Q3 2020 Chevron Corp Earnings Call
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Welcome to show <unk> third quarter 2020 earnings conference call.
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I will now turn the conference call over to the General manager of Investor Relations of Chevron Corporation Mr. Weinberger. Please.
Please go ahead Sir.
Thank you Audra.
Welcome to Chevron's third quarter earnings conference call and webcast.
General manager of Investor Relations and on the call with me today are Mark Nelson.
Downstream and chemicals.
Your brighter CFO.
We'll refer to the slides that are available on chevron's website.
Before we get started we'd be right.
I might add that this presentation contains estimates projections and other forward looking statements.
Please review the cautionary statement on slide two.
Now I'll turn it over to Peter Thanks.
Thanks Wayne Bridge.
Third quarter earnings were about breakeven improved.
Improved from last quarter, reflecting continued challenging market conditions.
Reconciliation of non-GAAP measures can be found in the appendix to this presentation.
Special items totaled $220 million, including a tax charge.
Due to a settlement agreement going after retirement funding and other items tied to the exploration next August of the ROE can production sharing contracts in Indonesia.
Free cash flow was almost $2 billion and the dividend was flat with last quarter.
Turning to slide four.
That's what from operations improved as commodity prices increased from their lows in the second quarter.
Included this quarter was a $265 million cash payment related to the broken settlement agreement.
Our cash flow dividend breakeven was under $50 Brent.
Due to improved downstream performance and our strong capital and operating cost management.
We ended the quarter with a net debt ratio over 17% well.
Well below our competitors.
Even after closing the noble acquisition.
And stepping up its got to fair value.
We expect to maintain the leading balance sheet among the peer group.
We're committed to protecting our financial strength during this ongoing crisis.
Turning to the next slide.
Our 2020 capital spending is trending below our latest guidance looking.
Looking ahead, we expect next years capital budget to be $14 billion.
Below the combined 2020 guidance from Chevron Findable.
And well below chevron's five your guidance from our March Investor Day.
Our 2021 capital budget will continue to prioritize investments that drive long term value.
And shows the capital flexibility in our portfolio, including assets recently added from noble.
Will share additional details in December after formal approval.
Operating center operating expenditures in the quarter were more than 10% lower than our 29 came quarterly average.
Head of our guidance.
Turning to slide six.
Relative to the same period last year third quarter adjusted upstream earnings decreased due to lower realizations and reduce liftings, primarily due to curtailments.
Partially offset by lower depreciation and operating expenses.
Adjusted downstream earnings decreased primarily due to lower sales volumes and margins.
The other segment was higher primarily due to various corporate charges.
Turning to slide seven.
Compared to the second quarter third quarter earnings increased by about $8 billion more than half due to the absence of second quarter special items.
Adjusted upstream earnings were up almost $2 billion, primarily due to higher liquids realizations.
Adjusted downstream earnings increased by over $1 billion, primarily due to higher sales volumes and margins.
Favorable swings in bulk timing effects and lower cost or market inventory adjustment at CP Chem.
The other segment charges decreased primarily due to a favorable swing in accruals for stock based compensation.
Turning to production journey to production.
Third quarter oil equivalent oil equivalent production, excluding asset sales was 3% lower than a year ago.
The past 12 months, we closed the number of assets sales all side pre pandemic.
Increased Permian production and higher entitlement effects were offset primarily by curtailments and higher turnarounds.
The curtailments were in line with our guidance range and reflects mostly opex plus reductions in Kazakhstan in Africa.
And market driven constraints in Thailand.
Now I'll turn it over to Mark.
Thanks, Peter as shown on slide nine the operating environment has improved from the lows in the second quarter was still challenged.
Products like people in petrochemicals the more resilient during that have done that we've been able to develop new customer channels.
Conversely jet demand is only modestly recovered.
This afternoon with injuries, resulting we'd probably margins.
Well below cyclical averages.
Just to close it started we've been focused on what we can control seeking reliable operations cost management value chain optimization.
In the third quarter financial results improved due to strong performance in these areas along with some margin improvement in polyethylene and west coast fuels.
Turning to the next slide.
Focus on cost management is delivering results.
Third quarter operating expenses, nearly 20% lower than pre pandemic levels in the first quarter.
I'm proud of our employees have risen to this challenge streamline work processes, reducing contractor costs and adapting activity levels to a lower margin environment.
Our teams have also delivered on more than 90% of the planned scope of our 2020 turnaround program.
Differing only a minor amount of activity.
This is a tremendous accomplishment positions all refineries that were to be ready.
Without a backlog when the economy is back to presenters levels.
Optimization activities further reduce the cost of this year's planned work contributing to lower operating expenses.
Turning to the next slide.
As always we're focused on safe and reliable operations.
You can or employees say being a good neighbor and delivering the products of the world needs are all part of a license to operate.
The economic slowdown began.
Alex This is should refinery utilization with the highest margin sales channels for our products.
We've consistently plays more than 90% of a hot dog food products into our contracted sales channels.
Despite volatility in demand.
Considering the best margins across her about injuries.
The recent acquisitions of marketing assets in Australia.
The Pasadena refinery in the U.S. Gulf Coast further extend our value chains in those regions, giving us more opportunities to improve profitability.
Returns.
Turning to chemicals.
GS Caltex continues to make good progress on the news feed cracker.
We expect the project to be under budget.
