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(Exact
name of registrant as specified in its charter)
i6001
Bollinger Canyon Road
iDelaware
i94-0890210
iSan Ramon,
iCalifornia
i94583-2324
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (i925) i842-1000
NONE
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading Symbol
Name of each exchange on which registered
iCommon stock, par value $.75 per share
iCVX
iNew
York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☑ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☑ No ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☑
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☑
CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION
FOR THE PURPOSE OF “SAFE HARBOR” PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This quarterly report on Form 10-Q of Chevron Corporation contains forward-looking statements relating to Chevron’s operations and energy transition plans that are based on management’s current expectations, estimates and projections about the petroleum, chemicals and other energy-related industries. Words or phrases such as “anticipates,”“expects,”“intends,”“plans,”“targets,”“advances,”“commits,”“drives,”“aims,”“forecasts,”“projects,”“believes,”“approaches,”“seeks,”“schedules,”“estimates,”“positions,”“pursues,”“may,”“can,”“could,”“should,”“will,”“budgets,”“outlook,”“trends,”“guidance,”“focus,”“on track,”“goals,”“objectives,”“strategies,”“opportunities,”“poised,”“potential,”“ambitions,”“aspires” and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, many of which are beyond the company’s control and are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The reader should not place undue reliance on these forward-looking statements, which
speak only as of the date of this report. Unless legally required, Chevron undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Among the important factors that could cause actual results to differ materially from those in the forward-looking statements are: changing crude oil and natural gas prices and demand for the company’s products, and production curtailments due to market conditions; crude oil production quotas or other actions that might be imposed by the Organization of Petroleum Exporting Countries and other producing countries; technological advancements; changes to government policies in the countries in which the company operates; public health crises, such
as pandemics (including coronavirus (COVID-19)) and epidemics, and any related government policies and actions; disruptions in the company’s global supply chain, including supply chain constraints and escalation of the cost of goods and services; changing economic, regulatory and political environments in the various countries in which the company operates; general domestic and international economic, market and political conditions, including the military conflict between Russia and Ukraine and the global response to such conflict; changing refining, marketing and chemicals margins; actions of competitors or regulators; timing of exploration expenses; timing of crude oil liftings; the competitiveness of alternate-energy sources or product substitutes; development of large carbon capture and offset markets;
the results of operations and financial condition of the company’s suppliers, vendors, partners and equity affiliates, particularly during the COVID-19 pandemic; the inability or failure of the company’s joint-venture partners to fund their share of operations and development activities; the potential failure to achieve expected net production from existing and future crude oil and natural gas development projects; potential delays in the development, construction or start-up of planned projects; the potential disruption or interruption of the company’s operations due to war, accidents, political events, civil unrest, severe weather, cyber threats, terrorist acts, or other natural or human causes beyond the
company’s control; the potential liability for remedial actions or assessments under existing or future environmental regulations and litigation; significant operational, investment or product changes undertaken or required by existing or future environmental statutes and regulations, including international agreements and national or regional legislation and regulatory measures to limit or reduce greenhouse gas emissions; the potential liability resulting from pending or future litigation; the company’s future acquisitions or dispositions of assets or shares or the delay or failure of such transactions to close based on required closing conditions; the potential for gains and losses from asset dispositions or impairments; government mandated sales, divestitures, recapitalizations, taxes and tax audits, tariffs, sanctions, changes in fiscal terms or restrictions on scope of company
operations; foreign currency movements compared with the U.S. dollar; material reductions in corporate liquidity and access to debt markets; the receipt of required Board authorizations to implement capital allocation strategies, including future stock repurchase programs and dividend payments; the effects of changed accounting rules under generally accepted accounting principles promulgated by rule-setting bodies; the company’s ability to identify and mitigate the risks and hazards inherent in operating in the global energy industry; and the factors set forth under the heading “Risk Factors” on pages 20 through 25 of the company’s 2021 Annual Report on Form 10-K and in subsequent filings with the U.S. Securities and Exchange Commission. Other unpredictable or unknown factors not discussed in this
report could also have material adverse effects on forward-looking statements.
(1)Beginning
and ending balances for all periods include capital in excess of par, common stock issued at par for $iiiiii1,832/////,
and $(iiiiii240/////)
associated with Chevron’s Benefit Plan Trust. Changes reflect capital in excess of par.
(2)Beginning and ending total issued share balances include iiiiii14,168,000/////
shares associated with Chevron’s Benefit Plan Trust for all periods.
See accompanying notes to consolidated financial statements.
iBasis
of Presentation The accompanying consolidated financial statements of Chevron Corporation and its subsidiaries (together, Chevron or the company) have not been audited by an independent registered public accounting firm. In the opinion of the company’s management, the interim data includes all adjustments necessary for a fair statement of the results for the interim periods. These adjustments were of a normal recurring nature. The results for the three- and six-month periods ended June 30, 2022, are not necessarily indicative of future financial results. The term “earnings” is defined as net income attributable to Chevron.
Certain
notes and other information have been condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the company’s 2021 Annual Report on Form 10-K.
Note 2. iChanges
in Accumulated Other Comprehensive Losses
i
The change in Accumulated Other Comprehensive Losses (AOCL) presented on the Consolidated Balance Sheet and the impact of significant amounts reclassified from AOCL on information presented in the Consolidated Statement of Income for the six months ended June 30, 2022 and 2021 are reflected in the table below.
Changes in Accumulated Other
Comprehensive Income (Loss) by Component(1)
(3)Refer to Note 8 Employee Benefits for reclassified components, including amortization of actuarial gains or losses, amortization of prior service costs and settlement losses, totaling $i227
million that are included in employee benefit costs for the six months ended June 30, 2022. Related income taxes for the same period, totaling $i34 million, are reflected in “Income Tax Expense” on the Consolidated Statement of Income. All other reclassified amounts were insignificant.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The “Other” line in the Operating Activities section includes changes in postretirement benefits obligations and other long-term liabilities.
The company paid dividends of $i1.42
per share of common stock in second quarter 2022. This compares to dividends of $i1.34 per share paid in the year-ago corresponding period.
i
The components of “Capital expenditures” are presented in the following
table:
Six Months Ended June 30
2022
2021
(Millions of dollars)
Additions to properties, plant and equipment
$
i4,028
$
i3,354
Additions
to investments
i831
i168
Current-year
dry hole expenditures
i116
i19
Payments
for other assets and liabilities, net
i169
i2
Capital
expenditures
$
i5,144
$
i3,543
/ii
The
table below quantifies the beginning and ending balances of restricted cash and restricted cash equivalents in the Consolidated Balance Sheet:
At June 30
At December 31
2022
2021
2021
2020
(Millions
of dollars)
Cash and cash equivalents
$
i12,029
$
i7,527
$
i5,640
$
i5,596
Restricted
cash included in “Prepaid expenses and other current assets”
i524
i378
i333
i365
Restricted
cash included in “Deferred charges and other assets”
i803
i783
i822
i776
Total
cash, cash equivalents and restricted cash
$
i13,356
$
i8,688
$
i6,795
$
i6,737
//
Additional
information related to restricted cash is included in Note 13 Fair Value Measurements under the heading “Restricted Cash.”
Note 4. iSummarized Financial Data — Tengizchevroil LLP
Chevron has a i50
percent equity ownership interest in Tengizchevroil LLP (TCO). iSummarized financial information for i100 percent
of TCO is presented in the following table:/
Six Months Ended June 30
2022
2021
(Millions of dollars)
Sales
and other operating revenues
$
i12,649
$
i7,368
Costs
and other deductions
i6,046
i3,935
Net
income attributable to TCO
$
i4,612
$
i2,403
Note
5. Summarized Financial Data — Chevron Phillips Chemical Company LLC
Chevron has a i50 percent equity ownership interest in Chevron Phillips Chemical Company LLC (CPChem). Summarized financial information for i100
percent of CPChem is presented in the following table:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 6. iSummarized Financial Data — Chevron U.S.A. Inc.
Chevron U.S.A. Inc. (CUSA) is a major subsidiary of Chevron Corporation. CUSA and its subsidiaries manage and operate most of Chevron’s U.S. businesses. Assets include those related to the exploration and
production of crude oil, natural gas and natural gas liquids and those associated with refining, marketing, and supply and distribution of products derived from petroleum, excluding most of the regulated pipeline operations of Chevron. CUSA also holds the company’s investment in the CPChem joint venture, which is accounted for using the equity method.
i
The summarized financial information for CUSA and its consolidated subsidiaries
is as follows:
Although each subsidiary of Chevron is responsible for its own affairs, Chevron Corporation manages its investments in these subsidiaries
and their affiliates. The investments are grouped into iitwo/
business segments, Upstream and Downstream, representing the company’s “reportable segments” and “operating segments.” Upstream operations consist primarily of exploring for, developing, producing and transporting crude oil and natural gas; liquefaction, transportation and regasification associated with liquefied natural gas (LNG); transporting crude oil by major international oil export pipelines; processing, transporting, storage and marketing of natural gas; and a gas-to-liquids plant. Downstream operations consist primarily of refining of crude oil into petroleum products; marketing of crude oil, refined products, and lubricants; manufacturing and marketing of renewable fuels; transporting of crude oil and refined products by pipeline, marine vessel, motor equipment and rail car; and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses,
and fuel and lubricant additives. “All Other” activities of the company include worldwide cash management and debt financing activities, corporate administrative functions, insurance operations, real estate activities, and technology companies.
The company’s segments are managed by “segment managers” who report to the “chief operating decision maker” (CODM). The segments represent components of the company that engage in activities (a) from which revenues are earned and expenses are incurred; (b) whose operating results are regularly reviewed by the CODM, which makes decisions about resources to be allocated to the segments and assesses their performance; and
(c) for which discrete financial information is available.
