Chevron Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 2, 2024

There are 16 speakers on the call.

Operator

Good morning. My name is Katie, and I will be your conference facilitator today. Welcome to Chevron's 4th Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' remarks, there will be a question and answer session and instructions will be given at that time.

Operator

As a reminder, this conference call is being recorded. I will now turn the conference call over to the General Manager of Investor Relations of Chevron Corporation, Mr. Jake Spiering. Please go ahead.

Speaker 1

Welcome to Chevron's 4th Quarter 2023 Earnings Conference Call and Webcast. I'm Jake Spiering, General Manager, Investor Relations. Our Chairman and CEO, Mike Wirth and CFO, Pierre Breber are on the call with me today. We will refer to the slides and prepared remarks that are available on Chevron's website. Before we begin, please be reminded that this presentation contains estimates, projections and other forward looking statements.

Speaker 1

Reconciliation of non GAAP measures can be found in the appendix of this presentation. Please review the cautionary statement on slide 2. Now I will turn it over to Mike.

Speaker 2

Thanks, Jake, and thank you everyone for joining us today. Chevron delivered another year of solid results in 2023. During a time of geopolitical turmoil and economic uncertainty, our objective remained unchanged, safely deliver higher returns and lower carbon. Our clear and consistent approach resulted in an adjusted ROCE of 14% and enabled a record $26,000,000,000 in cash returned to shareholders, while growing production to a company record. We also successfully integrated PDC Energy and announced the Hess acquisition.

Speaker 2

We're now focused on the FTC second request and expect to file the draft S-four later this quarter with closing anticipated around the middle of the year. And we continue to take action in lowering the carbon intensity of our operations and growing lower carbon businesses, advancing foundational projects in both hydrogen and carbon capture. Over the past 5 year commodity cycle with prices high, low and everywhere in between, Chevron led the peer group in what we believe are the most important measures that create value. We were the most capital efficient, While managing unit costs well below inflation and many peers, capital and cost discipline always matter in a commodity business. Combining this discipline with our focused portfolio of advantaged assets, Chevron was able to lead the peer group in returning cash to shareholders.

Speaker 2

Our 5 year dividend growth rate was greater than the S and P 500 and more than double our nearest peer. Triple S cash was returned to our shareholders in each of the past 5 years through share buybacks. Our track record is proven and we intend to continue growing value for our shareholders in any environment. In the Permian, we delivered on our full year production guidance and set a quarterly record of 867,000 barrels of oil equivalent per day, while building our DUC inventory in the Q4. Looking to the year ahead, our program is back end loaded as we plan to continue to build our DUC inventory before adding an additional completion crew in the second half of the year.

Speaker 2

As a result, we expect production in the first half of the year to be down from the Q4 by about 2% to 4% before climbing toward a 2024 exit rate around 900,000 barrels per day. Chevron is a clear leader in Permian financial returns With our unique royalty advantage and strong execution across a diverse portfolio, we have strong momentum expect to achieve 1,000,000 barrels of oil equivalent per day in 2025. At TCO, We're making progress towards the first phase of WPMP FGP startup. The slide shows how the project fits within the overall field and facilities. The field currently flowing at high pressure continues to keep the existing plants full.

Speaker 2

In fact, 2023 net production was the highest since 2020. We've completed a lot of project scope that is already operational. TCO is producing from the new wells. The upgraded and new utilities, gathering system, control center and power distribution system are all currently in operation. For WPMP, we're focused on starting up major equipment, including gas turbine generators, pumps and compressors.

Speaker 2

We expect to hand over to operations the 1st pressure boost compressor in March for final dynamic commissioning. Once we have PVF compression online, WPMP startup is expected to begin in the Q2 when the first metering station is converted to low pressure, which will enable increased flow rates. Low pressure production streams going back to existing process units will be driven by the pressure boost compression. At the same time, production for metering stations not yet converted will continue to flow in the high pressure system. We expect metering station conversions through the remainder of the year as additional pressure boost compressor startup, keeping the existing plants full around planned KTL and SGI turnarounds.

Speaker 2

For FGP, we're focused on starting up additional gas turbine generators and compressors along with multiple processing units. The sour gas injection facilities have already been handed over to operations for final commissioning. FGP startup is expected in the first half of next year when incremental production enabled by field conversion to low pressure will be processed in the new 3GP facility. Since last quarter, 2 boilers came online and 2 gas turbine generators have delivered power. We've seen improvement in WorkScope delivery and have been working through additional discovery items.

Speaker 2

We'll continue to update you on progress We remain focused on key milestones to deliver a safe and reliable startup. With that, I'll turn it over to Pierre to discuss the financials.

Speaker 3

Thanks, Mike. We reported 4th quarter earnings of $2,300,000,000 or $1.22 per share. Adjusted earnings were $6,500,000,000 or $3.45 per share. Included in the quarter were $3,700,000,000 in charges pre announced in January. Foreign currency charges were almost $480,000,000 Our 2023 CapEx included $650,000,000 of inorganic acquisitions and around $450,000,000 invested in legacy PDC assets post closing.

