Chevron Q1 2024 Earnings Call Transcript

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Provided by Quartr
April 26, 2024

Key Takeaways

  • Record Q1 performance: Chevron posted adjusted earnings of $5.4 billion (over $5 billion for the ninth straight quarter), achieved adjusted ROCE above 12%, returned $6 billion to shareholders, and grew production by over 10% year-over-year.
  • QoQ and YoY earnings dip: Adjusted earnings fell by $1 billion versus Q4 2023 and $1.3 billion versus Q1 2023, driven by lower upstream realizations, timing effects in downstream margins, higher employee costs, and unfavorable tax items.
  • Hess merger on track: Chevron expects to satisfy the FTC’s second-request requirements soon, is confident arbitration will reject Hess’s preemption claim, and will mail the proxy in April for a May shareholder vote.
  • TCO projects advancing: Tengiz WPMP achieved first compressor and metering station start-ups, and the Future Growth Project remains on schedule and budget for H1 2025 start-up, supporting expected free cash flow of $4 billion in 2025 and $5 billion in 2026.
  • US production outperformance: Permian output reached 859 kbd in Q1 (only 1% below Q4 vs guided 2–4% decline), DJ basin stabilized at ~400 kbd, and first-half production is now expected to be down less than 2% from Q4 levels.
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Earnings Conference Call
Chevron Q1 2024
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Operator

Good morning. My name is Katie, and I will be your conference facilitator today. Welcome to Chevron's First Quarter 2024 earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question-and-answer session, and instructions will be given at that time. If anyone should require assistance during the conference call, please press Star then zero on your touchtone telephone. 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.

Jake Spiering
Jake Spiering
General Manager of Investor Relations at Chevron Corporation

Thank you, Katie. Welcome to Chevron's first quarter 2024 earnings conference call and webcast. I'm Jake Spiering, General Manager, Investor Relations. Our Chairman and CEO, Mike Wirth, and CFO, Eimear Bonner, are on the call with me today. We'll 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. Reconciliation of non-GAAP measures can be found in the appendix to this presentation. Please review the cautionary statement on slide 2. Now I'll turn it over to Mike.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Thanks, Jake, and thank you everyone for joining us today. Chevron continues to deliver strong operational performance, maintain cost and capital discipline, and consistently return cash to shareholders. First quarter marked nine consecutive quarters with adjusted earnings over $5 billion and adjusted ROCE above 12%. During the quarter, we also returned $6 billion in cash to shareholders, the eighth straight quarter over $5 billion. We also grew production more than 10% from the same quarter last year and announced final investment decisions to grow our renewable fuels and hydrogen businesses. Earlier this month, we announced our third Future Energy Fund, focused on venture investments in lower carbon technologies. The merger with Hess is advancing, and we intend to certify substantial compliance with the FTC's second request in the coming weeks.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

We believe that a preemption right does not apply to this transaction and are confident this will be affirmed in arbitration. We expect the proxy for the Hess shareholder vote to be mailed in April, with a special meeting date in late May. This strategic combination creates a premier energy company with world-class capabilities and assets to deliver superior shareholder value, and we look forward to bringing the two companies together. At TCO, we achieved start-up of WPMP this month, with the first inlet separator and pressure boost compressor in service and conversion of the first metering station to low pressure now complete. Later this quarter, we expect a second pressure boost compressor online and a third gas turbine generator to provide power to the Tengiz grid.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Metering station conversions are planned through the remainder of the year as additional pressure boost compressors start up, keeping the existing plants full around planned SGI and KTL turnarounds. We continue to make significant progress on FGP and expect to have additional major equipment ready for operations in the third quarter. Cost and schedule guidance remain unchanged, with FGP expected to start up in the first half of 2025. Now over to Eimear to discuss the financials.

Eimear P. Bonner
Eimear P. Bonner
CFO at Chevron Corporation

Thanks, Mike. We delivered another quarter of strong earnings, ROCE, and cash returns to shareholders. We reported first quarter earnings of $5.5 billion or $2.97 per share. Adjusted earnings were $5.4 billion or $2.93 per share. Cash flow from operations was impacted by an approximate $300 million international upstream ARO settlement payment and $200 million for the expansion of the retail marketing network. We also had a working capital build during the quarter, consistent with historical trends.

Eimear P. Bonner
Eimear P. Bonner
CFO at Chevron Corporation

Chevron delivered on all of its financial priorities during the quarter: an 8% increase in dividend per share, organic CapEx aligned with ratable budget, inclusive of progress payments for new LNG ships, sustained net debt in the single digits while issuing commercial paper to manage timing of affiliate dividends and working capital, and share repurchases of $3 billion. Adjusted earnings were lower by $1 billion versus last quarter. Adjusted upstream earnings were down due to lower realization and liquid liftings. Partly offsetting were favorable tax impacts. Adjusted downstream earnings were lower, mainly due to timing effects associated with the rising commodity price environment, while other decreased on higher employee costs and an unfavorable swing in tax items. Adjusted first quarter earnings were down $1.3 billion versus last year. Adjusted upstream earnings were down modestly.