The company’s primary country of operation is the United States of America, its country of domicile. Other components of the company’s operations are reported as “International” (outside the United States).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- (Continued)
Segment EarningsThe company evaluates the performance of its operating segments on an after-tax basis, without considering the effects of debt financing interest expense or investment interest income, both of which are managed by the company on a worldwide basis. Corporate administrative costs and assets are not allocated to the operating segments. However, operating segments are billed for the direct use of corporate services. Nonbillable costs remain at the corporate level in “All Other.”iEarnings
by major operating area for the three- and six-month periods ended June 30, 2022 and 2021, are presented in the following table:
Three Months Ended June 30
Six Months Ended June 30
2022
2021
2022
2021
Segment
Earnings
(Millions of dollars)
(Millions of dollars)
Upstream
United States
$
i3,367
$
i1,446
$
i6,605
$
i2,387
International
i5,191
i1,732
i8,887
i3,141
Total
Upstream
i8,558
i3,178
i15,492
i5,528
Downstream
United
States
i2,440
i776
i2,926
i646
International
i1,083
i63
i928
i198
Total
Downstream
i3,523
i839
i3,854
i844
Total
Segment Earnings
i12,081
i4,017
i19,346
i6,372
All
Other
Interest expense
(i120)
(i173)
(i246)
(i357)
Interest
income
i29
i12
i39
i20
Other
(i368)
(i774)
(i1,258)
(i1,576)
Net
Income Attributable to Chevron Corporation
$
i11,622
$
i3,082
$
i17,881
$
i4,459
Segment
Assets Segment assets do not include intercompany investments or intercompany receivables. iSegment assets at June 30, 2022, and December 31, 2021, are as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
i
Segment Sales and Other Operating Revenues Segment sales and other operating revenues, including internal transfers, for the three- and six-month periods ended June 30, 2022 and 2021, are presented in the following table. Products are transferred between operating segments at internal product values
that approximate market prices. Revenues for the upstream segment are derived primarily from the production and sale of crude oil and natural gas, as well as the sale of third-party production of natural gas. Revenues for the downstream segment are derived primarily from the refining and marketing of petroleum products such as gasoline, jet fuel, gas oils, lubricants, residual fuel oils, other products derived from crude oil, and manufacturing and marketing of renewable fuels. This segment also generates revenues from the manufacture and sale of fuel and lubricant additives and the transportation and trading of refined products and crude oil. “All Other” activities include revenues from insurance operations, real estate activities and technology companies.
Three
Months Ended June 30
Six Months Ended June 30
2022
2021
2022
2021
Sales and Other Operating Revenues
(Millions of dollars)
(Millions of dollars)
Upstream
United
States
$
i14,232
$
i6,034
$
i25,548
$
i11,825
International
i14,230
i9,516
i27,732
i18,306
Subtotal
i28,462
i15,550
i53,280
i30,131
Intersegment
Elimination — United States
(i8,475)
(i3,256)
(i15,394)
(i6,111)
Intersegment
Elimination — International
(i4,138)
(i2,761)
(i7,787)
(i5,136)
Total
Upstream
i15,849
i9,533
i30,099
i18,884
Downstream
United States
i25,867
i13,911
i45,638
i24,765
International
i25,443
i13,605
i45,050
i25,187
Subtotal
i51,310
i27,516
i90,688
i49,952
Intersegment
Elimination — United States
(i1,343)
(i500)
(i2,342)
(i966)
Intersegment
Elimination — International
(i482)
(i457)
(i813)
(i726)
Total
Downstream
i49,485
i26,559
i87,533
i48,260
All
Other
United States
i141
i210
i224
i234
International
i1
i—
i1
i—
Subtotal
i142
i210
i225
i234
Intersegment
Elimination — United States
(i103)
(i185)
(i170)
(i185)
Intersegment
Elimination — International
(i1)
i—
(i1)
i—
Total
All Other
i38
i25
i54
i49
Sales
and Other Operating Revenues
United States
i40,240
i20,155
i71,410
i36,824
International
i39,674
i23,121
i72,783
i43,493
Subtotal
i79,914
i43,276
i144,193
i80,317
Intersegment
Elimination — United States
(i9,921)
(i3,941)
(i17,906)
(i7,262)
Intersegment
Elimination — International
(i4,621)
(i3,218)
(i8,601)
(i5,862)
Total
Sales and Other Operating Revenues
$
i65,372
$
i36,117
$
i117,686
$
i67,193
/
Note
8. iEmployee Benefits
Chevron has defined benefit pension plans for many employees. The company typically prefunds defined benefit plans as required by local regulations or in certain situations where prefunding provides economic advantages. In the United States, all qualified plans are subject to the Employee Retirement Income Security Act minimum funding standard. The
company does not typically fund U.S. nonqualified pension plans that are not subject to funding requirements under laws and regulations because contributions to these pension plans may be less economic and investment returns may be less attractive than the company’s other investment alternatives.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The company also sponsors other postretirement employee benefit (OPEB) plans that provide medical
and dental benefits, as well as life insurance for some active and qualifying retired employees. The plans are unfunded, and the company and the retirees share the costs. For the company’s main U.S. medical plan, the increase to the pre-Medicare company contribution for retiree medical coverage is limited to no more than ifour
percent each year. Certain life insurance benefits are paid by the company.
i
The components of net periodic benefit costs for 2022 and 2021 are as follows:
Three
Months Ended June 30
Six Months Ended June 30
2022
2021
2022
2021
(Millions of dollars)
(Millions of dollars)
Pension Benefits
United
States
Service cost
$
i117
$
i108
$
i235
$
i225
Interest
cost
i69
i64
i135
i119
Expected
return on plan assets
(i162)
(i145)
(i323)
(i294)
Amortization
of prior service costs (credits)
i1
i—
i1
i1
Amortization
of actuarial losses (gains)
i60
i73
i125
i177
Settlement
losses
i21
i151
i107
i468
Total
United States
i106
i251
i280
i696
International
Service
cost
i21
i37
i43
i71
Interest
cost
i35
i36
i71
i69
Expected
return on plan assets
(i44)
(i43)
(i92)
(i89)
Amortization
of prior service costs (credits)
i1
i2
i3
i4
Amortization
of actuarial losses (gains)
i4
i14
i8
i24
Settlement
losses
(i9)
i—
(i9)
i—
Total
International
i8
i46
i24
i79
Net
Periodic Pension Benefit Costs
$
i114
$
i297
$
i304
$
i775
Other
Benefits*
Service cost
$
i10
$
i10
$
i21
$
i21
Interest
cost
i16
i13
i31
i26
Amortization
of prior service costs (credits)
(i7)
(i6)
(i13)
(i13)
Amortization
of actuarial losses (gains)
i3
i4
i6
i8
Net
Periodic Other Benefit Costs
$
i22
$
i21
$
i45
$
i42
/
* Includes
costs for U.S. and international OPEB plans. Obligations for plans outside the United States are not significant relative to the company’s total OPEB obligation.
Through June 30, 2022, a total of $i775 million was contributed to employee pension plans (including $i673
million to the U.S. plans). Contribution amounts are dependent upon plan investment returns, changes in pension obligations, regulatory requirements and other economic factors. Additional funding may ultimately be required if investment returns are insufficient to offset increases in plan obligations.
During the first six months of 2022, the company contributed $i86 million to its OPEB plans.
Note
9. iAssets Held For Sale
At June 30, 2022, the company classified $i822
million of net properties, plant and equipment as “Assets held for sale” on the Consolidated Balance Sheet. These assets are associated with upstream and corporate operations that are anticipated to be sold in the next 12 months. The revenues and earnings contributions of these assets in 2021 and the first six months of 2022 were not material.
Note 10. iIncome Taxes
The income
tax expense increased between quarterly periods from $i1.3 billion in 2021 to $i4.3 billion in 2022. The
company's income before income tax expense increased $i11.6 billion from $i4.4
billion in 2021 to $i16.0 billion in 2022, primarily due to higher realizations and downstream margins. The company’s effective tax
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
rate changed between quarterly periods from i30 percent in 2021 to i27
percent in 2022. The change in the effective tax rate is mainly due to the consequence of mix effects, resulting from the absolute level of earnings or losses and whether they arose in higher or lower tax rate jurisdictions.
The income tax expense increased between the six-month periods from $i2.1 billion in 2021 to $i7.1
billion in 2022. This increase is a direct result of the company’s income before income tax expense increasing $i18.5 billion, from $i6.6
billion in 2021 to $i25.1 billion in 2022. The increase in income is primarily due to higher realizations and downstream margins. The company’s effective tax rate changed between the six-month periods from i32
percent in 2021 to i28 percent in 2022. The change in effective tax rate is primarily a consequence of the mix effects, resulting from the absolute level of earnings or losses and whether they arose in higher or lower tax rate jurisdictions and lower favorable international tax items.
Tax positions for Chevron and its subsidiaries and affiliates are subject to income tax audits by many tax jurisdictions
throughout the world. For the company’s major tax jurisdictions, examinations of tax returns for certain prior tax years had not been completed as of June 30, 2022. For these jurisdictions, the latest years for which income tax examinations had been finalized were as follows: United States — 2013, Nigeria — 2007, Australia — 2009, Kazakhstan — 2012 and Saudi Arabia — 2016.
The company engages in ongoing discussions with tax authorities regarding the resolution of tax matters in the various jurisdictions. Both the outcomes for these tax matters and the timing of resolution and/or closure of the tax audits are highly uncertain. However, it is reasonably possible that developments regarding tax matters in certain
tax jurisdictions may result in significant increases or decreases in the company’s total unrecognized tax benefits within the next 12 months. Given the number of years that still remain subject to examination and the number of matters being examined in the various tax jurisdictions, the company is unable to estimate the range of possible adjustments to the balance of unrecognized tax benefits.
Note 11. iLitigation
Ecuador
Texaco Petroleum Company (Texpet), a subsidiary of Texaco Inc., was a minority member of an oil production consortium with Ecuadorian state-owned Petroecuador from 1967 until 1992. After termination of the consortium and a third-party environmental audit, Ecuador and the consortium parties entered into a settlement agreement specifying Texpet’sremediation obligations. Following Texpet’s completion of a three-year remediation program, Ecuador certified the remediation as proper and released Texpet and its affiliates from environmental liability. In May 2003, plaintiffs alleging environmental harm from the consortium’s activities sued Chevron in the Superior Court in Lago Agrio, Ecuador. In February 2011, that court entered a judgment against Chevron for approximately $i9.5 billion
plus additional punitive damages. An appellate panel affirmed, and Ecuador’s National Court of Justice ratified the judgment but nullified the punitive damages, resulting in a judgment of approximately $i9.5 billion. Ecuador’s highest Constitutional Court rejected Chevron’s final appeal in July 2018.
