01—Abstract
Summary
Summary of the 10-K filed February 20, 2015. Cited figures are marked; the original filing is the authoritative source.
Chevron's FY2014 10-K shows a year of earnings decline driven by a sharp fall in crude prices in the second half of 2014.
Net income attributable to Chevron fell to $19.2 billiona ($10.14 diluted EPS) from $21.4 billion ($11.09) in 2013, and sales and other operating revenues dropped to $200.5 billion from $220.2 billion. Upstream earnings fell 19% to $16.9 billion, with international upstream down $3.2 billion to $13.6 billion, while downstream rose to $4.3 billion, helped by $1.6 billion of gains on asset sales and higher refining margins in the U.S. Management states that Brent averaged $99/bbl in 2014 versus $109 in 2013 but had fallen to $60 by mid-February 2015, and warns that a prolonged low-price environment could lead to further spending cuts, asset sales and reduced production. The company responded defensively.
Capital and exploratory spending for 2014 was $40.3 billion, and the 2015 budget was cut to $35.0 billionb. Management suspended its share repurchase program for 2015 after buying $5.0 billion of stock in 2014, and it raised the quarterly dividend 7% to $1.07 per share, marking the 27th consecutive annual increase. Total debt rose to $27.8 billion from $20.4 billion, which pushed the debt ratio to 15.2% from 12.1% and reduced the interest coverage ratio to 87.2x from 126.2x.
Cash and equivalents fell to $13.2 billionc. Operating cash flow of $31.5 billion still covered the $7.9 billion dividend, and the company reports that its credit ratings remain AA (S&P) and Aa1 (Moody's). Longer-term, Chevron's pipeline of major projects is central to its growth outlook.
Gorgon LNG (88% complete, first train expected Q3 2015), Wheatstone LNG, Big Foot, Jack/St. Malo, Chirag, and Angola's Mafumeira Sul are all scheduled to start up in 2015–2017, and management guides 2015 oil-equivalent production to flat to 3% growth versus 2014's 2.571 million barrels per day. Proved reserves fell 1% to 11.1 billion barrels of oil equivalent, with a reserve replacement ratio of 89%. Ongoing risks include the Ecuador Lago Agrio litigation, where a judgment of about $9.5 billiond remains under appeal and enforcement actions are pending in several countries, along with environmental matters at the Richmond refinery and in Pennsylvania.
02—Key points
Key Highlights
- Net income attributable to Chevron fell 10% to $19.2 billion ($10.14 diluted EPS) from $21.4 billion in 2013, as lower crude prices reduced international upstream earnings by $3.2 billion.
- Downstream earnings nearly doubled to $4.3 billion, driven by higher U.S. refining margins, $960 million of U.S. asset-sale gains, and a favorable $640 million swing in international derivative effects.
- Total debt and capital lease obligations rose 36% to $27.8 billion, pushing the debt ratio to 15.2% from 12.1% and the interest coverage ratio down to 87.2x from 126.2x.
- 2015 capital and exploratory budget was cut to $35.0 billion (from $40.3 billion in 2014), and the 2015 share repurchase program was suspended after $5.0 billion of buybacks in 2014.
- Quarterly dividend raised 7% to $1.07 per share (annual $4.21 in 2014), extending the company's record of 27 consecutive annual dividend increases.
- Worldwide oil-equivalent production averaged 2.571 million barrels per day in 2014 (down 1%), with 2015 guidance of flat to 3% growth from new projects including Gorgon, Wheatstone, Big Foot, and Jack/St. Malo.
- Net proved reserves declined 1% to 11.1 billion barrels of oil equivalent, with a reserve replacement ratio of 89%; the Ecuador Lago Agrio judgment (about $9.5 billion) remains under appeal and enforcement actions continue.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 20, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $211.97B$228.85B | −7.4% |
| R&D Expenses | $707.00M$750.00M | −5.7% |
| SG&A Expenses | $4.49B$4.51B | −0.4% |
| Operating Expenses | $180.77B$192.94B | −6.3% |
| Interest Expense | $0$0 | — |
| Net Income | $19.24B$21.42B | −10.2% |
| EPS (Basic) | $10.21$11.18 | −8.7% |
| EPS (Diluted) | $10.14$11.09 | −8.6% |
| Shares Outstanding (Basic) | 1.88B1.92B | −1.7% |
| Shares Outstanding (Diluted) | 1.90B1.93B | −1.8% |
05—Questions
Frequently Asked Questions
How did the drop in oil prices affect Chevron's 2014 results?
Brent averaged $99/bbl in 2014 versus $109 in 2013, and fell to about $60 by mid-February 2015. Lower crude prices reduced upstream earnings: U.S. upstream earnings fell to $3.3 billion from $4.0 billion, and international upstream earnings fell to $13.6 billion from $16.8 billion. Total net income declined about 10% to $19.2 billion. Management warns that prolonged low prices could lead to further spending cuts, additional asset sales and lower production.
Is Chevron's dividend at risk after the price decline?
The dividend was increased 7% in April 2014 and management has said it can modify capital spending to continue paying the common stock dividend. Dividends paid totaled $7.9 billion in 2014, against operating cash flow of $31.5 billion. The company's AA (S&P) and Aa1 (Moody's) ratings and its substantial borrowing capacity are cited as support. Nonetheless, debt rose $7.4 billion in 2014, so the balance sheet is less conservative than in prior years.
Why did Chevron's debt increase so much in 2014?
Total debt and capital lease obligations increased to $27.8 billion from $20.4 billion, mainly to fund the capital program, which included several large projects in construction. The company issued a $4 billion bond in November 2014, partly to take advantage of historically low interest rates. Of total short-term obligations, $8.0 billion is classified as long-term because management intends to refinance it under committed credit facilities.
What are the main growth projects and production expectations for 2015?
Key projects include Gorgon LNG in Australia (88% complete, first train expected Q3 2015), Wheatstone LNG (first train expected late 2016), Big Foot and Jack/St. Malo in the Gulf of Mexico, Chirag Oil in Azerbaijan, Mafumeira Sul in Angola (2016), and Hebron in Canada (2017). Management estimates 2015 worldwide oil-equivalent production will be flat to 3% above 2014 levels, subject to factors including OPEC quotas, project timing, and the duration of the low-price environment.
What legal and regulatory risks should investors watch?
The most significant matter is the Ecuador Lago Agrio litigation. The Ecuadorian national court ratified a judgment of $9.5 billion against Chevron, which is under appeal to Ecuador's Constitutional Court, and the plaintiffs are pursuing enforcement in Canada, Brazil and Argentina. Chevron says it has no assets in Ecuador and considers the judgment fraudulent, and it has an arbitration claim against Ecuador under the bilateral investment treaty. Management says it cannot estimate a reasonably possible loss. Other items include EPA findings related to the 2012 Richmond refinery fire, and a Pennsylvania notice of violation regarding a February 2014 well fire.
06—Continue