Speaker 3

Excluding these items, CapEx was about 5% above budget after 3 consecutive years below. Share repurchases match the 3rd quarter. Our balance sheet remains strong, ending the year with a net debt ratio comfortably in the single digits. Turning to the quarter, adjusted earnings were higher than last quarter by roughly $730,000,000 Adjusted upstream earnings improved due to higher liftings in line with record quarterly production and favorable timing effects. Adjusted Downstream earnings decreased on lower refining margins, partially offset by a favorable swing in timing effects.

Speaker 3

All other benefited from lower corporate taxes and employee costs. For the full year, adjusted earnings decreased nearly $12,000,000,000 compared to the prior year. Adjusted upstream earnings decreased primarily due to lower prices. Adjusted downstream earnings were lower largely due to declining refining margins. Other segment earnings improved on lower employee costs and higher interest income.

Speaker 3

Solid financial performance enabled Chevron to deliver Again, on all four of its financial priorities, we announced an 8% increase in our dividend, reflecting our confidence and expected future free cash flow growth. We maintained capital discipline in both traditional and new energies. We reduced debt by over $4,000,000,000 including all debt assumed in the PDC acquisition and we repurchased about 5% of our shares outstanding. Last year, we produced more oil and gas than in any other year in the company's history, including a record number of LNG cargoes out of Australia. We expect 2024 production to be higher again by 4% to 7%.

Speaker 3

Our plans include production growth in the DJ Basin with a full year of legacy PDC operations and continued organic growth in the Permian. Our guidance this year includes an estimated impact from asset sales as we further high grade our portfolio. Looking ahead, our Q1 downtime estimate includes around 20,000 barrels of oil equivalent per day associated with January's cold weather in North America. Earnings estimates from refinery turnarounds are mostly driven by Pascagoula. Share repurchases in the quarter will continue to be restricted under SEC regulations.

Speaker 3

Depending on commodity prices and margins, Affiliate dividends are estimated around $4,000,000,000 roughly flat with last year. We do not expect significant affiliate dividends in the Q1. The difference between affiliate earnings and dividends is expected to decrease in the second half of the year after TCO startup of WPMP. Our CapEx guidance range is unchanged from the December budget announcement. In prior years, our CapEx rate in the first half of the year was about 20% lower than the second half.

Speaker 3

Our price sensitivities have increased at higher production levels. About 20% of the Brent sensitivity relates to oil linked LNG sales and less than 10% relates to North America natural gas liquids. Back to you, Mike.

Speaker 2

In closing, our priorities are clear safely execute with excellence, maintain capital and cost discipline and return cash to shareholders. We're excited about the pending Hess acquisition, which will further strengthen Chevron. I also want to personally thank Pierre for his invaluable contributions over his 35 year career with our company. He's been an exceptional strategic partner to me and an outstanding leader, helping guide Chevron to create significant value for shareholders. I wish him all the best in his retirement.

Speaker 2

And I'll hand it off to Jake.

Speaker 1

That concludes our prepared remarks. We are now ready to take your questions. We ask that you limit yourself to just one question. We will do our best to get all of your questions answered. Katie, please open the line.

Operator

Our first question comes from Biraj Borkhataria with RBC.

Speaker 4

Hi, thanks for taking my question. And firstly, Pierre, congrats on the great career and all the best for retirement. And thanks for all the help over recent years.

Speaker 5

Thanks.

Speaker 4

I feel compelled to ask you a question on buybacks because it's your last time, but I'll try and resist. The question is on the Permian. You had a very strong production number in Q4, quite an inflection from what we've seen in the last few quarters. And I was interested in particular the comment on that volume growth alongside building the DUC inventory. So presumably the non op side Was a nice contribution in Q4.

Speaker 4

So could you just give some clarity on the bridge sort of 3Q to 4Q? Because the market has concerned about you hitting the number at least for this year most recently. Thank you.

Speaker 2

Sure. In the Q3, non op was a little light, but in the Q4, it came back. It didn't end the year, non op and royalty are right where we guided to from the beginning of the year. So through a year, the quarterly ups and downs on some of these things Can create some questions, but it came in right as we guided to it in the mid teens. The story in the Q4 was really strong execution.

Speaker 2

We had more POPs, we because we had faster drilling and faster cycle time on completions. We had a shorter cycle time from frac to pop. So all of those increased. And as you noted, we did continue to build our DUC inventory because drilling performance was so strong. Couple of other things pops in the 4th quarter were weighted towards New Mexico.

Speaker 2

We had guided towards activity that would lead to more POPs in New Mexico in the second half of the year. Those wells are more productive than kind of on average than the rest of the portfolio. So that flows through. And then the final thing that I would point to is we had higher reliability. You'll recall in the Q3, we talked a little bit about some midstream constraints and other things that weren't related to completions or pops or anything else, but they were constraints on flow.

Speaker 2

We had fewer frac hits, we had fewer scheduled delays, weather downtime and midstream issues in the quarter. So all of that contributed to the strong performance there in the 4th quarter. We ended the year right on our guidance.

Speaker 6

Thank you very much.

Speaker 5

Thank you. Thank you.

Operator

We'll go next to Neil Mehta with Goldman Sachs.

