A Look At Chevron's Full-Year 2012 Earnings Release

| About: Chevron Corporation (CVX)

Chevron (NYSE:CVX) today announced fourth-quarter 2012 earnings of $3.70 per share on revenue of $60.5 B, beating analyst expectations by $0.65 in earnings, but missing by $6.3 B in revenue.

Production Results

Note -Upstream represents exploration and production, Downstream represents refining marketing and transportation. MB/D - Thousand Barrels of Oil per day.

Chevron's earnings mix for full-year 2012 edged away from upstream as downstream earnings recovered significantly.


Year ended

Production (MB/D)




% Increase

Net Liquids





Net Natural Gas





Total Production





Chevron improved its production per day from the third-quarter average of 2,520 as planned production turnarounds and the restoration of the Gulf of Mexico production kicked for the fourth quarter. Overall production however remained below the prior year, reflecting the stalled operations in Brazil and the sale of the Cook Inlet, Alaska asset.

Total upstream earnings decreased from $24,786 M in 2011 to $23,778 M, for a total decrease of $1,008 M and 4%. Without the effect of the gain on asset exchange in Australia of $1,400, total earnings declined $ $2,408 and 10%.

The decrease in earnings far outpaces the overall decrease in production, which reflects lower average sales prices. Crude oil and natural gas liquids declined from $101 in Q4 2011, and natural gas prices declined from $3.62 in Q4 2011 to $3.22 for declines of 10% and 11% respectively.


Year ended





% Increase

Natural Gas (MB/D)





Nat Gas Liquids (MMCF/D)





Refined Products (MD/D)





Downstream sales volumes experienced a slight decrease from the full-year 2011, reflecting the fire in the Richmond, California, which interrupted the operations of the 245 MB/D refinery. Earnings from downstream operations however increased significantly from $3,591 M in 2011 to $4,299 M, representing an increase of $708 M, reflecting gains on refining operations sold in the Caribbean.

Revenues - Chevron reported a decrease in overall revenue of approximately 5%, consistent with the noted declines in production.



$ Increase

% Increase

Sales and operating





Income from equity affiliates










Total Revenues





Capital and Exploratory Budget

Chevron has followed its previously announced intention to favor upstream projects in its capital and exploration budget over downstream projects. Total 2012 expenditures from this budget, in million USD are as follows:

(Click to enlarge)

Chevron's previously announced 2013 capital and exploration budget projects total expenditures of $36.7B, of which $33B is planned for upstream and $2.7 for downstream operations, with other making up the difference.

Asset Exchange Gain

Chevron announced that the earnings figure includes approximately $1.4B in gain from an upstream asset exchange in Australia. Profits without the asset exchange would have been $2.99 per share, or under analyst expectations by $0.06 per share.

The asset exchange increased Chevron's interest in the Carnarvon Basin fields in offshore Australia. Chevron is involved in two major LNG projects in Australia's Gorgon and Wheatstone fields. The Gorgon project has in the past year suffered from immense cost over-runs from the original estimated $39B in 2009 to $52 B announced in December. Chevron blamed high labour costs, difficult weather and the strengthening of the Australian Dollar. Chevron maintained that the project remained profitable by considering the increase in natural gas prices during the same period and the increased projected production. As the 47% owner, Chevron is committing a substantial amount of capital to this project, which as of December 2012 was in its third year and 55% complete.

Other Information

Chevron's Balance Sheet Stockholders Equity for December 31, 2012 is of $136,524 M (121,382M in 2011) representing an implied book value per share of $69.4 compared with $60.7, reflecting the value creation from both earnings and stock repurchases. During the same period, Chevron's share price climbed from $106 at December 31, 2011, to today's $115 pre-market, more than offsetting the book value increase.

Chevron holds Cash and Cash equivalents of $20,939 M or $10.72 per share at December 31, 2012, compared with $15,864 M or $7.98 per share at December 31, 2011.

Chevron continues to hold a relatively small amount of debt, which increased from $10,152M in 2011, to $12,192 M in 2012.

Chevron again did not announce the effect of the ongoing litigation in Ecuador, Argentina and news on the settlement of damage claims resulting from the Richmond, California, refinery fire. Chevron recently announced progress in the Ecuador case when a former Ecuadorean judge admitted his involvement in orchestrating the judgment against Chevron in a New York federal court. The ongoing uncertainty in Chevron's legal disputes has weighed on the share price in the past year.


Chevron's overall positive earnings surprise is largely the result of gains on asset sales, which overshadows a larger decline in production. Hard evidence of this is the decline in revenue and declines noted in both upstream and downstream production.

Even without these gains however, Chevron's operations continue to provide very strong operating results, and grow immense shareholder value. Its expansion of upstream projects such as the LNG projects in Australia and the purchase of the Delaware Basin assets and the Kitimat LNG project, coupled with the redesigning downstream projects promise a continued strong shareholder value creation.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CVX over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.