Ahead of schedule although.
Our local team has done a remarkable job safely progressing the project. Despite the challenges the COVID-19.
Thank you Kim we've completed feed at or U.S. Gulf Coast Cracker to project at a place that on hold as we assess market conditions.
We continue to believe in the long term fundamentals of chemicals.
And the importance of world scale facilities with access to low cost piece, though.
At the same time any new investment needs to be supported by project economics that will generate strong returns through the price cycle.
Also see began began producing circular polyethylene at scale.
The Street first in the United States.
The production of PE from plastic waste is an important milestone underscores our commitment to finding innovative ways to deliver sustainable products to our customers.
Now turning to renewable fuels.
The future of energy is lower carbon and we're delivering more alternative products to our customers.
Recently, we announced first gas nor Cal bio renewable natural gas joint venture in California, and a new partnership with bright Mark.
Our capital committed to RMG ventures is over $200 million.
Renewal diesel leveraging existing infrastructure to co processed biopsy or else within the refinery.
Start up expected in the first half of next year.
Also we sell a range of branded biodiesel it'll piloting the sale of our 99 in southern California.
Nope.
We recently announced first production of renewable base oil at EUR 500 barrel a day plant in Texas.
Leading technology partnership to develop innovative and sustainable products.
With future expansion potential.
And lastly, our Gs caltex hydrogen testing sites in South Korea has opened the first of its kind in Seoul, where customers can burgess traditional fuels as well as hydrogen electricity.
All of these efforts are aligned with how we're increasing renewables in support of our business.
Part of our approach to the energy transition, which Peter will now further discuss.
Thanks, Mark we continue to make good progress in our energy transition focus areas.
Next year, we expect to fund $100 million of projects identified with our marginal a big new cost curves.
The Mac tool helps to select the most cost efficient projects to reduce carbon intensity across our operations.
As Mark noted, we announced a new joint venture with framework, extending our renewable natural gas portfolio.
Finally in our partnership with somebody.
We're pleased to have been awarded at U.S. deal, We grant to help fund the construction of a demonstration carbon capture plant in our California upstream operations.
The project is expected to start up in 20 2022.
These projects reflect Fairbanks commitment to low carbon solutions that are both good for the environment and good for our shareholders.
Turning to the next slide.
We closed the noble energy acquisition earlier this month and integration is on track.
Weve completed employee selections.
Some early quick wins like paying off the revolver and selling its plane.
And the assessment of operational opportunities is well on its way.
In the third quarter Doble generated positive free cash flow, primarily due to ongoing capital and cost management.
Strong sales in the eastern Med.
We're pleased to add noble assets and welcome its talented employees to Chevron.
Our internal transformation launch late last year is mostly comprised mostly complete.
With the new organization in place November 1st.
This was an enterprise wide change efforts the largest since our dexcom merger that modernize its how we work leveraging digital tools and empowered teams.
Lastly, we recently signed an agreement to sell our athletes yet natural gas business, we expect to close the transaction before the end of the year.
Now looking forward.
In the fourth quarter, we expect normal production noble production to be lower.
Primarily due to seasonal demand in the eastern med.
Curtailments in print downtime are both lower than last quarter.
Production. This quarter may include additional cost recovery barrels related to the real can settlement.
Hi, Gorgon train two wells repairs are now complete.
And we have started commissioning.
In preparation for LNG production.
We expect train one to be taken out of service. After train two is back online.
At Peasquito Remobilization continues.
We successfully increased the project work force to near 15000.
Our plans are to end the year with a project team over 20000.
Earlier this week, we completed our final C left on schedule.
All modules are now in Kazakhstan significant project milestones.
And finally, we expect severance payments to lower cash flow.
With that I'll turn it over to Wayne.
Thanks, Yeah.
That concludes our prepared remarks, we're now ready to take your questions.
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Well go first to Neil Mehta at Goldman Sachs.
Good morning, I had one upstream question here, one downstream parts to make barcode <unk> downstream question, which is it looked like a that downstream results and particularly refining a surprise relative to our expectations were burned through that you would call out here.
In the third quarter as many of the independent refiners had very tough third quarters, including on the West coast.
And just can you send step back and talk about your big picture outlook for the refining sector.
That part of your business.
Oh, Thanks for the question first if I, if I step back and look operationally the third quarter performance overall, but I would say that operationally. It was it was first driven by our continued cost management efforts across the downstream chemicals portfolio much of which is actually focused on manufacturing.
Sector I'm also some some polyethylene west coast fuel margin improvement and then contribution for lubricant additives business.
If I step back and look at the refining.
Sector in general I would say that the pre depends delek demand shock clearly as we kept his margin margin loans is not a real analog for the for the pace of recovery.
The three things are required I think to have sustainable improved refining margins first demand recovery for all high value products.
Cereals, we certainly indicated that as an industry, where we've been.
The 10% of 2019 more gasoline diesel levels.
The jets is still only half half in 2018.
And so Weve continued recovery there secondly, these inventory reduction and we're beginning to see some of that in different parts of the world and finally refinery rationalization. This was the parts. It's it's interesting for us because we've wrestled rationalize our portfolio over the past decade, and we're now seeing competitors start to do that in some of the regions of the world like.
Southeast Asia, Austria.
Australia, New West Coast hearing people talk about rationalization, which certainly creates an opportunity for us going forward as the supply demand balance and tighten a bit over time.
