01—Abstract
Summary
Summary of the 10-K filed February 25, 2010. Cited figures are marked; the original filing is the authoritative source.
Chevron's FY2009 Form 10-K (filed February 25, 2010) shows a sharp earnings decline from the 2008 peak, driven by lower commodity prices, while the company maintained its financial strength and continued to invest heavily in upstream growth.
Net income attributable to Chevron fell to $10.5 billiona in 2009 from $23.9 billion in 2008, and diluted EPS dropped to $5.24 from $11.67. Sales and other operating revenues declined to $167.4 billion from $265.0 billion. Upstream earnings fell to $10.4 billion (U.S. $2.2 billion, international $8.2 billion), while downstream earnings collapsed, with U.S. downstream posting a $273 million loss.
Operating cash flow was $19.4 billionb versus $29.6 billion in 2008, and the company still covered its capital program and dividends, which were raised 4.6% to $0.68 per quarter. Management is positioning for growth. Total 2009 capital and exploratory expenditures were $22.2 billion, about three-quarters of which went to upstream, and the 2010 budget is $21.6 billion, with roughly 80% for exploration and production.
Average worldwide oil-equivalent production rose about 7%c to 2.7 million barrels per day, and management guides to about 2.73 million barrels per day in 2010. Key project starts include Tahiti, Agbami, Gorgon (LNG, final investment decision taken in 2009), Frade, and Usan, along with the Perdido host facility expected in 2010. Management also announced a downstream restructuring, including exits from some markets such as the mid-Atlantic and eastern U.S. branded fuel sales by mid-2010, which may produce future gains or losses.
Key risks include commodity price volatility, exposure to OPEC production quotas and political instability (26% of net proved reserves are in Kazakhstan, and 22% are in OPEC countries), climate-related regulation, and a large uncertain legal exposure in Ecuador, where the plaintiffs' engineer recommended damages of $18.9 billiond plus $8.4 billion for unjust enrichment. Chevron states it believes the lawsuit lacks merit and that no reasonably possible loss estimate can be made. Balance sheet metrics remain strong, with a current ratio of 1.4, total debt of $10.5 billion, and an AA/Aa1 credit rating, although debt rose by $1.6 billion after a $5 billion bond issuance in 2009.
02—Key points
Key Highlights
- Net income attributable to Chevron fell 56% to $10.5 billion in 2009 (from $23.9 billion), and diluted EPS declined to $5.24 from $11.67, reflecting lower crude oil realizations (WTI averaged $62/bbl vs. $100 in 2008).
- Sales and other operating revenues dropped 37% to $167.4 billion, while the upstream segment remained the main earnings engine at $10.4 billion, of which international operations contributed $8.2 billion.
- U.S. downstream reported a $273 million loss in 2009 as refined-product margins weakened, prompting a downstream restructuring and planned market exits, including discontinuing branded fuel sales in the mid-Atlantic and eastern states by mid-2010.
- Capital and exploratory spending was $22.2 billion in 2009 and is budgeted at $21.6 billion for 2010, with about 80% directed to exploration and production and major projects including Gorgon, Wheatstone, Usan, and Papa-Terra.
- Worldwide net oil-equivalent production increased about 7% to 2.7 million barrels per day in 2009, with 2010 guidance of approximately 2.73 million barrels per day.
- The company raised its quarterly dividend 4.6% to $0.68 per share (annual cash dividends of $2.66) and marked its 22nd consecutive year of annual dividend increases, though no shares were repurchased in 2009 under the $15 billion program.
- The Ecuador litigation remains a material contingent exposure, with a court-appointed engineer's revised report seeking $18.9 billion in damages plus $8.4 billion for unjust enrichment, though Chevron contends the claims lack merit and no reasonable loss estimate is possible.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 25, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $171.64B$273.00B | −37.1% |
| R&D Expenses | $603.00M$702.00M | −14.1% |
| SG&A Expenses | $4.53B$5.76B | −21.4% |
| Operating Expenses | $153.11B$229.95B | −33.4% |
| Interest Expense | $28.00M$0 | — |
| Net Income | $10.48B$23.93B | −56.2% |
| EPS (Basic) | $5.26$11.74 | −55.2% |
| EPS (Diluted) | $5.24$11.67 | −55.1% |
| Shares Outstanding (Basic) | 1.99B2.04B | −2.3% |
| Shares Outstanding (Diluted) | 2.00B2.05B | −2.4% |
05—Questions
Frequently Asked Questions
Why did Chevron's earnings fall so sharply in 2009?
The primary driver was lower commodity prices. WTI averaged about $62 per barrel in 2009 versus $100 in 2008, and U.S. natural gas realizations fell from $7.90 to $3.73 per thousand cubic feet. Upstream earnings declined by more than half, and downstream earnings were hurt by weak refining and marketing margins, with the U.S. downstream segment posting a loss. Partially offsetting these effects were higher production volumes and asset-sale gains.
How is Chevron's balance sheet and liquidity position?
Chevron remained financially strong. Total debt and capital lease obligations rose to $10.5 billion from $8.9 billion after a $5 billion public bond issuance, while the debt ratio increased to 10.3%. Cash and marketable securities totaled $8.8 billion, the current ratio was 1.4, and the company held $5.1 billion in undrawn committed credit facilities. Its debts are rated AA by S&P and Aa1 by Moody's. Operating cash flow of $19.4 billion covered capital spending and dividends of about $5.3 billion.
What are the main growth drivers and production outlook?
Growth is expected from major deepwater and international projects, including the Tahiti field in the U.S. Gulf of Mexico, the Agbami field in Nigeria, the Gorgon LNG project in Australia (first production expected in 2014), the Frade field in Brazil, and the Usan project in Nigeria. Chevron expects 2010 worldwide oil-equivalent production of about 2.73 million barrels per day, up modestly from 2.70 million in 2009, though results depend on OPEC quotas, project start-up timing, and fiscal terms.
What are the most significant risks disclosed in the filing?
Key risks include volatility in crude oil and natural gas prices, OPEC production quotas, political instability (26% of net proved reserves are in Kazakhstan and about 22% are in OPEC member countries), greenhouse gas regulation that could raise costs or reduce product demand, and environmental and litigation liabilities. The Ecuador lawsuit and MTBE-related litigation (50 pending cases) also carry uncertain financial outcomes that could be material to net income in a given period.
Is Chevron continuing its share buyback and dividend policy?
The dividend policy remained intact, with the quarterly dividend raised 4.6% to $0.68 per share in July 2009. However, the company did not repurchase any shares in 2009 under its $15 billion program, which was authorized in 2007 and expires in September 2010. As of year-end 2009, about 119 million shares had been acquired under the program for $10.1 billion, and management did not plan to repurchase shares in the first quarter of 2010.
06—Continue