In February 2011, Chevron sued the Lago Agrio plaintiffs and several of their lawyers and supporters in the U.S. District Court for the Southern District of New York (SDNY) for violations of the Racketeer Influenced
and Corrupt Organizations (RICO) Act and state law. The SDNY court ruled that the Ecuadorian judgment had been procured through fraud, bribery, and corruption, and prohibited the RICO defendants from seeking to enforce the Ecuadorian judgment in the United States or profiting from their illegal acts. The Court of Appeals for the Second Circuit affirmed, and the U.S. Supreme Court denied certiorari in June 2017, rendering final the U.S. judgment in favor of Chevron. The Lago Agrio plaintiffs sought to have the Ecuadorian judgment recognized and enforced in Canada, Brazil, and Argentina. All of those recognition and enforcement actions were dismissed and resolved in Chevron’s favor. Chevron and Texpet filed an arbitration claim against Ecuador in September 2009 before an arbitral tribunal administered by the Permanent Court of Arbitration in The Hague, under the United States-Ecuador Bilateral Investment Treaty. In August 2018, the Tribunal issued an award holding that
the Ecuadorian judgment was based on environmental claims that Ecuador had settled and released, and that it was procured through fraud, bribery, and corruption. According to the Tribunal, the Ecuadorian judgment “violates international public policy” and “should not be recognized or enforced by the courts of other States.” The Tribunal ordered Ecuador to remove the status of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
enforceability from the Ecuadorian judgment and to compensate Chevron for any injuries resulting from the judgment. The third and final phase of the arbitration, to determine
the amount of compensation Ecuador owes to Chevron, is ongoing. In September 2020, the District Court of The Hague denied Ecuador’s request to set aside the Tribunal’s award, stating that it now is “common ground” between Ecuador and Chevron that the Ecuadorian judgment is fraudulent. In December 2020, Ecuador appealed the District Court’s decision to The Hague Court of Appeals. In June 2022, The Hague Court of Appeals dismissed Ecuador's appeal. In a separate proceeding, Ecuador admitted that the Ecuadorian judgment is fraudulent in a public filing with the Office of the United States Trade Representative in July 2020. Management continues to believe that the Ecuadorian judgment is illegitimate and unenforceable and will vigorously defend against any further attempts to have it recognized or enforced.
Climate Change
Governmental and other entities in various jurisdictions
across the United States have filed legal proceedings against fossil fuel producing companies, including Chevron entities, purporting to seek legal and equitable relief to address alleged impacts of climate change. Chevron entities are or were among the codefendants in i21 separate lawsuits brought by 17 U.S. cities and counties, two U.S. states, the District of Columbia and a trade group. iOne
of the city lawsuits was dismissed on the merits, and one of the county lawsuits was voluntarily dismissed by the plaintiff. The lawsuits assert various causes of action, including public nuisance, private nuisance, failure to warn, design defect, product defect, trespass, negligence, impairment of public trust, and violations of consumer protection statutes, based upon the company’s production of oil and gas products and alleged misrepresentations or omissions relating to climate change risks associated with those products. The unprecedented legal theories set forth in these proceedings entail the possibility of damages liability (both compensatory and punitive), injunctive and other forms of equitable relief, including without limitation abatement and disgorgement of profits, civil penalties and liability for fees and costs of suits, that, while we believe remote, could have a material
adverse effect on the company’s results of operations and financial condition. Further such proceedings are likely to be filed by other parties. Management believes that these proceedings are legally and factually meritless and detract from constructive efforts to address the important policy issues presented by climate change, and will vigorously defend against such proceedings.
Louisiana
Seven coastal parishes and the State of Louisiana have filed lawsuits in Louisiana against numerous oil and gas companies seeking damages for coastal erosion in or near oil fields located within Louisiana’s coastal zone under Louisiana’s State and Local Coastal Resources Management Act (SLCRMA). Chevron entities are defendants in i39
of these cases. The lawsuits allege that the defendants’ historical operations were conducted without necessary permits or failed to comply with permits obtained and seek damages and other relief, including the costs of restoring coastal wetlands allegedly impacted by oil field operations. Plaintiffs’ SLCRMA theories are unprecedented; thus, there remains significant uncertainty about the scope of the claims and alleged damages and any potential effects on the company’s results of operations and financial condition. Management believes that the claims lack legal and factual merit and will continue to vigorously defend against such proceedings.
Note 12. iOther
Contingencies and Commitments
Income TaxesThe company calculates its income tax expense and liabilities quarterly. These liabilities generally are subject to audit and are not finalized with the individual taxing authorities until several years after the end of the annual period for which income taxes have been calculated. Refer to Note 10 Income Taxes for a discussion of the periods for which tax returns have been audited for the company’s major tax jurisdictions.
Settlement
of open tax years, as well as other tax issues in countries where the company conducts its businesses, are not expected to have a material effect on the consolidated financial position or liquidity of the company and, in the opinion of management, adequate provision has been made for income taxes for all years under examination or subject to future examination.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS - (Continued)
GuaranteesThe company and its subsidiaries have certain contingent liabilities with respect to guarantees, direct or indirect, of debt of affiliated companies or third parties. Under the terms of the guarantee arrangements, the company would generally be required to perform should the affiliated company or third party fail to fulfill its obligations under the arrangements. In some cases, the guarantee arrangements may have recourse provisions that would enable the company to recover any payments made under the terms of the guarantees
from assets provided as collateral.
Indemnifications In the acquisition of Unocal, the company assumed certain indemnities relating to contingent environmental liabilities associated with assets that were sold in 1997. The acquirer of those assets shared in certain environmental remediation costs up to a maximum obligation of $i200
million, which had been reached at December 31, 2009. Under the indemnification agreement, after reaching the $i200 million obligation, Chevron was solely responsible until April 2022, when the indemnification expired.
Long-Term Unconditional Purchase Obligations and Commitments, Including Throughput
and Take-or-Pay Agreements The company and its subsidiaries have certain contingent liabilities with respect to long-term unconditional purchase obligations and commitments, including throughput and take-or-pay agreements, some of which may relate to suppliers’ financing arrangements. The agreements typically provide goods and services, such as pipeline and storage capacity, utilities, and petroleum products, to be used or sold in the ordinary course of the company’s business.
EnvironmentalThe
company is subject to loss contingencies pursuant to laws, regulations, private claims and legal proceedings related to environmental matters that are subject to legal settlements or that in the future may require the company to take action to correct or ameliorate the effects on the environment of prior release of chemicals or petroleum substances by the company or other parties. Such contingencies may exist for various operating, closed and divested sites, including, but not limited to, U.S. federal Superfund sites and analogous sites under state laws, refineries, chemical plants, marketing facilities, crude oil fields, and mining sites.
Although the company has provided
for known environmental obligations that are probable and reasonably estimable, it is likely that the company will continue to incur additional liabilities. The amount of additional future costs are not fully determinable due to such factors as the unknown magnitude of possible contamination, the unknown timing and extent of the corrective actions that may be required, the determination of the company’s liability in proportion to other responsible parties, and the extent to which such costs are recoverable from third parties. These future costs may be material to results of operations in the period in which they are recognized, but the company does not expect these costs will have a material effect on its consolidated financial
position or liquidity.
Other Contingencies Chevron receives claims from and submits claims to customers; trading partners; joint venture partners; U.S. federal, state and local regulatory bodies; governments; contractors; insurers; suppliers; and individuals. The amounts of these claims, individually and in the aggregate, may be significant and take lengthy periods to resolve, and may result in gains or losses in future periods.
The company and its affiliates also continue to review and analyze their operations and may close, retire, sell, exchange, acquire or restructure assets to achieve operational or strategic benefits and to improve competitiveness and
profitability. These activities, individually or together, may result in significant gains or losses in future periods.
Note 13. iFair Value Measurements
i
The
three levels of the fair value hierarchy of inputs the company uses to measure the fair value of an asset or liability are described as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities. For the company, Level 1 inputs include exchange-traded futures contracts for which the parties are willing to transact at the exchange-quoted price and marketable securities that are actively traded.
Level 2: Inputs other than Level 1 that are observable, either directly or indirectly. For the company, Level 2 inputs
include quoted prices for similar assets or liabilities, prices obtained through third-party
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
broker quotes and prices that can be corroborated with other observable inputs for substantially the complete term of a contract.
Level 3: Unobservable inputs. The company does not use Level 3 inputs for any of its recurring fair value measurements.
Level 3 inputs may be required for the determination of fair value associated with certain nonrecurring measurements of nonfinancial assets and liabilities.
i
The fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at June 30, 2022, and December 31, 2021, is as follows:
Assets and Liabilities Measured at Fair Value
on a Recurring Basis
Marketable
SecuritiesThe company calculates fair value for its marketable securities based on quoted market prices for identical assets. The fair values reflect the cash that would have been received if the instruments were sold at June 30, 2022.
DerivativesThe company records most of its derivative instruments — other than any commodity derivative contracts that are accounted for as normal purchase and normal sale — on the Consolidated Balance Sheet at fair value, with the offsetting amount to the Consolidated Statement of Income. The
company designates certain derivative instruments as cash flow hedges that, if applicable, are reflected in the table above. Derivatives classified as Level 1 include futures, swaps and options contracts valued using quoted prices from active markets such as the New York Mercantile Exchange. Derivatives classified as Level 2 include swaps, options and forward contracts, the fair values of which are obtained from third-party broker quotes, industry pricing services and exchanges. The company obtains multiple sources of pricing information for the Level 2 instruments. Since this pricing information is generated from observable market data, it has historically been very consistent. The
company does not materially adjust this information.
Cash and Cash Equivalents The company holds cash equivalents in U.S. and non-U.S. portfolios. The instruments classified as cash equivalents are primarily bank time deposits with maturities of i90
days or less, and money market funds. “Cash and cash equivalents” had carrying/fair values of $i12.0 billion and $i5.6
billion at June 30, 2022, and December 31, 2021, respectively. The fair values of cash and cash equivalents are classified as Level 1 and reflect the cash that would have been received if the instruments were settled at June 30, 2022.
Restricted Cash had a carrying/fair value of $i1.3 billion and $i1.2
billion at June 30, 2022 and December 31, 2021, respectively. At June 30, 2022, restricted cash is classified as Level 1 and includes restricted funds related to certain upstream decommissioning activities, tax payments and a financing program, which are reported in “Prepaid expenses and other current assets” and “Deferred charges and other assets” on the Consolidated Balance Sheet.
Long-Term Debt had a net carrying value, excluding amounts reclassified from short-term debt, purchase price fair value adjustments and finance lease obligations, of $i17.4
billion and $i22.2 billion at June 30, 2022, and December 31, 2021, respectively. The fair value of long-term debt for the company was $i16.7
billion and $i23.7 billion at June 30, 2022 and December 31, 2021, respectively. Long-term debt primarily includes corporate issued bonds, classified as Level 1 and are $i16.2
billion for the period. The fair value of other long-term debt classified as Level 2 is $i0.5 billion.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The carrying values of other short-term financial assets and liabilities
on the Consolidated Balance Sheet approximate their fair values. Fair value remeasurements of other financial instruments at June 30, 2022, and December 31, 2021, were not material.