Speaker 7

Yes. Thank you so much, Pierre. You're going out in style and thanks for all the great insights and wisdom over the years.

Speaker 3

Thanks, Neil.

Speaker 7

My question is on Slide 6, the TCO update. It sounds like the schedule And the cost guidance that was provided in November is still on track. But for us non engineers maybe Mike, he can kind of walk us the schematic and help us understand what these boxes are the critical path issues that we should be focused on?

Speaker 2

Yes. So you're right, Neil, the schedule and cost guidance is unchanged. I apologize for A more complex slide than we usually put out in front of you, but we want to be as transparent as we can and help people understand What's going on there at the field? Last quarter, we talked about our action plan and we're seeing improved productivity. We shifted scope amongst contractors, we've added more engineering support in the field.

Speaker 2

And as we move through this, we're encountering discovery work as we We found somewhere on piping stress and alignment that we're working on right now. The key thing to think about here is, First of all, there's a lot of stuff that's up and running. All the new wells are producing right now. All this infrastructure in terms of utility and power distribution control center is up and running. And as we and so that's keeping the plants full and we saw really strong performance last year.

Speaker 2

I mentioned the strongest in 4 years and the 4th strongest in the history of the field. So we're seeing good deliverability out of the new wells, which is the key thing for production this year is keeping those plants full while we begin to convert the field from pushing into a high pressure plant to lower back pressure on the field, which improves deliverability from the wells and allows us to extend the life of the field and get up to a 1,000,000 barrels a day. So When we begin converting these metering stations and there are 21 of them, we will then take production from a metering station now that is producing under low pressure and will boost that back up to get into the existing plant. As we get more and more of those converted more of these pressure boost compressors online, We'll get the whole field now producing against a lower back pressure, which gives us a lot of excess well capacity, and it ensures that we are going to keep the plant full. And as we then bring on the new process equipment, we start to route that low pressure production into a plant that will run at lower pressure.

Speaker 2

And so that's really the kind of the high level description of what we're trying to convey there and we've got a legend that shows you certain are going to begin start up in various quarters. For FGP, we're focused on commissioning the major equipment there that will allow us to bring up The plants that will take us to a 1,000,000 barrels a day and we're transferring learnings from compressors, pumps and other things that we're working on now, walking down all the critical substations. And we'll continue to provide updates on the key milestones here. We're talking about a couple of gas turbine generators online. 1st quarter is the inlet separator is ready for operational commission that on sweet fluids as we prepared for sour production.

Speaker 2

And then As I said in the Q2, we begin the PBF startup and metering station conversions. So it's all on track with our guidance And we will continue to provide you detail as we move forward each quarter on specific milestones and progress.

Speaker 7

That's really helpful, Mike. Thank you so much.

Speaker 2

You bet.

Operator

We'll go next to Doug Leggate with Bank of America.

Speaker 8

Thank you. Good morning, Pierre. I have to offer my congrats as well. And with the quarter today, thanks for making us on the sell side look Smart, the nice way to go out. The best wishes in retirement.

Speaker 3

Thank you, Doug.

Speaker 8

My question, Mike, is I guess it's got a part A and B, so apologies to Jake on that, but it's kind of around disposals. Our understanding from the Hess side is that despite the fact that you haven't filed the S-four yet, you haven't got the FTC yet, and I realize that those Processes are ongoing, but the integration planning is still going ahead full steam. And I'm just curious if you can offer any color On how that process has evolved, does it relate specifically to portfolio high grading? The absence of Malaysia in your go forward plan, for it seems to me the $15,000,000,000 number might have a lot of upside. So any color you can offer on that topic, please?

Speaker 2

Yes. Doug, it's really premature for us to comment on that until the transaction closes. Hess has a pretty tight portfolio of assets that are performing well. And we really need to close the deal, have access to all the data and re optimize all of our views of portfolio investments and update our new plan. And so I don't want to speculate on any assets.

Speaker 2

And look, we've got some of our own assets that we do have out in the public domain already. You may have seen reports on KBOB Duvernay on Congo. So there are some divestments that we have signaled out of the Chevron portfolio. And I think as you see The divestments unfold over the next few years, because we will have more assets in the portfolio that come from legacy Chevron That is likely to be a greater contributor, I would guess to the overall $10,000,000,000 to $15,000,000,000 number than things that come in through this transaction. But I can't comment on Malaysia or any other particular asset until we get past the close.

Speaker 8

A lot of options. Thanks so much. Thanks for the answer.

Speaker 9

Thank you, Doug. We'll

Operator

go next to Josh Silverstein with UBS.

Speaker 10

Hey, thanks. Good morning, guys. Going back to the Permian, you're stepping up the CapEx this year about $5,000,000,000 versus $4,000,000,000 last year to help you deliver the year over year growth. As you continue to ramp towards the 1,000,000 BOE per day target, what's needed from a CapEx standpoint to deliver this growth? Can you stay closer to the $5,000,000,000 range or does that step up towards $6,000,000,000 in 2025 because you have an accelerating pace to hit that?

Speaker 10

Thanks.

Speaker 2

Yes. No, appreciate the question, Josh. We're starting this year with 12 rigs and 3 frac crews. I mentioned we'll add a 4th frac crew around the middle of the year. But at the same time, we're becoming more efficient.