Eimear P. Bonner
Eimear P. Bonner
CFO at Chevron Corporation

Higher liftings were more than offset by lower natural gas realizations. DD&A was higher due to the PDC acquisition and Permian growth. Adjusted downstream earnings were lower, mainly due to lower refining margins and timing effects. Worldwide oil equivalent production was the highest first quarter in our company's history. Production was up over 12% from last year, including an increase of 35% in the United States, largely due to the PDC Energy acquisition and organic growth in the Permian Basin. Looking ahead to the second quarter, we have planned turnarounds at TCO and several Gulf of Mexico assets. Following another strong quarter in the Permian, production is trending better than our previous guidance, and we now expect first half production to be down less than 2% from the fourth quarter. Impacts from refinery turnarounds are mostly driven by El Segundo and Richmond.

Eimear P. Bonner
Eimear P. Bonner
CFO at Chevron Corporation

We anticipate higher affiliate dividends in the second quarter, largely from TCO. With the startup of WPMP, we expect TCO's DD&A to increase by approximately $400 million over the remainder of the year. Share repurchases are restricted under SEC regulations through the Hess shareholder vote, after which we intend to resume buybacks at the $17.5 billion annual rate. We've published a new document with our consolidated guidance and sensitivities that will be updated quarterly and posted to our website the month prior to our earnings call. Back to you, Jake.

Jake Spiering
Jake Spiering
General Manager of Investor Relations at Chevron Corporation

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

Operator

Thank you. If you have a question at this time, please press star one on your touchtone telephone. To allow for questions from more participants, we ask you limit yourself to one question. If your question has been answered or you wish to remove yourself from the queue, please press star two. If you are listening on a speakerphone, we ask you to please lift your handset before asking your question to provide optimum, optimum sound quality. Again, if you have a question, please press star one on your touchtone telephone. Our first question comes from Sam Margolin with Wolfe Research.

Sam Margolin
Sam Margolin
Managing Director at Wolfe Research

Hi, good morning, everybody. Thanks for taking the question.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Morning, Sam.

Sam Margolin
Sam Margolin
Managing Director at Wolfe Research

Maybe we could start with Tengiz, 'cause there's movement there and specifically the effects of the WPMP startup, if you don't mind going into some detail. I think, you know, the market understands that it's FGP phase that you know, really rerates kind of TCO's distribution capacity. But, you know, if there's any incremental benefits from WPMP starting up, you know, whether it's reliability or, you know, potential to produce over nameplate, or even just the CapEx run rate and what it means for maybe an annualized TCO distribution, at this stage, that would be very helpful. Thank you.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Yeah, Sam, let me talk a little bit to the project and operational dimensions of this, and then I'll let Eimear comment on the financial ramifications of that. So, look, we're really pleased with the progress that's been making and pleased that, you know, we've begun the initial startup of WPMP with the first PBF compressor online and now processing crude through the plants after conversion of the first metering station. It's an important milestone. I'm proud of the team and the work they've been doing. They've done this safely. We're seeing initial operation that is well aligned with our expectations. In fact, we've been encouraged by very strong production response from the wells that feed into this first metering station.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

We now have the second metering station planned for conversion is offline, and that conversion is underway. And as we bring on more of the PBF compression capacity, we'll complete more metering stations over the balance of the year. What happens here is we get higher production because the wells are now flowing against lower back pressure. And as I said, Sam, we've seen really strong response on this first set of wells. What that does is it gives us a high degree of confidence in keeping the plants full all year long, with the you know, the fact being that we've got some turnarounds we have to do. We've got an SGI turnaround and a KTL turnaround, SGI this quarter, KTL next quarter, to do some tie-ins and some other normal maintenance.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

But in the periods in between those, it increases deliverability and, and you know, the confidence that the plant will be full, throughout that period of time. We, we've got a lot of project scope operational is the other thing, that I just would remind you of. We're producing from new wells. We've got upgraded to new utilities now, gathering system, a new control center, power distribution system, two new, big Frame 9 gas turbine generators in service. So the reliability of the infrastructure and, and all of the, the control networks and everything is, significantly improved as we've got, more modern, equipment in place. So, you know, all of this reads through to a higher degree of reliability, strong production performance.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

And, you know, last year was the second strongest year in the past several. So, it gives us high, high confidence in delivering what we've said we'll deliver there. And then as we get into the third quarter, we'll start commissioning some of the process equipment as part of FGP, which, as you say, first half startup next year is when you see the incremental production come online. So, good progress all the way around. Reiterate that schedule and cost guidance are unchanged, and we'll continue to provide details each quarter on milestones and progress as we proceed. Eimear, maybe you can just talk about what that means financially.

Eimear P. Bonner
Eimear P. Bonner
CFO at Chevron Corporation

Yeah, thanks, Mike. Yes, Sam, well, after years of investing, as the project starts up over the next couple of years, we do expect the CapEx profile to continue to decline, and that will enable, you know, free cash flow over the next couple of years to grow. With WPMP, it'll keep the plants full, so this will allow base business to generate significant cash, and that'll be available for distribution. With the second phase of the project then, next year in 2025, TCO's free cash flow is gonna grow even further because with that phase of the project, we get incremental production. So what does this mean for Chevron? Well, we expect $4 billion of free cash flow in 2025 and $5 billion in 2026, and this is a $60 Brent.

Eimear P. Bonner
Eimear P. Bonner
CFO at Chevron Corporation

This will flow to us through a combination of dividends, so you'll see this come through cash flow from operations and loan repayments, which will flow through cash for investing. So we do expect dividends this year. We have guidance, affiliate guidance to dividends for 2024, but we've also included in the deck today the outlook for affiliate dividends for the second quarter, $1-$1.5 billion. And a significant portion of that is an assumption around TCO.