Properties, plant and equipmentThe company did not have any impairments of long-lived assets measured at fair value on a nonrecurring basis to report.
Investments and advancesThe company did not have any impairments of investments and advances measured at fair value on a nonrecurring basis to report in second quarter 2022.
Note
14. iFinancial and Derivative Instruments
The company’s commodity derivative instruments principally include crude oil, natural gas, liquefied natural gas and refined product futures, swaps, options and forward contracts. The company
applies cash flow hedge accounting to certain commodity transactions, where appropriate, to manage the market price risk associated with forecasted sales of crude oil. The company’s derivatives are not material to the company’s consolidated financial position, results of operations or liquidity. The company believes it has no material market or credit risks to its operations, financial position or liquidity as a result of its commodities and other derivatives activities.
The company uses commodity derivative instruments traded on the New York Mercantile Exchange and on electronic platforms of the
Inter-Continental Exchange and Chicago Mercantile Exchange. In addition, the company enters into swap contracts and option contracts principally with major financial institutions and other oil and gas companies in the “over-the-counter” markets, which are governed by International Swaps and Derivatives Association agreements and other master netting arrangements.
i
Derivative
instruments measured at fair value at June 30, 2022, and December 31, 2021, and their classification on the Consolidated Balance Sheet and Consolidated Statement of Income are as follows:
Consolidated Balance Sheet: Fair Value of Derivatives
In
the six months ended June 30, 2022, cash flow hedging contracts increased Sales and other operating revenues by $i2 million compared with ino
impact in the same period of the prior year. At June 30, 2022, before-tax deferred gains in Accumulated Other Comprehensive Losses related to outstanding crude oil price hedging contracts were $i29 million, of which all is expected to be reclassified into earnings during the next 12 months
as the hedged crude oil sales are recognized in earnings.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
ii
The
following table represents gross and net derivative assets and liabilities subject to netting agreements on the Consolidated Balance Sheet at June 30, 2022, and December 31, 2021.
Consolidated
Balance Sheet: The Effect of Netting Derivative Assets and Liabilities
Derivative
assets and liabilities are classified on the Consolidated Balance Sheet as accounts and notes receivable, long-term receivables, accounts payable, and deferred credits and other noncurrent obligations. Amounts not offset on the Consolidated Balance Sheet represent positions that do not meet all the conditions for “a right of offset.”
Note 15. iRevenue
i“Sales
and other operating revenue” on the Consolidated Statement of Income primarily arise from contracts with customers. Related receivables are included in “Accounts and notes receivable, net” on the Consolidated Balance Sheet, net of the current expected credit losses. The net balance of these receivables was $i18.7 billion and $i12.9
billion at June 30, 2022, and December 31, 2021, respectively. Other items included in “Accounts and notes receivable, net” represent amounts due from partners for their share of joint venture operating and project costs and amounts due from others, primarily related to derivatives, leases, buy/sell arrangements and product exchanges, which are accounted for outside the scope of ASC 606/.
Note 16. iFinancial
Instruments - Credit Losses
Chevron’s expected credit loss allowance balance was $i780 million as of June 30, 2022 and $i745 million
as of December 31, 2021, with a majority of the allowance relating to non-trade receivable balances.
The majority of the company’s receivable balance is concentrated in trade receivables, with a balance of $i24.2 billion as of June 30, 2022, which reflects the company’s
diversified sources of revenues and is dispersed across the company’s broad worldwide customer base. As a result, the company believes the concentration of credit risk is limited. The company routinely assesses the financial strength of its customers. When the financial strength of a customer is not considered sufficient, alternative risk mitigation measures may be deployed, including requiring prepayments, letters of credit or other acceptable forms of collateral. Once credit is extended and a receivable balance exists, the company applies a quantitative calculation to current trade receivable balances that reflects credit risk predictive analysis,
including probability of default and loss given default, which takes into consideration current and forward-looking market data as well as the company’s historical loss data. This statistical approach becomes the basis of the company’s expected credit loss allowance for current trade receivables with payment terms that are typically short-term in nature, with most due in less than 90 days.
Chevron's non-trade receivable balance was $i4.1 billion
as of June 30, 2022, which includes receivables from certain governments in their capacity as joint venture partners. Joint venture partner balances that are paid as per contract terms or not yet due are subject to the statistical analysis described above while past due balances are subject to additional qualitative management quarterly review. This management review includes review of reasonable and supportable repayment forecasts. Non-trade receivables also include employee and tax receivables that are deemed immaterial and low risk. Equity affiliate loans are also considered non-trade and associated allowances of $ii560/ million
are included within Investments and Advances on the Consolidated Balance Sheet at both June 30, 2022, and December 31, 2021.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 17. iAcquisition
of Renewable Energy Group, Inc.
On June 13, 2022, the company acquired Renewable Energy Group, Inc. (REG), an independent company focused on converting natural fats, oils and greases into advanced biofuels. REG utilizes a global integrated production, procurement, distribution and logistics network to operate 11 biorefineries in the U.S. and Europe. Ten biorefineries produce biodiesel and one produces renewable diesel. The acquisition combines REG’s growing renewable fuels production and leading feedstock capabilities with Chevron’s large manufacturing, distribution and commercial marketing position.
Chevron acquired outstanding shares of REG in an all-cash transaction valued at $i3.15 billion,
or $i61.50 per share. As part of the transaction, the company recognized long-term debt and finance leases with a fair value of $i590
million.
The acquisition was accounted for as a business combination under ASC 805, which requires assets acquired and liabilities assumed to be measured at their acquisition date fair values. Provisional fair value measurements were made for acquired assets and liabilities, and adjustments to those measurements may be made in subsequent periods, up to one year from the acquisition date, as information necessary to complete the analysis is obtained. Tangible and intangible assets were valued using a combination of replacement cost approach and discounted cash flows that incorporated internally generated price assumptions and production profiles together with appropriate operating and capital cost assumptions. Debt assumed in the acquisition was valued based on observable market prices for REG’s debt. As a result of measuring the assets acquired and the liabilities assumed at fair value, the
company recognized $i293 million of goodwill.
i
The following table summarizes the values assigned to assets acquired and liabilities assumed:
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Second Quarter 2022 Compared with Second Quarter 2021
Key
Financial Results
Earnings by Business Segment
Three Months Ended June 30
Six Months Ended June 30
2022
2021
2022
2021
(Millions
of dollars)
(Millions of dollars)
Upstream
United States
$
3,367
$
1,446
$
6,605
$
2,387
International
5,191
1,732
8,887
3,141
Total
Upstream
8,558
3,178
15,492
5,528
Downstream
United States
2,440
776
2,926
646
International
1,083
63
928
198
Total
Downstream
3,523
839
3,854
844
Total Segment Earnings
12,081
4,017
19,346
6,372
All
Other
(459)
(935)
(1,465)
(1,913)
Net Income (Loss) Attributable to Chevron Corporation (1) (2)
$
11,622
$
3,082
$
17,881
$
4,459
(1) Includes
foreign currency effects.
$
668
$
43
$
450
$
41
(2) Income (loss) net of tax; also referred to as “earnings” in the discussions that follow.
Net income attributable
to Chevron Corporation for second quarter 2022 was $11.6 billion ($5.95 per share — diluted), compared with $3.1 billion ($1.60 per share — diluted) in the second quarter of 2021. The net income attributable to Chevron Corporation for the first six months of 2022 was $17.9 billion ($9.17 per share — diluted), compared with $4.5 billion ($2.32 per share — diluted) in the first six months of 2021.
Upstream earnings in second quarter 2022 were $8.6 billion compared with $3.2 billion in the corresponding 2021 period. The increase was mainly due to higher realizations and higher foreign currency benefits, partially offset by higher operating expenses largely due to an early contract termination at Sabine Pass. Earnings for the first six months of 2022 were $15.5 billion compared with $5.5 billion
a year earlier. The increase was mainly due to higher realizations and favorable foreign currency effects.
Downstream earnings in second quarter 2022 were $3.5 billion compared with $839 million in the corresponding 2021 period. The increase was mainly due to higher margins on refined product sales and favorable foreign exchange effects, partially offset by higher operating expenses and lower earnings from the 50 percent-owned Chevron Phillips Chemical Company. Earnings for the first six months of 2022 were $3.9 billion compared with $844 million in the corresponding 2021 period. The increase was mainly due to higher margins on refined product sales and favorable foreign currency effects, partially offset by higher operating expenses.
Refer to “Results
of Operations” for additional discussion of results by business segment and “All Other” activities for the second quarter and first six months of 2022 versus the same periods in 2021.
Business Environment and Outlook
Chevron Corporation* is a global energy company with substantial business activities in the following countries: Angola, Argentina, Australia, Bangladesh, Brazil, Canada, China, Egypt, Equatorial Guinea, Israel, Kazakhstan, Kurdistan Region of Iraq, Mexico, Nigeria, the Partitioned Zone between Saudi Arabia and Kuwait, the Philippines, Republic of Congo, Singapore, South Korea, Thailand, the United Kingdom, the United States, and Venezuela.
_____________________
*
Incorporated in Delaware in 1926 as Standard Oil Company of California, the company adopted the name Chevron Corporation in 1984 and ChevronTexaco Corporation in 2001. In 2005, ChevronTexaco Corporation changed its name to Chevron Corporation. As used in this report, the term “Chevron” and such terms as “the company,”“the corporation,”“our,”“we,”“us” and “its” may refer to Chevron Corporation, one or more of its consolidated subsidiaries, or all of them taken as a whole, but unless stated otherwise they do not include “affiliates” of Chevron — i.e., those companies generally owned 50 percent or less. All of these terms are used for convenience only and are
not intended as a precise description of any of the separate companies, each of which manages its own affairs.
The company’s objective is to deliver higher returns, lower carbon and superior shareholder value in any business environment. Earnings of the company depend mostly on the profitability of its upstream business segment. The most significant factor affecting the results of operations for the upstream segment is the price of crude oil, which is determined in global markets outside of
the company’s control. In the company’s downstream business, crude oil is the largest cost component of refined products. Periods of sustained lower commodity prices could result in the impairment or write-off of specific assets in future periods and cause the company to adjust operating expenses, including employee reductions, and capital and exploratory expenditures, along with other measures intended to improve financial performance.
