DBRS Morningstar Confirms Chevron Corporation at AA, Stable

DBRS Limited (DBRS Morningstar) confirmed Chevron Corporation's (Chevron or the Company) Issuer Rating at AA with a Stable trend. The rating continues to be underpinned by the Company's (1) substantial size, in both the Upstream segment and the Downstream segment; (2) integrated operations; (3) above-average geographic diversification; (4) planned projects to replace and grow production; and (5) operating and capital flexibility. The rating also takes into account Chevron's planned cash returns to shareholders and exposure to operations in more politically sensitive geographic regions. The Stable trend reflects DBRS Morningstar's expectation that Chevron's key credit metrics will continue to support the overall AA rating, under the latest DBRS Morningstar base-case commodity price assumptions and expectations for continued steady demand for refined petroleum products.

The Company's key credit metrics improved materially in 2021 because of strong earnings and cash flow supported by the improvement in commodity prices and recovery in demand for refined petroleum products, a $13 billion decrease in debt, lower capital expenditures (capex), and a reduction in operating expenses compared with 2019 level. During 2020, Chevron's key credit metrics had deteriorated significantly because of weak earnings and cash flow following the Coronavirus Disease (COVID-19) pandemic, new debt issuances to a fund free cash flow (FCF; after dividends and capex) deficit, and incremental debt incurred from the acquisition of Noble Energy, Inc.

In 2022, Chevron expects its capex to be at the lower end of the guidance range of $15 billion to $17 billion. Chevron also expects production in 2022 to be flat to down by 3% year over year, excluding the impact of any potential asset sales in 2022, based on an average Brent Crude price of $60 per barrel (/bbl). Based on DBRS Morningstar's expectation for an average $70/bbl Brent Crude oil price in 2022, DBRS Morningstar expects Upstream earnings and cash flow in 2022 to remain largely in line with 2021 figures. With expectations for continued steady Downstream margins, the Company is expected overall to generate a meaningful FCF surplus in 2022, most of which is expected to be used for share repurchases. Chevron aims to maintain a net debt-to-capital ratio within the range of 20% to 25%. As a result, DBRS Morningstar expects the Company’s key credit metrics to remain supportive of the overall rating of AA.

The Company's liquidity position is adequate with a $10.1 billion committed credit facility, which supports the commercial paper program (no amount outstanding under the commercial paper program as at YE2021) and a $5.7 billion cash balance as at December 31, 2021. Assuming refinery margins are closer to historical averages, DBRS Morningstar expects the Company to generate sufficient operating cash flow to fund its capex budget and dividend commitments even under DBRS Morningstar's stress-case price assumptions. Although unlikely in the near term, DBRS Morningstar could take a negative rating action if the Company's financial risk profile weakens materially and fails to support the overall AA rating.

ESG CONSIDERATIONS
DBRS Morningstar considered Carbon and GHG Costs as a relevant Environmental factor. This factor was assessed as relevant because compliance with ever-increasing environmental regulations and standards is limiting growth potential and adding costs for all oil and gas companies, including Chevron. There were no Social or Governance factors with a significant or relevant impact on the credit rating.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating Companies in the Oil and Gas and Oilfield Services Industries (August 16,
2021; https://www.dbrsmorningstar.com/research/383104), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

This rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the rating process for this rating action. DBRS Morningstar did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is an unsolicited credit rating.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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