Thanks for the question Youre, saying.
Thanks, Thanks, Mark a area that you're called for you on Gorgon.
Where do we stand the train two and what do we know about train one and three in terms of managing or manage the downtime there.
Yes, Thanks, Neil as I said, the weld repairs are complete we verified them with nondestructive testing. We've also completed pressured testing of all of the capital. So we're now in the process of getting back online. So we started the re commissioning process from the turnaround and the extended turnaround the next step.
Our to dry out the systems and then we'll begin cool down we expect this to take several weeks, which will put first LNG production in the second half of November.
In terms of train one and as I said, we expect that to be taking down soon after train two is back online and then we would expect train one and depending on whether repairs are required or not that'll determine how long train one is down and then sequentially. Then we would look to train three after that one.
Okay likes cats.
Well move next to Jinming away at Barclays.
Hi, good morning, everyone. Thanks for taking my questions.
My first question is on sustaining good morning. My first question is on sustaining Capex in the second one is on the upstream light eastern med, So that second half Tony Tony Capex run rate that's below your multiyear sustaining upstream capital estimate of 10 billion you've accomplished a lot this year with cost reduction.
That efficiency improvement. So my first question is whether there is an update to that 10 billion in sustaining capital number that you provided a few quarters ago I know, we got no on the next now too.
Thanks Janine.
No there isn't I mean, the 10 billion is really an estimate right. It's based on our up against Chevron only how to sustain production in the short term Billboard gave out an equivalent number around 800 million.
Dollars for that you know to be clear, we're not trying to sustain short term production Mark just talked about were in and an economy, that's impacted by it depend dynamic and demand for our products is below a.
Normal levels and pre pandemic levels and therefore, we have over supplied markets. We are trying to sustain the long term value. The enterprise. So if you look to our 2021, a capital guidance of 14 billion. It includes the upstream or capital or more that you know around 11 billion or so so the higher than a sustaining level.
Not all of it is going to short term production. Some of it is going to long term production like our project at 10 <unk>. So we're focused on sustaining long term value not a short term production that's true in combination with notable but that but as you say that there is no real update to those numbers efficiency improvements are real.
Only through but this is a an estimate and analytical estimate that's not so precise that we're going to be updating it frequently.
Okay, great. Thank you understood.
My second question is on the eastern Med could you provide any initial indications our thoughts on how you expect to monetize provide that and a lot of the other discovered resource in the area. I guess, specifically do you think that regional demand growth could be strong enough in the medium term or longer term to avoid either greenfield Alan.
He or a pipeline to Europe, and then I could squeeze one more in there if there's any commentary on the headlines on the pricing dynamics that would be helpful. Thank you.
A hard thing to do I won't comment on the on some of the headlines you've read those are commercial matters, a that that will will discuss in private with our partners and with our customers. We've got a very smooth transition with our operations in eastern ended all cross available assets. Our integration is on track and employee selection to the United States have already happened.
We feel really good we're pleased with.
The people who are joining us in the eastern that included so millwall employees are our top quality and we're very pleased to be Walker welcoming them to Chevron as you know it's a good resource it's free cash flow positive the projects being completed or it's in an area, where there's demand opportunities in particular backing out.
Cool, but its only been a few weeks. So you know our focus right now is to have a smooth integration with noble. We're pleased again with the operations and the free cash flow generation, we're going to work with potential customers existing customers future customers to find the most cost efficient way to develop that resource you source there is upside to it and again, there's market but data.
You know, we'll determine that all in time thank.
Thanks Jenny.
Well move next to Phil Gresh of JP Morgan.
Yes, hi, good morning.
First question here, if I look at the third quarter it looks like.
Sure Brent based breakeven price somewhere in the order of $50 a barrel.
And if you're talking about you know this restructuring plan that's been underway and.
Cuts completing here. So I was just curious how you think about the cost side of the equation and the ability to further lower the operating costs and the breakeven, but in Florida given given.
Given you've given us the capital number here already.
[noise] Yeah, you know, we the breakeven and again, we would have it's a little bit below $50. It's important that it doesn't factor in downstream margins or chemical margins in other parts of our business, which you know mark has a dress and those can vary and they can make a difference obviously on where the breakeven is I mean.
Surgeons in that sector are pretty low and as they recover that that lowers our breakeven because again its whole thing. It's just looking at the oil price and not all of the other assumptions in terms of cost but.
But we are our costs are down more than 10%. This quarter. We provided guidance that we expect to end the year on a chevron only basis here because fourth quarter, we'll have normal operating expenses, but if you just look at Chevron only we would be down a billion dollars again, we'd characterize that as activity related and other actions that we've taken to manage through.
The pandemic in the crisis that were in we've also provided guidance and we've completed our transformation. So we launched that transformation, which is a enterprise wide restructuring we started that almost 12 months ago and we just are completing our employee selections are right now.
Tough time for our employees as they are being notified and we'll have the new organization in place November one we've talked about a billion dollars of Opex.
Opex reductions from the transformation and then finally, we have the noble synergies and we've talked about 300 million of total noble synergies not all of that is operating expense. So all of that is rolling through we'll bring that together for you any likely at our Investor day on any kind of update your updated guidance, but it's all consistent.
With your question, which is we're working hard to get our breakeven down you know, we sustain our dividend and so the comparisons are consistent and and a and we you know we continue to make progress both through capital discipline and cost management to lower our breakeven preserve our balance sheet strength right I mean the corridor.