Governments, companies, communities, and other stakeholders are increasingly supporting efforts to address climate change, recognizing that individuals and society benefit from access to affordable, reliable, and ever-cleaner energy. International
initiatives and national, regional and state legislation and regulations that aim to directly or indirectly reduce GHG emissions are in various stages of adoption and implementation. These policies, some of which support the global net zero emissions ambitions of the Paris Agreement, can change the amount of energy consumed, the rate of energy-demand growth, the energy mix, and the relative economics of one fuel versus another. Implementation of these policies can be dependent on, and can affect the pace of, technological advancements, the granting of necessary permits by governing authorities, the availability of cost-effective, verifiable carbon credits, the availability of suppliers that can meet sustainability and other standards, evolving regulatory requirements affecting ESG standards or other disclosures, and evolving standards for tracking and reporting on emissions and emission reductions and removals. Beyond the legislative and regulatory landscape, ever changing
customer and consumer behavior can also influence energy demand by affecting preferences and use of the company’s products or competitors’ products, now and in the future.
Chevron supports the Paris Agreement’s global approach to governments addressing climate change and is committed to taking actions to help lower the carbon intensity of its operations while continuing to meet the need for energy that supports society. Chevron integrates climate change-related issues and the regulatory and other responses to these issues into its strategy and planning, capital investment reviews, and risk management tools and processes, where it believes they are applicable. They are also factored into the company’s long-range supply, demand, and energy price forecasts. These
forecasts reflect estimates of long-range effects from climate change-related policy actions, such as renewable fuel penetration and energy efficiency standards, and demand response to oil and natural gas prices. The actual level of expenditure required to comply with new or potential climate change-related laws and regulations and amount of additional investments in new or existing technology or facilities, such as carbon capture and storage, is difficult to predict with certainty and is expected to vary depending on the actual laws and regulations enacted or customer and consumer preference in a jurisdiction, the company’s activities in it, and market conditions.
Although the future is uncertain, many published outlooks conclude that fossil fuels will remain a significant part of an energy system that increasingly incorporates lower carbon
sources of supply. The company will continue to develop oil and gas resources to meet customers’ demand for energy. At the same time, Chevron believes that the future of energy is lower carbon. The company will continue to maintain flexibility in its portfolio to be responsive to changes in policy, technology, and customer preferences. Chevron aims to grow its traditional oil and gas business, lower the carbon intensity of its operations and grow lower carbon businesses in renewable fuels, hydrogen, carbon capture and offsets. To grow its lower carbon businesses, Chevron plans to target sectors of the economy where emissions are harder to abate or that cannot be easily electrified, while leveraging the company’s capabilities,
assets and customer relationships. The company’s traditional oil and gas business may increase or decrease depending upon regulatory or market forces, among other factors.
Chevron's previously disclosed 2050 net zero upstream aspiration, carbon intensity targets and planned lower-carbon capital spend through 2028 can be found on pages 32 through 34 of the company’s 2021 Annual Report on Form 10-K.
Refer to “Cautionary Statements Relevant to Forward-Looking Information” on page 2 and to “Risk Factors” on pages 20 through 25 of the company’s 2021 Annual Report on Form 10-K for a discussion of some of the inherent risks that
could materially impact the company’s results of operations or financial condition.
The effective tax rate for the company can change substantially during periods of significant earnings volatility. This is due to the mix effects that are impacted by both the absolute level of earnings or losses and whether they arise in higher or lower tax rate jurisdictions. As a result, a decline or increase in the effective income tax rate in one period may not be indicative
of expected results in future periods. Additional information related to the company’s effective income tax rate is included in Note 10 Income Taxes to the Consolidated Financial Statements.
The company continually evaluates opportunities to dispose of assets that are not expected to provide sufficient long-term value and to acquire assets or operations complementary to its asset base to help augment the company’s financial performance and value growth. Asset dispositions and restructurings may result in significant gains or losses in future
periods.
The company closely monitors developments in the financial and credit markets, the level of worldwide economic activity, and the implications for the company of movements in prices for crude oil and natural gas. Management takes these developments into account in the conduct of daily operations and for business planning.
The outbreak of COVID-19 caused a significant decrease in demand for our products and created disruptions and volatility in the global marketplace beginning late in first quarter 2020. Demand has largely recovered; however, there continues to be uncertainty around the extent to which the COVID-19 pandemic may impact our future results, which could be material.
Comments
related to earnings trends for the company’s major business areas are as follows:
Upstream Earnings for the upstream segment are closely aligned with industry prices for crude oil and natural gas. Crude oil and natural gas prices are subject to external factors over which the company has no control, including product demand connected with global economic conditions, industry production and inventory levels, technology advancements, production quotas or other actions imposed by OPEC+ countries, actions of regulators or governments, weather-related damage and disruptions, competing fuel prices, natural and human causes beyond the company’s control such as the
COVID-19 pandemic, and regional supply interruptions or fears thereof that may be caused by civil unrest, political uncertainty or military conflicts such as the ongoing conflict in Ukraine. Any of these factors could also inhibit the company’s production and/or export capacity in an affected region. The company closely monitors developments in the countries in which it operates and holds investments and seeks to manage risks in operating its facilities and businesses.
The longer-term trend in earnings for the upstream segment is also a function of other factors, including the company’s ability to find or acquire and efficiently produce crude oil and natural gas, changes in fiscal
terms of contracts, and changes in tax, environmental and other applicable laws and regulations.
Caspian Pipeline Consortium (CPC), an equity affiliate, operates a 935-mile crude oil export pipeline from the Tengiz Field in Kazakhstan to tanker-loading facilities at Novorossiysk on the Russian coast of the Black Sea, providing the main export route for crude oil production from both TCO and Karachaganak and other producing fields in Kazakhstan. On March 21, 2022, two of the three offshore loading moorings at the CPC marine terminal were damaged in a weather-related incident. As a result, production at TCO was curtailed to approximately 70 percent of capacity beginning March 25, 2022. Repairs have since been completed for the two damaged
offshore loading moorings. TCO production facilities returned to normal rates on April 23, 2022. This incident did not have a material impact on the company's results of operations or consolidated financial position.
Governments (including Russia) have imposed and may impose additional sanctions and other trade laws, restrictions and regulations that could lead to disruption in our ability to produce, transport and/or export crude in the region around Russia and could have an adverse effect on CPC operations and/or the company’s financial position. The financial impacts of such risks, including presently imposed sanctions, are not currently material for the
company; however, it remains uncertain how long these conditions may last or how severe they may become.
The company's third party costs can be subject to external factors beyond its control including, but not limited to: the general level of inflation, tariffs or other taxes imposed on goods or services, and market-based prices
charged by the industry’s material and service providers. Chevron utilizes contracts
with various pricing mechanisms, so there may be a lag before the company’s costs reflect the changes in market trends.
Inflationary pressures continue for both oil and gas inputs (such as rigs, pipe and well services, etc.) as well as other industrial equipment and materials. In the near term, slowing economic activity could moderate inflationary pressures. The United States rig count is on track to be at pre-pandemic levels in the third quarter of this year, driven in part by an increase in gas directed drilling as U.S. natural gas prices and LNG exports increase. The international rig count at the end of the second quarter was up from the previous quarter on rising natural gas drilling with oil rigs steady.
The company
is actively managing its timing of scheduled work, contracting, procurement, and supply chain activities to assure reliable supply of goods and services, while effectively managing costs in support of its operations. Supply chain disruptions continue to limit the availability and deliverability of some inputs throughout the industry. In response to supply backlogs, Chevron is planning for longer lead times, identifying alternative supply sources and substituting materials that can be utilized.
The chart above shows the trend in benchmark prices for Brent crude oil, West Texas Intermediate (WTI) crude oil, and U.S. Henry Hub natural gas. The Brent price averaged $71 per barrel for the full-year 2021. During the second quarter of 2022, Brent
averaged $114 per barrel and ended July at about $114. The WTI price averaged $68 per barrel for the full-year 2021. During the second quarter of 2022, WTI averaged $109 per barrel and ended July at about $99. The majority of the company’s equity crude production is priced based on the Brent and WTI benchmarks. Crude prices have remained strong in the second quarter of 2022 driven by geopolitical issues and OPEC+ production being below announced quotas, although demand growth is slowing down due to macroeconomic factors and high prices. (Refer to “Selected Operating Data” for the company’s average U.S. and international crude oil sales prices).
In
contrast to price movements in the global market for crude oil, price changes for natural gas are also impacted by seasonal supply/demand and infrastructure conditions in local markets. In the United States, prices at Henry Hub averaged $5.92 per thousand cubic feet (MCF) for the first six months of 2022, compared with $3.16 during the first six months of 2021. At the end of July 2022, the Henry Hub spot price was $8.66 per MCF.
Outside the United States, price changes for natural gas also depend on a wide range of supply, demand and regulatory circumstances. The company’s long-term contract prices for liquefied natural gas (LNG) are typically linked to crude oil prices. Most of the equity LNG offtake from the operated Australian LNG assets is committed
under binding long-term contracts, with some sold in the Asian spot LNG market. International natural gas realizations averaged $9.04 per MCF during the first six months of 2022, compared with $4.82 per MCF in the same period last year. (Refer to “Selected Operating Data” for the company’s average natural gas sales prices for the U.S. and international regions.)
The
company’s worldwide net oil-equivalent production in the first six months of 2022 averaged 2.98 million barrels per day, a decrease of 5 percent from the first six months of 2021 mainly as a result of contract expirations in Thailand and Indonesia. About 27 percent of the company’s net oil-equivalent production in the first six months of 2022 occurred in OPEC+ member countries of Angola, Equatorial Guinea, Kazakhstan, Nigeria, the Partitioned Zone between Saudi Arabia and Kuwait and Republic of Congo.
Downstream Earnings for the downstream segment are closely tied to margins on the refining, manufacturing and marketing of products that include gasoline, diesel, jet fuel, lubricants, fuel oil, fuel and lubricant additives, petrochemicals and renewable fuels. Industry margins are sometimes volatile and can be affected by the global and regional supply-and-demand balance for refined products and petrochemicals, and by changes in the price of crude oil, other refinery and petrochemical feedstocks, and natural gas. Industry margins can also be influenced by inventory levels, geopolitical events, costs of materials and services, refinery or chemical plant capacity utilization, maintenance programs, and disruptions at refineries or chemical plants resulting from unplanned outages due to severe weather, fires or other operational events.
