CHEVRON CORPORATION

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CHEVRON : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/05/2020 | 12:34pm

Second Quarter 2020 Compared with Second Quarter 2019



And Six Months 2020 Compared with Six Months 2019



Key Financial Results



Earnings


by Business Segment



Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
(Millions of
(Millions of dollars) dollars)
Upstream
United States $ (2,066) $ 896 $ (1,825) $ 1,644
International (4,023) 2,587 (1,344) 4,962
Total Upstream (6,089) 3,483 (3,169) 6,606
Downstream
United States (988) 465 (538) 682
International (22) 264 631 299
Total Downstream (1,010) 729 93 981
Total Segment Earnings (7,099) 4,212 (3,076) 7,587
All Other (1,171) 93 (1,595) (633)
Net Income (Loss) Attributable to Chevron Corporation (1) (2) $ (8,270) $ 4,305 $ (4,671) $


6,954



__________________________________________



(1) Includes foreign currency effects. $ (437) $ 15 $ 77 $


(122)



(2) Income (loss) net of tax; also referred to as "earnings" in the discussions that follow.





Net loss attributable to Chevron Corporation for second quarter 2020 was $8.27
billion
($(4.44) per share - diluted), compared with earnings of $4.31 billion
($2.27 per share - diluted) in the corresponding 2019 period. The net loss
attributable to Chevron Corporation for the first six months of 2020 was $4.67
billion
($(2.51) per share - diluted), compared with earnings of $6.95 billion
($3.66 per share - diluted) in the first six months of 2019.
Upstream reported a loss of $6.09 billion in second quarter 2020 compared to
earnings of $3.48 billion in the corresponding 2019 period. The decrease was
driven by net special item charges of $4.7 billion, sharply lower crude oil
realizations and lower crude oil and natural gas volumes. Upstream reported a
loss of $3.17 billion for the first six months of 2020 compared with earnings of
$6.61 billion a year earlier. The decrease was driven by net special item
charges of $4.0 billion, sharply lower crude oil realizations and natural gas
realizations.
Downstream reported a loss of $1.01 billion in second quarter 2020 compared with
earnings of $729 million in the corresponding 2019 period. The decrease was
primarily due to lower margins on refined product sales and lower sales volumes.
Earnings for the first six months of 2020 were $93 million compared with $981
million
in the corresponding 2019 period. The decrease was primarily due to
lower sales volumes, lower equity earnings from 50 percent-owned Chevron
Phillips Chemical Company LLC
(CPChem) and higher operating expenses.
Refer to pages 31 through 33 for additional discussion of results by business
segment and "All Other" activities for second quarter and first six months 2020
versus the same periods in 2019.
Business Environment and Outlook
Chevron Corporation* is a global energy company with substantial business
activities in the following countries: Angola, Argentina, Australia, Bangladesh,
Brazil, Canada, China, Colombia, Indonesia, Kazakhstan, Myanmar, Mexico,
Nigeria, the Partitioned Zone between Saudi Arabia and Kuwait, the
_____________________
* Incorporated in Delaware in 1926 as Standard Oil Company of California, the
company adopted the name Chevron Corporation in 1984 and ChevronTexaco
Corporation
in 2001. In 2005, ChevronTexaco Corporation changed its name to
Chevron Corporation. As used in this report, the term "Chevron" and such terms
as "the company," "the corporation," "our," "we," "us" and "its" may refer to
Chevron Corporation, one or more of its consolidated subsidiaries, or all of
them taken as a whole, but unless stated otherwise they do not include
"affiliates" of Chevron - i.e., those companies generally owned 50 percent or
less. All of these terms are used for convenience only and are not intended as a
precise description of any of the separate companies, each of which manages its
own affairs.
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Philippines, Republic of Congo, Singapore, South Korea, Thailand, the United
Kingdom
, the United States, and Venezuela.
Earnings of the company depend mostly on the profitability of its upstream
business segment. The most significant factor affecting the results of
operations for the upstream segment is the price of crude oil, which is
determined in global markets outside of the company's control. In the company's
downstream business, crude oil is the largest cost component of refined
products. It is the company's objective to deliver competitive results and
stockholder value in any business environment. Periods of sustained lower prices
could result in the impairment or write-off of specific assets in future periods
and cause the company to adjust operating expenses, including employee
reductions, and capital and exploratory expenditures, along with other measures
intended to improve financial performance. Similarly, impairments or write-offs
have occurred, and may occur in the future, as a result of managerial decisions
not to progress certain projects in the company's portfolio.
Response to Market Conditions and COVID-19 During the second quarter of 2020,
travel restrictions and other constraints on economic activity continued in many
locations around the world to limit the spread of the COVID-19 virus. As a
result, demand for our products fell steeply and commodity prices, including
crude oil and natural gas, have followed suit. The drop in commodity prices
negatively impacted the company's second quarter 2020 financial and operating
results. While demand and commodity prices have shown signs of recovery, they
are not back to pre-pandemic levels, and financial results may continue to be
depressed in future quarters. Due to the rapidly changing environment, there
continues to be uncertainty and unpredictability around the extent to which the
COVID-19 pandemic will impact our results, which could be material.
Chevron entered this crisis well positioned with a strong balance sheet,
flexible capital program and low cash flow breakeven price. To protect its
long-term health and value, the company is responding to these market conditions
by adjusting items it can control. The company has lowered planned 2020 capital
expenditures by up to 30 percent from its original budget to as low as $14
billion
and intends to reduce 2020 operating costs by $1 billion compared to
2019. The company is undertaking an enterprise-wide transformation that includes