What are the leading balance sheet in the industry, a net debt ratio of 17%. That's that's essentially what we're doing and will continue to do it adds were in the challenging times.
Okay. Great. Thank you my second question would just be as it relates to 2021 production. Obviously you gave us a capex number here on the last call you talked about the Permian potentially declining a single digit rate.
Year over year, and 21 on an organic basis, obviously, you're layering in notable here. So I Didnt know if maybe you could provide any early read on 21 production, whether its standalone or pro forma or it's not a hard number maybe some moving pieces around it.
Yeah, we'll provide our production guidance that you normally do that will be on our fourth quarter call at the end of January we did provide guidance for the fourth quarter. So we do a quarter ahead.
I think you hit some of the pieces are there a again you know I would add the broke and PSC expiration, which I referred to and.
We had a settlement agreement, which was really good agreement that I'm sure the uncertainty around the funding for abandonment and adds a little drilling activity to keep.
Production manager heading into that contract expiration, but that's going to be in August the 2020, once I point that out.
And again, you know our efforts as the Permian with Jay talked about as a potential decline of 6% to 7%. If we stay at those activity levels. So I don't really have more to say feel to you we'll provide that guidance when we finalize our plans I get formal approval of our capital budget and we'll do it at a regular time during the fourth quarter earnings call.
Okay. Thank you.
So.
Next we'll move to Devin Mcdermott at Morgan Stanley.
Hey, good morning, Thanks for taking the question.
Hi, David.
Okay. So that's the first one I wanted to ask on is actually around some of the latest investments and momentum you've made on emissions reductions and.
There's been some positive outcome to you over the last few months and I think its closure on this module will be admin costs for the interesting that it shows there is opportunities to potentially reduce emissions will also boosting returns the negative apply cost to call them out there.
Looking specifically as we think about over the next few years here any sense of the depth of opportunities where you can actually have this nice win win of driving down costs, while also reducing carbon intensity and then as you think about planning longer term.
Intentions of expanding their your mission production goals that already exist, perhaps not to eat.
Post 123, and my parents find that like some of your peers have done it and just how you're thinking about that longer term.
Sure on the second question as he said we have four carbon intensity reduction metrics. They go out to 2023 2023 was chosen because that's the first first stock to date under the Paris agreements and.
And so we're aligned with those were the only company first company only company in our sector to do it on an equity basis, a many do it on on Operatorship basis, and then we do oil and gas metric separately, because they serve a different market. So the $100 million that you're referring to is something that we expect will be Rick.
During so we see opportunities for a number of years to be able to invest or that kind of expenditure and achieve we'd call call sufficient carbon reductions, but if I.
And yes, when we extend or at some point in time I think yes. The answer is yes, it would be logical for us to go to the next Paris stock take a date, but were right now focused on delivering on those 2023 targets. We also have those as part of the incentive pay of almost Oh every chevron employees. So we're making good progress.
Yes on that but I would think all of our energy transition activities and Mark referred to a number in his business, they really support making our business more sustainable and a lower carbon future and they do it in a way where we earn return so the renewable natural gas or that Mark was talking about also generates returns and then of course Chamberlain.
Looking at some of the new technologies and those are obviously are at a different stage of maturity. So we're taking a number of actions that.
We believe address climate change that.
That.
Lowers carbon and does it in a way that's good for the environment and good for our shareholders.
Right that makes a lot of sense and then my second question just on the portfolio composition post the noble transactions. We recently executed on the Appalachian sale and got a good job on because of kind of pruning the portfolio and divesting non core assets over time as we look forward to your places transaction.
Any updated thoughts on further opportunities for divestiture is whether or not there's been some part of the question because it drives things like noble midstream or anything within the portfolio that might be non core and lastly, ah whether or not as part of the middle transaction guaranteeing a novel about spending data is part of all the division.
Okay, then I got the asset sales what was the question about noble debt at the end, whether whether or not that is no guarantee that show.
All right. Thanks, well, let me just address noble noble that you know we're reviewing options. We haven't made a decision and again, we'll notify book bondholders when we make that decision and you should expect that in the next couple of months in terms of how.
Asset sales, we're on track to complete the program that we talked about you know 2018 to 2023 year program, a $5 billion to $10 billion and before tax proceeds we expect to close or are you a natural gas sale here before year end and when we complete that will be right in the middle of that range.
In terms of what else is in the public domain the most significant.
Ownership interest that we've talked about is selling our interest in <unk> and northwest shelf and that the commercial matter and that we just won't we won't comment on that I guess I would just say we're in a different place than many of our competitors right Mark referred to the rationalization weve done in our refining network over the last decade, and even and even before.
I refer to the number of asset sales that we've completed in the last 12 months you saw that in our production chart. All that were signed pre pandemic had at good values.
He said, we just bought a bunch of <unk> a company that comes with high quality assets and I won't comment on any specific assets and the normal portfolio. So we're very value driven or the gas assets that we have or that we're planning to close here for the year at year end and our interest in northwest shelf held up.
Better in this post pandemic World also if you think of northwest shelf, it's more almost like an infrastructure investment as the resource behind the plant comes down and it becomes more of a tolling facility going forward. So you'll continue to see us to be disciplined in how we manage our portfolio I would not expect us to have any kind of a big program.