Other
factors affecting profitability for downstream operations include the reliability and efficiency of the company’s refining, marketing and petrochemical assets, the effectiveness of its crude oil and product supply functions, and the volatility of tanker-charter rates for the company’s shipping operations, which are driven by the industry’s demand for crude oil and product tankers. Other factors beyond the company’s control include the general level of inflation and energy costs to operate the company’s refining, marketing and petrochemical assets, and changes in tax, environmental, and other applicable laws and regulations.
Refining
margins have been strong in 2022 because of recovering demand for refined products, low product inventories, industry refinery capacity constraints and lower product exports from Russia and China. Refining utilization has been strong in 2022 to keep pace with demand growth. Although refining margins have been elevated, there are signs that higher refined product prices and concerns over macroeconomic conditions are slowing demand and reducing margins.
The company’s most significant marketing areas are the West Coast and Gulf Coast of the United States and Asia Pacific. Chevron operates or has significant ownership interests in refineries in each of these areas. Additionally, the company has a growing presence in renewable fuels, as evidenced by the recent acquisition
of Renewable Energy Group, Inc.
All Other consists of worldwide cash management and debt financing activities, corporate administrative functions, insurance operations, real estate activities and technology companies.
Operating Developments
Noteworthy operating developments in recent months included the following:
•Indonesia
– Announced a partnership with Indonesia’s PT Pertamina (Persero) to explore potential lower carbon business opportunities in Indonesia.
•Kazakhstan – Announced a memorandum of understanding to explore potential lower carbon business opportunities in Kazakhstan via a collaboration with JSC NC “KazMunayGas”.
•United States – Sanctioned the Ballymore project in the deepwater U.S. Gulf of Mexico. The field is planned to be produced through an existing facility with an allocated capacity of 75,000 barrels of crude oil per day.
•United States – Announced launch of a carbon capture and storage (CCS) project aimed at reducing the carbon intensity of the company's upstream operations
in California.
•United States – Formed Bunge Chevron Ag Renewables LLC, a joint venture designed to develop renewable fuel feedstocks leveraging Bunge’s expertise in oilseed processing and farmer relationships and Chevron’s expertise in fuels manufacturing and marketing.
•United States – Acquired a 50 percent stake in an expanded joint venture to develop the Bayou Bend CCS hub, with the goal of it becoming one of the first offshore CCS projects in the United States.
•United
States – Invested in lower-carbon technologies, including Infinitum Electric (ultra-high-efficiency-lightweight motors), Emerald Technology Ventures (sustainable packaging), and TAE Technologies (nuclear fusion).
•United States – Announced agreement to supply fuel linked to renewable natural gas for a Walmart Inc. demonstration of Cummins Inc.’s new 15-liter natural gas engine for heavy-duty trucks.
•United States – Completed acquisition of Renewable Energy Group, Inc., making Chevron one of the leading renewable fuels producers in the United States.
•United States – Earned Project Canary's highest certification rating on operational and environmental performance for almost all participating Permian and DJ basins upstream assets, positioning the
company to market responsibly sourced natural gas (RSG) from the certified assets beginning in the second half of 2022.
Business Segments The following section presents the results of operations and variances on an after-tax basis for the company’s business segments — Upstream and Downstream
— as well as for “All Other.” (Refer to Note 7 Operating Segments and Geographic Data for a discussion of the company’s “reportable segments,” as defined under the accounting standards for segment reporting.)
Upstream
Three
Months Ended June 30
Six Months Ended June 30
2022
2021
2022
2021
(Millions of dollars)
U.S. Upstream Earnings
$
3,367
$
1,446
$
6,605
$
2,387
U.S.
upstream reported earnings of $3.4 billion in second quarter 2022, compared with $1.4 billion from a year earlier. The increase was primarily due to higher realizations of $2.7 billion, partially offset by higher operating expenses of $790 million largely due to an early contract termination at Sabine Pass.
U.S. upstream reported earnings of $6.6 billion in the first six months of 2022, compared with $2.4 billion from a year earlier. The increase was primarily due to higher realizations of $4.8 billion and higher sales volumes of $300 million, partially offset by higher operating expenses of $870 million largely due to an early contract termination at Sabine Pass.
The average realization per barrel for
U.S. crude oil and natural gas liquids in second quarter 2022 was $89, compared with $54 a year earlier. The average realization per barrel for U.S. crude oil and natural gas liquids in the first six months of 2022 was $83, compared with $51 a year earlier. The average natural gas realization in second quarter 2022 was $6.22 per thousand cubic feet, compared with $2.16 in the 2021 period. The average natural gas realization in the first six months of 2022 was $5.13 per thousand cubic feet, compared with $2.16 in the 2021 period.
Net oil-equivalent production of 1.17 million barrels per day in second quarter 2022 was up 36,000 barrels per day, or 3 percent, from a year earlier. Net oil-equivalent production of 1.18 million barrels per day in the first six months of 2022 was up 72,000 barrels per day, or 7 percent, from a year earlier. The increase for both quarterly and year-to-date periods was due to net production increases
in the Permian Basin, partially offset by normal field declines in other locations.
The net liquids component of oil-equivalent production of 888,000 barrels per day in second quarter 2022 was up 4 percent from the corresponding 2021 period. The net liquids component of oil-equivalent production of 884,000 barrels per day in the first six months of 2022 was up 7 percent from the corresponding 2021 period. Net natural gas production increased 2 percent to 1.71 billion cubic feet per day in second quarter 2022 from the 2021 comparative period. Net natural gas production was 1.77 billion cubic feet per day in the first six months of 2022, an increase of 6 percent from the 2021 period.
Three
Months Ended June 30
Six Months Ended June 30
2022
2021
2022
2021
(Millions of dollars)
International Upstream Earnings*
$
5,191
$
1,732
$
8,887
$
3,141
* Includes
foreign currency effects
$
603
$
78
$
459
$
26
International upstream operations earned $5.2 billion in second quarter 2022, compared with $1.7 billion a year ago. The increase in earnings was primarily due to higher realizations of $3.0 billion and asset sale gains of $200 million, partially offset by lower sales volumes of $560 million. Foreign currency
effects had a favorable impact on earnings of $525 million between periods.
International upstream operations earned $8.9 billion in the first six months of 2022, compared with $3.1 billion a year ago. The increase in earnings was primarily due to higher realizations of $5.5 billion and asset sale gains of $200 million, partially offset by lower sales volumes of $890 million. Foreign currency effects had a favorable impact on earnings of $433 million between periods.
The average sales price for crude oil and natural gas liquids in second quarter 2022 was $102 per barrel, up from
$62 a year earlier. The average sales price for crude oil and natural gas liquids in the first six months of 2022 was $98 per barrel, up from $59 a year earlier. The average sales price of natural gas was $9.23 per thousand cubic feet in second quarter 2022, compared with $4.92 in the 2021 period. The average sales price of natural gas was $9.04 per thousand cubic feet in the first six months of 2022, compared with $4.82 in the 2021 period.
Net oil-equivalent production of 1.72 million barrels per day in second quarter 2022 was down 266,000 barrels per day from second quarter 2021. Net oil-equivalent production of 1.80 million barrels per day in the first six months of 2022 was down 218,000 barrels per day, or 11 percent, from a year earlier. The decrease for both quarterly and year-to-date periods was primarily due to lower production following expiration of the Erawan concession in Thailand and Rokan concession in Indonesia
and unfavorable entitlement effects due to higher prices.
The net liquids component of oil-equivalent production of 799,000 barrels per day in second quarter 2022 decreased 19 percent from the 2021 period. The net liquids component of oil-equivalent production of 828,000 barrels per day in the first six months of 2022 decreased 18 percent from the 2021 period. Net natural gas production of 5.55 billion cubic feet per day in second quarter 2022 decreased 7 percent from the 2021 period. Net natural gas production of 5.83 billion cubic feet per day in the first six months of 2022 decreased 4 percent from the 2021 period.
Downstream
Three
Months Ended June 30
Six Months Ended June 30
2022
2021
2022
2021
(Millions of dollars)
U.S. Downstream Earnings
$
2,440
$
776
$
2,926
$
646
U.S.
downstream reported earnings of $2.4 billion in second quarter 2022, compared with $776 million a year earlier. The increase was mainly due to higher margins on refined product sales of $2.1 billion, partially offset by lower earnings from the 50 percent-owned Chevron Phillips Chemical Company of $270 million and higher operating expenses of $230 million.
U.S. downstream reported earnings of 2.9 billion in the first six months of 2022, compared with $646 million a year earlier. The increase was mainly due to higher margins on refined product sales of $2.66 billion, partially offset by higher operating expenses of $280 million and lower earnings from the 50 percent-owned Chevron Phillips Chemical Company of $80 million.
Refinery crude oil input in second quarter 2022 decreased 8 percent to 881,000 barrels per day and for the first six months of 2022, crude oil input decreased 2 percent
to 898,000 barrels per day from the corresponding 2021 period. The decrease in both quarterly and year-to-date periods was primarily due to planned turnarounds.
Refined product sales in second quarter 2022 were up 4 percent to 1.21 million barrels per day and for the first six months of 2022, refined product sales were up 10 percent to 1.21 million barrels per day from the corresponding 2021 periods. The increase for both quarterly and six-month periods was mainly due to higher jet fuel demand as travel restrictions associated with the COVID-19 pandemic continue to ease.
Three
Months Ended June 30
Six Months Ended June 30
2022
2021
2022
2021
(Millions of dollars)
International Downstream Earnings*
$
1,083
$
63
$
928
$
198
* Includes
foreign currency effects
$
145
$
1
$
168
$
60
International downstream reported earnings of $1.1 billion in second quarter 2022, compared with $63 million a year earlier. The increase in earnings was mainly due to higher margins on refined product sales of
$1.1 billion and a favorable swing in foreign currency effects of $144 million between periods, partially offset by higher operating expenses of $160 million.
International downstream reported earnings of $928 million in the first six months of 2022, compared with $198 million a year earlier. The increase in earnings was mainly due to higher margins on refined product sales of $970 million and a favorable swing in foreign currency effects of $108 million between periods, partially offset by higher operating expenses of $290 million.
Refinery crude oil input of 634,000 barrels per day in second quarter 2022 increased 9 percent from the year-ago period. For the first six months of 2022, crude oil input was 626,000 barrels per day, up 12 percent from the year-ago period. The increase for
both the quarterly and year-to-date periods was due to increased refinery runs in response to higher demand.
