Is Chevron’s Debt Position Strengthening?



Comparing Chevron’s and peers’ debt position

Chevron’s (CVX) net debt-to-adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) ratio was 1.3x in the first quarter, below the average industry ratio of 1.6x. The industry average takes into account 13 integrated energy companies worldwide.

Another parameter used to compare debt is the total debt-to-total capital ratio. In the first quarter, CVX’s total debt-to-total capital ratio was 21%, again below the industry average of 33%. In comparison, ExxonMobil’s (XOM), Royal Dutch Shell’s (RDS.A), and BP’s (BP) debt-to-total capital ratios were 17%, 33%, and 38%, respectively.

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Analyzing Chevron’s leverage trend

In Q1 2018, Chevron’s net debt fell 2% sequentially from $33.9 billion to $33.3 billion. Its net debt-to-adjusted EBITDA ratio fell from 1.4x to 1.3x due to its cash and equivalents rising more than its total debt. Whereas its cash and equivalents rose $1.7 billion sequentially to $6.5 billion, its total debt rose $0.98 billion to $39.8 billion.

CVX’s adjusted trailing-12-month EBITDA rose because of higher earnings in its upstream segment in Q1 2018. The rise in its adjusted EBITDA and decrease in its net debt led to Chevron’s net debt-to-adjusted EBITDA multiple falling.

What Chevron’s debt analysis implies

Chevron’s net debt-to-adjusted EBITDA ratio and total debt-to-total capital ratio both stand below the peer average—a favorable scenario. Lower debt ratios could give Chevron financial strength and flexibility to handle difficult times. Plus, CVX’s total debt-to-capital ratio is the second lowest in its peer group, placing it in a more comfortable leverage position.

Oil prices are soaring to multiyear highs. To learn more, read Gasoline and Distillate Inventories Push Crude Oil Prices Higher. The increase in oil prices could lead to a steep surge in CVX’s upstream earnings. With higher earnings, the company could generate higher cash flow and see a discretionary surplus, which Chevron could use to reduce its total debt and fortify its financial position.

Correction: An earlier version of this article provided inaccurate net debt figures and misrepresented the sequential growth described above as year-over-year changes.


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