DBRS Confirms the Ratings of Chevron Corporation at AA (low) with Stable Trends

DBRS Limited (DBRS) confirmed the Issuer Rating and Senior Unsecured Notes and Debentures rating of Chevron Corporation (Chevron or the Company) at AA (low), both with Stable trends. The rating action is supported by Chevron’s relatively strong business profile that includes: (1) a substantial and well-diversified upstream portfolio with production of approximately 2.7 million barrels of oil equivalent per day; (2) significant downstream integration (1.7 million barrels per day of net refining capacity) that provides a natural hedge, particularly during a weak crude oil pricing environment; and (3) an adequate liquidity position. The ratings also reflect Chevron’s relatively higher business risks associated with its operations in politically sensitive geographic regions and exposure to higher-risk deep-water operations.

As a result of the energy price downturn and Chevron’s significant exposure to crude oil prices (about two-thirds of upstream production), the Company’s cash flow from operations declined significantly between 2013 and 2016, negatively impacting key credit metrics. With the uptick in energy prices and increase in upstream production observed year-to-date, Chevron’s financial leverage relative to its underlying cash flow has improved in the last twelve months ended September 30, 2017. However, the Company’s credit metrics remain materially outside the AA rating range.

DBRS notes that Chevron has taken steps to improve its financial risk profile and cost structure and the Company’s ability to fund dividends and (reduced) capital spending from cash flow from operations is improving. While Chevron incurred a free cash flow (cash flow after capital expenditures (capex) and dividends) deficit of $876 million for the first nine months of 2017, the deficit is significantly less than the $12.7 billion and $16.1 billion shortfalls incurred by the Company during 2016 and 2015, respectively. DBRS expects Chevron’s capital flexibility to continue to improve as major capital projects achieve completion and the Company’s future investment commitments decline. In addition, as at September 30, 2017, the Company had achieved approximately the mid-point of its $5 billion to $10 billion asset sale target.

DBRS estimates that approximately 39% of Chevron’s long-term capital markets debt will mature by year-end 2019. However, DBRS views Chevron’s debt maturity profile as manageable given its adequate liquidity and strong access to capital markets. With the expectation that 2018 debt maturities are refinanced, DBRS anticipates free cash flow to swing from a small deficit in 2017, to a surplus in 2018, on the back of improved oil and gas prices (DBRS 2018 Brent oil price forecast of $57 per barrel (bbl)), increased production and decreased capex requirements. DBRS notes that Chevron’s currently elevated financial leverage is offset by the Company’s strong business profile. However, if crude oil prices were to weaken materially again (below $40/bbl) and cause Chevron’s credit metrics to return to 2016 levels for an extended period of time, DBRS could take a negative rating action.

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

The principal methodology is Rating Companies in the Oil and Gas and Oilfield Services Industries (August 2017) which can be found on dbrs.com under Methodologies.

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 under Related Documents or by contacting us at info@dbrs.com.

This rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the rating process for this rating action. DBRS did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is an unsolicited credit rating.

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