Chevron Corporation (CVX)

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Chevron Corporation (CVX)

Q1 2013 Earnings Conference Call

April 26, 2013, 11:00 AM ET


Patricia E. Yarrington - VP and CFO

Jeff Gustavson - General Manager, Investor Relations


Edward Westlake - Crédit Suisse AG

Evan Calio - Morgan Stanley

Arjun Murti - Goldman Sachs

Paul Sankey - Deutsche Bank Securities Inc.

Douglas Leggate - Bank of America Merrill Lynch

Douglas Terreson - ISI Group Inc.

Jason Gammel - Macquarie Research

Paul Cheng - Barclays Capital

Faisel Khan - Citigroup Inc

Asit Sen - Cowen Securities

Allen Good - Morningstar, Inc

Pavel Molchanov - Raymond James & Associates, Inc.



Good morning. My name is Sean, and I’ll be your conference facilitator today. Welcome to Chevron's First Quarter 2013 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers’ remarks, there will be a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I’ll now turn the conference call over to the Vice President and Chief Financial Officer of Chevron Corporation, Ms. Pat Yarrington. Please go ahead.

Patricia E. Yarrington

Okay. Good morning, everyone, and thank you, Sean. Welcome to Chevron’s first quarter earnings conference call and webcast. On the call with me today is Jeff Gustavson, General Manager, Investor Relations. We will refer to the slides that are available on Chevron’s website.

Before we get started, please be reminded that this presentation contains estimates, projections and other forward-looking statements. We ask that you review the cautionary statement shown on Slide 2.

Slide 3 provides an overview of our financial performance. The Company's first-quarter earnings were $6.2 billion, or $3.18 per diluted share. Return on capital employed for the trailing 12 months was 18%. Our debt ratio at the end of March was approximately 9%. In the first quarter we repurchased $1.25 billion of our shares. In the second quarter we expect to repurchase the same amount.

Turning to slide 4, this week Chevron’s Board of Directors declared a $1 per share quarterly common stock dividend payable in mid-June. This is an 11% increase and reflects the performance and strength of our current portfolio and are confident in our compelling growth prospects. Since 2004, our dividend has grown at a compound annual rate of 11%, a growth rate that is well in excess of the S&P 500 and better than our peers. You can see this on the left chart.

This pattern demonstrates the priority be placed on rewarding our investors through increasing distribution. The chart on the right provides updated information on five-year rolling total return to shareholders, through the end of the first quarter. Our strong financial and operational performance and superior growth prospects for both production and value are being recognized by the market. We have led on this rolling total shareholder return for an extended period of time now and we are off to a strong start in 2013.

Turning to slide 5, cash generated from operations was $5.7 billion during the first quarter, a lower level than it has been in some time. This was primarily the result of working capital impact. Overall, working capital requirements for the Company increased by $3.4 billion in the quarter. This working capital consumption of cash was principally in our Downstream operation. This is not an atypical pattern for us for the first quarter of the year, though this quarters increasing working capital requirements is larger than we have usually seen. The increase reflects the timing and pricing of commodity purchases and sales between quarters as well as the operational downtime we had at several refineries this quarter. The vast majority of these effects are temporary in nature and the impact that cash flow are expected to reverse in future quarters.

Importantly, our Upstream business continues to generate strong cash flow. Capital and exploratory expenditures were $8.2 billion during the quarter, including expenditures associated with our buying to the Kitimat LNG project. We've continued to maintain a strong balance sheet and at quarter end, cash balances exceeded $19 billion, giving us a net cash position of almost $5 billion.

Jeff will now take us through the quarterly comparisons.

Jeff Gustavson

Thanks, Pat. Turning to slide 6, I'll compare results of the first quarter 2013 with the fourth quarter 2012. As a reminder, our earnings release compares first quarter 2013 with the same quarter a year ago. First quarter earnings were $6.2 billion, about 1 billion lower than fourth quarter results. Upstream earnings were down $942 million, reflecting the absence of fourth quarter asset transaction gains, partly offset by higher realizations and a favorable swing in foreign currency effects.

Downstream results decreased $224 million between quarters, driven by lower volumes largely associated with seasonal maintenance activity in the absence of fourth quarter asset transactions, partly offset by a positive swing in foreign currency effects. The variance in the other bar largely reflects lower corporate charges.

On slide 7, our U.S. Upstream earnings for the first quarter were $231 million lower than fourth quarter's results. Higher realizations improved earnings by 95 million, driven largely by an increase in crude oil prices. Lower production volumes decreased earnings by $80 million, mainly due to increased maintenance activity in the Gulf of Mexico and fewer producing days in the quarter.

The net of higher DD&A and lower operating expenses reduced earnings by $85 million. The other bar reflects a number of unrelated items, including the absence of favorable tax effects and gains on small asset transactions in the fourth quarter.

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