Jake Spiering
Jake Spiering
General Manager of Investor Relations at Chevron Corporation

Thanks, Sam.

Sam Margolin
Sam Margolin
Managing Director at Wolfe Research

Thank you.

Operator

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

Betty Jiang
Betty Jiang
Managing Director at Barclays

Yeah, good morning, Mike and Eimear. My question is really on the exploration program, specifically, you have an interesting position in West Africa, Namibia. So maybe you can just give us some historical context of how you got involved here. Is this an asset that you see a lot of opportunity in, especially given some of the announcements from peers over the last couple of weeks? And how do you think about prosecuting it going forward? Thank you.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Yeah. Thank you, Neil. We've got a nice portfolio of exploration opportunities around the world and including numerous prospects on Block 90 in the Orange Basin, offshore Namibia, which lies just offshore, outboard of where there was a recent discovery announced by another company. We're planning to spud the first exploration well in that block late this year or early next year, based on rig availability. The rig will be completed in early 2025. We farmed into another block, Block 82, which is further north in the Walvis Basin. That was just announced earlier this week. And, as you know, there have been a number of discoveries made by companies in the Orange Basin. Our block is on trend with those discoveries.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

You know, we're encouraged by the success we see from others. And you know, this is certainly an area where the industries had a good batting average, a high degree of success, and we're pleased that we've got two blocks now offshore Namibia. And of course, we'll talk to you more as we get into the exploration program there.

Jake Spiering
Jake Spiering
General Manager of Investor Relations at Chevron Corporation

Thanks, Mike.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Thank you, Neil.

Operator

Thank you. We'll go next to Paul Cheng with Scotiabank.

Paul Cheng
Managing Director at Scotia Howard Weil

Thank you. Good morning. Mike, you guys did a small deal, looks like, on the retail marketing arm and adding over 200 stations in the Gulf Coast and West Coast. I actually don't remember. I think since you become the head of downstream, say, call it 20 years ago, you guys have been selling assets there. So is there a change of your view in terms of the overall strategy related to that part of the business? And whether in this deal you are going to be owning the asset or whether this is wholesale marketing, jobber network kind of deals that you are acquiring? Thank you.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Yeah. Thank you, Paul. As you know, I come out of that part of the business. I love talking about retail. Look, we've got three really strong brands around the world. You know, Caltex internationally, in Asia, primarily in Middle East and Africa, a little bit. Chevron and Texaco here, primarily in the Americas. And you're right, we only own about 5%, in the U.S., even less than 5% of our branded stations. So most of our business is done through large retailers and distributors. We enter into agreements of, you know, supply agreements and branding agreements with these marketers, and there are times, you know, different mechanisms we use to support their investment.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

We've done a couple of deals here in the last quarter that are substantial, that add, you know, a few hundred stations to our, our network. And as part of that, we advanced some cash to support their brand conversion efforts and their investment in the network, and to solidify our relationship with really important customers of ours that ultimately sell on to consumers. And so you, you saw that consume some cash. It's technically, from an accounting standpoint, doesn't get classified as capital, but we wanna disclose it because it is cash, and it helps us grow our, our, our branded sales. And so it's an important part of our business. We're doing these kinds of deals all the time, Paul.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

They tend to be, oftentimes smaller magnitudes, so they don't necessarily get to a size where we would, you know, we would mention it the way that we, we did today. But we won't own these stations. They're owned by really strong independent retailers. Thanks for the question.

Operator

Thank you. We'll go next to Betty Jiang with Barclays.

Betty Jiang
Betty Jiang
Managing Director at Barclays

Good morning. Mike, just seeing that the U.S. operations look pretty strong this quarter, especially with Permian holding in better than expected relative to your expectations, could you just talk about what drove the better performance in the Permian, and how you think the rest of the year unfolds? And then just anything else within the U.S. that you wanna highlight?

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Sure. So, yeah, first quarter production in the Permian was good, 859,000 barrels a day, down about 1% from the fourth quarter of last year. Stronger than what we had anticipated. Really good, strong performance in our company-operated business, building off the momentum from the fourth quarter of last year. We've seen reliability improvements that translate into a slightly less decline in our base production. We saw a significantly shorter frac to POP cycle time, so between the completed frac and when we put it on production. So that resulted in a few more wells being popped in the first quarter, which you see in the production. Well, performance itself was generally aligned with our expectations, and so we've been talking a lot about type curves.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

The last few quarters, we've seen strong performance that's aligned with or even a little bit stronger than what we expected. And then we also saw some good contributions from our royalty acreage, which is, you know, the highest return barrels we have, because we really have no investment there, and it's attractive acreage. Others are developing it, and we saw increased activity that resulted in increased royalty production. NOJV right on plan, you know, with what we expected, and a lot of visibility into the non-operated joint venture portfolio for this year, more even than last year at this time, and confidence that that will deliver. So, all of that translated into a very strong first quarter.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Eimear mentioned that we now expect our first half to be better than we'd previously guided. We'd said 2%-4% down versus fourth quarter last year. We now think we'll be less than 2% down, and then, of course, the back half of the year, we had another frac spread. We've got more wells online and expect to exit the year around 900,000 barrels a day. So, really strong performance there and consistent with the momentum that you've seen in prior quarters. I guess the other thing I would mention relative to U.S. more broadly is the Anchor project in the deepwater Gulf of Mexico. You know, we've guided towards mid-year startup of that. It's right on track.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