Speaker 2

We need fewer rigs to drill the planned lateral feet that we've got out in front of us. And so as we close in on 1,000,000 barrels a day, we're at the capital level that I think is going to be required to get us there. And then the really nice thing about this is, when you're trying to hold the plateau as opposed to grow from $700,000,000 to $800,000,000 to $900,000,000 to $1,000,000 a day, you actually can pull capital spending down because you're offsetting decline, you're not trying to offset decline and grow by significant chunks each year. And so inflation has moderated and that has been a challenge. We've talked about some of the things we're moving water around a little bit more, but that's embedded in our plan now going forward.

Speaker 2

So I would not anticipate that we're going to have to go towards $6,000,000,000 in order to get there. And As we get to each year, we'll give you an updated guide on it. But when we plateau production, capital spending and capital discipline really matters. I just want to emphasize this. We intend to live within our capital means and be really tight on capital and that applies to the Permian along with every other asset.

Speaker 10

Great. Appreciate that.

Operator

We'll go next to Paul Cheng with Scotiabank.

Speaker 9

Thank you. And first, I want to congratulate, Pierre, And thank you for all the years that actually over the past couple of decades that all the help, we may appreciate.

Speaker 3

Thanks, Paul.

Speaker 9

Mai and Pierre, I think Mai, when you first become the CEO, I think one focus is that course matter for you. And that over the last several years, there's a lot of acquisition and change in portfolio. So it's very difficult for us from the outside to see Where is your cost structure comparing to, let's say, before the pandemic in 2019? Is there any way that you can Help us in terms of what is the structural cost base there for you today compared to say a number of years ago, especially During the early part of the pandemic, you guys did have a restructuring effort. Thank you.

Speaker 2

Yes, Paul, I don't have all that stuff right on the top of my head to go back to 2019. It's a fair request. But look, I think we showed a chart in here over the last several years that our unit costs are relatively flat. In fact, I think we're number 2 on that chart. We don't break out each of the competitors.

Speaker 2

Our unit OpEx last year was about $15.80 a barrel, which is about 5% lower than the year before. And we still have outstanding unit OpEx reduction targets going out to 2026 at mid cycle. We've had some inflation along the way, but you're right, we took a lot of costs out of the business in 2020 2021. So as we bring together Hess and this gets a little bit to the question that Doug was asking as well. We will come out with an update to investors that talks about the portfolio, updates guidance on all the metrics that matter.

Speaker 2

And I assure you that I have not changed my view that Cost control always matters and capital discipline always matters. So, we We'll update you on those numbers specifically, Paul.

Speaker 9

Okay. With you. Thanks, Steve. We'll go

Operator

next to Sam Margolin with Wolfe Research.

Speaker 11

Hi, good morning. Thanks for taking the question and thanks for everything Pierre. Maybe this one

Speaker 5

will be an easy or

Speaker 11

a hard one for you depending on what you're planning for. It's a follow-up on TCO and Kazakhstan and the affiliate dividend guidance. And What's interesting about it is that it's flat year over year with a commodity assumption that maybe a little bit lower than the prior year. And within affiliates, there's also some LNG exposure, which isn't as strong as it was last year ex TCO. And so I the question is like you've given this really robust technical update on Tengiz and where we stand, but are we already at a point where TCO is sustaining a level of dividends that's a little bit more stable than it was kind of at the peak of the construction process or the installation process.

Speaker 11

Process, and we're sort of in a progression to this pro form a very stable cash flow profile from TCO Or is that number am I reading too much into that affiliate guidance number? Thank you.

Speaker 3

Thanks, Sam. Absolutely, TCO dividends are on a higher trajectory just because capital has wound down. And as we've said, when we get the incremental production from FGP, it goes even higher. There are some puts and takes. So we talked In last year, the TCO had held some surplus cash and released that last year.

Speaker 3

This year, they're going to have to build some cash as they head into debt payments, which as you recall, we co lent, so we'll be receiving that. So there are some There'll be some timing variation, but your point around the trajectory is absolutely right because CapEx is winding down. So this has been Largely self funded as an affiliate company. As CapEx goes down, there's more cash available. It does depend on commodity price assumptions.

Speaker 3

You're right, LNG is in there and also petchem. And so those are the major drivers, a little bit of refining are the major drivers of our affiliate dividend. So it's a roughly Flat with the prior year, we'll update that as we go along during the year. But absolutely TCO, we've been investing in that project for 8 years. It's going to generate a lot of cash when it comes on next year.

Speaker 3

Thank you so much. And maybe Sam just one more point and what you're going to see too is because it's tricky as an affiliate That line that's affiliate earnings less dividend that's going to flip. And until you'll see it, it'll be hard for everyone to model it. But what has been historically a line where affiliate earnings higher than dividends, you will see that flip in time as we pull out more cash out of TCO in particular than the earnings than the book earnings are. Thank you.

Operator

We'll go next to Nitin Kumar with Mizuho.

