DBRS Updates Report on Chevron Corporation

DBRS has today updated its report on Chevron Corporation (Chevron or the Company). Chevron’s business and financial risk profiles continue to be supportive of AA-rated credit. The Company’s ratings reflect its (1) size and diversity of operations, (2) strong balance sheet and financial flexibility and (3) integrated operations.

Chevron’s business risk profile is indicative of an AA-rated entity, with production well in excess of the minimum benchmark of 1.5 million barrels of oil equivalent per day (boe/d) (2,605 million boe/d as at September 30, 2013). Its fully integrated operations, with a good balance of product mix and globally diversified operations, represent one of the strongest business profiles in the industry.

The Company’s financial risk profile supports its current ratings based on the following: (1) adjusted debt-to-capital of 11.3% (as at September 30, 2013) compared with < 25% requirement for a strong AA credit; (2) total debt-to-cash flow of 0.53 times (x) compared with < 1.25x; and (3) EBIT interest coverage of 140.9x compared with > 20.0x for the ratings category. Chevron’s credit metrics are well within the AA range.

A key challenge that limits ratings improvement is the Company’s ability to sustain production during 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 ($39.8 billion (including $4.8 billion for equity affiliates, which does not require cash outlay by Chevron) budgeted for 2014) to fund its production growth initiatives through 2017. This high spending will result in ongoing free cash flow deficits. DBRS expects these deficits to be funded by additional debt and asset divestitures. Should production growth targets not be achieved, or prices decline significantly, the resulting impact on cash flow could be modestly weaker credit metrics. However, DBRS realizes that Chevron has sufficient flexibility in its capex program to manage within its cash flow capabilities. As a result, Chevron’s rating remains considerably stronger versus the peer average for the Oil & Gas sector. Overall, DBRS views Chevron as one of the few multinational operators with the ability to withstand severe economic downturn.

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

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