The floating production unit is being commissioned as we speak. We've got both buyback gas and buyback oil in the facilities, so that means the pipelines, the process units are now charged with live hydrocarbons. We're commissioning some of the subsea infrastructure, including flow lines. The completion of the first well is in progress. Second well is drilled and will be completed shortly. Third well is being drilled right now. So, we'll talk more about this, but everything is right on track for start of Anchor midyear. And then, of course, we've got other Gulf of Mexico projects as well that are kind of stacked up right behind Anchor over subsequent quarters. So, the outlook in the U.S. is especially strong.

Operator

Thank you. We'll go next to Josh Silverstein with UBS.

Jason Gabelman
Jason Gabelman
Managing Director of Energy Equity Research at TD Cowen

Thanks. Good morning, guys. So you had around $1 billion of debt this quarter to manage some of the working capital and affiliate distribution timing. Do you think that the cash balance growing sequentially, do you repay the commercial paper in 2Q? Just wanted to get a sense of where the cash outlook may go, sequentially. Thanks.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Yeah, Eimear, why don't you take that?

Eimear P. Bonner
Eimear P. Bonner
CFO at Chevron Corporation

Yeah. Josh, yes, so we had some commercial paper issued in the first quarter, and it was just to manage short-term liquidity. You know, timing of affiliate dividends can be a bit lumpy. Repatriation of cash can be a bit lumpy. So, this was normal business for us in the first quarter. I think in terms of what to expect in terms of cash on the balance sheet, I mean, we target to hold about $5 billion in cash, and that will bounce around as well, but I think $5 billion is a good number. You know, we have access to lots of liquidity, commercial paper, bond investors, credit facilities.

Eimear P. Bonner
Eimear P. Bonner
CFO at Chevron Corporation

So, you know, while we've had higher cash in the balance sheet in the past, you know, holding excess cash with low debt and lots of access to liquidity can be a drag in returns. So, and we're quite comfortable with the $5 billion cash, and that's a good number for you to focus on there. Thanks.

Jake Spiering
Jake Spiering
General Manager of Investor Relations at Chevron Corporation

Thanks, Josh.

Operator

We'll go next to Biraj Borkhataria with RBC.

Biraj Borkhataria
Biraj Borkhataria
Global Head of Energy Transition Research at RBC Capital Markets

Hi, thanks for taking my question. I want to ask a follow-up on the Permian. So you, you've put out the updated well productivity slides, which is very helpful. But a few quarters ago, Mike, you talked about some of the broader constraints in the Permian, whether it's CO2, water handling, and so on. It doesn't look like it's impacted your volumes in the near term, which have performed very well. So could you just refresh us on if anything's changed in your, in your views on that there? Thank you.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Yeah, thanks, Biraj. You know, nothing's really changed. I mean, this is a very large base business now, with thousands of wells over a very large footprint. And it's important that we focus not only on productivity, efficiency, and reliability in drilling and completions, but also in all aspects of operations. And that's, you know, midstream takeaway, it's gas processing, it's water handling. And you know, we, we've got more development underway this year in the New Mexico portion of the Delaware, which is gonna require a build-out of some of this capability, which will be, you know, part of our capital program addresses. But you really have to stay on top of base business reliability on all these things. Seismic is another one we've seen some issues on.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

And so, they're all part of managing the business for safety and reliability each and every day. You know, we had a quarter a couple of quarters back where a number of those things were a challenge, and the, you know, the current quarter, we saw really good performance. Last thing I might mention, which might be implied in your question, you know, you see some talk about the takeaway capacity out of the basin and are people constrained? Is that impacting particularly gas prices more than the other commodities? We're covered on takeaway capacity out of the basin on oil, NGL, and gas, you know, well out into the future. And so we're not exposed to any in-basin discounted pricing as a result of that.

Jake Spiering
Jake Spiering
General Manager of Investor Relations at Chevron Corporation

Thank you, Biraj.

Operator

Thank you. We'll go next to Nitin Kumar with Mizuho.

Nitin Kumar
Nitin Kumar
Senior Equity Research Analyst at Mizuho Securities

Hi, good morning, and thanks for taking my questions. Mike, I just wanted to maybe get an update on Venezuela. There were some reports that the Biden administration is reinstating some of the export bans on that country. It specifically said that Chevron was not included, but just your thoughts on sort of the future of oil production and exports from the country and how it impacts Chevron?

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Yeah, thanks, Nitin. So, you might recall that the Department of the Treasury and OFAC, a division within Treasury, has issued a couple of different what are called general licenses for operations for companies in Venezuela. There's one called General License 41, which primarily pertains to our position in the country. There's some specific licenses as well that kind of go along with that. And then there had been a second one that was issued, you know, subsequently called General License 44, which applied more broadly. That's the one where the administration's announced some changes, and those don't really impact us.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

There have been no changes to GL 41, and so we're not really affected by the news that you've read about recently. I'll just remind you, you know, we're not putting new capital into Venezuela right now. All the spending is really self-funded from the cash from operations. We've been lifting oil and bringing it to the U.S., which has been helpful for the U.S. refining system, not just ours, but others as well.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Since that license was issued now a little bit more than a year ago, we've seen production at the joint ventures that we're participating in increase from about 120,000 barrels a day at the time that that license was issued to about 180,000 barrels a day now. So that's an update. There are some – maybe it might be worth reminding just how the financial side of that works, because they're a little bit different than some of the other parts of our production. So, Eimear, do you wanna touch on that?