the capture of cost efficiencies. As part of this restructuring, employee
reduction programs were announced. Additionally, the company suspended its share
repurchase program in March 2020. Taken together, these actions are consistent
with our financial priorities: to protect the dividend, to prioritize capital
spend that drives long-term value and to maintain a strong balance sheet. The
company expects to continue to have sufficient liquidity and access to both
commercial paper and debt capital markets due to its strong balance sheet and
investment grade credit ratings, which have been recently reaffirmed.
Additionally, the company has access to nearly $10 billion in committed credit
facilities.
The effective tax rate for the company can change substantially during periods
of significant earnings volatility. This is due to the mix effects that are
impacted both by the absolute level of earnings or losses and whether they arise
in higher or lower tax rate jurisdictions. As a result, a decline or increase in
the effective tax rate in one period may not be indicative of expected results
in future periods. Note 11 provides details of the company's effective income
tax rate.
Refer to the "Cautionary Statement Relevant to Forward-Looking Information" on
page 2 of this report and to "Risk Factors" on pages 18 through 21 of the
company's 2019 Annual Report on Form 10-K and on pages 41 to 43 of this report
for a discussion of some of the inherent risks that could materially impact the
company's results of operations or financial condition.
The company continually evaluates opportunities to dispose of assets that are
not expected to provide sufficient long-term value or to acquire assets or
operations complementary to its asset base to help augment the company's
financial performance and value growth. Asset dispositions and restructurings
may result in significant gains or losses in future periods. The company's asset
sale program for 2018 through 2020 is targeting before-tax proceeds of $5-10
billion
. Proceeds related to asset sales were $6.6 billion from January 2018
through June 2020.
The company closely monitors developments in the financial and credit markets,
the level of worldwide economic activity, and the implications for the company
of movements in prices for crude oil and natural gas.
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Management takes these developments into account in the conduct of daily
operations and for business planning.
Management's commentary related to earnings trends for the company's major
business areas is as follows:
Upstream Earnings for the upstream segment are closely aligned with industry
prices for crude oil and natural gas. Crude oil and natural gas prices are
subject to external factors over which the company has no control, including
product demand connected with global economic conditions, industry production
and inventory levels, technology advancements, production quotas or other
actions imposed by the Organization of Petroleum Exporting Countries (OPEC) or
other producers, actions of regulators, weather-related damage and disruptions,
competing fuel prices, natural and human causes beyond the company's control
such as the COVID-19 pandemic, and regional supply interruptions or fears
thereof that may be caused by military conflicts, civil unrest or political
uncertainty. Any of these factors could also inhibit the company's production
capacity in an affected region. The company closely monitors developments in the
countries in which it operates and holds investments, and seeks to manage risks
in operating its facilities and businesses. The longer-term trend in earnings
for the upstream segment is also a function of other factors, including the
company's ability to find or acquire and efficiently produce crude oil and
natural gas, changes in fiscal terms of contracts, and changes in tax and other
applicable laws and regulations.
The company is actively managing its schedule of work, contracting, procurement,
and supply chain activities to effectively manage costs, ensure supply chain
resiliency and continuity, and support operational goals. Third party costs for
capital, exploration, and operating expenses associated with ongoing operations
can be subject to external factors beyond the company's control including, but
not limited to: the general level of inflation, tariffs or other taxes imposed
on goods or services, and market based prices charged by the industry's material
and service providers. Chevron utilizes contracts with various pricing
mechanisms, so there may be a lag before the company's costs reflect the changes
in market trends.
The spot markets for many materials and services have fallen in response to the
broader economic impact of the COVID-19 pandemic. Crude oil and natural gas
prices have yet to return to pre-pandemic levels, and therefore spending in the
energy sector has continued to retreat. Commodity prices remain below break-even
levels in many regions, and as a result, more highly-leveraged producers may be
forced to file for bankruptcy protection (Chapter 11 re-organization or even
Chapter 7 insolvency proceedings under the U.S. Bankruptcy Code), further
stressing suppliers, especially those who entered this price-cycle under
financial pressure. The extent to which the costs of goods and services could go
down may be constrained by low supply sector margins, decisions by suppliers to
reduce capacity, and actions by banks and other financial institutions. Chevron
is actively monitoring and engaging key suppliers to mitigate any potential
business impacts.
Capital and exploratory expenditures and operating expenses could also be
affected by damage to production facilities caused by severe weather or civil
unrest, delays in construction, or other factors.
[[Image Removed: cvx-20200630_g1.jpg]]
The chart above shows the trend in benchmark prices for Brent crude oil, West
Texas Intermediate (WTI) crude oil, and U.S. Henry Hub natural gas. The Brent
price averaged $64 per barrel for the full-year 2019.
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During the second quarter 2020, Brent averaged $30 per barrel and ended July at
about $43. The WTI price averaged $57 per barrel for the full-year 2019. During
the second quarter 2020, WTI averaged $28 per barrel and ended July at about
$40. The majority of the company's equity crude production is priced based on
