01—Abstract
Summary
Summary of the 10-K filed February 24, 2011. Cited figures are marked; the original filing is the authoritative source.
Chevron's FY2010 10-K (filed February 24, 2011) reports a strong recovery year: net income attributable to Chevron of $19.0 billiona ($9.48 diluted EPS), up from $10.5 billion in 2009 and roughly 20% below 2008's record $23.9 billion.
Sales and other operating revenues rose to $198.2 billionb from $167.4 billion, driven mainly by higher crude oil, natural gas and refined product prices (WTI averaged $79/bbl versus $62 in 2009). Upstream earnings were $17.7 billion, with international upstream contributing $13.6 billion, while downstream earnings recovered to $2.5 billion, aided by better refining margins and a $400 million gain on the Colonial Pipeline sale. Return on capital employed was 17.4% and return on stockholders' equity 19.3%.
Capital discipline and shareholder returns remained central. Total 2010 capital and exploratory spending was $21.8 billionc (87% upstream), and 2011 is budgeted at $26.0 billion, with about 85% for exploration and production. Operating cash flow of $31.4 billion covered that program, $5.7 billion of dividends and $750 million of buybacks.
The quarterly dividend rose 5.9% to $0.72d, and the company replaced its $15 billion repurchase program with an open-ended program targeting $500 million to $1 billion per quarter. Total debt was $11.5 billion, the debt ratio fell to 9.8%, and the company remains rated AA/Aa1. Production averaged 2.763 million barrels of oil equivalent per day in 2010 and is guided to about 2.790 million in 2011.
The company also agreed to acquire Atlas Energy for $4.47 billion, adding Marcellus and Utica shale acreage. The principal investor risk flagged in the filing is the Lago Agrio litigation in Ecuador. On February 14, 2011, a provincial court entered a judgment of roughly $8.6 billion in damages, about $0.9 billion for plaintiffs' representatives, and a further $8.6 billion in punitive damages unless Chevron issues a public apology.
Chevron calls the judgment illegitimate and unenforceable, is appealing, and has obtained interim arbitration measures against Ecuador. Management says it cannot estimate a reasonably possible loss. Other risks include commodity price volatility, the Gulf of Mexico drilling moratorium's effect on output, and greenhouse gas regulation.
02—Key points
Key Highlights
- Net income attributable to Chevron of $19.0 billion in 2010 (diluted EPS $9.48), up 82% from $10.5 billion in 2009 but below 2008's $23.9 billion.
- Revenue rose to $198.2 billion from $167.4 billion, driven by higher crude oil, natural gas and refined product prices; upstream earned $17.7 billion, and downstream recovered to $2.5 billion.
- 2011 capital and exploratory budget of $26.0 billion (about 85% for exploration and production), up from $21.8 billion in 2010, with about $17.2 billion of the upstream spend outside the United States.
- Operating cash flow of $31.4 billion funded capex, $5.7 billion of dividends and $750 million of buybacks; the dividend increased 5.9% to $0.72 per quarter, extending a 23-year streak of annual increases.
- Balance sheet remains strong: total debt of $11.5 billion, debt ratio of 9.8%, AA/Aa1 ratings, and $6.0 billion of undrawn committed credit facilities.
- Production averaged 2.763 million barrels of oil equivalent per day in 2010 (up about 2%), with 2011 guidance of about 2.790 million; proved reserves were 7.7 billion BOE at year-end 2010 (consolidated companies).
- Material legal exposure in Ecuador: the February 14, 2011 Lago Agrio judgment assesses about $8.6 billion in damages plus a similar amount in punitive damages; Chevron is appealing and management cannot estimate a reasonably possible loss.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 24, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $204.93B$171.64B | +19.4% |
| R&D Expenses | $526.00M$603.00M | −12.8% |
| SG&A Expenses | $4.77B$4.53B | +5.3% |
| Operating Expenses | $172.87B$153.11B | +12.9% |
| Interest Expense | $50.00M$28.00M | +78.6% |
| Net Income | $19.02B$10.48B | +81.5% |
| EPS (Basic) | $9.53$5.26 | +81.2% |
| EPS (Diluted) | $9.48$5.24 | +80.9% |
| Shares Outstanding (Basic) | 2.00B1.99B | +0.3% |
| Shares Outstanding (Diluted) | 2.01B2.00B | +0.3% |
05—Questions
Frequently Asked Questions
How did Chevron's 2010 earnings compare with prior years, and what drove the change?
Net income attributable to Chevron was $19.0 billion in 2010, up from $10.5 billion in 2009 but down from $23.9 billion in 2008. The improvement was driven mainly by higher crude oil and natural gas prices (WTI averaged $79 per barrel versus $62 in 2009), higher production from new projects such as Tengiz and Tahiti, and better downstream refining margins. International upstream contributed $13.6 billion of the total.
What is Chevron's capital spending plan for 2011?
The company estimates 2011 capital and exploratory expenditures of $26.0 billion, including $2.0 billion from affiliates. About $22.6 billion (85%) is for exploration and production, with $17.2 billion of that outside the United States. Major projects include Gorgon and Wheatstone in Australia, Angola, Nigeria, Brazil, the Gulf of Mexico and Canada. The Atlas Energy acquisition, at $4.47 billion, is not included in this budget.
How much is Chevron returning to shareholders, and is the program changing?
In 2010 Chevron paid $5.7 billion in dividends and repurchased $750 million of stock. The quarterly dividend rose 5.9% to $0.72 per share in April 2010. The company terminated its $15 billion buyback program in July 2010 and replaced it with an open-ended program with no set term or monetary limit, under which it expects to repurchase $500 million to $1 billion per quarter at prevailing prices.
What is the Ecuador litigation, and how much could it cost Chevron?
The Lago Agrio case, brought by plaintiffs claiming environmental damage from operations of a consortium in which Texaco Petroleum (Texpet) was a minority partner until 1992, produced an adverse Provincial Court judgment on February 14, 2011. It assesses about $8.6 billion in damages, about $0.9 billion for plaintiffs' representatives, and a further $8.6 billion in punitive damages unless Chevron issues a public apology. Chevron calls the judgment illegitimate and fraudulent, is appealing, and says enforcement would likely be pursued in other countries, since it has no substantial assets in Ecuador. Management says it cannot estimate a reasonably possible loss. Chevron has also filed an arbitration claim under the US-Ecuador investment treaty, which yielded an interim order on February 9, 2011.
What did Chevron acquire in February 2011, and why does it matter?
Chevron completed the acquisition of Atlas Energy, Inc. for $4.47 billion including assumed debt. Atlas holds about 850,000 acres of Marcellus and Utica shale in the Appalachian Basin, primarily in southwestern Pennsylvania, plus a 49% interest in Laurel Mountain Midstream and Antrim Shale assets in Michigan. The deal supports the company's strategy of commercializing its natural gas resource base and growing its global gas business.
06—Continue