Eimear P. Bonner
Eimear P. Bonner
CFO at Chevron Corporation

Yeah, Nitin, just as a reminder, for Venezuela, we do cost accounting and not equity accounting, so Chevron's not recording the production here or the reserves. We record earnings when we receive cash, and that shows up under other income and income statement. Just to put this into context, in 2023, the cash was modest, probably less than 2% cash flow from operations. Thanks.

Jake Spiering
Jake Spiering
General Manager of Investor Relations at Chevron Corporation

Thanks, Nitin.

Operator

Thank you. We'll go next to Jason Gabelman with TD Cowen.

Jason Gabelman
Jason Gabelman
Managing Director of Energy Equity Research at TD Cowen

Yeah. Hey, good morning. Thanks for taking my questions. I wanted to ask about the divestment program. I know when the Hess deal was announced, you, you discussed $10 billion-$15 billion, but given that's in a bit of a holding pattern here, I'm just wondering what you expect the cadence or the target for divestments to be. I think historically you've done about $2 billion a year, so that's not too far from what the guidance was with the Hess deal. So just trying to triangulate those two numbers and getting a sense of what the divestment program could look like while that deal is in a bit of a holding pattern. If you could just remind us the assets that have been discussed in the market, that would be great. Thanks.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Yeah. Yeah, sure. Happy to do that, Jason. So, you know, the first thing is, you're right. We're always, you know, high-grading our portfolio, and it's not because we need the cash, you know, Eimear covered the strength of the balance sheet. But it's really to seek value, to optimize our portfolio. We find times there are things that don't compete for capital in our portfolio, and they fit better with somebody else. They tend to be early in life assets. You know, we were at Rosebank and, you know, divested that a few years ago, or things that are much later in life and might fit better with somebody who works those kinds of assets.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Over the last decade or so, 2012 through 2023, we divested about $35 billion worth. Our long-term history's been about $2 billion per year, maybe 1% of our capital employed, give or take, and our guidance for this year is $1 billion-$2 billion, so it's pretty consistent with history. We did say that, upon closure of the Hess transaction, we're gonna add some assets that are gonna be highly attractive for capital investment, and that means, as you look through the rest of the portfolio, if we stay capital disciplined, there are probably some things that we might otherwise have invested in that now, we would choose not to. And so that's where the $10 billion-$15 billion guidance came from. That would still stand upon closure.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

The things we're doing now are things we would have done in the normal course, and so they're not really related to high grading post the Hess addition. The things that are in the public domain, we've talked about Myanmar, which we exited as of April first. We've announced that we intend to exit Congo, and we've got a deal there. We expect that to close before the end of the year. We have talked about our position in unconventionals in Canada, in Kaybob Duvernay, which is a nice asset, which has some growth opportunities, but it may be a better fit for others. So we're looking at alternatives there. And then also the Haynesville.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

We paused our development activity in the Haynesville last year, and that's another one that we think may fit better with others. So I think those are the ones that are out in the public right now, Jason.

Jake Spiering
Jake Spiering
General Manager of Investor Relations at Chevron Corporation

Thanks, Jason.

Operator

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

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Morning, Bob.

Bob Brackett
Bob Brackett
Head of Americas Energy & Transition at Sanford C. Bernstein

Hey, good morning. Given the launch of Future Energy Fund 3, can you give us a thought of what you saw success cases coming out of 1 and 2 that caused you to move to 3? And maybe compare and contrast how you do it yourself in-house, solar to hydrogen, for example, versus where you might see third parties to try new technologies.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

... Yeah, so appreciate that. This is one that we probably haven't talked about with investors as much as some of the other parts of our business. Funds one and two were smaller, $100 million, $300 million. And they're not actually fully subscribed yet, but they're getting there, which is why we announced fund number three. You know, we've been in the venture investing business for a quarter of a century. So going back to the late 1990s, when we first set up our venture investing organization. And in the future energy funds, which are those that are really focused on energy transition themes, through funds one and two, we've invested in more than 30 companies already.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

We're collaborating with, you know, 250 or so other co-investors in these companies. We can serve as a pilot bed for their technology, so we can help them bring things from the lab and kind of bench scale out into the real world. I've visited last year one of our carbon capture pilots in the San Joaquin Valley with a company that's got some really interesting technology to help us improve the efficiency, reduce the cost for carbon capture. And so, you know, we're looking at things like industrial carbon decarbonization, hydrogen, emerging mobility, energy decentralization, a circular carbon economy. And what we're really looking to do is support innovation in things that we probably aren't doing within the company, within our own R&D or scale-up.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

As you mentioned, the production in the Permian Basin or in the San Joaquin Valley, the solar to green hydrogen, is using established technologies that are well proven. What we're doing in our venture investing is trying to develop these new technologies, new materials, new novel ways to integrate AI and other kinds of technology systems to help solve some of these problems. And hopefully we find things that will help our business and help the world. Last thing I'll say is, over the 25 years, we've more than earned our money back and a return on our investment. Not every one of these companies is successful, but we've seen a lot of technologies move into our business.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

We've seen a lot of the companies become successful, and there's a lot of innovation going on out there. This allows us to leverage ourselves into smaller start-up innovation that we might not otherwise see. So it's been very, very positive for us, and we're excited to announce the new fund.