the Brent benchmark. (See page 37 for the company's average U.S. and
international crude oil sales prices.)
Crude prices sharply declined at the end of the first quarter due to surplus
supply as demand decreased due to government-imposed travel restrictions and
other constraints on economic activity. In the second quarter the supply/demand
balance improved primarily due to production cuts and demand growth, increasing
prices.
In contrast to price movements in the global market for crude oil, price changes
for natural gas are more closely aligned with seasonal supply-and-demand and
infrastructure conditions in local markets. In the United States, prices at
Henry Hub averaged $1.76 per thousand cubic feet (MCF) for the first six months
of 2020, compared with $2.73 during the first six months of 2019. At the end of
July 2020, the Henry Hub spot price was $1.80 per MCF.
Outside the United States, price changes for natural gas depend on a wide range
of supply, demand and regulatory circumstances. Chevron sells natural gas into
the domestic pipeline market in most locations. In some locations, Chevron has
invested in long-term projects to produce and liquefy natural gas for transport
by tanker to other markets. The company's long-term contract prices for
liquefied natural gas (LNG) are typically linked to crude oil prices. Most of
the equity LNG offtake from the operated Australian LNG projects is committed
under binding long-term contracts, with the remainder to be sold in the Asian
spot LNG market. The Asian spot market reflects the supply and demand for LNG in
the Pacific Basin and is not directly linked to crude oil prices. International
natural gas sales realizations averaged $5.11 per MCF during the first six
months of 2020, compared with $6.00 per MCF in the same period last year. (See
page 37 for the company's average natural gas sales prices for the U.S. and
international regions.)
The company's worldwide net oil-equivalent production in the first six months of
2020 averaged 3.111 million barrels per day, 2 percent higher than the year-ago
period. About 14 percent of the company's net oil-equivalent production in the
first six months of 2020 occurred in the OPEC-member countries of Angola,
Nigeria, Republic of Congo and Venezuela. OPEC quotas did not materially reduce
the company's net crude oil production in second quarter 2020. OPEC quotas had
no effect on the company's net crude oil production for second quarter 2019.
The company expects 2020 production to be relatively flat compared to 2019. This
estimate is subject to many factors and uncertainties, including quotas or other
actions that may be imposed by OPEC members and other countries; price effects
on entitlement volumes; changes in fiscal terms or restrictions on the scope of
company operations; delays in construction; reservoir performance;
greater-than-expected declines in production from mature fields; start-up or
ramp-up of projects; fluctuations in demand for natural gas in various markets;
weather conditions that may shut in production; civil unrest; changing
geopolitics; delays in completion of maintenance turnarounds; storage
constraints or economic conditions that could lead to shut-in production; or
other disruptions to operations. The outlook for future production levels is
also affected by the size and number of economic investment opportunities and
the time lag between initial exploration and the beginning of production. The
company has increased its investment emphasis on short-cycle projects, but these
too are under pressure in the current market environment.
In the Partitioned Zone between Saudi Arabia and Kuwait, production was shut-in
beginning in May 2015. In December 2019, the governments of Saudi Arabia and
Kuwait signed a memorandum of understanding to allow production to restart in
the Partitioned Zone. In mid-February 2020, pre-startup activities commenced,
and production resumed in July 2020. The financial effects from the loss of
production in 2019 and first half 2020 were not significant.
Chevron has interests in Venezuelan crude oil production assets, including those
operated by independent equity affiliates. While the operating environment in
Venezuela has been deteriorating for some time, the equity affiliates have
conducted activities consistent with the authorization provided pursuant to
general licenses issued by the United States government. It remains uncertain
when the environment in Venezuela will stabilize, but the company remains
committed to its people, assets and operations in Venezuela. Refer to
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Note 13 on page 18 under the heading "Other Contingencies" for more information
on the company's activities in Venezuela.
Response to Market Conditions and COVID-19: Upstream In the second quarter 2020,
travel restrictions and other constraints on economic activity aimed at
combating the spread of COVID-19 continued, which caused demand for oil and gas
to remain low. This has resulted in lower price realizations across all
commodities. While critical asset integrity and reliability activities continue,
deferral of non-essential work and demobilization of non-essential personnel
have continued in locations with high infection rates to reduce the COVID-19
exposure risk to our workforce. In some countries where the virus infection
rates are low, for example Australia and China, the workforce has returned to
the office.
Despite the challenges posed by the pandemic, progress continues on the future
growth wellhead pressure management project (FGP-WPMP) at Tengiz. To mitigate
the risk from the pandemic, the project construction workforce was demobilized
to 20 percent of planned levels, which has slowed the overall construction pace.
Extended rotations, testing and isolation protocols have been established for
personnel arriving and departing from the site to minimize the spread of the
virus. It is too early to provide meaningful information regarding the impact of
these measures on project cost and schedule, as they will be dependent upon when
activity can be safely ramped-up and sustained. While infection levels in
Kazakhstan remain high, management is committed to progressing the project in a
safe and responsible manner.
Facility maintenance turnarounds are being adjusted and, in certain cases,
deferred to later in 2020 or into 2021. In some cases, turnarounds have been
