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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-368-2
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Chevron Corporation
(Exact name of registrant as specified in its charter)
Delaware 94-0890210
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
575 Market Street, San Francisco, California 94105
-------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 894-7700
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NONE
----
(Former name or former address, if changed since last report.)
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. Yes X No
--- ---
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class Outstanding as of March 31, 1996
----------------------------- --------------------------------
Common stock, $1.50 par value 652,647,311
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INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income for the three months
ended March 31, 1996 and 1995 2
Consolidated Balance Sheet at March 31, 1996 and
December 31, 1995 3
Consolidated Statement of Cash Flows for the three
months ended March 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Listing of Exhibits and Reports on Form 8-K 16
Signature 17
Exhibit: Computation of Ratio of Earnings to Fixed Charges 18
-1-
PART I. FINANCIAL INFORMATION
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended
March 31,
------------------
Millions of Dollars, Except Per Share Amounts 1996 1995
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Revenues
Sales and other operating revenues* $10,157 $ 8,820
Equity in net income of affiliated companies 136 231
Other income 43 (7)
------ ------
Total Revenues 10,336 9,044
------ ------
Costs and Other Deductions
Purchased crude oil and products 5,448 4,518
Operating expenses 1,313 1,365
Exploration expenses 92 71
Selling, general and administrative expenses 354 301
Depreciation, depletion and amortization 531 576
Taxes other than on income* 1,413 1,373
Interest and debt expense 96 110
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Total Costs and Other Deductions 9,247 8,314
------ ------
Income Before Income Tax Expense 1,089 730
Income Tax Expense 473 271
------ ------
Net Income $ 616 $ 459
------ ------
Per Share of Common Stock:
Net Income $ .94 $ .70
Dividends $ .50 $ .4625
Weighted Average Number of
Shares Outstanding (000s) 652,563 651,895
* Includes consumer excise taxes. $1,244 $1,185
See accompanying notes to consolidated financial statements.
-2-
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, December 31,
Millions of Dollars 1996 1995
- -----------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 980 $ 621
Marketable securities 449 773
Accounts and notes receivable 4,244 4,014
Inventories:
Crude oil and petroleum products 629 822
Chemicals 467 487
Materials, supplies and other 287 289
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1,383 1,598
Prepaid expenses and other current assets 864 861
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Total Current Assets 7,920 7,867
Long-term receivables 137 149
Investments and advances 4,111 4,087
Properties, plant and equipment, at cost 48,390 48,031
Less: accumulated depreciation, depletion
and amortization 26,728 26,335
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21,662 21,696
Deferred charges and other assets 539 531
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Total Assets $34,369 $34,330
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LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $ 3,724 $ 3,806
Accounts payable 3,212 3,294
Accrued liabilities 1,176 1,257
Federal and other taxes on income 700 558
Other taxes payable 517 530
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Total Current Liabilities 9,329 9,445
Long-term debt 3,891 4,133
Capital lease obligations 383 388
Deferred credits and other non-current obligations 1,964 1,992
Non-current deferred income taxes 2,531 2,433
Reserves for employee benefit plans 1,595 1,584
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Total Liabilities 19,693 19,975
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Preferred stock (authorized 100,000,000
shares, $1.00 par value, none issued) - -
Common stock (authorized 1,000,000,000 shares,
$1.50 par value, 712,487,068 shares issued) 1,069 1,069
Capital in excess of par value 1,867 1,863
Deferred compensation - Employee Stock
Ownership Plan (ESOP) (800) (850)
Currency translation adjustment and other 138 174
Retained earnings 14,440 14,146
Treasury stock, at cost (shares 59,839,757 and
60,160,057 at March 31, 1996 and
December 31, 1995, respectively) (2,038) (2,047)
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Total Stockholders' Equity 14,676 14,355
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Total Liabilities and Stockholders' Equity $34,369 $34,330
------ ------
See accompanying notes to consolidated financial statements.
-3-
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended
March 31,
------------------
Millions of Dollars 1996 1995
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Operating Activities
Net income $ 616 $ 459
Adjustments
Depreciation, depletion and amortization 531 576
Dry hole expense related to prior years' expenditures 7 5
Distributions less than equity in affiliates' income (69) (145)
Net before-tax losses on asset retirements and sales 7 15
Net currency translation losses 6 31
Deferred income tax provision 86 82
Net increase in operating working capital (44) (436)
Other (37) (23)
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Net Cash Provided by Operating Activities 1,103 564
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Investing Activities
Capital expenditures (656) (732)
Proceeds from asset sales 190 243
Net sales of marketable securities 326 257
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Net Cash Used for Investing Activities (140) (232)
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Financing Activities
Net (payments) borrowings of short-term obligations (205) 191
Proceeds from issuance of long-term debt 5 17
Repayments of long-term debt and other
financing obligations (72) (44)
Cash dividends paid (326) (301)
Purchases of treasury shares (2) (2)
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Net Cash Used for Financing Activities (600) (139)
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Effect of Exchange Rate Changes on Cash
and Cash Equivalents (4) 2
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Net Change in Cash and Cash Equivalents 359 195
Cash and Cash Equivalents at January 1 621 413
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Cash and Cash Equivalents at March 31 $ 980 $ 608
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See accompanying notes to consolidated financial statements.