Operator

Thank you. We'll go next to Roger Read with Wells Fargo.

Roger Read
Roger Read
Senior Energy Analyst at Wells Fargo

Yeah, thanks. Good morning.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Hi, Roger.

Roger Read
Roger Read
Senior Energy Analyst at Wells Fargo

Will you talk a little bit about Eastern Med? I know you know, at one point, operations were shut down. Sounds like everything's back up and running, but also if you would kind of tie that into Egypt a little bit, where there's been some exploration talk and in the government trying to do some things to improve the overall investment, I guess, environment there.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Yeah, you bet. So, first of all, we are back in full operations in the Eastern Med. We've, you know, Tamar was down for about a month at the very beginning of hostilities. But we're excited about the opportunities there. Just to remind you, we've got the two existing platforms, Tamar and Leviathan, in service, and, we've really structured our development plans there to focus on capital efficiency, higher returns, to the earlier answer, things have got to compete for capital in our portfolio. Since we've closed on the Noble acquisition, we've increased production at Tamar and Leviathan by more than 10% just through debottlenecking and reliability.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

We've sanctioned projects at both of those that are currently in progress, that will increase production by another 40% over the next couple of years. And we're looking at larger expansion, particularly for Leviathan, where we've got a number of concepts that are being evaluated. Obviously, in the current environment, you know, we're moving carefully with development of those. You mentioned Egypt. We've got a discovery at Nargis. We expect another appraisal well there in late this year or early next year to better characterize the field and refine our development plan. We've got a number of other blocks that have not been drilled yet that we shot seismic on, and we plan to spud a well in Block IV there before the end of this year.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

And so it's an area that I think has got real prospectivity as you look at the growth in both the near term with the projects I mentioned, and then the longer-term expansion of existing and exploration prospectivity. It's a part of our portfolio that I expect us to see growth from over, you know, the coming decade.

Operator

Thank you. We'll go next to Lloyd Byrne with Jefferies.

Lloyd Byrne
Lloyd Byrne
Managing Director at Jefferies

Hey, good morning, Mike. Thank you for your time. I know we've covered a lot of ground this morning. We talked about the Permian productivity, which looks really good, but could you just touch on the DJ? And that production looks stronger than we expected, and then also any political risk you might want to comment on out there.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Sure. So, yeah, first quarter production of the DJ was above 400,000 barrels a day, kind of higher than what our long-term guidance is. We had timing in a lot of fourth quarter 2023 wells put on production there. You typically expect some weather-related downtime in Colorado in the first quarter. We saw some of that, but less than what we had planned for, so production was good. Second quarter, there's maybe some minimal impacts that we expect from a third-party gas plant that's had an outage, but continued strong performance there thus far in the second quarter. These are high cash margin, low break-even barrels that we're really pleased to have in our portfolio. You know, you go back 30 years ago, we didn't have anything in DJ.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

We're now talking 400,000 barrels a day of production there. We plan to hold our plateau there around 400,000 barrels a day, and it'll fluctuate a little bit based on the timing of bringing new pads on and completion of wells, et cetera. But it's a really strong asset for us. Let me talk about the politics and the kind of the operating environment a little bit, and then maybe I'll have Eimear just touch on PDC and the benefits of that. But Colorado is a state where energy is an important part of the economy. And I grew up there. The environment's very important to the people of the state as well.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

I think, you know, their goal has been to be a leader in responsible development, and to recognize the important economic contribution that our industry makes to the state. I'm confident that that will continue to be the case. We've got good relationships with, with members of the legislature, with, the executive branch, with the governor, and as the largest oil and gas producer in the state, with over 1,000 employees, who live and work there, and, and we, we're a significant investor there. We engage, broadly within the community, and I think there's a recognition that responsible development in Colorado is, what, what everybody wants and, what we, are committed to. And, you know, there's be some noise around ballot, proposals.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

There can be some noise around legislative proposals, but, but we're confident that, that the state is, you know, interested in working with us to, to be a responsible, a responsible player, and for this to be an important part of the economy. Eimear, maybe PDC, some of the benefits, just so people are reminded of that.

Eimear P. Bonner
Eimear P. Bonner
CFO at Chevron Corporation

Yes, it's been about nine months since we closed with PDC Energy. We're really pleased with the progress that we're seeing on the synergies. On the CapEx side, to date, we've captured $500 million, which is $100 million more than what we had initially guided to. We're also seeing capture on the OpEx side as well, so we're nearing $100 million there. The teams are continuing to integrate. You know, we're bringing the best of the both companies together and building a development playbook focused on optimizing returns in the basin. We're realizing strong free cash flow from these assets, so we're ahead of pace for the incremental $1 billion in annual free cash flow that we guided to.

Jake Spiering
Jake Spiering
General Manager of Investor Relations at Chevron Corporation

Thank you, Lloyd.

Operator

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

Devin McDermott
Devin McDermott
Executive Director at Morgan Stanley

Hey, good morning. Thanks for taking my question.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Good morning, Devin.