extended in duration and reduced in scope to mitigate the risk of the virus. New
production coming online will be significantly reduced in future periods as
drilling and completion activities are scaled back, most notably in the Permian
Basin
, Gulf of Mexico, and Argentina. As a result of the reduction in capital
expenditures across the business, some exploration activities and projects not
yet in execution phase have been deferred, which may impact production in future
years.
Production levels have been curtailed as a result of reductions imposed by OPEC+
nations in Kazakhstan, Nigeria and Angola. Additionally, reductions have been
implemented by operators of assets where the company has non-operated interests
or where production has been curtailed due to market conditions, most notably in
Thailand and the United States. Production curtailments of approximately 165
thousand barrels of oil equivalent per day were recorded in the second quarter.
In the third quarter, we expect curtailments to be approximately 150 thousand
barrels of oil equivalent per day.
Decreased capital expenditures for 2020 will result in reductions to Chevron's
proved reserve quantities and delays in timing of additional proved reserves
being recognized. The company currently estimates the lower planned capital
spend will result in an approximately 10 percent downward revision to proved
reserves quantities, primarily in the Permian Basin and Australia. Should the
current low commodity prices persist, it is expected that proved reserve
quantities would decrease for oil and gas properties where economic limits are
negatively impacted. Lower prices will positively impact proved reserves due to
entitlement effects. The impact of the reduction in capital expenditures,
changes in commodity prices, and their combined effect on proved reserves will
be assessed at the end of the year in line with Chevron's annual reserves
process.
Regulatory and in-country conditions, which are rapidly changing, could impact
logistics and material movement and remain a risk to business continuity. We are
taking precautionary measures to reduce the risk of exposure to and spread of
the COVID-19 virus through screening, testing and, when appropriate,
quarantining workforce and visitors upon arrival to our operated facilities.
Refer to the "Results of Operations" section on pages 31 and 32 for additional
discussion of the company's upstream business.
Downstream Earnings for the downstream segment are closely tied to margins on
the refining, manufacturing and marketing of products that include gasoline,
diesel, jet fuel, lubricants, fuel oil, fuel and lubricant additives, and
petrochemicals. Industry margins are sometimes volatile and can be affected by
the global and regional supply-and-demand balance for refined products and
petrochemicals, and by changes in the price of crude oil, other refinery and
petrochemical feedstocks, and natural gas. Industry margins can also be
influenced by inventory levels, geopolitical events, costs of materials and
services, refinery or chemical plant
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capacity utilization, maintenance programs, and disruptions at refineries or
chemical plants resulting from unplanned outages due to severe weather, fires or
other operational events.
Other factors affecting profitability for downstream operations include the
reliability and efficiency of the company's refining, marketing and
petrochemical assets, the effectiveness of its crude oil and product supply
functions, and the volatility of tanker-charter rates for the company's shipping
operations, which are driven by the industry's demand for crude oil and product
tankers. Other factors beyond the company's control include the general level of
inflation and energy costs to operate the company's refining, marketing and
petrochemical assets, and changes in tax laws and regulations.
The company's most significant marketing areas are the West Coast and Gulf Coast
of the United States and Asia. Chevron operates or has significant ownership
interests in refineries in each of these areas.
Response to Market Conditions and COVID-19: Downstream Beginning in March and
continuing into the second quarter 2020, demand for the company's products
(primarily jet fuel and motor gasoline) deteriorated as a result of travel
restrictions and other constraints on economic activity implemented in many
countries to combat the spread of the COVID-19 virus. Product prices also fell
sharply in the second quarter 2020, and although economic activity has somewhat
rebounded from lows experienced in April, refining margins were at or near
historic lows due to lower demand and pressure from a global oil product surplus
for much of the second quarter. Chevron took steps to maximize diesel
production, given the decline in jet fuel and motor gasoline demand, to fuel
transportation that keeps global supply chains moving. The company is also
prioritizing equity crudes into its refining system where possible and actively
monitoring supply and demand dynamics as every region is experiencing different
recovery trends. The company is adjusting the schedule for planned maintenance
activity across its refining network and idling certain processing units to
adjust for lower demand, reduce costs, manage inventories and, most importantly,
protect the safety of employees and contractors. To preserve cash and support
balance sheet strength, the 2020 downstream organic capital spending program was
reduced by approximately $800 million.
As of late July 2020, Chevron's refining crude utilization was approximately 75
percent and sales were down year-over-year approximately 60 percent for jet
fuel, 10 percent for motor gasoline, and 5 percent for diesel. It is unclear how
long these conditions will persist, but the company will continue to take
actions necessary to protect the health and well-being of people, the
environment and its operations as conditions evolve.
Refer to the "Results of Operations" section on pages 32 and 33 for additional
discussion of the company's downstream operations.
All Other consists of worldwide cash management and debt financing activities,
corporate administrative functions, insurance operations, real estate activities
and technology companies.
Operating Developments
Noteworthy operating developments in recent months included the following:
•Australia - Completed the acquisition of Puma Energy (Australia) Holdings Pty
Ltd.

