01—Abstract
Summary
Summary of the 10-K filed February 25, 2016. Cited figures are marked; the original filing is the authoritative source.
Chevron's 2015 10-K shows a sharp earnings collapse driven by the oil price downturn.
Net income attributable to Chevron fell to $4.59 billiona ($2.45 diluted EPS) from $19.24 billion ($10.14) in 2014, and return on capital employed dropped to 2.5% from 10.9%. Brent averaged $52/bbl in 2015 versus $99 in 2014, and upstream swung to a $1.96 billion loss, with a $4.06 billion loss in the U.S. The effective tax rate fell to 3% from 38%, and roughly $3.5 billion of impairments hit oil and gas properties, largely in Brazil and the U.S. Downstream earnings nearly doubled to $7.6 billion, helped by a $1.6 billion gain on the Caltex Australia sale and stronger refined product margins. Balance sheet leverage rose meaningfully.
Total debt and capital lease obligations increased to $38.6 billionb from $27.8 billion, and the debt ratio climbed to 20.2% from 15.2%. Cash and marketable securities fell to $11.3 billion, and operating cash flow declined to $19.5 billion from $31.5 billion. Dividends paid were $8.0 billion, which exceeded operating cash flow in the year.
Management responded by cutting the 2016 capital and exploratory budget to $26.6 billionc from $34.0 billion, suspending share repurchases (none in 2015), and pursuing asset sales. The company still raised its dividend for the 28th consecutive year, to $4.28 per share. Operationally, worldwide oil-equivalent production rose 2% to 2.622 million barrels per day, and proved reserves were essentially flat at 11.2 billion barrels of oil equivalent (a 107% reserve replacement ratio).
Guidance for 2016 is flat to 4% production growth. Key risks include continued low crude prices, the Ecuador litigation (a judgment of roughly $9.5 billiond that Chevron disputes), the Partitioned Zone shut-in, and the credit rating downgrade by S&P to AA- in February 2016.
02—Key points
Key Highlights
- Net income attributable to Chevron fell 76% to $4.59 billion ($2.45 per diluted share) in 2015, from $19.24 billion ($10.14) in 2014; ROCE dropped to 2.5% from 10.9%.
- Upstream posted a $1.96 billion loss, including a $4.06 billion U.S. loss, reflecting realizations down sharply (U.S. liquids $42.70/bbl vs. $84.13 in 2014) and about $3.5 billion of impairments.
- Downstream earnings rose to $7.6 billion from $4.3 billion, supported by a $1.6 billion gain on the Caltex Australia sale and higher refined product margins.
- Total debt and capital lease obligations rose to $38.6 billion from $27.8 billion; the debt ratio increased to 20.2% from 15.2%, and S&P cut its rating to AA- in February 2016.
- Operating cash flow fell to $19.5 billion from $31.5 billion, while dividends paid ($8.0 billion) exceeded it; no shares were repurchased in 2015.
- The 2016 capital and exploratory budget was cut to $26.6 billion from $34.0 billion, and 2016 production guidance is flat to 4% growth.
- Proved reserves were 11.2 billion BOE (up 1%) with a 107% reserve replacement ratio; the dividend was raised to $4.28 per share, the 28th consecutive annual increase.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 25, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $138.48B$211.97B | −34.7% |
| R&D Expenses | $601.00M$707.00M | −15.0% |
| SG&A Expenses | $4.44B$4.49B | −1.1% |
| Operating Expenses | $133.63B$180.77B | −26.1% |
| Interest Expense | $0$0 | — |
| Net Income | $4.59B$19.24B | −76.2% |
| EPS (Basic) | $2.46$10.21 | −75.9% |
| EPS (Diluted) | $2.45$10.14 | −75.8% |
| Shares Outstanding (Basic) | 1.87B1.88B | −0.8% |
| Shares Outstanding (Diluted) | 1.88B1.90B | −1.2% |
05—Questions
Frequently Asked Questions
Why did Chevron's earnings decline so sharply in 2015?
The primary driver was the collapse in crude oil prices. Brent averaged $52/bbl in 2015 versus $99 in 2014, and U.S. and international upstream realizations fell by about $10 billion and $4.9 billion, respectively. Impairments of roughly $3.5 billion and higher exploration write-offs compounded the decline, and the effective tax rate dropped to 3%.
Is Chevron's dividend at risk given lower earnings and higher debt?
The dividend was raised to $4.28 per share for 2015, but dividends paid ($8.0 billion) exceeded 2015 operating cash flow ($19.5 billion) after capital spending. Management states it can modify capital spending to maintain the dividend and high credit ratings, and it has cut the 2016 capital budget to $26.6 billion. Continued low prices would pressure this balance, as the company notes in its risk factors.
How is Chevron responding to the low oil price environment?
Management is reducing operating expenses, including workforce reductions; cutting 2016 capital and exploratory spending by about 22%; suspending share repurchases (none in 2015); pursuing asset sales (including Caltex Australia, New Zealand, and Hawaii refinery divestment efforts); and deferring projects such as Bibiyana Compression, Captain EOR, and Rosebank pending improved economics.
What are the main legal and operational risks disclosed in this filing?
The Ecuador Lago Agrio litigation remains significant: the Ecuadorian court ordered damages of about $9.5 billion, which Chevron is appealing and contesting, and it is pursuing enforcement challenges abroad. Other risks include the Partitioned Zone shut-in between Saudi Arabia and Kuwait (production was 28,000 boe/d in 2015), potential greenhouse gas regulation, self-insurance for catastrophic losses, and EPA findings at the Richmond, California refinery. The company says it cannot estimate a reasonably possible loss for Ecuador.
What growth projects should investors watch in the near term?
Key 2016–2017 milestones include first LNG cargo from the Gorgon project (expected March 2016, with Trains 2 and 3 following at roughly six-month intervals), first LNG from Angola LNG (second quarter 2016), Mafumeira Sul and Alder first production (2016), Wheatstone first LNG train (mid-2017), Hebron first oil (2017), and Clair Ridge (2017). Gorgon and Wheatstone are expected to support long-term LNG supply with about 85% of equity offtake targeted for binding contracts.
06—Continue