Devin McDermott
Devin McDermott
Executive Director at Morgan Stanley

So I wanted to bring it back to TCO. And Mike, I think you've talked in the past about how there's some similarity in the design between WPMP and FGP, and as a result of that, as you bring WPMP online, it helps de-risk part of the FGP ramp as well. I was wondering if you could remind us what some of that commonality is? And as you look at the milestones you laid out over the next few months at WPMP, which are the ones that you think about as being key to help de-risk FGP as well?

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Yeah. So, you know, it's just, just to remind everybody, you know, this is a massive field. Some of you have, have visited it. And, FGP, the Future of Growth Project, is taking things we did almost 20 years ago now, with the second generation plant and sour gas injection, where we injected about half of the sour gas, and we're now injecting all the sour gas, increasing production. And at the same time, we're reducing back pressure on the field and using compression to push, to push the, production into the facilities so that we're not relying on field pressure to do that. And that, that increases the life and, longevity, of the production out of the field. The other thing this project brings with it is what I've described sometimes as urban renewal.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

And it takes infrastructure that was built back even before Kazakhstan was independent, and it brings power and utility infrastructure, control infrastructure up to modern day technology and modern day standards. So the projects are quite integrated. The startup sequencing in terms of what you do to walk down systems, ensure they're ready for operation, do all the testing and startup, is very similar, whether you're in one portion of the project or another. And the productivity of the field resources that we see on WPMP reads across to FGP as well.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

And so while they are fundamentally different project scopes and objectives, so much of the work is similar across, you know, equipment and the commissioning and startup activities that I think the positive progress we're making, the success we're seeing in commissioning and startup at WPMP reads straight across to FGP as well.

Jake Spiering
Jake Spiering
General Manager of Investor Relations at Chevron Corporation

Thank you, Devin.

Operator

Thank you. We'll go next to Ryan Todd with Piper Sandler.

Ryan Todd
Ryan Todd
Senior Research Analyst at Piper Sandler

Thanks. Maybe one on the renewable side of your portfolio. I mean, you announced FIDs on a couple different renewable projects, one in biofuels, one in solar to hydrogen. Can you provide some color on what underpins confidence in these specific projects? You know, whether it's commercial or technical or regulatory support. And do you see further opportunities to develop similar projects in the portfolio going forward, or are there specific things about these ones in particular that make them attractive?

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

... Yeah, so the two projects, one is an oilseed processing plant in our joint venture with Bunge. It's a project at Destrehan, Louisiana. And so FID was announced for a new oilseed processing plant there. This one will feature a very flexible design, and that's important because it gives you feedstock flexibility, which matters in any fuels manufacturing business.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

So in this case, we can process soybeans and soft seeds, but we can also be able to process winter oilseed crops, things like Winter Canola, CoverCress, and so it gives us a greater range of potential feedstocks that can then feed into our renewable fuels business, particularly the Geismar renewable diesel project, which will start up later this year. And it's really important that we have exposure across these value chains. The margins can move from the crush margin into the upgrading margin, or what you consider the refining margin into the marketing margin. And just like in our traditional business, being able to capture a margin across the value chain as it moves is important. Having flexibility, scale, and reliability are important.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

So all of those underpin the investment decision there. The project in California on green hydrogen is smaller in scale, and it really uses existing solar production capacity. We've got a 5-megawatt production facility in our Lost Hills oil field in Kern County, and we're gonna produce about a metric ton per day of hydrogen for retail fuel stations. So we're using existing infrastructure. We're integrating into the value chain. We've got another venture that is building hydrogen refueling facilities in California, and so we're leveraging existing assets and existing value chains and capabilities to invest here.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

You know, as I say, smaller scale, and I don't wanna overplay it, but it's very consistent with our strategy, and these things have got to start small and then scale. And so, you know, we're pleased with both of these. There are markets to, maybe to your point about economics, that are in some ways heavily influenced by government policy, be it the Renewable Fuel Standard and the Low Carbon Fuel Standard, which affect renewable fuels, or some of the things in the investment or the Inflation Reduction Act that affect hydrogen. And so, it makes them a little bit different than our traditional business, which really works off market fundamentals.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

But we look at a lot of cases there, and we, you know, invest in projects where we believe there's confidence that over time, we can generate a good return. Thanks, Ryan.

Operator

We'll go next to John Royall with JPMorgan.

John Royall
John Royall
Executive Director at JPMorgan

Hi, good morning. Thanks for taking my question. So my question's on West Coast refining. We now have one West asset producing gasoline on the West Coast, and TMX should be increasing the availability of heavy crudes once it's ramped. But it's a tough regulatory climate, and you're well positioned as one of the players that still has multiple assets in California. How are you thinking about that region today, and should we see structurally higher gasoline margins in California, given we've had some capacity come out?