•Azerbaijan - Completed the sale of the company's interest in the
Azeri-Chirag-Gunashli fields and Baku-Tbilisi-Ceyhan pipeline in April 2020.
•Colombia - Completed the sale of the company's interest in the offshore
Chuchupa and onshore Ballena natural gas fields in April 2020.
Results of Operations
Business Segments The following section presents the results of operations and
variances on an after-tax basis for the company's business segments - Upstream
and Downstream - as well as for "All Other." (Refer to Note 8, beginning on page
11, for a discussion of the company's "reportable segments," as defined under
the accounting standards for segment reporting.)

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Upstream
Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
(Millions of dollars)
U.S. Upstream Earnings $ (2,066) $ 896 $ (1,825) $ 1,644


U.S. upstream operations reported a loss of $2.07 billion in second quarter
2020, compared with earnings of $896 million from a year earlier. Included in
the current quarter were charges of $1.32 billion for special items, including
impairments and write-offs of $1.20 billion and severance charges of $120
million
. Sharply lower crude oil realizations of $1.59 billion also contributed
to the decrease in earnings between periods.
U.S. upstream operations reported a loss of $1.83 billion for the first six
months of 2020, compared with earnings of $1.64 billion from a year earlier. The
decrease is due to the drastic decline in crude oil realizations of $2.08
billion
and second quarter 2020 special items of $1.32 billion as detailed
above.
The average realization per barrel for U.S. crude oil and natural gas liquids in
second quarter 2020 was $19 compared with $52 a year earlier. The average
realization per barrel for U.S. crude oil and natural gas liquids in the first
six months of 2020 was $29, compared with $50 a year earlier. The average
natural gas realization in second quarter 2020 was $0.81 per thousand cubic
feet, compared with $0.68 in the 2019 period. The average natural gas
realization in the first six months of 2020 was $0.70 per thousand cubic feet,
compared with $1.17 in the 2019 period.
Net oil-equivalent production of 991,000 barrels per day in second quarter 2020
was up 93,000 barrels per day, or 10 percent, from a year earlier. Production
increases from shale and tight properties in the Permian Basin in Texas and New
Mexico
were partially offset by normal field declines and the effects of
production curtailments due to market conditions. Net oil-equivalent production
of 1.03 million barrels per day in the first six months of 2020 was up 136,000
barrels per day, or 15 percent, from a year earlier. Production increases from
shale and tight properties in the Permian Basin in Texas and New Mexico were
partially offset by normal field declines and the effects of production
curtailments due to market conditions.
The net liquids component of oil-equivalent production of 747,000 barrels per
day in second quarter 2020 was up 5 percent from the corresponding 2019 period.
The net liquids component of oil-equivalent production of 775,000 barrels per
day in the 2020 six-month period was up 11 percent from the 2019 period. Net
natural gas production was 1.46 billion cubic feet per day in second quarter
2020, an increase of 29 percent from the 2019 comparative period. Net natural
gas production was 1.51 billion cubic feet per day in the first six months of
2020, an increase of 32 percent from the 2019 period.
Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
(Millions of dollars)
International Upstream Earnings* $ (4,023) $ 2,587 $ (1,344) $ 4,962
_____________________________
* Includes foreign currency effects $ (262) $ 22 $ 206 $ (146)