-4-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Interim Financial Statements
The accompanying consolidated financial statements of Chevron Corporation and
its subsidiaries (the company) have not been audited by independent
accountants, except for the balance sheet at December 31, 1995. In the opinion
of the company's management, the interim data include all adjustments necessary
for a fair statement of the results for the interim periods. These adjustments
were of a normal recurring nature, except for the special items described in
Note 2.
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 1995 Annual Report on Form 10-K.
The results for the three-month period ended March 31, 1996 are not necessarily
indicative of future financial results.
Note 2. Net Income
First quarter 1996 net income of $616 million did not include any amounts for
special items.
Net income for the first quarter of 1995 benefited from $63 million in special
items, including a net $80 million earnings benefit from the company's Caltex
affiliate, primarily from a gain related to the sale of land. This gain was
offset by a $10 million environmental remediation provision related to
marketing properties formerly held by the company and a $7 million charge for
employee severance in connection with a workforce reduction program at the
company's Canadian operations.
Foreign exchange losses of $14 million were included in first quarter 1996 net
income. There were no net foreign exchange gains or losses in the 1995 quarter.
Note 3. Information Relating to the Statement of Cash Flows
The "Net increase in operating working capital" is composed of the following:
Three Months Ended
March 31,
-----------------
Millions of Dollars 1996 1995
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Increase in accounts and notes receivable $ (255) $ (36)
Decrease in inventories 215 162
Increase in prepaid expenses and other current assets (6) (88)
Decrease in accounts payable and accrued liabilities (137) (351)
Increase (decrease) in income and other taxes payable 139 (123)
----- -----
Net increase in operating working capital $ (44) $ (436)
-5-
"Net Cash Provided by Operating Activities" includes the following cash
payments for interest on debt and for income taxes:
Three Months Ended
March 31,
------------------
Millions of Dollars 1996 1995
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Interest paid on debt (net of capitalized interest) $ 115 $ 120
Income taxes paid $ 237 $ 336
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The "Net sales of marketable securities" consists of the following gross
amounts:
Three Months Ended
March 31,
------------------
Millions of Dollars 1996 1995
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Marketable securities purchased $ (871) $ (567)
Marketable securities sold 1,197 824
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Net sales of marketable securities $ 326 $ 257
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The Consolidated Statement of Cash Flows excludes the following non-cash
transactions:
The company's Employee Stock Ownership Plan (ESOP) repaid $50 million of
matured debt guaranteed by Chevron Corporation in January of 1996 and 1995.
These payments were recorded by the company as a reduction in its debt
outstanding and in Deferred Compensation - ESOP.
Note 4. Summarized Financial Data - Chevron U.S.A. Inc.
Chevron U.S.A. Inc. is Chevron Corporation's principal operating company,
consisting primarily of the company's United States integrated petroleum
operations (excluding most of the domestic pipeline operations). These
operations are conducted by three divisions: Chevron U.S.A. Production Company,
Chevron Products Company and Warren Petroleum Company.
The company announced in January 1996 that it had entered into exclusive
negotiations with NGC Corporation to merge certain gas gathering, processing
and marketing operations of Chevron U.S.A. Production Company's Natural Gas
Business Unit and Warren Petroleum Company with those of NGC Corporation, which
would give Chevron an approximate 28 percent ownership interest in the
resulting company.
Summarized financial information for Chevron U.S.A. Inc. and its consolidated
subsidiaries is presented on the next page.
-6-
Three Months Ended
March 31,
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Millions of Dollars 1996 1995
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Sales and other operating revenues $6,999 $5,933
Costs and other deductions 6,735 6,043
Net income (loss) 233 (33)
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March 31, December 31,
Millions of Dollars 1996 1995
------------------------------------------------------------------------
Current assets $ 3,476 $ 3,426
Other assets 13,136 13,666
Current liabilities 5,132 5,800
Other liabilities 5,294 5,357
Net worth 6,186 5,935
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Note 5. Summarized Financial Data - Chevron Transport Corporation
Chevron Transport Corporation (CTC), a Liberian corporation, is an indirect,
wholly-owned subsidiary of Chevron Corporation. CTC is the principal operator
of Chevron's international tanker fleet and is engaged in the marine
transportation of crude oil and refined petroleum products. Most of CTC's
shipping revenue is derived by providing transportation services to other
Chevron companies. Chevron Corporation has guaranteed this subsidiary's
obligations in connection with certain debt securities where CTC is deemed to
be an issuer. In accordance with the Securities and Exchange Commission's
disclosure requirements, summarized financial information for CTC and its
consolidated subsidiaries is presented below. This summarized financial data
was derived from the financial statements prepared on a stand alone basis in
conformity with generally accepted accounting principles.
