Is Chevron’s Debt Position Strengthening?

Maitali Ramkumar - Author

Aug. 18 2020, Updated 5:19 a.m. ET

Chevron’s debt position compared to its peers’

Until now, we’ve analyzed various market performance parameters for Chevron (CVX). Now we’ll review the financial position of the company starting with its debt.

Chevron’s net debt-to-adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) multiple stood at 1.5x in 3Q17, below the industry average of 1.7x. The industry average takes into account 13 integrated energy companies worldwide.

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Another parameter by which to compare debt is the total debt-to-total capital ratio. In 3Q17, CVX’s total debt-to-total capital ratio stood at 22%, again below the industry average of 34%. Comparatively, ExxonMobil (XOM), Royal Dutch Shell (RDS.A), and BP (BP) had ratios of 18%, 31%, and 40%, respectively, in the quarter. For more details, read Chart in Focus: Integrated Energy Firms’ Debt Positions in 3Q17.

 Analyzing Chevron’s leverage trend

CVX’s net debt-to-adjusted EBITDA multiple rose from 0.8x in 3Q15 to a high of 2.9x in 3Q16 before falling to 1.5x in 3Q17. Before examining this trend, let’s first understand the net debt trend.

Chevron’s net debt rose from $22.6 billion in 3Q15 to $35.3 billion in 3Q17 because of a rise in its total debt coupled with a fall in its cash and equivalents. Its total debt rose 17% over 3Q15 to $41.9 billion in 3Q17. The surge in its total debt was the result of its capital expenditure, volatile earnings, and dividend payments. CVX’s cash and equivalents fell 50% over 3Q15 to $6.6 billion in 3Q17.

CVX’s adjusted EBITDA fell during 3Q15 and 3Q17 because of lower earnings in its upstream segment. The fall in its adjusted EBITDA, along with the rise in its net debt from 3Q15 to 3Q17, led to the rise in its net debt-to-adjusted EBITDA multiple.

What does Chevron’s debt analysis imply?

Chevron stands below the peer averages in both parameters of the debt ratios discussed above—a favorable scenario for the company.

CVX’s total debt-to-capital ratio is the second-lowest among its peers, placing it in a comfortable leverage position and providing it with the financial strength and flexibility to handle difficult times.

CVX’s net debt-to-EBITDA multiple has fallen in the last few quarters. This fall has likely been due to the rise in oil prices, which has led to a surge in upstream earnings. Thus, going forward, if oil prices rise and Chevron implements its financial strategy (of reducing costs, optimizing capital expenditure, and divesting noncore assets) as planned, then—with a focus on its robust upstream portfolio and the strength of its downstream portfolio—Chevron could witness a further fall in its net debt-to-EBITDA multiple.


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