01—Abstract
Summary
Summary of the 10-K filed February 21, 2014. Cited figures are marked; the original filing is the authoritative source.
Chevron's 2013 Form 10-K shows a company whose earnings fell while its investment program grew sharply.
Net income attributable to Chevron was $21.4 billiona in 2013, down 18% from $26.2 billion in 2012 and $26.9 billion in 2011. Diluted EPS was $11.09, versus $13.32 in 2012. The decline was driven by lower U.S. downstream margins, the absence of 2012 asset-sale gains (about $4.2 billion pre-tax in 2012 versus $710 million in 2013), and higher operating and exploration expenses.
Revenue fell to $220.2 billionb from $230.6 billion, mainly on lower refined product prices and lower crude volumes. Brent averaged $109 per barrel in 2013, down from $112 in 2012, and the U.S. Henry Hub gas price rose to $3.70 per MCF from $2.71. Capital spending rose to $41.9 billion in 2013 from $34.2 billion in 2012, with 90% directed to upstream.
Management guides 2014 capital and exploratory spending to $39.8 billionc, about 78% of the upstream portion outside the U.S., and expects 2014 production of about 2.61 million barrels of oil equivalent per day, roughly flat with 2013. Much of the spending is on long-cycle LNG and deepwater projects, including Gorgon and Wheatstone in Australia and Angola LNG. Free cash flow was constrained: operating cash flow of $35.0 billion did not cover capex plus dividends and buybacks.
To fund the gap, total debt rose to $20.4 billiond from $12.2 billion, after a $6 billion bond issuance in June 2013. The debt ratio rose to 12.1% from 8.2%. Dividends were raised 11.1% to $1.00 per quarter, and $5.0 billion of stock was repurchased in 2013.
The filing also flags several risks for investors. Ecuador litigation (a $9.5 billion judgment against Chevron, under appeal, with related enforcement actions in several countries) remains unresolved.
Brazil's Frade Field spill and the Richmond refinery fire have produced ongoing regulatory exposure, and the company describes its own insurance coverage as limited. Commodity price volatility, particularly crude oil, remains the largest single driver of results.
02—Key points
Key Highlights
- Net income attributable to Chevron fell 18% to $21.4 billion ($11.09 diluted EPS) from $26.2 billion in 2012, reflecting weaker U.S. downstream earnings ($787 million vs. $2.0 billion) and the absence of large 2012 asset-sale gains.
- Total 2013 capital and exploratory spending reached $41.9 billion (up 22% year over year), with 90% in upstream; 2014 guidance is $39.8 billion.
- Worldwide net oil-equivalent production was flat at 2.597 million barrels per day in 2013, and 2014 is guided to about 2.610 million barrels per day, supported by Tengizchevroil, Usan, and Gulf of Mexico ramp-ups.
- Total debt more than doubled-plus to $20.4 billion from $12.2 billion, lifting the debt ratio to 12.1% from 8.2%, while the company maintained AA / Aa1 credit ratings.
- Shareholder returns remained strong: the quarterly dividend was raised 11.1% to $1.00 per share (26th consecutive annual increase), and $5.0 billion was repurchased in 2013 under an ongoing program totaling $15 billion since 2010.
- Operating cash flow was $35.0 billion, down from $38.8 billion, and did not cover total capex plus dividends and buybacks in 2013, requiring the debt increase.
- Ecuador litigation remains open: a judgment of about $9.5 billion (after the National Court nullified a $8.6 billion punitive award) is under appeal, with enforcement actions in Canada, Brazil, and Argentina and a parallel arbitration against Ecuador.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 21, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $228.85B$241.91B | −5.4% |
| R&D Expenses | $750.00M$648.00M | +15.7% |
| SG&A Expenses | $4.51B$4.72B | −4.5% |
| Operating Expenses | $192.94B$195.58B | −1.3% |
| Interest Expense | $0$0 | — |
| Net Income | $21.42B$26.18B | −18.2% |
| EPS (Basic) | $11.18$13.42 | −16.7% |
| EPS (Diluted) | $11.09$13.32 | −16.7% |
| Shares Outstanding (Basic) | 1.92B1.95B | −1.7% |
| Shares Outstanding (Diluted) | 1.93B1.97B | −1.7% |
05—Questions
Frequently Asked Questions
Why did Chevron's 2013 earnings decline compared with 2012?
Net income attributable to Chevron fell to $21.4 billion from $26.2 billion. The main causes were lower U.S. downstream earnings ($787 million vs. $2.0 billion), driven by weaker refined product margins and $600 million of higher operating expenses from refinery maintenance, and the absence of 2012's large asset-sale gains (about $4.2 billion pre-tax in 2012 vs. $710 million in 2013). International upstream earnings also declined to $16.8 billion from $18.5 billion, reflecting lower crude prices and higher operating costs, partly offset by lower taxes.
Is Chevron's dividend secure, and how is it being funded?
The dividend was raised 11.1% in April 2013 to $1.00 per quarter ($3.90 annually), extending a 26-year streak of annual increases. Dividends paid were $7.5 billion in 2013. Because operating cash flow of $35.0 billion did not fully cover capex, dividends, and buybacks, the company relied on a $6 billion bond issue and higher short-term borrowing. Management said it can modify capital spending during extended periods of low prices to protect the dividend and its high credit ratings.
What is the outlook for Chevron's production and capital spending in 2014?
Management expects 2014 oil-equivalent production of about 2.610 million barrels per day, roughly flat with 2013's 2.597 million, based on a Brent price assumption of $109. Capital and exploratory spending is budgeted at $39.8 billion, including $4.8 billion from affiliates, with about $27.9 billion of upstream spending outside the U.S. Major projects include Gorgon and Wheatstone LNG in Australia, Jack/St. Malo and Big Foot in the Gulf of Mexico, Hebron in Canada, and Moho Nord in the Republic of the Congo, with first production from several of these expected in 2014–2017.
What are the biggest legal and regulatory risks disclosed?
The Ecuador litigation is the most significant: a provincial court judgment, later ratified at about $9.5 billion, is under appeal in Ecuador's Constitutional Court, and plaintiffs are seeking to enforce it in Canada, Brazil, and Argentina. Chevron disputes the judgment as fraudulent and is pursuing its own RICO case and a bilateral investment treaty arbitration. The company says it cannot estimate a reasonably possible loss. Other exposures include the August 2012 Richmond refinery fire (EPA finding of 62 alleged violations), the Frade Field spill in Brazil (criminal charges partly reinstated on appeal, with an exposure the company says could be significant), and various state air and fuel-quality enforcement actions. Chevron also states that it is largely self-insured for catastrophic operational losses.
How much exposure does Chevron have to commodity price swings?
Chevron states that crude oil price is the single largest variable affecting its results, and that it accepts commodity price risk as part of its planning. The Brent benchmark averaged $109 per barrel in 2013 (WTI averaged $98), and most of its equity crude is priced off Brent. Upstream earnings track industry prices closely, and downstream earnings depend on refining and chemicals margins. Derivative instruments are used to manage part of this exposure, but the company reports that their effect on 2013 results was not material. Management notes that during prolonged low-price periods it would reduce capital and exploratory spending and that impairments could follow.
06—Continue