10-QPeriod: Q2 FY2015

CHEVRON CORP Quarterly Report for Q2 Ended Jun 30, 2015

Filed August 5, 2015For Securities:CVX

Summary

Chevron Corporation reported significantly lower net income attributable to the company for the second quarter and the first six months of 2015 compared to the same periods in 2014. This decline is primarily attributed to a substantial drop in crude oil and natural gas prices, which negatively impacted the upstream segment's profitability. The upstream segment, which is the primary driver of Chevron's earnings, incurred significant losses in the first half of 2015. Conversely, the downstream segment showed improved performance, largely driven by gains from asset sales, notably the divestiture of its interest in Caltex Australia Limited, and higher refining margins. Despite the challenging commodity price environment, Chevron maintained its dividend payments to shareholders and continued its capital expenditure program, albeit at a reduced pace compared to the prior year. The company's liquidity remains strong, with significant cash and cash equivalents. However, investors should note the ongoing risks associated with volatile commodity prices and significant legal contingencies, particularly the prolonged litigation in Ecuador.

Financial Highlights

46 data points
Beta

Revenue

$40.36B

Net Income

$571.00M

1.4% Net Margin

EPS (Diluted)

$0.30

Total Assets

$266.45B

Cash & Equivalents

$12.16B

Free Cash Flow

$7.22B

Financial Statements
Beta
Revenue$40.36B
SG&A Expenses$1.17B
Operating Expenses$38.99B
Interest Expense$0
Net Income$571.00M
EPS (Basic)$0.30
EPS (Diluted)$0.30
Shares Outstanding (Basic)1.87B
Shares Outstanding (Diluted)1.88B

Key Highlights

  • 1Net income attributable to Chevron Corporation for Q2 2015 was $571 million ($0.30 per share), a sharp decrease from $5.7 billion ($2.98 per share) in Q2 2014. For the first six months, net income was $3.1 billion ($1.67 per share) versus $10.2 billion ($5.34 per share) in the prior year.
  • 2The Upstream segment reported a loss of $2.2 billion in Q2 2015 and a loss of $659 million for the first six months, a significant deterioration from earnings of $5.3 billion and $9.6 billion, respectively, in the comparable periods of 2014. This was primarily due to lower crude oil and natural gas realizations.
  • 3The Downstream segment's earnings increased substantially to $3.0 billion in Q2 2015 and $4.4 billion for the first six months, up from $721 million and $1.4 billion in the prior year. This improvement was driven by a $1.6 billion gain from the sale of the company's interest in Caltex Australia Limited and higher refining margins.
  • 4Total revenues and other income significantly declined to $40.4 billion in Q2 2015 and $74.9 billion for the first six months, compared to $57.9 billion and $111.2 billion, respectively, in the prior year, reflecting lower commodity prices.
  • 5Capital expenditures were reduced to $15.2 billion for the first six months of 2015 from $17.5 billion in the same period of 2014, reflecting a moderated pace of investment.
  • 6The company paid $4.0 billion in dividends to common shareholders in the first six months of 2015, maintaining its commitment to shareholder returns.
  • 7Chevron reported $12.2 billion in cash and cash equivalents at June 30, 2015, indicating a strong liquidity position.

Frequently Asked Questions

The primary driver for the substantial decrease in net income was the sharp decline in crude oil and natural gas prices. This significantly impacted the profitability of Chevron's Upstream segment, which experienced losses in the first half of 2015. Lower commodity realizations more than offset improvements in production volumes and cost management.

The sale of Chevron's 50% interest in Caltex Australia Limited contributed significantly to the improved performance of the Downstream segment. This divestiture resulted in a gain of approximately $1.6 billion, boosting the segment's earnings for both the second quarter and the first six months of 2015. This gain was a key factor in offsetting the weakness in the Upstream segment.

Chevron acknowledges the significant downturn in crude oil prices since mid-2014 and its impact on results. While the company anticipates prices will increase eventually as demand grows and supply growth slows, the timing is uncertain. If lower prices persist, Chevron may implement further reductions in operating expenses and capital expenditures, and potentially more asset sales. The company continues to manage its capital program to provide flexibility while maintaining dividends and credit ratings.

The most significant risks highlighted are the volatility of crude oil and natural gas prices, which directly affect profitability. Additionally, Chevron faces substantial legal contingencies, most notably the ongoing litigation in Ecuador concerning alleged environmental damages, which has resulted in a significant judgment against the company. Other risks include potential environmental liabilities and ongoing tax audits in various jurisdictions.