Speaker 12

Hi, good morning everyone and thanks for taking my question. So Part A and Part B, I have a question, but really on the Permian. Mike, in your slides, you highlight that optimized well spacing and maybe coring up where you were drilling in 2023 Help develop productivity. At the Analyst Day, you had talked about some technologies. And I'm just curious, were any of the improvements you saw in 2023 related to those?

Speaker 12

And then Part B very quickly is, you're growing almost 200,000 barrels from here until in the next 2 years. Last quarter, you had some infrastructure issues. What are you doing to get ahead of those infrastructure issues so they don't resurface over that planned period?

Speaker 2

Yes. And what I would say on technology, I referenced the fact that we're drilling more feet out of the same rig fleet. We're improving on completions. And so there are a lot of small things that are contributing to the performance that we're seeing right now. The improved recovery technologies are in various stages of being piloted out in the field.

Speaker 2

And so to the extent some of those pilots are in the production, They contribute, but I would say it's at the margin, because we're gathering field data to look at changes in completion and fracture techniques using gas injection and gas lift in different ways, using some different chemicals to improve flow. So As we get those into large scale deployment, we'll start to talk about that and we'll help you understand how they're contributing. But I would say right now, it's more on the drilling and completions cycle time side that we're seeing some of these improvements. And so there's more to come. On midstream infrastructure, the some of the issues that we've talked about before can be They can be weather related, they can be related to some regulatory items, they can be related to a particular gas processing plant or gathering or off take pipeline system.

Speaker 2

We're working all of those because your point is well made as a large producing asset at that scale, We need really, really reliable performance downstream of the wells. And we have no constraints on takeaway capacity out of the basin. So we're Well positioned, not just for 2024, but into 2025 and 2016 with ultimate takeaway capacity to access the market. But we do have a lot of pipes, pumps, tanks and other things between the field and the market and those things need to perform. And that is a high priority for our operations team in the field.

Speaker 2

As I mentioned, 4th quarter performance was very strong And they're on this and it's a very high priority. We saw a little bit of weather in January, which Pierre guided to that will have a modest impact, but we're confident that we've got a line of sight on all the operational priorities in order to ensure that that market access isn't constrained.

Speaker 12

Thanks, Mike.

Operator

We'll go next to Devin McDermott with Morgan Stanley.

Speaker 13

Hey, thanks for taking my question. And Pierre, I want to echo the congrats. Thanks for all the help over the years.

Speaker 4

Thanks, Adam.

Speaker 13

I wanted to circle back to TCO. And Mike, I think last quarter when you provided the updated guidance on timeline, one of the things that you noted was workforce productivity. And I was wondering if you could comment on some of the changes that you've implemented to improve labor productivity over the past several months, how it's progressing versus plan. In your comments, you mentioned improved scope of work in the context of FGP. I'm not sure if that's related to labor or something else.

Speaker 13

But if you could elaborate on that comment as well, that'd be great. Thanks.

Speaker 2

Yes. So, we have multiple contractors working on commissioning and start up. And so this is everything from Walking systems down to ensure that they've been properly inspected that referred to punch list items have been identified, which is work that still needs to be completed by contractors. And then you get into the loop checks and equipment runs and all the work to bring pieces of equipment up into service. So we've got a number of contractors working on this.

Speaker 2

We've moved scope from contractors that have had lower productivity to those that have exhibited higher productivity. We've brought in additional resources to beef up the overall capacity. And on the resources or the contractors that had lower productivity, we've worked with them to understand where are the and the bottlenecks. And we've seen one who had a productivity factor as we measure it that was down in the kind of 0.4 range previously is up above 0.7 now and we're targeting to get that up again by a similar quantum. So there's a lot of work on the ground To be sure we got the right people working on the right things, so we have enough contract resources there that we're also bringing in technical resources as we discover items that need more technical solutions and that can include company people or vendor people.

Speaker 2

And we're not much further ahead. Last quarter or the quarter before, the walk downs and other identification of issues was A few short weeks ahead of the crews that we're actually doing this work. We're several weeks now, 7, 8 or more weeks out ahead of the teams that are doing the work. So you've got much better ability to plan and execute the work in a much more efficient manner because you've got some time put the work packs together, get the permitting done, be sure that you've got all the right tools, equipment, etcetera. So it's a great big project, Devin.

Speaker 2

It's the largest Brownfield project and most complex Brownfield project I've seen in my life. And we're seeing good improvements in terms of the on the ground performance out of our team and out of all the contractor teams that are working on this.

Speaker 13

Great. Thanks.

Operator

We'll take our next question from Jason Gabelman with TD Cowen.

Speaker 14

Yes. Hey, I just want to echo everyone's comments. Pete, Pierre, it's been great working with you and good luck in retirement.

Speaker 9

Thank you, Jason.

Speaker 14

I also asked go back to the Permian Basin and I appreciate the type curve that you provided in the back of The slide deck, it's a bit difficult to reconcile with the data with the type curves you provided, particularly for the Delaware At the 2023 Capital Markets Day, when you forecasted a large improvement in productivity, can you just talk about if Your type curves, particularly in the Delaware Basin, ended up in line with where you anticipated them being as shown in that Capital Markets Day type curve? Thanks.

