Chart in Focus: Chevron’s Cash Flow Position
Chevron’s cash flow
In 1H17, Chevron’s (CVX) cash flow from operations stood at $8.9 billion, rising from $3.7 billion in 1H16. CVX’s cash outflows from investing stood at $4.0 billion in 1H17 compared to $8.7 billion in 1H16. However, cash outflows from financing stood at $7.1 billion due to net debt outflows and dividend outflows.
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Examining Chevron’s cash flow strategy
In 1H17, Chevron generated $8.9 billion in cash from operations. However, it had a cash outflow of $6.6 billion in the form of capital expenditure and $4.0 billion in the form of dividends, totaling $10.6 billion of cash outflows. So, how did the company make up for the difference of $1.7 billion in cash flows?
Chevron funded the gap via divestment proceeds of $2.5 billion, and it utilized its cash reserve. Chevron’s cash balance fell from $7.0 billion at the beginning of 1H17 to $4.8 billion at the end of 1H17. In fact, Chevron could also repay around $3.3 billion of debt (net including long-term and short-term debt) in the first half of the year—a positive sign.
Peers’ cash flows
If we calculate Chevron’s shortfall as a percentage of its earnings capacity in terms of cash flow from operations, it would stand at 19%. Comparatively, BP (BP) had a much higher shortfall of 63% in 1H17.
Conversely, ExxonMobil (XOM) and Royal Dutch Shell (RDS.A) had surpluses standing at 18% and 25%, respectively. For more on this topic, please read XOM, CVX, RDS.A, BP: Who Had Better Cash Flows in 1H17?
What do Chevron’s cash flows imply?
Chevron’s debt repayment during the year implies that the company intends to keep its debt levels in check, reflecting its focus on strong financials. If oil prices improve, with major projects coming online and higher production from its Upstream portfolio, the company could see enhanced revenues and earnings. This trend could lead to better cash flow from operations going forward.