Total refined product sales in second quarter 2022 were up 4 percent to 1.34 million barrels per day and for the first six months of 2022, refined product sales were up 5 percent to 1.33 million barrels per day from the corresponding 2021 periods. The increase for both quarterly and six-month periods was mainly due to higher jet fuel demand as travel restrictions associated with the COVID-19 pandemic continue to ease.
All Other
Three
Months Ended June 30
Six Months Ended June 30
2022
2021
2022
2021
(Millions of dollars)
Earnings/(Charges)*
$
(459)
$
(935)
$
(1,465)
$
(1,913)
* Includes
foreign currency effects
$
(80)
$
(36)
$
(177)
$
(45)
All Other consists of worldwide cash management and debt financing activities, corporate administrative functions, insurance operations, real estate activities and technology companies.
Net charges in second quarter 2022 were $459 million, compared to $935 million a year earlier. The decrease in net charges
between periods was mainly due to lower employee benefit costs, pension expense and interest expense, partially offset by a unfavorable swing of $44 million in foreign currency effects.
Net charges in the first six months of 2022 were $1.5 billion, compared to $1.9 billion a year earlier. The decrease in net charges between periods was mainly due to lower pension expense, employee benefit costs and interest expense, partially offset by a unfavorable swing of $132 million in foreign currency effects.
Explanations of variations between periods for selected income statement categories are provided below:
Three Months Ended June 30
Six Months Ended June 30
2022
2021
2022
2021
(Millions
of dollars)
Sales and other operating revenues
$
65,372
$
36,117
$
117,686
$
67,193
Sales and other operating revenues increased $29.3 billion for the second quarter and $50.5 billion for the six-month period mainly due to higher refined product, crude oil and natural gas prices.
Three
Months Ended June 30
Six Months Ended June 30
2022
2021
2022
2021
(Millions of dollars)
Income from equity affiliates
$
2,467
$
1,442
$
4,552
$
2,353
Income
from equity affiliates in the second quarter and six-month period increased mainly due to higher upstream-related earnings from TCO in Kazakhstan and Angola LNG and higher downstream-related earnings from GS Caltex in South Korea, partially offset by lower earnings from CPChem.
Three Months Ended June 30
Six
Months Ended June 30
2022
2021
2022
2021
(Millions of dollars)
Other income (loss)
$
923
$
38
$
897
$
80
Other
income for the second quarter and six-month period increased due to a favorable swing in foreign currency effects and higher gains on asset sales.
Three Months Ended June 30
Six Months Ended June 30
2022
2021
2022
2021
(Millions
of dollars)
Purchased crude oil and products
$
40,003
$
20,629
$
72,652
$
38,197
Purchased crude oil and products increased $19.4 billion for the second quarter and $34.5 billion for the six-month period primarily due to higher crude oil, natural gas and refined product prices.
Three
Months Ended June 30
Six Months Ended June 30
2022
2021
2022
2021
(Millions of dollars)
Operating, selling, general and administrative expenses
$
7,181
$
5,995
$
13,786
$
11,952
Operating,
selling, general and administrative expenses in the second quarter increased $1.2 billion primarily due to an early contract termination charge at Sabine Pass and higher transportation expenses, partially offset by lower employee benefit expenses. Operating, selling, general and administrative expenses in the six-month period increased $1.8 billion primarily due to an early contract termination charge at Sabine Pass, higher transportation expenses, and costs associated with refinery shutdowns, partially offset by lower legal reserves.
Three
Months Ended June 30
Six Months Ended June 30
2022
2021
2022
2021
(Millions of dollars)
Exploration expenses
$
196
$
113
$
405
$
199
Exploration
expenses in the second quarter and the six-month period increased primarily due to higher charges for well write-offs.
Depreciation,
depletion and amortization expenses for the second quarter and six-month period decreased primarily due to lower rates and lower production.
Three Months Ended June 30
Six Months Ended June 30
2022
2021
2022
2021
(Millions
of dollars)
Taxes other than on income
$
1,563
$
1,566
$
3,565
$
2,986
Taxes other than on income for the second quarter were flat as higher taxes on production and excise taxes were offset by lower regulatory expenses. Taxes other than on income
increased for the six-month period mainly due to higher taxes on production and excise taxes.
Three Months Ended June 30
Six Months Ended June 30
2022
2021
2022
2021
(Millions
of dollars)
Interest and debt expense
$
129
$
185
$
265
$
383
Interest and debt expenses for the second quarter and the six-month period decreased mainly due to lower debt balances.
Three
Months Ended June 30
Six Months Ended June 30
2022
2021
2022
2021
(Millions of dollars)
Other components of net periodic benefit costs
$
(13)
$
165
$
51
$
502
Other
components of net periodic benefit costs for the second quarter and the six-month period decreased mainly due to lower pension settlement costs as fewer lump-sum pension distributions were made in the current year.
Three Months Ended June 30
Six Months Ended June 30
2022
2021
2022
2021
(Millions
of dollars)
Income tax expense/(benefit)
$
4,288
$
1,328
$
7,065
$
2,107
The increase in income tax expense for the second quarter 2022 of $3.0 billion is consistent with the increase in total income before tax for the
company of $11.6 billion.
U.S. income before tax increased from $1.7 billion in second quarter 2021 to $7.0 billion in second quarter 2022. This $5.3 billion increase in income was primarily driven by higher realizations and downstream margins. The increase in income had a direct impact on the company’s U.S. income tax resulting in an increase in tax expense of $1.2 billion between year-over-year periods, from $381 million in 2021 to $1.6 billion in 2022.
International income before tax increased from $2.7 billion in second quarter 2021 to $9.0 billion in second quarter 2022. This $6.2 billion increase in income was primarily driven by higher realizations and downstream margins. The increase in income primarily drove the $1.8 billion increase in international income tax expense between year-over-year
periods, from $947 million in 2021 to $2.7 billion in 2022.
The company's increase in income tax expense for the first six months of 2022 of $5.0 billion was primarily due to the increase in the total before-tax income in 2022 of $18.5 billion.
U.S. income before tax increased between the six-month periods, from $1.6 billion in 2021 to $10.7 billion in 2022. This increase in income was primarily driven by higher realizations and downstream margins. The increase in income had a direct impact on the
company’s U.S. income tax resulting in an increase in tax expense of $2.1 billion between the six-month periods, from $415 million in 2021 to $2.5 billion in 2022.
International income before tax increased for the six-month period, from $5.0 billion in 2021 to $14.3 billion in 2022. This increase in income is primarily due to higher realizations and downstream margins. The increase in income primarily drove the $2.9 billion increase in international income tax expense between year-over-year periods, from $1.7 billion in 2021 to $4.6 billion in 2022.
Additional information related to the company’s effective income tax rate is included in Note 10 Income Taxes
to the Consolidated Financial Statements.
The following table presents a comparison of selected operating data:
Selected
Operating Data (1) (2)
Three Months Ended June 30
Six Months Ended June 30
2022
2021
2022
2021
U.S. Upstream
Net
crude oil and natural gas liquids production (MBPD)
888
857
884
829
Net natural gas production (MMCFPD)(3)
1,705
1,678
1,766
1,660
Net
oil-equivalent production (MBOEPD)
1,172
1,136
1,178
1,106
Sales of natural gas (MMCFPD)
4,364
3,776
4,412
3,843
Sales
of natural gas liquids (MBPD)
258
186
263
178
Revenue from net production
Liquids ($/Bbl)
$
88.71
$
54.08
$
82.72
$
51.01
Natural
gas ($/MCF)
$
6.22
$
2.16
$
5.13
$
2.16
International Upstream
Net crude
oil and natural gas liquids production (MBPD)(4)
799
990
828
1,008
Net natural gas production (MMCFPD)(3)
5,548
5,993
5,832
6,060
Net
oil-equivalent production (MBOEPD)(4)
1,724
1,990
1,800
2,018
Sales of natural gas (MMCFPD)
4,537
4,756
4,705
5,092
Sales
of natural gas liquids (MBPD)
83
106
90
91
Revenue from liftings
Liquids ($/Bbl)
$
102.30
$
62.12
$
97.74
$
58.93
Natural
gas ($/MCF)
$
9.23
$
4.92
$
9.04
$
4.82
U.S. and International Upstream
Total
net oil-equivalent production (MBOEPD)(4)
2,896
3,126
2,978
3,124
U.S. Downstream
Gasoline sales (MBPD)(5)
634
678
639
643
Other
refined product sales (MBPD)
576
481
575
462
Total refined product sales (MBPD)
1,210
1,159
1,214
1,105
Sales
of natural gas liquids (MBPD)
37
29
35
29
Refinery input (MBPD)
881
956
898
918
International
Downstream
Gasoline sales (MBPD)(5)
281
269
281
263
Other refined product sales (MBPD)
673
671
683
670
Share
of affiliate sales (MBPD)
383
342
368
341
Total refined product sales (MBPD)
1,337
1,282
1,332
1,274
Sales
of natural gas liquids (MBPD)
141
74
130
75
Refinery input (MBPD)
634
580
626
559
(1) Includes
company share of equity affiliates.
(2) MBPD — thousands of barrels per day; MMCFPD — millions of cubic feet per day; Bbl — Barrel; MCF — thousands of cubic feet; oil-equivalent gas conversion ratio is 6,000 cubic feet of natural gas = 1 barrel of crude oil; MBOEPD — thousands of barrels of oil-equivalent per day.
(3) Includes natural gas consumed in operations (MMCFPD):
Cash, cash equivalents and marketable securities totaled $12.4 billion at June 30, 2022 and $5.7 billion
at year-end 2021. Cash provided by operating activities in the first six months of 2022 was $21.8 billion, compared with $11.2 billion in the year-ago period. Cash provided by financing activities includes proceeds from shares issued for stock option exercises of $5.5 billion in the first six months of 2022, compared with $381 million in the year-ago period. Future cash proceeds from options exercises are expected to be lower. Cash capital and exploratory expenditures totaled $5.1 billion in the first six months of 2022, up $1.4 billion from the year-ago period. Proceeds and deposits related to asset sales and returns of investment totaled $1.3 billion and $1.1 billion, respectively, in the first six months of 2022, compared to $352 million and $17 million, respectively, in the year-ago period. The returns of investment in the first six months of 2022 were primarily from Angola LNG.
DividendsThe
company paid dividends of $5.5 billion to common stockholders during the first six months of 2022. In July 2022, the company declared a quarterly dividend of $1.42 per common share, payable in September 2022.