Three Months Ended
March 31,
------------------
Millions of Dollars 1996 1995
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Sales and other operating revenues $123 $105
Costs and other deductions 142 117
Net loss (3) (20)
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March 31, December 31,
Millions of Dollars 1996 1995
------------------------------------------------------------------------
Current assets $ 44 $ 37
Other assets 1,627 1,561
Current liabilities 548 459
Other liabilities 418 431
Net worth 705 708
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Separate financial statements and other disclosures with respect to CTC are
omitted as such separate financial statements and other disclosures are not
material to investors in the debt securities deemed issued by CTC. There were
no restrictions on CTC's ability to pay dividends or make loans or advances at
March 31, 1996.
-7-
Note 6. Summarized Financial Data - Caltex Group of Companies
Summarized financial information for the Caltex Group of Companies, owned 50
percent by Chevron and 50 percent by Texaco Inc., is as follows (amounts
reported are on a 100 percent Caltex Group basis):
Three Months Ended
March 31,
------------------
Millions of Dollars 1996 1995
------------------------------------------------------------------------
Sales and other operating revenues $4,085 $4,042
Operating income 279 257
Net income 194 416
------------------------------------------------------------------------
In the first quarter of 1995, Caltex recorded a gain for U.S. financial
reporting of $171 million relating to the sale of a portion of land and air
utility rights by a Caltex affiliate in Japan required for a public project.
The proceeds included compensation that will be used to remove and relocate or
replace existing assets affected by the sale.
In April 1996, Caltex sold its 50 percent interest in a refining company in
Japan for approximately $2 billion, and expects to recognize a gain of about
$650 million from the sale in the second quarter of 1996.
Note 7. Income Taxes
Taxes on income for the first quarter of 1996 were $473 million compared with
$271 million for the comparable 1995 period. The effective income tax rate for
the first quarter 1996 increased to 43.4 percent from 37.1 percent for the
first quarter 1995. The increase in the 1996 effective tax rate was caused by
the decrease in the company's equity in net income of certain affiliated
companies that are recorded on an after-tax basis. This effect was offset
partially by a shift in the international earnings composition from higher
effective tax rate countries to lower effective tax rate countries.
Note 8. Contingent Liabilities
Litigation -
The company is a defendant in numerous lawsuits, including an action brought
against the company by OXY U.S.A. in an Oklahoma state court. Plaintiffs may
seek to recover large and sometimes unspecified amounts, and some matters may
remain unresolved for several years. It is not practical to estimate a range
of possible loss for the company's litigation matters, and losses could be
material with respect to earnings in any given period. However, management is
of the opinion that resolution of the lawsuits will not result in any
significant liability to the company in relation to its consolidated financial
position or liquidity.
OXY U.S.A. has brought a lawsuit in its capacity as successor in interest to
Cities Services Company, which involves claims for damages resulting from the
allegedly improper termination of a tender offer to purchase Cities' stock in
1982 made by Gulf Oil Corporation (which was acquired by Chevron in 1984). A
trial with respect to the claims commenced on April 15, 1996.
Other Contingencies -
The U.S. federal income tax and California franchise tax liabilities of the
company have been settled through 1976 and 1987, respectively. For federal
income tax purposes, all issues other than the allocation of state income taxes
and the creditability of taxes paid to the Government of Indonesia have been
resolved through 1987. A Tax Court decision in 1995 confirmed the validity of
tax regulations for allocating state income taxes. The company is currently
working with the Internal Revenue Service to agree on a methodology that could
apply to all years. The Indonesia issue applies only to years after 1982.
While the amounts under dispute with the IRS are significant,
-8-
settlement of open tax matters is not expected to have a material effect on the
consolidated net assets or liquidity of the company and, in the opinion of
management, adequate provision has been made for income and franchise taxes
for all years either under examination or subject to future examination.
The company and its subsidiaries have certain other contingent liabilities with
respect to guarantees, direct or indirect, of debt of affiliated companies or
others and long-term unconditional purchase obligations and commitments,
throughput agreements and take-or-pay agreements, some of which relate to
suppliers' financing arrangements.
In March 1992, an agency within the Department of Energy (DOE) issued a
Proposed Remedial Order (PRO) claiming Chevron failed to comply with DOE
regulations in the course of its participation in the Tertiary Incentive
Program. Although the DOE regulations involved were rescinded in March 1981,
following decontrol of crude oil prices in January 1981, and the statute
authorizing the regulations expired in September 1981, the PRO purported to be
for the period April 1980 through April 1990. The DOE claimed the company
overrecouped under the regulations by $125 million during the period in
question but subsequently requested that the DOE's Office of Hearings and
Appeals (OHA) amend the amount to $167 million. Assuming the amendment had
been granted, the total claim, including interest through December 1995,
amounted to $442 million. Following evidentiary hearings and oral arguments, on
March 25, 1996, OHA dismissed the PRO with prejudice. Intervenors issued no
challenges within the 30 day period following the OHA decision. The company
considers this issue successfully resolved.