International upstream operations reported a loss of $4.02 billion in second
quarter 2020, compared with earnings of $2.59 billion a year ago. Special items
included in second quarter 2020 include charges of $3.9 billion for impairments,
write-offs and severance accruals, and earnings of $0.7 billion associated with
a gain on the Azerbaijan sale and tax items. Sharply lower crude oil
realizations of $2.12 billion, and lower crude oil and natural gas volumes of
$330 million and $240 million, respectively, also contributed to the decrease in
earnings between periods. Foreign currency effects had an unfavorable impact on
earnings of $284 million between periods.
International upstream operations reported a loss of $1.34 billion in the first
six months of 2020 compared with earnings of $4.96 billion a year earlier.
Special items included in the first half of 2020 include charges of $3.9 billion
for impairments, write-offs and severance accruals and earnings of $1.4 billion
associated with gains on asset sales and tax items. Sharply lower crude oil
realizations of $2.98 billion and lower crude oil
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volumes of $510 million also contributed to the decrease in earnings between
periods. Foreign currency effects had a favorable impact on earnings of $352
million
between periods.
The average realization per barrel of crude oil and natural gas liquids in
second quarter 2020 was $21, compared with $62 a year earlier. The average
realization per barrel of crude oil and natural gas liquids in the first six
months of 2020 was $33, compared with $60 a year earlier. The average natural
gas realization in second quarter 2020 was $4.48 per thousand cubic feet,
compared with $5.43 in the 2019 period. The average natural gas realization in
the first six months of 2020 was $5.11 per thousand cubic feet, compared with
$6.00 in the 2019 period.
International net oil-equivalent production of 2.00 million barrels per day in
second quarter 2020 decreased 189,000 barrels per day, or 9 percent, from the
corresponding 2019 period. The decrease is due to production curtailments
associated with market conditions and OPEC+ restrictions combined with asset
sale related decreases of 100,000 barrels per day. Partially offsetting these
items were higher production entitlement effects. International net
oil-equivalent production of 2.08 million barrels per day in the first six
months of 2020 was down 86,000 barrels per day, or 4 percent, from a year
earlier. The decrease is due to asset sale related decreases of 97,000 barrels
per day, and production curtailments associated with market conditions and OPEC+
restrictions, partially offset by production entitlement effects.
The net liquids component of oil-equivalent production of 1.08 million barrels
per day in second quarter 2020 decreased 7 percent from the 2019 period. The net
liquids component of oil-equivalent production of 1.12 million barrels per day
in the first six months of 2020 decreased 4 percent from the 2019 period. Net
natural gas production of 5.52 billion cubic feet per day in second quarter 2020
decreased 11 percent from the 2019 period. Net natural gas production of
5.79 billion cubic feet per day in the first six months of 2020 decreased 4
percent from the 2019 period.
Downstream
Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
(Millions of dollars)
U.S. Downstream Earnings $ (988) $ 465 $ (538) $ 682