Speaker 2

Yes. So, I'll quickly just touch on the Midland Basin where we continue to be a 1st quartile performer, steady consistent performance. We understand the geology, there's less fluid complexity. And so we're a top quartile, 1st quartile performer in the Midland. In the Delaware, we last year showed actual data on a Delaware wide basis.

Speaker 2

And then we showed some forward guidance, particularly focused on New Mexico because we were shifting so much of our program into New Mexico, which as I mentioned earlier is a more productive portion of the basin. And in the Delaware, New Mexico, We saw a significant improvement with our second half POPs last year, more than 80% of our POPs were in The second half in these more productive areas and the subsurface performance there has been very strong. In the appendix, we've got a slide that shows you 49 the 59 POPs were in the second half and you can see that they lay right on the type curve. And then you can see the improvement in the Delaware Basin, Texas, which we didn't guide to last year because it was in that combined chart there, but we've seen strong improvement. We've updated our well spacing and completion designs there.

Speaker 2

And within the basin, there are sub basins and some of those are performing exceptionally strong as well. So We're seeing performance that is very consistent with what we outlined in the Markets Day last year. I think the shift in basis was just provide you a little bit more detail into these subbasis and we'll continue to report on that basis going forward.

Speaker 3

And just as a reminder too Jason, so last year's in New Mexico, it wasn't impacted by long sitting ducks. So the year on year is bang on. It's consistent with the SID guidance and you see the improvement in Texas because there was the impact from long sitting ducks in the prior year. Thanks.

Speaker 2

Thanks.

Operator

We'll take our next question from Jaffray Labeouf with TPH and Company.

Speaker 6

Good morning, everyone. Thanks for taking my question. I wanted to follow-up actually on the Permian and specifically ask on the program this year. What kind of opportunity do you see from here for further improvements to spacing and completion design, cycle times, if any, in the Texas stellar region and could what's working well there translate to New Mexico to make those wells even stronger, quicker to drill and complete or even to the Midland side? And then secondly, how are you all thinking about the mix of capital allocation across these regions within the Permian throughout this year?

Speaker 6

Thanks.

Speaker 2

Yes. So, we're constantly looking to learn and improve. And as I mentioned earlier, we've seen significant improvement in drilling time, completion time, time for completion to pop this year. And these are a lot of little things, right? This is as you continue doing things, you find more and more efficiencies, we can bring more technology to bear, etcetera.

Speaker 2

So, and we look to extend those learnings across the basin and frankly between basins. So into the DJ Basin and have to understand and respect, but I mean the short answer is yes. We are looking for ways to transfer learnings across there. And every time I think we're probably at the plateau in terms of productivity improvement, Smart people find ways to continue to get even better at this. And so, I don't think we've seen the end of the performance improvement cycle.

Speaker 2

Our overall capital allocation into the basin is largely a function of where our portfolio lies. About 25% is in the Midland Basin, 25% is in the Delaware, New Mexico portion of the basin and then the balance about 50% is in Delaware, Texas. It's been that way here. This past year and going forward, that's a pretty good way to approximate it.

Speaker 6

Great. Appreciate the time.

Operator

We'll go next to John Royall with JPMorgan.

Speaker 15

Hi, good morning and thanks and congratulations to Pierre. I'm going to give you guys a break on TCO and the Permian, I'm going to ask a question on the DJ. So just looking at this growth of 125 kilobytes D for 24. How should we think about that growth off of the pro form a 23 basis? I'm just trying to understand what's kind of the underlying real growth rate in the DJ?

Speaker 15

And then If you could just update us with a couple of quarters behind you now post PCE on your broader plans for development in the DJ?

Speaker 2

Yes. So we've now got a 4th quarter is the 1st full quarter with PDC. Q3 we had 2 months out of the 3 with PDC in there. And you can see we came in, in the 4th quarter a little bit over 400 1,000 barrels a day, which is our plans are to hold the DJ around 400,000 barrels a day going forward in a highly efficient factory. And 4th quarter was maybe even a little stronger than we might have expected.

Speaker 2

There wasn't as much weather related downtime in November December. And then there were some accounting adjustments that were booked into the 4th quarter that were not really related to operations. So the above $400,000,000 is there's a few things contributing to that that probably are not repeating or going to pull back a little bit, but we're confident we can hold around 400,000 barrels a day. We're still executing the well design and well spacing that was in the PDC basis of design, which is a little bit different than ours, a little few more wells and tighter spacing and driven more to drive volume. Our basis of design is more focused on return on invested Capital and so it's wider spacing, it's bigger fracs, but it's less capital overall and higher return.

Speaker 2

And so as we transition to a standardized more standardized basis design across the basin. You'll see that roll into the numbers. We got 4 rigs that are going. We got permits out for multiple years, nearly to the end of the decade. And so we're very, very pleased and we're learning things.

Speaker 2

I got to tell There's some stuff that we've learned from PDC that will apply not only in the rest of the DJ, but it's going to apply in the Permian as well. That's going to help us. Going forward, these are high cash margin, low breakeven barrels. We plan to hold it at a plateau around 400. And we've Synergies are on track there.