The company is subject to loss contingencies pursuant to environmental laws and
regulations that in the future may require the company to take action to
correct or ameliorate the effects on the environment of prior disposal or
release of chemical or petroleum substances by the company or other parties.
Such contingencies may exist for various sites including, but not limited to:
Superfund sites and refineries, oil fields, service stations, terminals and
land development areas, whether operating, closed or sold. The amount of such
future cost is indeterminable 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. While the company has provided for known
environmental obligations that are probable and reasonably estimable, the
amount of future costs may be material to results of operations in the period
in which they are recognized. The company does not expect these costs to have
a material effect on its consolidated financial position or liquidity. Also,
the company does not believe its obligations to make such expenditures has had
or will have any significant impact on the company's competitive position
relative to other domestic or international petroleum or chemical concerns.
The company's operations, particularly oil and gas exploration and production,
can be affected by changing economic, regulatory and political environments in
the various countries, including the United States, in which it operates. In
certain locations, host governments have imposed restrictions, controls and
taxes, and, in others, political conditions have existed that may threaten the
safety of employees and the company's continued presence in those countries.
Internal unrest or strained relations between a host government and the company
or other governments may affect the company's operations. Those developments
have, at times, significantly affected the company's related operations and
results, and are carefully considered by management when evaluating the level
of current and future activity in such countries.
Areas in which the company has significant operations include the United
States, Canada, Australia, United Kingdom, Congo, Angola, Nigeria, Papua New
Guinea, Indonesia, China and Zaire. The company's Caltex affiliates have
significant operations in Indonesia, Korea, Australia, the Philippines,
Singapore, Thailand, South Africa and Japan. The company's Tengizchevroil
affiliate operates in Kazakstan.
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
First Quarter 1996 Compared With First Quarter 1995
Overview and Outlook
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Net income for the 1996 first quarter was $616 million ($.94 per share), a 34
percent increase from $459 million ($.70 per share) earned in the first quarter
of 1995. There were no special items in this year's first quarter; in 1995,
special items benefited first quarter's earnings $63 million. Excluding
special items, earnings were up 56 percent from last year's first quarter.
Worldwide upstream operations reported strong results, benefiting from higher
crude oil and U.S. natural gas prices. U.S. refining and marketing earnings of
$18 million were significantly improved from last year's loss of $102 million.
From an operational perspective, the company's refineries ran well in the first
quarter, compared with the significant refinery downtime incurred in last year's
first quarter. However, despite higher product prices, margins in absolute
terms remained low as a very competitive U.S. marketplace did not allow the
company to fully recoup higher crude oil costs and the additional costs of
manufacturing cleaner burning fuels in California. Margins were squeezed as
crude oil prices rose nearly $4 per barrel during the last two months of the
quarter. Chemical earnings declined from the prior year quarter, reflecting
softer industry conditions and higher feedstock costs.
Beginning in late 1995, extremely cold weather in much of the United States
caused demand for natural gas to increase quickly and significantly. The
increased demand, coupled with low customer inventory levels, resulted in higher
prices. For example, the Henry Hub, Louisiana spot price for natural gas, a
common benchmark for natural gas prices, averaged $2.92 per thousand cubic feet
in January, $4.41 in February, fell to $3.00 in March and, with the advent of
warmer weather, further declined to $ 2.34 in April. All these prices are
significantly higher than those experienced in the past several years.
A confluence of events caused crude oil prices to also increase over this
period. Gasoline demand has been strong and cold weather in the United States
and Europe increased demand for heating oils. Overhanging this tight supply
market was an expectation that the United Nations sanctions against Iraq would
be lifted, allowing that country to resume at least limited production of crude
oil for sale into world markets, thereby increasing supplies and presumably
decreasing prices. Consequently, companies delayed replenishing inventories,
expecting to replace them with cheaper oil, and industry inventory levels fell
to their lowest level in almost 20 years. The Iraq situation has not been
resolved; companies were forced to rebuild inventories and demand for refined
products continued strong, accelerating the rise in crude oil prices .
Chevron's average posted price for West Texas Intermediate crude oil (WTI), a
benchmark crude, was $17.81 per barrel in January, relatively unchanged at
$17.65 in February, increased to $20.10 in March and averaged $22.29 in April.
The company began manufacturing the state-mandated cleaner-burning gasolines at
its California refineries in the first quarter. The reformulated fuels were
required to be delivered to terminals by April 15. On April 17, the company
announced price increases in California of between 8 and 9 cents per gallon to
recover the increased costs of manufacturing the new gasolines. Chevron has
invested over $1 billion in recent years to upgrade and modify its two
California refineries to produce the cleaner-burning fuels, as well as to
increase their reliability and efficiency.