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Well, look, you know, we've been in California for, you know, our entire existence, 145 years. We've got an integrated value chain that allows us to serve two competitive refineries and advantage logistics that take us out into a market where we've got a very strong brand and where the demand for all forms of energy continues to grow, be it power, be it transportation fuels. You know, it's an economy that is large and demand continues to go up. That said, the policy environment has been one that is geared towards reducing investment in traditional energy, encouraging investment in these lower carbon energies. You've seen assets go out of the system, you know, fossil fuel-fired power plants.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

There's a lot of questions about the one remaining nuclear power plant in the state, and you've seen refineries close down, as you say, some permanently, some to convert to other uses, including to renewable fuels. And what that does is it creates a tighter supply-demand balance, particularly as demand continues to be strong, and you need to have strong operations out of that entire system, or you need to bring in supplies from somewhere else if you've got planned or unplanned issues that the system is dealing with. And so, you know, on average, what does that mean? It means margins are probably under more pressure, it means reliable operations are very important.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

You know, it's a place where we've, you know, operated for a long time and expect to continue to do so. But putting new investment into the state is a different question, and I think we've been pretty clear that we've got a global portfolio, and we'll invest where we see the best conditions, and I wouldn't describe California that way today.

Jake Spiering
Jake Spiering
General Manager of Investor Relations at Chevron Corporation

Thanks, John.

Operator

Thank you. We'll go next to Alastair Syme with Citi.

Alastair Syme
Alastair Syme
Managing Director at Citi

Thanks. Mike, can you help me understand about the sequencing of the base case on the Hess timetable? You know, I've read all the documents, but just to get your sort of view, we've got a shareholder vote in May, then we sort of go on limbo pending regulatory issues, but obviously, importantly, the arbitration. And maybe just talk about the arbitration timetable.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Yeah. So, you know, there are, there are, I think, really three things if you're looking at sequencing and timing here. One is the shareholder vote, and as, as, I said, the proxy be mailed out in April, and the shareholder vote will occur in May. You've got regulatory approval through the FTC, and we're making good progress on that. We're working closely with the FTC in respect to their role in the process, and expect that to us to be substantially complete with that here by midyear. And then we have the arbitration, which is, I think, a little bit less well-defined at this point of the specific scheduling and timeline will be established by the arbitration tribunal.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

In our S4, we indicated that, you know, Hess has asked the tribunal to hear the merits of the cases in the third quarter, with an outcome in the fourth quarter, which would allow us to close the transaction shortly thereafter. We, we see no legitimate reason to, to delay that timeline. It's consistent with what Exxon has outlined as what they would expect, but, but can't say that's exactly how it unfolds because we, we haven't seen specific scheduling from the tribunal yet.

Jake Spiering
Jake Spiering
General Manager of Investor Relations at Chevron Corporation

Thank you, Alastair.

Operator

Thank you. We'll take our last question from Neal Dingmann with Truist.

Neal Dingmann
Neal Dingmann
Managing Director of Energy Research at Truist

Morning, Mike Wirth. Thanks for squeezing me in. My question is a broad capital spend question. Specifically, like, could you just maybe speak to, do you have sort of broad strokes, what % of total spend would be directed towards the new energies and, and maybe the Chevron Technology Ventures? And I'm just wondering how you think about margins, even though it's still early for some, how the margins of these compare to your higher return traditional margin business.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

Yeah. So, you know, there, there's a couple of, of kind of broad framing points, I think, to, to bear in mind as you think about that. Number one is, you know, we've, we've guided to, a long-term capital spend, at around $16 billion. This year, we've guided $15.5 -$16.5 billion as a range. And, and we intend to be very disciplined, with our, capital investment and, and only invest in the most attractive, opportunities. We've also indicated that over a period of time, beginning in 2022 through 2028, I think it was, when we announced our, our Energy— We had our Energy Transition Spotlight, that we expected to spend about $10 billion in our new energies business over that period of time.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

$8 billion in kind of the newer emerging business lines of carbon capture and storage, renewable fuels, and hydrogen, and then another $2 billion in decarbonizing our own operations and businesses. It's not completely ratable, and that is a guide that we may or may not achieve. We may be a little below that, we may be a little above that, depending upon how these opportunities mature in new businesses. And you know, to the earlier question, we need to be sure we've got confidence when we're putting capital, particularly large capital. Some of the smaller things to help accelerate technology, learning, et cetera, like our venture investments, which tend to be a few million dollars in any particular company, we recognize the risk-return equation there.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

But larger investments, we've got to have a belief that this is a business that's going to deliver a return over time, or we're on the path to building a portfolio of businesses that will do that. And so that $10 billion is a guide, but we'll invest in things that make sense, and we'll explain the numbers if they end up a little bit different than that. And so what that can tell you is, you know, the majority of our spend is still going into our traditional business because the majority of the world's energy is still provided by our traditional business, and we've got an obligation to meet that demand as long as it's there. But we're gonna be very disciplined in what we invest in and only invest in the highest return opportunities.

Mike Wirth
Mike Wirth
Chairman and CEO at Chevron Corporation

And so each year, we issue, you know, specific guidance that we can... you can look at. But we're longer term, I think you have to stay within those broad parameters and expect us to remain disciplined.

Jake Spiering
Jake Spiering
General Manager of Investor Relations at Chevron Corporation

I would like to thank everyone for your time today. We appreciate your interest in Chevron and your participation on today's call. Please stay safe and healthy. Katie, back to you.

Operator

Thank you. This concludes Chevron's first quarter 2024 earnings conference call. You may now disconnect.

Executives
    • Eimear P. Bonner
      Eimear P. Bonner
      CFO
    • Jake Spiering
      Jake Spiering
      General Manager of Investor Relations
    • Mike Wirth
      Mike Wirth
      Chairman and CEO
Analysts
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