Announcement, you know we'll have the can.
You know the ongoing portfolio rationalization, that's been part of the Chevron <unk> approach to management for a long time.
Great. Thank you very much.
Well go next to Paul Chang of Scotiabank.
Oh, Thank you good morning.
No question, Yes Ah thank you.
Two questions I think one is for Mark and a wonderful P. Oh.
Yeah.
What would be a reasonable allocation of future capital.
Neal we do what both the top and the initiative.
In two if that's assumed that at some point your puppy will set up the pocket to be net carbon segro, calling that these script one what you.
Maybe over the next 15 20, yes.
Do you need a new business like some of your P.I. Kogan too.
The lower bowl power business.
You know that she has shaped up so that's the first question.
Second question just from up if.
If I look at over the last.
A couple of quarters, one off the big performance difference between you guys and the U.S. comparing to your thoughts on the dual.
They have bought stronger functionally so mainly because of their marketing also and also day trading operations.
On that basis that.
Do you think for sure on that yet so why you a recipe. So that you may want to further boost you all marketing office I mean, youve been selling sounds all marketing also both at the top 10 plus years and both trading historically you guys book I guess a facilitation.
Of course, and so while you'll European Peter look.
Looking I guess, a profit center to treat a wrong. The Asa. So yes. That's the way you approach for you or that you don't thickness white fiscal year. Thank you.
Okay. Paul I'll start then look we're gonna be disciplined with our capital that's true in our conventional business and you've seen that with the announcement of our organic capital budget, that's true and for acquisitions you saw that when we walked away from Anadarko and collected the billing dollars termination fee and.
I think you've seen that in how we executed the noble transaction being the first to announcing complete that that and that's and that an acquisition and it's going to be true synergies transition. There no. One chevron has an open checkbook and that's again that's true in our conventional business that's true in our M&A and that's true and energy transition, which you have seen.
It is.
No.
Investments now that are on the order of one hundreds and hundreds of millions of dollars, we talked about a 100 million into our marginal didn't cost curve investments of 200 million and renewable natural gas. So the investments really are limited by what we believe are reflect what we believe are the opportunities.
That are again, good for the environment address climate change and good for our shareholders in terms of do we need to adopt this change in strategy I think we've been pretty clear that we're not going to diversify away or divest from our core business. The actions, we're taking around the energy.
Transition are geared to making these businesses that are that are good businesses.
That play an important role in society, and making them more sustainable in a lower carbon future. So I think you should expect us to continue to do that we we were going to.
Operating businesses, where we have competitive advantage, where we have a value proposition for shareholders.
That is advantage relative to other alternatives and again, we're going to do that in a way that is part of a lower carbon future.
So maybe we'll go to Mark on the downstream question. Thanks for the question. Paul you know on the on the marketing question Weve consistently indicated that we are interested in strengthening our value chains that you could say that here in the third quarter that we demonstrated the benefit of the week, we felt leaking.
Our refinery production to higher margin product placement and that's kind of our view of the value chain and I could I would suggest that the recent pooling transaction is an example of us strengthening our value chain in Asia, where we have essentially added terminals and facilities and.
Australia, where we can now please our Asian joint venture refinery production in a very strong market, where we own the strongest brand and we required that on on June Thirtyth and the first three months and it's working just as we would have expected. So I think that goes to the concept of treating a dog.
And to your comment on the on the the treating portion of our our portfolio Youre treating business is design first to ensure that we flow product second that we optimized around those value chains and the trade or in those areas, where we have demonstrated considerable expertise. It is vital to our downstream business is critical.
There's in regard to how we run our business and that goes out you can work and they continue to look for opportunities to increase their their impact. So I. Appreciate I. Appreciate the question because the way we think about about countries as important to us.
Thanks, <unk> I'll, just add I think our shareholders support our approach for trading because I think they understand the other risk and volatility that can come with trading earnings and in a generally attracts a little multiple because because of that particular any resource company.
Well thanks for your questions. We appreciate it.
Thank you.
Oh.
Well go next to Doug Leggate at Bank of America.
Thank you good morning, everyone I'm, Mark maybe I could take advantage of you being on the call.
I just wonder if you could offer some perspective on how you see the.
This this bottoming process of smoke didn't stream cycle, playing out what signposts are you seeing in any of your markets in terms of you any green shoots on any.
Expectations that we're going to be here for a while and I guess, what's behind my question is does ship going towards what we've done with rationalization did your and your 10th Street portfolio.
Well go figure the thoughtful questions given the unique situation were in fact, if I go back to the question Neil you'll ask about your <unk>.
The margins.
General I mentioned three things that we have to see to feel like we are on the path.
For greater sustainable margins in the downstream business is that demand recovery for all high value prop.
Products and you can see some of those things happening in our emerging markets, where we see Australia past, it's 2019 levels, we see certain southeast Asian markets go beyond their levels and with our our strong brand we've been able to go past industry.
The growth in some of our area. So I think those are opportunities that will help us on the demand side of the equation. The inventory reduction I think the industry has demonstrated over time that will work through that but that will take a little bit of time and finally as I mentioned earlier, the refinery rationalization as an industry, while we've done that the predominance of our rationalization, we're always looking at.
Strengthening the value chains, which we've chosen to compete and it will continue to look at that over time. The green shoot I would say is the amount of companies that are announcing suggested rationalizations and I think if those come through we might see getting to those recovered margins sooner.