In addition, the market forces described above that resulted in escalating crude
oil prices began to be reflected in refined product prices in April. These
factors, coupled with continued strong demand and industry refinery downtime
that tightened supplies, caused product prices to rise rapidly to their highest
levels in several years by the second half of April.
SFAS No. 123, "Accounting for Stock-Based Compensation," establishes financial
and reporting standards for stock-based employee compensation plans and is
effective for Chevron 1996 financial statements. The statement encourages, but
does not require, companies to adopt a fair-value-based method of accounting for
such plans, in
-10-
place of current accounting standards. Companies electing to continue their
existing accounting must make pro forma disclosures of net income as if the
fair-value-based method of accounting had been applied. The company is
evaluating the statement and has made no decision whether to adopt the new
accounting or continue its present accounting with pro forma disclosures.
Current Developments
- --------------------
Chevron's 50 percent-owned Tengiz joint venture in Kazakstan has been very
successful in recent months in working with the partners to increase crude oil
sales. Tengiz production averaged 83,000 barrels per day in the first quarter
of 1996, compared with 57,000 in last year's first quarter, and was 100,000
barrels per day in March 1996, making a positive contribution to the company's
first quarter earnings. On April 17, 1996, Mobil Corporation and the Republic
of Kazakstan jointly announced an agreement for Mobil to purchase a 25 percent
share of the joint venture from Kazakstan.
On April 27, 1996, Chevron signed a joint protocol to obtain the right to
acquire a 15 percent equity interest in the Caspian Pipeline Consortium, which
plans to construct a pipeline connecting the Tengiz oil field to the Russian
Black Sea port of Novorossiysk. The signatories of the protocol are the
governments of Russia, Kazakstan and Oman; the Russian state pipeline company
Transneft; and eight oil and gas concerns, including Chevron.
Fifty percent of the equity in the Caspian Pipeline Consortium will be held by
the governments of Russia (24 percent), Kazakstan (19 percent) and Oman (7
percent), with exclusive rights to the remaining 50 percent allocated as
follows: Chevron 15 percent, Lukoil at 12.5 percent, Mobil and Rosneft at 7.5
percent each, Agip and British Gas at 2 percent each, and Oryx and Kazakstan
state holding company Munaigaz at 1.75 percent each.
The protocol provides for a transition period over the next several months in
which the parties will perform due diligence and finalize definitive agreements
on the restructuring of the Caspian Pipeline Consortium. As a result of these
recent events, the company is optimistic that a solution to the export issue
will be reached, allowing the full development of the Tengiz reserves.
The company's 50 percent owned Caltex affiliate completed the $2 billion sale of
a refining affiliate in Japan in April. Chevron received a cash dividend of $550
million and will recognize a second quarter gain of about $325 million for its
share of the transaction.
Caltex's new 130,000 barrels per day grass-roots refinery in Thailand is
scheduled for start-up in the second quarter of 1996.
Negotiations continue for the merger of the company's natural gas liquids and
natural gas marketing businesses with NGC Corporation, which would give Chevron
an approximate 28 percent ownership interest in the resulting company.
Progress continues on the company's exit from the real estate development
business. The sale of the last major portfolio of properties was completed in
mid-May. At that time Chevron will have generated about $300 million of after-
tax cash proceeds for reinvestment in core operations.
The company's agreement with Maraven to operate the 80,000 barrels per day
Boscan heavy oil field in Venezuela is expected to be operational July 1.
Chevron will be responsible for the operation and development of this field
under a fee arrangement based on barrels produced. In addition, the alliance
calls for the supply of Venezuelan crude oil to Chevron refineries in the U.S.
and the creation of a partnership that will market asphalt in the western U.S.
The N'Kossa oil field in Congo is scheduled to come on stream around June 9,
initially producing at about 50,000 barrels per day, with estimated peak
production of 120,000 per day. Chevron has a 30 percent interest in this
project.
In March 1996, the company and its partners in the North West Shelf Consortium
announced the discovery of a crude oil and natural gas field off the coast of
Australia. The new discovery, designated Hermes, lies between two of the
consortium's producing oil fields and is expected to be produced through
existing facilities.
-11-
In April, Chevron announced test results from its Destin Dome Block 57 natural
gas well in the Norphlet Trend offshore Florida, a major natural gas trend in
the Gulf of Mexico. While preliminary, the test indicates the presence of
significant quantities of natural gas. The company has a one-third interest in
the well.
Also in April, the company signed an agreement to explore a 3,000 square-mile
tract offshore Qatar, adjacent to prolific oil and natural gas producing fields.
Chevron is operator and holds a 60 percent interest in the exploration
concession.
