Fitch Affirms Chevron's IDR at 'AA/F1+'; Outlook Remains Stable

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the following ratings of Chevron Corporation (Chevron; NYSE: CVX):

--Issuer Default Rating (IDR) affirmed at 'AA';

--Senior unsecured notes affirmed at 'AA';

--Commercial paper affirmed at 'F1+';

--Short-term IDR affirmed at 'F1+'

The Ratings Outlook is Stable.

Chevron's ratings reflect the diversification benefits of the integrated oil business model, the size and quality of the company's large worldwide asset base, its strong cash flow generation capability, conservative financial management, and shrinking debt levels. Concerns center primarily on Chevron's low reserve replacement rates of the last few years.

Chevron's financial performance remains strong, buoyed by very robust crude oil prices. In 2007, the company generated EBITDA of $35.6 billion, cash flow from operations of $24.97 billion, and free cash flow of $3.51 billion after capex of $16.68 billion and dividends of $4.79 billion. Chevron also retired approximately $2.6 billion in net debt in 2007, resulting in total debt/proven reserves of $0.92/boe, and E&P debt/proven reserves (excluding bitumen and allocating 25% of debt to other operations) of just $0.69/boe, according to Fitch calculations. In Q1, Chevron retired an additional $438 million in net debt, bringing its total debt balance down to just $6.79 billion, well below cash and equivalents of $8.2 billion. Debt-to-capitalization was just 7.9% as of 03/31/2008, and upstream output was 2.599 million boepd (barrels of oil equivalent per day), a decline of 1.7% from year-ago levels.

Like many of its integrated peers, Chevron continues to struggle with low reserve replacement rates, prompted by resource nationalism, tougher reserve access terms, and limited drilling success. Chevron's one and three year all-in reserve replacement rates (including sales and purchases) were just 41% in 2007 and 88% from 2005-2007, indicating that the upstream shrank over this time frame. Organic reserve replacement was significantly lower than this. Factors contributing to Chevron's low reserve replacement include increased production, oil-priced linked PSC revisions, and the debooking of Venezuelan Heavy Oil Reserves, among other things. The company's R/P (Reserves to Production) ratio fell from 12.4 in 2006 to 11.4 in 2007, while three year FD&A costs (as calculated by Fitch) rose to $18.72/boe from $15.67/boe. Looking forward, Fitch believes that continued low reserve replacement may increase M&A risk for Chevron bondholders down the road, but notes that this is more than offset by Chevron's very strong cash flows, deep access to capital markets, and track record of financing deals conservatively. Fitch also notes that with recent debt reductions, Chevron remains at the upper end of its current rating category.

Chevron Corporation is a large integrated oil company with upstream production of approximately 2.6 million boepd (barrels of oil equivalent per day) and proven hydrocarbon reserves of 11.21 billion boe as of year-end 2007. Chevron's downstream portfolio includes interests in 20 refineries with an aggregate refining capacity of 2.12 million bpd and over 25,000 branded retail stations. Chevron's chemicals assets are held through CPChem, a joint venture with ConocoPhillips Corporation (COP) which holds interests in 30 chemical manufacturing sites. Other assets include midstream assets, power generation, mining, and energy services.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. The issuer did not participate in the rating process other than through the medium of its public disclosure.

Fitch Ratings
Mark Sadeghian, CFA, +1-312-368-2090 (Chicago)
Sean T. Sexton, CFA, +1-312-368-3130 (Chicago)
Brian Bertsch, +1-212-908-0549
(Media Relations, New York)