Then maybe we would naturally expect we will presume that we will stay focused on the self help side of the equation things that we can control like lowering our operating costs.
Certainly running efficiently with the with the desired yields and then using data analytics to took place and price our products. So we'll focus on what we can control, but we're hoping that some of those green shoots actually come to fruition.
Yes, Thank you oversight.
My follow up is for the schools for PR Fund made PR just some.
Some clarification on the top exports the cash costs X number of funds awaits it's given the.
Headcount reductions on your <unk>, what should we think of as options for office operating cost reductions as we looked at 21% 20 I'll leave it there. Thank you.
Yeah. So again, we'll give all the details on our capital program when its formally approved but a cash equivalent excluding affiliates about $10 billion is a good number to use right now well I'm not sure I can say much more on operating Opex I think Devon asked that question you know again, we have a billion a reduction.
As we've seen this year a billion that we'll see next year through transformation noble synergies and as I said, we'll put that altogether and provide some guidance here in the first quarter. Thanks, Doug. Thanks.
Thanks Charles.
Well take our next question from Paul Sankey. Thank you research.
Plenty of room.
Yeah.
Give me.
Yeah, we hear you Paul.
I.
You talked about your industry, leading balance sheet and we've seen some incredible deterioration in values around.
Various or the Royals, even globally in terms of acquisitions I assume that you know pretty happy with the Permian position it feels as if.
It's difficult to find anything that would improve your position can you talk a little bit about that.
I assume that you wonder what it.
Now that being a compelling opportunity, which I assume that kind of isn't globally. It just seems that given such a strong competitive position I wonder if you are thinking about actually doing small deals. Thanks.
Thanks, Paul.
Look we're focused on integrating noble successfully and we're off to a really good start I also talked about our transformation again its enterprise wide restructuring that we've been working on for almost a year now and will go in effect November Onest and so those are really our priorities.
As we said we have a high bar for M&A and noble cleared up bar and so its quality assets. It meets our criteria of quality assets at a good value you know at the right time, I'm, just not going to speculate about future M&A. If I do talk about our financial priorities I mean, I think we've been pretty consistent and clear on what they are sustain and grow that.
Dividend, we've done that for three straight years invest to support long term value and we're doing that inorganic program and of course, we've done that through our normal acquisition and maintain a strong balance sheet, which we've been able to do with a net debt ratio of 17.5% in terms of the Permian I think getting to think he said it very well we have a leading position noble provides a nice bolt on.
And again, our M&A is not focused necessarily on on the Permian is focused on assets that are accretive to our shareholders at a good value for our shareholders that ad quality assets.
Thanks, Paul do you have a follow up I do actually yeah. It's totally different subject can you talk about some you opened cooks elements and anything you can add on the neutrals less thank you.
Yeah in terms of neutral zone. The production was about 30000 barrels a day our share in the third quarter. So that startup is going well in terms of our curtailments over all the guidance. We provided was about 100000 barrels of oil equivalent so that's oil and gas equivalent and majority of that it'll take plus related so.
D. and 90% of that is okay clutch related and that's again in countries like Kazakhstan, Nigeria and Angola.
Quick thanks, Bobby.
You hit it on it wasn't just quit we will let go to we haven't provided any guidance. We're focused on continually having a safe gradual ramp up so again, we're at a near 30000 barrels a day Chevron chair and we'll update you at year end. Thank.
Thank you so thanks.
[laughter] Mirage preparatory RPC.
Hi, Thanks for taking my questions session. I had was on just a clarification on Tcs co lending figure has gone down for the last a couple of successive quarters.
Is it safe to assume given you've got issues mobilizing the workforce that.
The big that's missing from 2020, just gets pushed Twentytwenty mom.
First question.
Yeah. So there's two parts to that I mean, let me just address you know T. O projects spending is about down a billion our share this year relative to what we had planned.
In part due to the demobilization, but we said about half of that are true cost efficiency savings and about half will be deferred to next year and future years, that's sort of related to the lending, but not entirely right. The lending is also dependent on dividend policy and prices. It but you are correct that you've seen that.
The lending has come down our guidance on it has come down during the course of the year, which is again a combination of lower project spending, but also where prices have gone.
Got it makes sense and then second question on the site different topic, but when you're looking at project sanctions and just in the context of your and as you transition to price do you currently assume a carbon price even what countries themselves did not have a fiscal framework in place and if so can you kind of tells won't be well the call.
And probably using is.
Yeah, we don't disclose or we don't disclose our price forecast for oil and oil and gas prices. We think its commercially sensitive we don't disclose our carbon price forecast, we look at it under a variety of scenarios are both commodity prices and carbon pricing and we look at it by jurisdiction because it can vary on the investment.
That mark.
For two certainly our policy supported so they generate and some cases low carbon fuel credits or renewable fuel standard the federal standard and so again it really varies by jurisdiction. We are looking at returns again, we're trying to make investments in energy transition that are both good for the environment and good for shareholders.
Some of that return as policy enabled but it really does vary by jurisdiction.
Thanks Raj.
Thank you Beth thanks.
Oh go next to Roger read at Wells Fargo.
Yeah. Thank you good morning.
Morning, Roger <unk> gifts.
Two questions I had for you the first.
He said all the modules are in Kazakhstan, now, but any more update you could provide like how many people are.