U.S. downstream operations reported a loss of $988 million in second quarter
2020, compared with earnings of $465 million a year earlier. The decrease was
mainly due to lower margins on refined product sales of $740 million, lower
sales volumes of $500 million, lower earnings from 50 percent-owned Chevron
Phillips Chemical Company LLC
(CPChem) of $200 million and severance accruals of
$80 million, partially offset by lower maintenance and transportation costs of
$80 million.
U.S. downstream operations reported a loss of $538 million for the first six
months of 2020 compared with earnings of $682 million a year earlier. The
decrease was primarily due to lower sales volumes of $410 million, lower margins
on refined product sales of $360 million, lower earnings from 50 percent-owned
CPChem of $260 million, and higher operating expense of $180 million, including
severance charges of $80 million.
Refinery crude oil input in second quarter 2020 decreased 39 percent to 581,000
barrels per day and for the first six months of 2020, crude oil input decreased
15 percent to 773,000 barrels per day. The decrease for both comparative periods
was due to the company's cut in refinery runs in response to demand destruction
from the impact of the COVID-19 pandemic and the weak refining margin
environment.
Refined product sales of 827,000 barrels per day were down 35 percent from
second quarter 2019, mainly due to gasoline, jet fuel and diesel demand
destruction associated with the COVID-19 pandemic. Refined product sales of
993,000 barrels per day in the six-month period were down 20 percent from the
corresponding 2019 period, mainly due to jet fuel, gasoline and diesel demand
destruction associated with the COVID-19 pandemic.
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Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
(Millions of dollars)
International Downstream Earnings* $ (22) $ 264 $ 631 $ 299


