about 2.63 million barrels per day, subject to OPEC quotas that cut output by 4.2 million barrels per day effective January 2009. Capital and exploratory spending for 2009 is budgeted at $22.8 billionc, flat with 2008, with about three-fourths directed to upstream. Proved reserves stood at 7.9 billion barrels of oil-equivalent for consolidated companies, with another 3.3 billion barrels held by affiliates, and the company repurchased $8.0 billion of stock in 2008 under a $15 billion program.
The key investor risks are the sensitivity of earnings to commodity prices, a large unresolved Ecuador environmental lawsuit in which a court-appointed engineer's revised report sought $18.9 billiond in damages plus $8.4 billion in unjust enrichment, and substantial pension and retiree obligations. The company's balance sheet remained strong, with debt rising to $8.9 billion (debt ratio 9.3%) and interest coverage of 166.9x. Cash from operations was $29.6 billion, enough to cover capital spending, $5.2 billion in dividends, and buybacks, though buybacks were suspended in early 2009.
02—Key points
Key Highlights
- Net income rose 28% to $23.9 billion (diluted EPS $11.67 vs. $8.77), driven by higher crude oil and natural gas prices.
- Upstream income reached $21.7 billion (up about 47%), with international operations contributing $14.6 billion of that total.
- Downstream earnings held at $3.4 billion, but chemicals income fell to $182 million from $396 million.
- Worldwide net oil-equivalent production declined about 3% to 2.53 million barrels per day, due to Gulf of Mexico hurricane damage and price-driven contract volume reductions; 2009 guidance is 2.63 million barrels per day.
- Proved reserves totaled 7.9 billion barrels of oil-equivalent for consolidated companies, plus 3.3 billion barrels for affiliates; about 82% of affiliate reserves are tied to the Tengiz field in Kazakhstan.
- Cash from operations was $29.6 billion, supporting $22.8 billion of 2008 capital and exploratory spending, $5.2 billion in dividends, and $8.0 billion in share repurchases; the dividend was raised 12.1% to $0.65 per quarter.
- Major legal exposure remains in Ecuador, where a court-appointed engineer's revised report recommends $18.9 billion in damages and $8.4 billion for unjust enrichment, which Chevron disputes and says cannot support a reasonable loss estimate.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 26, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $273.00B$220.90B | +23.6% |
| R&D Expenses | $702.00M— | — |
| SG&A Expenses | $5.76B$5.93B | −2.9% |
| Operating Expenses | $229.95B$188.63B | +21.9% |
| Interest Expense | $0$166.00M | −100.0% |
| Net Income | $23.93B$18.69B | +28.1% |
| EPS (Basic) | $11.74$8.83 | +33.0% |
| EPS (Diluted) | $11.67$8.77 | +33.1% |
| Shares Outstanding (Basic) | 2.04B— | — |
| Shares Outstanding (Diluted) | 2.05B— | — |
05—Questions
Frequently Asked Questions
How did Chevron's 2008 earnings and revenues compare with 2007?
Net income rose to $23.9 billion from $18.7 billion, and diluted EPS rose to $11.67 from $8.77. Sales and other operating revenues grew to $265.0 billion from $214.1 billion, mainly on higher prices for crude oil, natural gas and refined products. Upstream was the main driver, while chemicals earnings fell and the 'All Other' segment took a $1.4 billion net charge.
What is the outlook for production and capital spending?
Chevron expects 2009 average oil-equivalent production of about 2.63 million barrels per day, up from 2.53 million in 2008, but this estimate depends on OPEC quotas, project start-up timing and price-linked contract effects. Capital and exploratory spending is budgeted at $22.8 billion for 2009, including $1.8 billion from affiliates, with about $17.5 billion going to upstream and $13.9 billion of that spent outside the United States.
What are the main risks highlighted in the filing?
The filing emphasizes commodity price volatility, since crude oil is the largest driver of results and prices fell sharply from a mid-2008 peak. Other risks include reserve replacement, operational disruptions from hurricanes and political instability, with 29% of net proved reserves located in Kazakhstan and about 23% in OPEC countries. Greenhouse gas regulation and the Ecuador litigation are also significant.
How strong is Chevron's balance sheet and cash position?
Total debt and capital lease obligations were $8.9 billion at year-end 2008, up from $7.2 billion, and the debt ratio rose to 9.3% from 8.6%. Interest coverage was 166.9x, and cash plus marketable securities totaled $9.6 billion. The company had $5 billion of committed credit facilities, none drawn at year-end, and carried AA/Aa1 ratings on its public bonds. Total stockholders' equity reached $86.6 billion.
What is the Ecuador lawsuit and how material could it be?
The lawsuit, filed in Ecuador in 2003, seeks environmental remediation and damages tied to former Texaco operations. In November 2008 the court-appointed engineer revised his report to recommend $18.9 billion in compensation and $8.4 billion for unjust enrichment. Chevron argues the court lacks jurisdiction, the claims are time-barred, Texpet was released from liability, and the report is defective. Management says it cannot estimate a reasonably possible loss, so no reserve has been recorded.
06—Continue