Morningstar DBRS Confirms Chevron Corporation's Issuer Rating at AA With Stable Trend

DBRS, Inc. (Morningstar DBRS) confirmed Chevron Corporation's (Chevron or the Company) Issuer Rating at AA with a Stable trend.

KEY CREDIT RATING CONSIDERATIONS
The credit rating confirmation and Stable trend reflect Morningstar DBRS' view that no material changes to Chevron's credit fundamentals are likely in the near term. Morningstar DBRS based the Issuer Rating on Chevron's (1) exceptional size as one of the world's largest integrated energy companies; (2) large, low-cost oil and gas (O&G) resource base; (3) well-diversified product mix and global geographic footprint; and (4) industry-leading operating efficiency and capital flexibility. The key business risk factors affecting the credit rating include (1) large, planned return of cash to shareholders; (2) possibility of delays to or weaker-than-expected cash flows following capital expenditures (capex) on large expansions or new developments; and (3) exposure to operations in more politically sensitive geographic regions.

Chevron announced an agreement to acquire Hess Corporation (Hess) on October 23, 2023. On a pro forma basis, Morningstar DBRS estimates the potential acquisition of Hess to be slightly positive but not material enough to change Chevron's business risk profile, which is already very strong. Since the purchase offer was first made, Hess' shareholders have approved the deal, and it has also gained clearance from the U.S. Federal Trade Commission. However, there is an arbitration challenge, which is not expected to be resolved until September 2025. Assuming the acquisition is finalized, the financial terms of the transaction may change and, therefore, could also change Chevron's financial risk profile. However, Morningstar DBRS notes that Chevron's financial risk profile is currently strong and that it has adequate headroom to absorb Hess' YE2024 debt. Morningstar DBRS is monitoring the situation as it evolves.

CREDIT RATING DRIVERS
Morningstar DBRS expects Chevron to maintain a lease-adjusted debt-to-cash flow ratio consistently below 1.00 times (x), supporting the Company's AA credit rating. A positive credit rating action in the near term is unlikely since this would require a material improvement in the Company's business risk profile, which is already very strong. Morningstar DBRS may consider a negative credit rating action if O&G prices, or Chevron's operating performance and/or credit metrics, materially weaken, causing the lease-adjusted debt-to-cash flow ratio to stay at or above 1.50x for an extended period.

EARNINGS OUTLOOK
Chevron expects about a 7% increase in production to 3.57 million barrels of oil equivalent per day (boe/d) in 2025, the midpoint of its guidance, from the 3.34 million boe/d reported in 2024. The forecast increase in production will largely be driven by the ramp-up of production from the Company's Tengizchevroil (TCO) affiliate in Kazakhstan; organic growth in the Permian Basin; organic growth from the Anchor project in the Gulf of Mexico and first production in 2025 from the Whale and Ballymore projects there; and organic growth from other Company projects. Morningstar DBRS forecasts Chevron's consolidated revenue to sequentially decline by about 1% to between $192 billion and $193 billion in 2025 because the increase in annual production that is incorporated is offset by a lower crude oil price assumption. Despite this, Morningstar DBRS expects $2 billion to $3 billion in structural cost savings by 2026 to support the EBITDA margin at about 22% in 2025, a modest increase from 2024. Morningstar DBRS' base-case commodity price assumptions can be found in its commentary, "Marketplace Frets Over Burgeoning Trade War and Negative Implications for Crude Oil Demand, Weighing on Oil Prices" (February 13, 2025) at https://dbrs.morningstar.com/research/447894.

FINANCIAL OUTLOOK
Chevron's 2025 total capex guidance is approximately $15 billion for consolidated subsidiaries and about $2 billion in affiliate capex. Based on its base-case commodity price assumptions, Morningstar DBRS forecasts Chevron to generate significant free cash flow (i.e., cash flow after capex and dividends) surpluses in 2025 and 2026. On December 31, 2024, total debt was about $24.5 billion. Although Morningstar DBRS expects Chevron to allocate most of its free cash flow surplus to share repurchases, it forecasts the Company to remain below its long-term net debt-to-capital ratio target range of 20% to 25% through the forecast period. The Company's liquidity position is adequately supported by cash, cash equivalents, and marketable securities totaling about $6.8 billion at YE2024 and $8.25 billion of committed credit facilities, which were undrawn on December 31, 2024.

CREDIT RATING RATIONALE
Chevron's upstream segment holds large, low-cost positions in prolific producing basins. Reinforcing that, the Company continuously focuses on cost-reduction measures, including ongoing pursuit of operating and capital efficiency gains and pruning relatively low-margin operations and developments from its portfolio of holdings. Although overweight to upstream activities, Chevron's downstream operations often achieve higher margins during times of low O&G prices, partially offsetting the decline in upstream income. The Company's large scale, diversified cash flow, and financial strength allow it to pursue major capital projects with promising returns.

The credit rating confirmation follows several operational accomplishments by Chevron in 2024, including the full integration of PDC Energy into the Company, expanding its position in the Denver-Julesburg Basin in Colorado; increased production in the Permian Basin; progress towards the expansion at TCO, including completion of the Wellhead Pressure Management Project there; achievement of first production on other projects in the Gulf of Mexico and in Angola; upgrades to the Pasadena Refinery in Texas; and progress on its renewable strategy with the expansion of the Geismar diesel plant in Louisiana now in the final commissioning stage.

Morningstar DBRS forecasts Chevron to maintain a lease-adjusted debt-to-cash flow ratio less than 1.0x, commensurate with the AA credit rating range and supporting the Stable trend. The Company's liquidity position should remain strong, with committed credit facilities totaling $8.25 billion forecast to remain largely undrawn through the forecast period.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)

(A) Weighting of BRA Factors
In the analysis of Chevron, the BRA factors were considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of Chevron, the FRA factors were considered in the order of importance contemplated in the methodology.

(C) Weighting of the BRA and the FRA
In the analysis of Chevron, the BRA carries greater weight than the FRA.

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

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Companies in the Oil and Gas, Oilfield Services, Pipeline and Midstream Energy Industries (August 12, 2024), https://dbrs.morningstar.com/research/437739.

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025; https://dbrs.morningstar.com/research/447186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies have also been applied:

Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

The credit rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the credit rating process for this credit rating action.

Morningstar DBRS did not have access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is an unsolicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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