The company is evaluating an offer for the sale of its interests in four
northern North Sea producing fields and several exploration blocks. Chevron's
net share of crude oil production from the fields is about 20,000 barrels per
day.
Review of Operations
- --------------------
Total revenues for the quarter were $10.3 billion, up 14 percent from $9.0
billion in last year's first quarter. Revenues increased on higher prices and
sales volumes of crude oil, natural gas and refined products; chemicals revenues
declined on lower prices.
The company continues to operate with a significantly lower cost structure,
achieved through successful cost reduction initiatives implemented since 1991,
coupled with various divestments of non-core assets and businesses. Ongoing
operating, selling, general and administrative expenses in the 1996 first
quarter totaled $1.667 billion, up slightly compared with $1.639 billion
incurred in the first quarter of 1995.
Taxes on income for the first quarter of 1996 were $473 million compared with
$271 million in last year's first quarter and the effective tax rate increased
to 43.4 percent from 37.1 percent for the 1995 first quarter. The increase in
1996's effective tax rate was caused by the decrease in certain equity
affiliates' after-tax earnings included in the company's before-tax income,
partially offset by a shift in the international earnings mix from higher
effective tax rate countries to lower tax rate countries.
Foreign currency exchange losses amounted to $14 million in 1996, whereas such
gains and losses netted to zero in the 1995 first quarter.
The following tables detail the company's after-tax earnings by major operating
area and selected operating data.
EARNINGS BY MAJOR OPERATING AREA
Three Months Ended
March 31,
------------------
Millions of Dollars 1996 1995
- -----------------------------------------------------------------------------
Exploration and Production
United States $268 $150
International 251 172
---- ----
Total Exploration and Production 519 322
Refining, Marketing and Transportation
United States 18 (102)
International 75 156
---- ----
Total Refining, Marketing and Transportation 93 54
---- ----
Total Petroleum Operations 612 376
Chemicals 64 163
Coal and Other Minerals 12 12
Corporate and Other (72) (92)
---- ----
Net Income $616 $459
---- ----
-12-
SELECTED OPERATING DATA (1)
Three Months Ended
March 31,
------------------
Millions of Dollars 1996 1995
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U.S. Exploration and Production
Net Crude Oil and Natural Gas
Liquids Production (MBPD) 339 356
Net Natural Gas Production (MMCFPD) 1,876 1,935
Sales of Natural Gas Liquids (MBPD) 240 248
Revenue from Net Production
Crude Oil ($/Bbl.) $16.67 $15.11
Natural Gas ($/MCF) $ 2.28 $ 1.45
International Exploration and Production
Net Crude Oil and Natural Gas
Liquids Production (MBPD) 674 648
Net Natural Gas Production (MMCFPD) 547 592
Revenue from Liftings
Liquids ($/Bbl.) $17.93 $16.03
Natural Gas ($/MCF) $ 1.84 $ 1.81
U.S. Refining, Marketing and Transportation
Sales of Gasoline (MBPD) 541 547
Sales of Other Refined Products (MBPD) 537 551
Refinery Input (MBPD) 927 909
Average Refined Product Sales
Price ($/Bbl.) $27.15 $25.22
International Refining, Marketing
and Transportation
Sales of Refined Products (MBPD) 1,073 984
Refinery Input (MBPD) 670 616
Chemical Sales and Other Operating Revenues (2)
United States $716 $873
International 151 152
---- -----
Worldwide $867 $1,025
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(1) Includes equity in affiliates.
(2) Millions of dollars. Includes sales to other Chevron companies.
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MBPD=thousand barrels per day; MMCFPD=million cubic feet per day; Bbl.=barrel;
MCF=thousand cubic feet
Worldwide exploration and production operations earned $519 million in the first
quarter of 1996, up 61 percent from $322 million in the 1995 first quarter.
U.S. exploration and production net earnings were $268 million, up significantly
from $150 million in the 1995 first quarter. Higher crude oil and natural gas
prices more than offset lower crude oil production volumes. Additionally,
depreciation expense declined $28 million, reflecting the lower production
volumes and the effects of the fourth quarter 1995 adoption of a new accounting
standard for impairment of long-lived assets. Higher well write-offs increased
exploration expense $15 million.
Operationally, average 1996 crude oil realizations were $16.67 per barrel, up
$1.56 from the 1995 first quarter. Average natural gas prices of $2.28 per
thousand cubic feet were 83 cents higher than in the comparable prior year
quarter. Net liquids production in the 1996 first quarter was 339,000 barrels
per day compared with 356,000 barrels
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per day in last year's first quarter, reflecting normal field declines. Net
natural gas production was about flat, quarter to quarter, at 1.9 billion
cubic feet per day.
International exploration and production earnings for the first quarter were
$251 million, up 46 percent from $172 million in last year's first quarter,
which included a special charge of $7 million related to an employee severance
program.
