10-QPeriod: Q1 FY2007

CHEVRON CORP Quarterly Report for Q1 Ended Mar 31, 2007

Filed May 4, 2007For Securities:CVX

Summary

Chevron Corporation's first quarter 2007 results showed a notable increase in net income, rising to $4.715 billion ($2.18 per diluted share) from $3.996 billion ($1.80 per diluted share) in the same period of 2006. This growth was primarily driven by a significant rebound in the downstream segment, which reported earnings of $1.623 billion, a substantial improvement from $580 million in the prior year. This surge was largely attributable to a $700 million gain from the sale of the company's interest in refining assets in the Netherlands. However, the upstream segment experienced a decline in earnings, falling to $2.907 billion from $3.458 billion year-over-year. This was mainly due to lower average crude oil and natural gas prices, alongside increased operating and depreciation expenses. The company also highlighted ongoing cost pressures across its segments, which are exceeding general inflation trends. Despite these upstream challenges, Chevron's robust financial performance, strong cash generation, and commitment to returning capital to shareholders through dividends and share repurchases position it favorably.

Key Highlights

  • 1Net income increased by 17.9% to $4.715 billion in Q1 2007, compared to $3.996 billion in Q1 2006.
  • 2Diluted earnings per share rose to $2.18 from $1.80 year-over-year.
  • 3The downstream segment saw a significant earnings increase to $1.623 billion, boosted by a $700 million gain from asset sales.
  • 4Upstream segment earnings decreased to $2.907 billion, impacted by lower commodity prices and higher operating costs.
  • 5Total capital and exploratory expenditures increased to $4.1 billion from $3.0 billion in the prior year's quarter.
  • 6Chevron paid $1.1 billion in dividends and repurchased approximately $1.25 billion in common shares during the quarter.
  • 7The company adopted new accounting standards, including FIN 48 for uncertainty in income taxes, which resulted in a $34 million reduction in retained earnings.

Frequently Asked Questions

Chevron's net income increased due to a strong performance in its downstream segment, primarily driven by a $700 million gain from the sale of its refining assets in the Netherlands. While the upstream segment experienced lower earnings due to reduced commodity prices and higher costs, the gains in downstream and other segments more than offset these declines.

The upstream segment's earnings decreased from $3.458 billion in Q1 2006 to $2.907 billion in Q1 2007. This decline was mainly attributed to lower average prices for crude oil and natural gas, coupled with an increase in operating and depreciation expenses.

Chevron noted that it continues to experience cost increases in certain areas that exceed general inflation, affecting operating expenses and capital expenditures, particularly in the upstream segment. The company is focused on developing and replenishing its project inventory for long-term competitive positioning and is carefully evaluating investments, considering economic, legal, and political factors.

Chevron adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, 'Accounting for Uncertainty in Income Taxes,' effective January 1, 2007. This resulted in a cumulative-effect adjustment that reduced retained earnings by $34 million. FIN 48 clarifies the accounting for uncertain tax positions and provides guidance on recognition, measurement, and disclosure of tax benefits.