Actually able to to bust because of its size and kind of thought process as we head into the typically slower winter season, what this might imply.
You know budgetary and and timeframe of start up almost the next stages.
Yeah, It's Roger look the remobilization is going well as I said were near 15000 workforce or on the project ever heading to.
The year above 20, so far are safe guards are working well we've kept the rate of infection very low and we're seeing our work progress in line with expectations. So the key for us going forward to holding cost and schedule is to complete the remobilization sustain a full workforce during a pandemic using our safe guards.
And achieve our probably our progress milestones. So we're I'd say we're in the early days, we're in the middle of the remobilization.
We're heading into winter or we need to see how this all progress is and we'll know more by our Investor day, and we plan to provide an update then having all material and modules on the ground is a really important milestone. It doesn't mean that we're now can just address all of the work in place and so that's those are really the key for us going.
Any forward in terms of again, maintaining cost and schedule.
Okay, Great and then a quick unrelated follow up if I could as you look across your various operations.
No more out of this but.
When it comes to getting everybody kept drilling just curious if you see anything in the way of decline rates that are either better or worse than what you would have anticipated thinking whether its permian or the Gulf of Mexico or or you know just international.
No short answer is no we're not seeing any surprises I mean that in the Permian is a little bit higher than our early guidance. If you recall at our market response press release I think it was March 24th the 25th we guided to the exit rate on the Permian being down 20% will be a little bit better than that so.
Our production in the Permian was 565000 barrels of oil equivalent we think our exit rate. That's the chevron only we think our exit rate will be around 550, and again, that's a little better than we had guided to a back in March now will have the noble of Permian production on top of that that's about 50. So we expect to be near 600. So.
We're managing again, where we're saying we are managing declines very well, we're not putting a lot of capital to that short term production because of oversupplied markets, but we're pleased with how we're operating the upstream I just like March talked about safe and reliable operations. We're seeing the same on our ups on their upstream operations.
Thanks, Roger Great. Thanks.
[noise] almost next to Sam Margolin at Wolfe Research.
Hey, good morning, everybody. Thank you.
And then my question is about your legal gas business. You know if you look at the California Air Resources Board.
Carbon intensity score is actually when I first started I thought it was a mistake because renewable gas is like negative 400 or something totally off the charts I guess, you're constrained by the CNG market, which I don't know how big it is but given the emissions benefits of this product are you able to offset.
All or at least a significant amount of your obligations from the refining business and we don't see if that's.
Sam This is mark. Thank you for the question and the kind of the recognition of why we would be considering the renewable natural gas as far as part of our value chains. I mean, we you should expect us to be a strong player in the R&D space and policy enabled markets like the <unk> like the west is as you've indicated it is the most cost.
And carbon efficient fuel from an l. CFS and RFS perspective, it's actually low execution risk and so it leverages our strengths our ability to partner with folks, especially on the feedstock side and then our ability to place the product. We've got to your second element Didnt put to put this over time and so we're excited about the Cal bio and the bike Mark.
And even the adopt important announcements that we've made and I think you'll you'll see us continue to watch the broker.
Because they sometimes have.
Oh sure, Okay, and I mean, I guess, just it's a related follow up with one of the things that you said that I think is differentiated from a corporate level is that you know you manage your capital planning not really on the basis of the prices, but on how you see the demand outlook.
Outlook shaking out or or Directionally, because you know the price can change and it might not necessarily reflect actual conditions, but.
So in light of that you know you mentioned that we're transitioning to a low carbon in the world you know some of some things could change depending on the election, but can this renewable gas business.
If there really is market share to be had kind of scale beyond California, what other geographic footprints are out there for you and you.
Just basically just in terms of go.
What are you thinking here.
Yeah. The short answer is growth is clearly plausible.
Tend to look at this in regard to our existing value chains, where we have our strengths and where we can execute well and we'll consider growth in that context, but there's certainly upside potential.
Okay. Thank you so much.
Thanks Sam.
Oh.
Next we'll go to Manav Gupta at credit Suisse.
Thank you for taking my question you have to high class refining assets in California, and we saw that the oneq. So strongly in the downstream as you pointed out the go down a little bit is indicating that he wants to ban the internal combustion engine and could you tell you find the CW way 'cause she's done any changing today you plan your business in California, or you think.
That he does not have the legal to try to be as many as you go next question I'm pointing out.
Well I think for the thank you for the question I'm actually a native California, when I think about southern California, I think of generally under normal conditions. The very strong economy in a in a tremendous desire for affordable mobility and with that backdrop for the foreseeable future to be successful in California from a fuel perspective.
I think you have to have reliable refineries.
The strong brand both to place the product and to keep a connection with the customer.
And the ability to participate in California is lower carbon future and we've been here you're in California for over over 100 years, and I think we are well positioned to engage with the government to build the path towards the lower carbon future and then we will actively participate got and believe we can do so.
Okay. Thanks, a follow up please.
Follow up is you have had some nobel assets, what about a month out that any upside surprises. The talks like synergies are things you can do better on any indication you can you can do better on since you apply those ethics.
Yeah. Thanks, Manav like it's gone very well and we're pleased to have been the first announced the transaction and to them and to complete it.
It's a good said and I won't go through all that again, a very successful first month synergies are on track, we expect that there will be more as we operate as one company and those in the first few weeks, we've been able for example to see a contract and look at procurement opportunities. We're also starting to see operational synergies I will update you sometime in the first quarter.