The strong earnings reflected increased crude oil liftings and higher crude oil
prices. Net liquids production increased 26,000 barrels per day to 674,000,
mostly due to higher volumes in Angola and Kazakstan. Natural gas production
declined 8 percent to 547 million cubic feet per day, due primarily to a
decrease in Canadian production. Crude oil prices were up $1.90 per barrel to
$17.93 in 1996 and natural gas prices, at $1.84 per thousand cubic feet, were
about flat quarter to quarter.
Foreign exchange losses were $10 million in 1996, compared with losses of $3
million in last year's first quarter.
Worldwide refining and marketing had net earnings of $93 million in the first
quarter of 1996, up 72 percent from $54 million in last year's first quarter.
U.S. refining and marketing net earnings were $18 million for the quarter, a
sharp improvement from the $102 million loss reported in the first quarter of
1995 when very poor industry sales margins, two major refinery turnarounds and
unscheduled refinery maintenance all severely impacted results. Additionally,
the 1995 quarter included a $10 million special charge for environmental
remediation.
In 1996, refinery operations were much improved; however, margins remained weak
due to competitive market conditions, increased crude oil costs, and in
California, the increased manufacturing cost of state-mandated cleaner burning
gasolines. The prior year quarter results included the Port Arthur, Texas,
refinery operations until its sale in late February 1995. Excluding Port
Arthur, refinery input at existing refineries in 1996 increased over 120,000
barrels per day.
Product sales volumes in 1996 were about 1.1 million barrels per day, down only
slightly from the prior year quarter, which included the output from the Port
Arthur refinery. Lower unbranded bulk sales volumes in 1996 were nearly offset
by a 5 percent increase in light product sales through the company's marketing
system. The average refined product sales price in the 1996 quarter increased
to $27.15 per barrel from $25.22 in last year's quarter, but the 8 percent
increase did not fully reflect the increased feedstock and manufacturing costs.
International refining and marketing net earnings were $75 million, down from
$156 million reported for the first quarter of 1995. However, when 1995 special
items of $80 million are excluded, principally a gain related to the sale of
land by a Caltex affiliate in Japan, 1996 earnings were about flat with the 1995
quarter.
Sales margins continue to be weak in the United Kingdom and the Caltex areas of
operation. Improved trading and shipping results were offset by a $31 million
unfavorable swing in foreign currency effects, almost all in the Caltex
operating areas. The 1996 first quarter included $10 million in foreign
currency losses, whereas the 1995 first quarter benefited from $21 million of
foreign currency gains.
Sales volumes increased 9 percent to almost 1.1 million barrels per day in 1996,
reflecting increases in all the company's refining and marketing operations -
the United Kingdom, Canada and Caltex areas - as well as higher sales volumes
from international trading activities.
Chemicals net earnings were $64 million in the 1996 quarter compared with a
record $163 million in last year's first quarter. The decline reflected the
weaker industry conditions that began in the last half of 1995. Also, higher
feedstock costs and operating problems at two plants caused manufacturing costs
to increase. Prices for the company's major products fell, particularly
styrene and polyethylene. Sales volumes increased, but the lower product
prices and higher costs squeezed sales margins.
Corporate and other includes interest expense, interest income on cash and
marketable securities, corporate cost centers and real estate and insurance
operations. These activities incurred net charges of $72 million in the 1996
first
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quarter, compared with net charges of $92 million in the comparable prior
year quarter. About half of the lower charges resulted from decreased interest
expense, due to lower interest rates and debt levels, and the other half was due
to a favorable swing in foreign currency effects.
Capital and Liquidity
- ---------------------
Cash and cash equivalents totaled $980 million at March 31, 1996, up $359
million from year-end 1995. Cash from operations was more than adequate to
fund the company's capital expenditures and dividend payments to stockholders.
In April 1996, the company received a cash dividend of $550 million from its
Caltex affiliate, part of the $2 billion proceeds Caltex received from the sale
of an affiliate in Japan.
Also in April, the company announced it will call $280 million of 9.375 percent
Sinking Fund debentures on June 1, 1996. The call price is 104 percent.
Total debt and capital lease obligations were $7.998 billion at March 31, 1996,
down $329 million from $8.327 billion at year-end 1995. The decrease was
primarily from a net reduction of short-term commercial paper outstanding and
the scheduled retirement of $50 million in 6.92 percent ESOP debt.
Although the company benefits from lower interest rates on short-term debt, the
relatively large amount of short-term debt has kept Chevron's ratio of current
assets to current liabilities at the low level of .85 at March 31, 1996. The
company's debt classified as short-term, consisting of commercial paper and
current portion of long-term debt, totaled $3.7 billion at March 31, 1996.
This amount excludes $1.8 billion that was reclassified as long-term since the
company has both the intent and ability, as evidenced by revolving credit
agreements, to refinance it on a long-term basis. The company's practice has
been to continually refinance its commercial paper, maintaining levels it
believes to be appropriate.