_______________________



* Includes foreign currency effects $ (23) $ (9) $ 37 $ 22


International downstream operations reported a loss of $22 million in second
quarter 2020, compared with earnings of $264 million a year earlier. The
decrease in earnings was largely due to lower margins on refined product sales
of $200 million and severance charges of $60 million, partially offset by
reductions in shutdown and transportation costs which were both lower by $20
million
. Foreign currency effects had an unfavorable impact on earnings of $14
million
between periods.
Earnings for the first six months of 2020 were $631 million, compared with $299
million
a year earlier. The increase in earnings was largely due to higher
margins on refined product sales of $410 million, partially offset by severance
charges of $60 million. Foreign currency effects had a favorable impact on
earnings of $15 million between periods.
Refinery crude oil input of 589,000 barrels per day in second quarter 2020
decreased 2 percent from the year-ago period. For the first six months of 2020,
crude input was 612,000 barrels per day, down 3 percent from the year-ago
period.
Total refined product sales of 1.10 million barrels per day in second quarter
2020 were down 13 percent from the year-ago period, mainly due to gasoline, jet
fuel and diesel demand destruction associated with the COVID-19 pandemic. Total
refined product sales for the first six months of 2020 of 1.19 million barrels
per day were down 11 percent from the year-ago period, mainly due to jet fuel,
gasoline and diesel demand destruction associated with the COVID-19 pandemic.
All Other
Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
(Millions of dollars)
Earnings/(Charges)* $ (1,171) $ 93 $ (1,595) $ (633)
______________________
* Includes foreign currency effects $ (152) $ 2 $ (166) $ 2


All Other consists of worldwide cash management and debt financing activities,
corporate administrative functions, insurance operations, real estate activities
and technology companies.
Net charges in second quarter 2020 were $1.17 billion, compared with net
earnings of $93 million in the year-ago period. The increase in net charges
between periods was mainly due to absence of the Anadarko termination fee that
was received in second quarter 2019, along with severance charges that were
recorded in the current period. Foreign currency effects increased net charges
by $154 million between periods.
Net charges for the first six months of 2020 were $1.60 billion, compared with
$633 million a year earlier. The change between periods was mainly due to the
absence of the Anadarko termination fee that was received in second quarter 2019
and severance charges, partially offset by lower employee costs and lower
interest expense. Foreign currency effects increased net charges by $168 million
between periods.
33



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