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How Chevron’s Cash Flows Turned to a Surplus

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Chevron’s cash flow

In the first half of 2018, Chevron’s (CVX) cash flow from operations was $11.9 billion, rising from $8.8 billion in the first half of 2017. Its cash outflow from investing stood at $5.4 billion in the first half of 2018 compared to $4.1 billion in the first half of 2017. Its cash outflows from financing was $3.7 billion due to debt and dividend outflows in the first half of the year.

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Chevron’s cash flow from shortfall to surplus

In the first half of the year, Chevron generated $11.9 billion in cash from operations. But it had a cash outflow of $6.2 billion in the form of capital expenditure and $4.3 billion in the form of dividends, totaling $10.5 billion for essential cash outflows. That led to a cash flow surplus of $1.4 billion (the difference between $11.9 billion of cash inflows and $10.5 billion of cash outflows).

Chevron also raised $0.8 billion from asset sales and $1 billion from the sales of Treasury shares. That resulted in $3.2 billion of excess cash, of which $0.4 billion was used to repay debt. The rest was added to Chevron’s cash reserves. Its cash balance, including restricted cash, rose from $5.9 billion at the beginning of the year to $8.7 billion at the end of the first half of the year.

If we estimate CVX’s surplus as a percentage of its earnings capacity (cash flow from operations), it was 12%. By comparison, in the first half of 2017, it had a cash flow shortfall of 21%. Thus, Chevron’s cash flow switched from a shortfall to a surplus, which is a favorable sign. That implies a robust improvement in Chevron’s liquidity position.

Since the company is generating surplus cash, it’s targeting to buy back $3 billion of shares annually.

Peers’ cash flows

ExxonMobil (XOM) also had cash flow surpluses in the first half of the year. Royal Dutch Shell’s (RDS.A) capex and dividend outflows matched its cash inflows from operations in the first half of 2018. However, BP (BP) had a cash flow shortfall in the first half of the year.

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