DBRS Confirms Chevron Corporation at AA, Stable Trend

DBRS has today confirmed the Issuer Rating and the Senior Unsecured Notes and Debentures rating of Chevron Corporation (Chevron or the Company) at AA with Stable trends. The confirmation is based on the Company’s (1) size and diversity of operations; (2) strong balance sheet and financial flexibility; and (3) integrated operations.

Chevron continues to maintain a very strong financial profile, underpinned by strong cash flow generating capabilities. This has resulted in Chevron typically funding the majority of its capex and dividends with internally generated cash flow, with minimal reliance on external financing arrangements. Although the Company issued incremental debt in 2012, key credit metrics remained among the strongest in its peer group.

A key challenge facing the Company is its ability to replace production due to natural declines. Chevron has seen its production fall each year since 2010. To combat this, the Company has significantly increased budgeted capital spending since that time ($36.7 billion (including $3.3 billion for equity affiliates, which does not require cash outlay by Chevron) budgeted for 2013) to fund its production growth initiatives through 2017. Coupled with dividend payments of $7.0 billion (DBRS estimate), these amounts represent a significant cash outflow for the Company. These amounts are expected to be funded by operating cash flow, with excess cash earmarked for further share repurchases ($1.25 billion expected in Q1 2013). As a result of the high spending, should production growth targets not be achieved, or prices decline significantly, the resulting impact on cash flow could result in modestly weaker credit metrics. However, DBRS expects that Chevron would have sufficient flexibility in its substantial capex or share buyback programs to manage within its cash flow capabilities. DBRS views Chevron as one of a few multinational operators with the ability to withstand economic downturns.

Given its global diversity, Chevron is also exposed to political and business risks in its international operations, exemplified by lawsuits filed in Brazil, for seepages related to the Frade offshore field, and Ecuador, stemming from alleged environmental and social harms caused by Chevron’s subsidiary, Texaco Petroleum Company. Although the ultimate exposure to these lawsuits is unknown at the current time, a significant adverse judgment could have a negative impact on Chevron’s key credit metrics. However, DBRS views the Company’s strong balance sheet as sufficient to manage the potential financial risk associated with the litigation.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Oil and Gas Companies, which can be found on our website under Methodologies.