Debt and Finance Lease Liabilities Chevron’s total debt and finance lease liabilities were $26.2 billion at June 30, 2022, down from $31.4 billion at December 31, 2021 as the company repaid notes that matured during the period and early retired notes that were scheduled to mature in future periods, including $590 million associated with Renewable Energy Group, Inc.
The
company has access to a commercial paper program as a financing source for working capital or other short-term needs. The outstanding balance for the company’s commercial paper program at June 30, 2022 was zero. The company’s debt and finance lease liabilities due within one year, consisting primarily of the current portion of long-term debt and redeemable long-term obligations, totaled $7.7 billion at June 30, 2022, and $8.0 billion at December 31, 2021. Of these amounts, $4.5 billion was reclassified to long-term at the end of June 30, 2022. At December 31,
2021, $7.8 billion was reclassified to long-term. At June 30, 2022, settlement of these obligations was not expected to require the use of working capital within one year, as the company had the intent and the ability, as evidenced by committed credit facilities, to refinance them on a long-term basis.
At June 30, 2022, the company had $10.1 billion in 364-day committed credit facilities with various major banks that enable the refinancing of short-term obligations on a long-term basis. The credit facilities allow the company to convert any amounts outstanding into a term loan
for a period of up to one year. These facilities support commercial paper borrowing and can also be used for general corporate purposes. The company’s practice has been to continually replace expiring commitments with new commitments on substantially the same terms, maintaining levels management believes appropriate. Any borrowings under the facilities would be unsecured indebtedness at interest rates based on the London Interbank Offered Rate (LIBOR), or Secured Overnight Financing Rate (SOFR) when LIBOR has permanently or indefinitely ceased or is no longer representative, or an average of base lending rates published by specified banks and on terms reflecting the company’s strong credit rating. No borrowings were outstanding under these facilities at June 30,
2022. In addition, the company has an automatic shelf registration statement that expires in August 2023 for an unspecified amount of nonconvertible debt securities issued by Chevron Corporation or CUSA.
The major debt rating agencies routinely evaluate the company’s debt, and the company’s cost of borrowing can increase or decrease depending on these debt ratings. The company has outstanding bonds issued by Chevron Corporation, CUSA, Texaco Capital Inc and Noble Energy, Inc. Most of these securities are the obligations of, or guaranteed by, Chevron Corporation and are rated AA- by Standard and
Poor’s Corporation (S&P) and Aa2 by Moody’s Investors Service (Moody’s). The company’s U.S. commercial paper is rated A-1+ by S&P and P-1 by Moody’s. All of these ratings denote high-quality, investment-grade securities.
The company’s future debt level is dependent primarily on results of operations, cash that may be generated from asset dispositions, the capital program, lending commitments to affiliates, and shareholder distributions. Based on its high-quality debt ratings, the company believes that it has substantial borrowing capacity to meet unanticipated cash requirements. During extended periods of low prices for crude oil and natural gas and narrow margins for refined
products and commodity chemicals, the company has the flexibility to modify
capital spending plans, discontinue or curtail the stock repurchase program, sell assets, and increase borrowings to continue paying the common stock dividend. The company remains committed to retaining high-quality debt ratings.
Summarized Financial Information for Guarantee of Securities of SubsidiariesCUSA issued bonds that are fully and unconditionally guaranteed on an unsecured basis by Chevron Corporation (together, the “Obligor Group”). The tables below contain summary financial information for Chevron Corporation, as Guarantor, excluding its consolidated subsidiaries, and CUSA, as the issuer, excluding its consolidated subsidiaries. The summary financial information of the Obligor Group is presented on a combined basis, and transactions between the combined entities have been eliminated. Financial information for non-guarantor entities has been excluded.
Common Stock Repurchase Program The Board of Directors authorized a stock repurchase program in 2019 with a maximum dollar limit of $25 billion and no set term limits. As of June 30, 2022, the company had purchased 85.5 million shares for $10.6 billion, resulting in $14.4 billion remaining under the authorized program. In the second quarter of 2022, the
company repurchased 15.2 million shares for $2.5 billion. In July 2022, the company increased the top end of its annual share repurchase guidance range to $15 billion and is expected to repurchase $3.75 billion of shares during the third quarter of 2022.
Repurchases may be made from time to time in the open market, by block purchases, in privately negotiated transactions or in such other manner as determined by the company. The timing of the repurchases and the actual amount repurchased will depend on a variety of factors, including the market price of the company’s shares, general market and economic conditions, and other factors. The stock repurchase program does not obligate
the company to acquire any particular amount of common stock, and it may be discontinued or resumed at any time.
Noncontrolling InterestsThe company had noncontrolling interests of $1.0 billion at June 30, 2022 and $873 million at December 31, 2021. Included within noncontrolling interests is $139 million at June 30, 2022 and $135 million at December 31, 2021 of redeemable noncontrolling interest.
(1)At June 30, 2022, the book value of inventory was lower than replacement cost.
(2) Net Debt Ratio for June 30, 2022 is calculated as short-term debt of $3.2 billion plus long-term debt of $23.0 billion (together, “total debt”) less cash and cash equivalents of $12.0 billion and marketable securities of $341 million as a percentage of total debt less cash and cash equivalents and marketable securities, plus Chevron Corporation Stockholders’ Equity of $153.6 billion. For the December 31, 2021 calculation, please refer to page 47 of Chevron’s 2021 Annual Report on Form 10-K.
Six
Months Ended June 30
2022
2021
(Millions of dollars)
Net cash provided by operating activities
$
21,837
$
11,150
Less:
Capital expenditures
(5,144)
(3,543)
Free Cash Flow
$
16,693
$
7,607
Pension Obligations Information related to pension plan contributions is included in Note
8 Employee Benefits to the Consolidated Financial Statements.
Capital and Exploratory Expenditures Capital and exploratory expenditures, including equity affiliates (Total C&E), is a key performance indicator for the company and provides a comprehensive view of its share of investment levels. This metric includes additions to fixed asset or investment accounts, or to exploration expense, for consolidated companies and our share of these expenditures by equity affiliates. Management uses this metric to manage allocation of capital across its entire portfolio, funding requirements and ultimately shareholder distributions.
Total C&E was $6.7 billion in the first six months of 2022, compared with $5.3 billion in the corresponding 2021 period.
The amounts included the company’s share of affiliates’ expenditures of $1.5 billion in both the 2022 and 2021 periods, which did not require cash outlays by the company. Expenditures for upstream projects in the first six months of 2022 were $5.3 billion, representing 79 percent of the company-wide total.
The components of “Total C&E” are presented in the following table:
Six
Months Ended June 30
2022
2021
(Millions of dollars)
Capital expenditures
$
5,144
$
3,543
Expensed
exploration expenditures
171
180
Assets acquired through finance lease obligations and other financing obligations
—
42
Payments for other assets and liabilities, net
(169)
(2)
Capital and exploratory expenditures, excluding
equity affiliates
5,146
3,763
Company’s share of expenditures by equity affiliates
1,534
1,527
Capital and exploratory expenditures, including equity affiliates (Total C&E)
Acquisitions
During second quarter 2022, the company acquired all outstanding shares of Renewable Energy Group, Inc. (REG) in an all-cash transaction valued at $3.15 billion, or $61.50 per share. The total cash outflow, net of cash acquired, was $2.86 billion.
Contingencies and Significant Litigation
Ecuador Information related to Ecuador matters is included in Note 11 Litigation under the heading “Ecuador.”
Climate Change Information related to climate
change-related matters is included in Note 11 Litigation under the heading “Climate Change.”
Louisiana Information related to Louisiana coastal matters is included in Note 11 Litigation under the heading “Louisiana.”
Long-Term
Unconditional Purchase Obligations and Commitments, Including Throughput and Take-or-Pay Agreements Information related to the company’s long-term unconditional purchase obligations and commitments is included in Note 12 Other Contingencies and Commitments under the heading “Long-Term Unconditional Purchase Obligations and Commitments, Including Throughput and Take-or-Pay Agreements.”
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Information about market risks for the six months ended June 30, 2022, does not differ materially from that discussed
under Item 7A of Chevron’s 2021 Annual Report on Form 10-K.
Item 4.Controls and Procedures
(a) Evaluation of disclosure controls and procedures
The company’s management has evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the company’s disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company’s disclosure controls and procedures were effective as of June 30, 2022.
(b) Changes in internal control over financial reporting
During the quarter ended June 30, 2022, there were no changes in the company’s internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the company’s internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1.Legal Proceedings
Governmental Proceedings The following is a description of legal proceedings that involve governmental authorities as a party and the company reasonably believes would result in $1.0 million or more
of monetary sanctions, exclusive of interest and costs, under federal, state and local laws that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment. The following proceedings include those matters relating to second quarter 2022 and any material developments with respect to matters previously reported in Chevron’s 2021 Annual Report on Form 10-K.
On June 22, 2022, the California Department of Fish and Game, Office of Spill Prevention and Response issued a Complaint - Notice of Violation to Chevron for alleged violations related to oil spills and impacted habitat and species occurring between January 2018 and May 2022 at different Chevron fields within Kern County, California. Resolution of the alleged violations may result in the payment of a civil penalty of $1.0 million or more.
As previously disclosed, the refinery in Pasadena, Texas acquired by Chevron on May 1, 2019 (Pasadena Refining System, Inc. and PRSI Trading LLC) had multiple outstanding Notices of Violation (NOVs) that were issued by the Texas Commission on Environmental Quality related to air emissions at the refinery. The Pasadena refinery negotiated a resolution of the NOVs with the Texas Attorney General, which was approved by the District Court of Travis County, Texas, 53rd Judicial District on July 1, 2022. Resolution of these alleged violations resulted in the payment of a civil penalty of $1.1 million on July 27, 2022.
Please see information related to other legal proceedings inNote
11 Litigation.
Item 1A.Risk Factors
Some inherent risks could materially impact the company’s financial results of operations or financial condition. Information about risk factors for the six months ended June 30, 2022, does not differ materially from that set forth under the heading “Risk Factors” on pages 20 through 25 of the company’s 2021 Annual Report on Form 10-K.
Cover Page Interactive Data File (contained in Exhibit 101)
Attached as Exhibit 101 to this report are documents formatted in iXBRL (Inline Extensible Business Reporting Language). The financial information contained in the iXBRL-related documents is “unaudited” or “unreviewed.”
____________________________________________
+ Indicates a management contract or compensatory plan or arrangement.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.