Speaker 2

We've got virtually all the CapEx synergies are essentially in the bag. We're already down to $1,000,000,000 there. OpEx is very close to the $100,000,000 we guided to. We're now seeing some procurement synergies, which we hadn't originally envisioned. So everything about it is at or better than what we had guided to.

Speaker 15

Thank you.

Operator

We'll go next to Lucas Herman with BNP Paribas.

Speaker 5

Yes. Thanks very much. And I'll add my comments to the host already, but thank you for all the insights. It's always been worth listening to. When I look at the growth that you're likely to see in oil in particular over the next 2 to 3 years, I mean, it feels as though you're going to be adding Towards 500,000 maybe slightly more barrels of pretty high margin black oil.

Speaker 5

And I guess the question is about whiplash and it's the increased activity that the business is going to have to movements in volatile commodity and what you feel, Pierre, Mike, that implies the balance sheet and the way you think about balance sheet managing things. And just if I could add on, could you just give me an idea of what the loan repayment schedule like a TCO and I presume that loan repayments will go through the net in the net outline in On the CapEx side or the investment side of the equation? Or do they play elsewhere? Thank you.

Speaker 3

Right. No, thanks Lucas. I'll take it. We've been overweight upstream and overweight oil liquids for a long time. And you're right, recent acquisitions in Hess certainly adds to that and we like that exposure.

Speaker 3

In terms of how we manage balance sheet, I mean, the first thing is we start with our breakeven. So what it takes the oil price it takes to cover our CapEx and dividend, that was in the low 50s last year. And so, we see mostly upside and that's why we had record share buybacks last year almost $15,000,000,000 5 percent of our shares outstanding because we're built for a price well below where we currently are. We've also done it while maintaining a strong balance sheet. Our net debt ratio is 7%.

Speaker 3

We said as we keep our share repurchases steady across the cycle that we're okay relevering back up towards the low end of our guidance range, which is 20% to 25%. So that guidance, that's a kind of through the cycle net debt ratio guidance, that still holds. And If we had a significant change in the portfolio, of course, we would look at that or EMRA would look at that going forward. But I think the actions that we're taking are consistent with that guidance. And again, adding that exposure when you're built at the breakeven, when we Think about our balance sheet.

Speaker 3

You take into account lots of things, your portfolio, the commodity price outlook, but your breakeven is really And Mike was talking about capital and cost discipline, our ability to fund our reinvestment program in both traditional and new energies and grow the company and pay a growing dividend, right, twice more than twice our nearest peer, greater than S and P 500, we just increased it 8%. So all those numbers are before the latest increase, we can do all that at a low price return surplus cash. That's how we're going to think about it. So Again, you should expect our net debt to increase over time depending on commodity prices and how we return cash to shareholders. I would not Having more exposure to high margin barrels as you say, that's a good thing.

Speaker 3

We're built for it. And as long as we keep our breakeven low and below where prices are trading, we're in a really good spot.

Speaker 2

And how TCO loan repayments flow through

Speaker 3

Oh, yes. So TCO loan repayments, that's that. Sorry about that. Yeah, I alluded to that, that will not be in cash from ops. That shows up in our investing cash.

Speaker 3

So Jake and the team will take you all through that. But yes, what I was saying about That affiliate line flipping, that's separate from this. In a different line, we will see cash being returned and it's $1,000,000,000 our share next year, again in $2,000,000,000 $26,000,000 and then in $28,000,000 or $30,000,000 So all that's disclosed in our 10 ks. Jake can take you through that. But yes, that's only additional.

Speaker 3

And again, we shouldn't be surprised. We've been investing for 8 years in this project. That cash is going to come back once the project starts up.

Speaker 5

Okay. Pierre, thanks. And if you're ever in London, a fancy game of tennis, Give us a buzz.

Speaker 3

That's what I'll be doing. Sounds good, Lucas.

Operator

We'll take our next question from Irene Himona with Societe Generale. Thank you very much. And Pierre, all the best for the next chapter. My question is on Henry Hub. In the new sensitivities you published today, you saw a very material 30% increase in your Henry Hub sensitivity.

Operator

Is this purely because of PDC? And related to that on a macro level, if you can perhaps share your views on the 2024 outlook for Henry Howe, please? Thank you.

Speaker 3

So I'll start Irene And then Mike can take the macro. Yes, it's a function of PDC certainly and then just continued the associated gas comes along with the Permian. So as we're growing that, it obviously comes along with natural gas.

Speaker 2

Yes. And Irene, the macro, I was Pulling up the slide on the Henry Hub sensitivity. So broadly speaking, oil markets are Pretty balanced right now. I think the geopolitics are the thing that are harder to call and could drive movements one way or another, could be OPEC plus can be this conflict in the Middle East. Economic growth in the world continues to be decent and our outlook Demand growth for oil this year is maybe not quite as strong as last year, but still growing.

Speaker 2

Gas is a little bit different. Inventories are high In the U. S, inventories are high in Europe. We're kind of mostly through the winter time, certainly through the riskiest period of the winter time. And now there's these questions that are not going to really weigh in the market in the near term, but maybe longer term about exports out of the U.

