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 is underpinned by the Company's substantial size, integrated and geographically diversified operations, and large portfolio of projects to replace and grow production. 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 rating, under the latest DBRS Morningstar base-case commodity price assumptions.

Chevron’s operating performance in 2022 was in line with expectations with production and capital expenditures (capex) in line with guidance despite inflationary pressures and a reserve replacement ratio in excess of 100% (after adjusting for the impact of higher prices). The Company also completed construction at the large expansion project in Tengizchevroil (TCO) with operations expected to commence in 2023 and 2024. Chevron did not experience any major disruption at TCO because of the ongoing Russia-Ukraine war. Strong commodity prices and elevated refining margins allowed the Company to generate record free cash flow (FCF; after dividends and capex) of $24.4 billion in 2022, which was partially directed toward debt repayment ($8.1 billion) and share repurchases ($11.3 billion) with the balance retained as cash on the balance sheet ($17.7 billion). As a result, the Company’s key credit metrics improved materially.

In 2023, Chevron expects its organic capex to be at $14 billion and production to be flat or to be up by 3% year over year (YOY), based on an average Brent crude price of $80 per barrel (/bbl). Over the longer term (2024–27), the Company expects capex to range between $13 billion and $15 billion, including spend on its low carbon business. Chevron expects production growth to average around 3% YOY over the same period with its U.S. assets driving most of the growth. The Company also expects unit margins to improve as the production mix shifts to higher margin barrels, lowering breakeven prices. Driven by DBRS Morningstar’s lower average Brent crude oil price assumption ($68/bbl) and a return of refining margins to mid-cycle levels, DBRS Morningstar expects earnings and cash flow in 2023 to be notably lower compared with 2022. Nevertheless, DBRS Morningstar expects Chevron to generate a material FCF surplus, most of which is expected to be used for share repurchases. DBRS Morningstar expects the Company to use cash on the balance sheet and possibly debt to continue share repurchases within its guidance range of $10 billion to $20 billion. DBRS Morningstar expects Chevron to maintain a net debt-to-capital ratio within its targeted range of 20% to 25% and the Company's key credit metrics to remain supportive of the rating. DBRS Morningstar views the Company’s liquidity position as satisfactory. Although unlikely in the near term, DBRS Morningstar could take a negative rating action if Chevron’s financial risk profile weakens materially and fails to support the overall rating. A positive rating action would require a material improvement in the Company’s business risk profile, which is already very strong.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental (E) Factors

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. Although the impact from potential environmental regulations in any particular country is mitigated by Chevron's depth and diversity of supply sources and its significant financial resources, DBRS Morningstar considers this factor to be relevant for the rating.

There were no Social or Governance factors that had a significant or relevant effect on the credit analysis.

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/396929 (May 17, 2022).

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

DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Companies in the Oil and Gas and Oilfield Services Industries (August 31, 2022; https://www.dbrsmorningstar.com/research/402196)

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223.

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.

The 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, management, 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.

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

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577