The company's debt ratio (total debt to total debt plus equity) was 35.3
percent at March 31, 1996, down from 36.7 percent at year-end 1995. The
company continually monitors its spending levels, market conditions and related
interest rates to maintain what it perceives to be reasonable debt levels.
Worldwide capital and exploratory expenditures for the first quarter of 1996,
including the company's share of affiliates' expenditures, totaled $923 million,
6 percent less than the $987 million spent in the 1995 first quarter. Spending
for U.S. refining and marketing projects declined to $80 million from $183
million in last year's first quarter following the late 1995 completion of the
refinery upgrades required to produce California reformulated fuels.
Expenditures for exploration and production activities represented 69 percent of
total spending in the 1996 first quarter, up from 63 percent in the comparable
1995 period. Expenditures outside the United States were 63 percent of the
total outlays in 1996 and 62 percent in 1995. Capital and exploratory spending
for the year 1996 is forecast at $5.3 billion, a 10 percent increase from 1995.
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PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
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Cities Service Tender Offer Cases-
The description contained in Part I, Item 3, Paragraph A of the company's
Annual Report on Form 10-K for the year ended December 31, 1995 is hereby
amended as follows:
Jury selection began March 31, 1996, and trial commenced on April 15, 1996.
Richmond Refinery Multimedia Inspection-
In 1993, the United States Environmental Protection Agency (the "EPA")
conducted a multimedia inspection of the Chevron Products Company Richmond
Refinery, which focused on compliance related to various areas, including the
Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery Act
and the Comprehensive Environmental Response Compensation and Liability Act.
While certain aspects of the multimedia investigation have been closed, the EPA
has referred potential Clean Water Act violations of the refinery's NPDES
permit to the Department of Justice for civil litigation.
The violations alleged involve eleven excursions of the NPDES permit's toxicity
limit and numerous alleged violations of the by-pass prohibition contained in
the permit. The company has strenuously contested the allegations relating to
violations of the by-pass prohibitions, but does not contest the toxicity
excursion allegations, which occurred over a five-year period.
No litigation has been instituted thus far, and settlement discussions are
taking place.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
(4) Pursuant to the Instructions to Exhibits, certain instruments
defining the rights of holders of long-term debt securities of the
company and its consolidated subsidiaries are not filed because the
total amount of securities authorized under any such instrument does
not exceed 10 percent of the total assets of the company and its
subsidiaries on a consolidated basis. A copy of any such instrument
will be furnished to the Commission upon request.
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
(b) Reports on Form 8-K
None.
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SIGNATURE
- ---------
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.
CHEVRON CORPORATION
-------------------
(Registrant)
Date May 10, 1996 /s/ DONALD G. HENDERSON
------------ -----------------------
Donald G. Henderson,
Vice-President & Comptroller
(Principal Accounting Officer and
Duly Authorized Officer)
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Exhibit 12
CHEVRON CORPORATION - TOTAL ENTERPRISE BASIS
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
Three Months
Ended Year Ended December 31,
----------------------------------
March 31, 1996 1995(1) 1994 1993 1992(2) 1991
----------- ----- ----- ----- ----- -----
Net Income before
Cumulative Effect of
Changes in Accounting
Principles (1) $ 616 $ 930 $1,693 $1,265 $2,210 $1,293
Income Tax Expense 533 1,094 1,322 1,389 1,508 1,302
Distributions Greater Than
(Less Than) Equity in
Earnings of Less Than 50%
Owned Affiliates 3 (5) (3) 6 (9) (20)
Minority Interest 1 0 3 (2) 2 2
Previously Capitalized Interest
Charged to Earnings During Period 5 47 32 20 18 17
Interest and Debt Expense 136 557 453 390 490 585
Interest Portion of Rentals(3) 37 148 156 169 152 153
----- ----- ----- ----- ----- -----
Earnings before Provisions for
Taxes and Fixed Charges $1,331 $2,771 $3,656 $3,237 $4,371 $3,332
----- ----- ----- ----- ----- -----
Interest and Debt Expense $ 136 $ 557 $ 453 $ 390 $ 490 $ 585
Interest Portion of Rentals(3) 37 148 156 169 152 153
Capitalized Interest 33 141 80 60 46 30
----- ----- ----- ----- ----- -----
Total Fixed Charges $ 206 $ 846 $ 689 $ 619 $ 688 $ 768
----- ----- ----- ----- ----- -----
Ratio of Earnings to
Fixed Charges 6.46 3.28 5.31 5.23 6.35 4.34
(1) The information for 1995 reflects the company's adoption of the Financial
Accounting Standards Board Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective
October 1, 1995.
(2) The information for 1992 and subsequent periods reflects the company's
adoption of the Financial Accounting Standards Board Statements No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions" and
No. 109, "Accounting for Income Taxes," effective January 1, 1992.
(3) Calculated as one-third of rentals.
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