Speaker 2

S. And so all of that has got gas markets under a little more pressure than oil markets or refined products. And It's not unusual. Pierre was just talking about how we build the company to compete through the cycles and different parts of the portfolio basket petrochemicals are under some pressure right now as well. And so at any point in time, we're going to find some of the fundamentals Probably under pressure, others are looking pretty good.

Speaker 2

And here in the short term, I think Henry Hub is in the under pressure category.

Operator

Thank you. We'll go next to Bob Brackett with Bernstein Research.

Speaker 2

Good morning. If I look at the production guide of 4% to 7% growth on say 3,100,000 And I try to book in that between a 4th quarter closer to 3.4 and 2025 where we're going to see TCO FGP startup plus hitting that 1,000,000 barrel a day milestone in the Permian sort of implies there's an inflection point in production growth Coming at some point or perhaps there's a conservative guide for this year. Is that the right way to think about it? Well, coming into this year, we now have a full year of PDC that will be part of the portfolio. So that's Pretty safe in terms of counting on that.

Speaker 2

I've already mentioned that Q4 was a little bit higher than maybe we even might have expected because we had high reliability. Some of these midstream issues we'd face in the Permian had didn't repeat. We had this accounting catch up thing in the Permian as well. And we had a pretty light turnaround in the Q4. So it was a strong quarter all the way around.

Speaker 2

As we head into next year, we've got some asset sales in the guidance. And Bob, we've been at the low end. We've kind of ended up last couple of years hitting our guidance range, but at the low end. And so, I think you could probably think of us being a little more comfortably in the middle of the range this year, given a number of the things that you mentioned. We try to give you guidance each year that we expect to hit and we certainly expect to hit it this year.

Speaker 2

Very clear. Thanks.

Operator

We will take our last question from Neal Dingmann with Truce Securities.

Speaker 2

Good morning, Al. Thanks for getting me in. My question, Mike, is maybe just on the shareholder return specifically trying to get a sense of Sounds like

Speaker 3

you will, but just want to

Speaker 2

get a sense if you'll continue paying out majority of free cash flow for the remainder of this year and if the buybacks will continue to constitute a bit over 50% of that payout? Yes. Neil, we have not use some percentage or range of percentage of cash from operations as kind of go by for distributions. What we've done is have leaned on our track record on the dividend, first of all, and we've already clarified what you can expect this year with the 8% increase that we've announced. And then, I would point you back towards Our upside and downside guidance that we've had out there now for a number of years, dollars 10,000,000,000 to $20,000,000,000 on the range for buybacks And that's in an upside price case.

Speaker 2

We'd be up towards the higher end of that and a lower price case down at the lower end, both of which we can comfortably handle. We have indicated that post the Hess close, although the things equal, we'll see when it happens and how the world looks when we get there. But we would expect to move from a rate to the top end of 20 because we're so confident in the long term cash productive capacity of our portfolio and the strength of our balance sheet. So rather than focusing in on those percentages, I'd really point you towards the specific guidance that we've issued in the kind of the track record. And of course, I think Pierre mentioned this in his comments.

Speaker 2

We do remain under SEC restrictions right now relative to the rate at which we can buy back. And then we'll be out of the market when the Hess proxy is open. And so all of these things are under normal times, we don't have one of

Speaker 3

And I would just add let me just add a little bit. It's fitting maybe my last words will be on share buybacks. 6 straight years of buybacks, right? 17 out of the past 21 years, but we actually bought back more shares last year than the year before, even though Earnings and cash flow were higher, right? There were records in 2022, still strong in 2023.

Speaker 3

That's the whole point. We're trying to be steady across the commodity cycle. We've heard from investors that buybacks should not be procyclical. And it's hard to be countercyclical in the commodity business that has some price volatility. So being steady across the cycle is how we guide to it.

Speaker 3

And these formulas, in fact, reinforce the opposite. They reinforce procyclicality. So we're giving a return That in some ways is almost independent of prices within a range, because we're could have paid more out in 2022, but we held it back and we used some of that to paying 23%. We'll see where it goes, but the intent is to try to be steady across the cycle, neither procyclical nor countercyclical.

Speaker 1

Thank you. I would like to thank everyone for your time today. We appreciate your interest in Chevron

Operator

Thank you. This concludes Chevron's 4th quarter

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Key Takeaways

  • Chevron achieved a 14% adjusted ROCE in 2023, set a company production record, and returned $26 billion in cash to shareholders.
  • It completed the PDC Energy integration, announced the Hess acquisition (now under FTC review), and plans to file the S-4 draft this quarter for a mid-year close.
  • Permian Basin production reached a Q4 record of 867 kboe/d, is forecast to dip 2–4% in H1 2024 before rising toward ~900 kboe/d at year-end, and targets 1 mboe/d in 2025.
  • Tengiz (TCO) remains on schedule: WPMP startup is expected in Q2 2024 with initial pressure-boost compressors and metering station conversions, and FGP is slated for H1 2025.
  • Q4 adjusted earnings were $6.5 billion ($3.45/share), full-year adjusted results declined on lower prices and margins, and 2024 guidance includes 4–7% production growth, an 8% dividend increase, and unchanged CapEx amid a single-digit net debt ratio.
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Earnings Conference Call
Chevron Q4 2023
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