Chevron Corporation (CVX)

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Chevron (CVX)

Q1 2011 Earnings Call

April 29, 2011 11:00 am ET

Executives

Gary Luquette - President of Chevron North America Exploration and Production Co

Patricia Yarrington - Chief Financial Officer, Principal Accounting Officer and Vice President

Jeanette Ourada -

Analysts

Edward Westlake - Crédit Suisse AG

Mark Gilman - The Benchmark Company, LLC

Paul Cheng

Pavel Molchanov - Raymond James & Associates, Inc.

Faisel Khan - Citigroup Inc

Douglas Leggate - BofA Merrill Lynch

Doug Terreson - ISI Group Inc.

Hernan Ladeuix - Credit Agricole Securities (USA) Inc.

Iain Reid - Jefferies & Company, Inc.

Presentation

Operator

Good morning. My name is Sean, and I will be your conference facilitator today. Welcome to Chevron's First Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I will now turn the conference over to Vice President and Chief Financial Officer from Chevron Corporation, Ms. Pat Yarrington. Please go ahead.

Patricia Yarrington

Thank you, Sean. Welcome to Chevron's First Quarter 2011 Earnings Conference Call And Webcast. On the call with me today are Gary Luquette, President of our North American Exploration and Production Company. I've asked Gary to join me on the call this morning to give you an update on our recent Atlas acquisition and Gulf of Mexico activity. Chevron, and Gary specifically, have taken a leadership role in addressing the administration's concerns regarding drilling in the Gulf of Mexico. Gary serves as chair of the governing body leading the joint industry task forces that have been working to improve prevention, intervention and spill response capabilities with the goal of getting the industry back to work. Also on the call is Jeanette Ourada, General Manager of Investor Relations. Our focus today is on Chevron's financial and operating results for the first quarter of 2011, we'll 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 here on Slide 2.

Slide 3 provides an overview of our financial performance. The company's first quarter earnings were $6.2 billion or $3.09 per diluted share. Comparing the first quarter 2011 to the same quarter a year earlier, our earnings were up 36%. Upstream benefited from higher crude prices, and Downstream benefited from improved margins.

Return on capital employed for the trailing 12 months was over 18%. Our debt ratio at the end of March was 9.5%. In the first quarter, we repurchased $750 million of our shares. In the second quarter, we are increasing our repurchase rate to $1 billion.

Finally, we announced Wednesday that Chevron's Board of Directors approved a $0.06 per share or 8.3% increase in the common stock quarterly dividend. This is our 24th consecutive year of higher dividend payout.

Now on Slide 4, cash generated from operations was nearly $10 billion during the first quarter. This is a record for the company. Our cash from operations provided excellent support for our capital program, the Atlas acquisition including associated debt retirement, our dividend payments and our share buyback program. At quarter end, our cash balances totaled nearly $17 billion. This put us in a net cash position of $5.3 billion.

We see the 8% dividend increase and a simultaneous boost in our share repurchase rate as meaningful moves. Combined, we believe they send strong signals about our ability to both generate and to deliver tangible cash distribution rewards to our shareholders.

Jeanette will now take us through the quarterly comparisons. Jeanette?

Jeanette Ourada

Thanks, Pat. Turning to Slide 5. I'll compare results of the first quarter 2011 with the fourth quarter 2010. As a reminder, our earnings release compares first quarter 2011 with the same quarter a year ago.

First quarter earnings were $960 million higher than the fourth quarter. Starting on the left side of the chart, Upstream earnings were up $1.1 billion driven by higher crude oil realizations. Downstream results were lower by $120 million. Stronger refining and chemical margins were more than offset by unfavorable timing impacts in this quarter and the absence of fourth quarter gains on asset sales. The variance in the other bar reflects the unfavorable swing in corporate tax items.

On Slide 6, our U.S. Upstream earnings for the first quarter were $519 million higher than the fourth quarter's results. Higher crude oil and natural gas realizations benefited earnings by $390 million. U.S. crude realizations were up 17% between consecutive quarters, higher than the 11% increase in the average spot price of West Texas intermediate. Our U.S. crude realizations are primarily tied to Mars, Louisiana light sweet and San Joaquin Valley heavy crudes, which all traded at premiums to WTI during the first quarter.

Natural gas realizations improved by 11%, in line with Henry Hub spot prices. Lower sales volumes decreased earnings by $40 million between periods due to two fewer days in the first quarter compared to the fourth quarter. Lower operating expenses benefited earnings by $40 million between periods, primarily due to lower costs related to timing of maintenance activities. The other bar is comprised of a number of unrelated items, including the absence of unfavorable year-end LIFO inventory drawdowns and lower exploration and abandonment expenses.

Turning to Slide 7. International Upstream earnings were up $611 million compared with the fourth quarter. Higher oil and natural gas realizations benefited earnings by $910 million. Average liquids realizations increased 20%, in line with the increase in average Brent spot prices. Natural gas realizations rose 5% between quarters.

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