Chevron’s Liquidity Position Strengthened in 2018



Chevron’s cash flows

In 2018, Chevron’s (CVX) cash flow from operations rose 51% YoY to $30.6 billion. We’ll discuss how effective the cash flows were in covering necessary expenses.

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Chevron’s cash flow surplus

In 2018, Chevron had a cash outflow of $13.8 billion in the form of capital expenditures and $8.5 billion in the form of dividends—$22.2 billion of the essential cash outflows. So, Chevron’s cash inflow from operations easily covered the vital cash outflows. The company was left with surplus cash of $8.4 billion after spending on the capex and dividends—the difference between $30.6 billion of cash inflows and $22.2 billion of outflows.

Chevron raised $2.4 billion from asset sales, which resulted in $10.8 billion of excess cash for the company. Among the excess cash, $4.5 billion was used to repay debt and repurchase shares. The rest of the cash was added to Chevron’s cash reserve. Chevron’s cash balance (including restricted cash) rose from $5.9 billion at the beginning of the year to $10.5 billion at the end of 2018.

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What does the cash flow analysis imply?

If we estimate Chevron’s surplus as a percentage of its earnings capacity (cash flow from operations), it was 27%. In 2017, Chevron had a cash flow shortfall of 6%. Chevron’s cash flow changed from a shortfall to a surplus—a favorable sign. Chevron’s liquidity position strengthened in 2018.

With the business generating surplus cash, Chevron targets to buyback back $3 billion of shares annually. In the fourth quarter, Chevron repurchased $1 billion of shares.

Peers’ cash flows

Suncor Energy (SU) also had a cash flow surplus in 2018. Royal Dutch Shell’s (RDS.A) cash inflows from operations were higher than the combined capex and dividend outflows. However, BP (BP) had a cash flow shortfall in 2018.


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