I would just let us give us some time to fully assess the opportunities. We expect the synergy number to be higher I don't have the number for you now we're going to do that work and we'll advise you in due course.
Thank you.
Well take our next question from Jason Gammel Anticalin.
Oh.
Yeah, Hey, Armpit I'll circle back to the smartphone all abandoned cost curve, which seems like a useful framework to use moving forward.
Two kind of related questions are one does.
This enable you to kind of get a net zero by 23, it seems like your European peers.
Our pushing towards that and I'm, assuming the glass is going to ultimately face pressure to have no daryl on its own emissions by 2030, and do you have any sense of what youd be able what do you need to spend to achieve that now that you have this kind of cost curve model and does Algonquin the partnership with Algonquin, how does that kind of figure into that.
I think Youve, then partner with them for a couple of quarters. Just wanted wondering if that unlock somebody opportunities, but then the.
<unk> goal of producing carbon intensity. Thanks.
Yeah. This and look we support the Paris agreement and as Mark says, we're going to be part of the lower carbon energy future and our focus is on results not play pledges and so what you're seeing in our actions today.
And that are addressing carbon intensity I'm, just not going to get further we have our 2023 carbon intensity metrics I referred to earlier that were likely to update those in time to get to the next stocktake periods, but our approach again is really focused on delivering results that we think address climate change and are good for the environment in terms of.
Algonquin, it's early days, but yeah, we see opportunities there that that does both right. It's sort of increases renewables in support of our business you've seen us do that in the Permian and the Bakersfield with wind and solar projects that are providing power to our operations that we otherwise you're buying off the grid and Algonquin is working on opportunities in other.
Areas of sharp Chevron operations. This does take a little bit of time I do that some of the engineering work and the development work, but so far that joint venture is going well.
Great and just a quick clarification I appreciate I'm on slide nine you included downstream earnings excluding timing effects, which is definitely useful has added disclosure you plan on including going forward and there's three huge wanting to imply kind of know timing effects. This quarter, just looking at where the growth.
Whether whether bars on the on the grass. Thanks.
Yeah, Jason so in a very the last slide in the appendix you see that we actually give the absolute timing effects for U.S. international downstream. So for a long time, we've been showing the variance, but as you said you couldn't figure out the absolutes in each quarter. So now we've shown that for going back to 2017, and yeah. You should expect us to continue to do that going forward.
<unk>.
Right. That's that's helpful. Thanks, a lot thanks.
Thanks, Jason next season.
Well go next to pull them off at Raymond James.
Thank you for taking my question you do not have a massive footprint in Europe compared to just about all the other super majors side I am curious your thoughts and not a regulatory issue. The European climate law are getting ready to be passed five weeks from now and what the.
Impact on your upstream and downstream operations might be.
Well as you say Pablo although we've operated in Europe upstream and downstream for many decades and I worked there in Aberdeen when the first.
Carbon tax was enacted a we sold the majority of our upstream operations, we have a little non op position still and again no large scale refining or marketing, we do have some lubricants and additives businesses in there. So I think again, we support the Paris accord, we believe the future of energy loans.
Carbon we expect more policy I think it gets to what Mark was trying to trying to was it was a dressing is getting the balance between those worthwhile policy goals and providing affordable reliable energy that the world economies need.
Just a quick follow up out since we're a week ahead of the election I can never mind, that's on the combined chevron plots noble Permian acreage position.
Much of the acreage is federal.
Yeah, it's about 10% is federal in terms of total Permian acreage.
Hi, Thanks, a lot of pretty much.
Well go next to Neal Dingmann at Trust security.
So guys I was hoping just you've talked a lot about these details on the renewables, but my question was more particularly on the Adobe partnership I'm. Just wondering you know again on that you know a lot of zero Port facility could you talk about but you. Some details on what industries you all might target once that starts rolling out of that facility.
Well <unk> concept for for movie for our downstream business is to provide a renewable base oil to round out our base oil offering both for our own business into the business of others. The product itself, which is a technology partnership between ourselves looking like it will be waxing technology.
In some other.
Patented solutions allows us to create to take multiple types of bio feedstocks entered into what I would consider a higher performing base oil there are other applications, even in cosmetics and things like that that will be investigated overtime, but we do see an opportunity for expansion of that.
If that joint venture should the economics continue warranted.
This of course Im.
Sure and then one maybe just quick follow up on that it was you certainly are doing a great job of continuing to move not only know the this this this cal bio gas and just continue to move in that renewables in general do you. All have the you know sort of any target or were kind of metrics on where you would like to be as far as what you think renewables might be as a part of.
Your potential total part of your business two or three years from now or is it just too early to determine that.
I'll give a first book entries into the maybe pure can build on this I think it's too early for us to say about what how big it could become but we do intend to continue to grow as part of our as part of our business I think we can do that successfully while we return while we improve returns as well or would you have any.
Yeah. That's just we'll say it again I think I addressed earlier no. There's no one has an open checkbook and chevron to spend money that's true in the conventional business and acquisitions and energy transition, we're going to pursue the opportunities that are good for the environment. Good for our shareholders and is that will grow over time.
Thanks, Martin good thanks for your time guys.
Yeah.
Well, we got through all the questions in the queue I want to thank everyone for your time today. We do appreciate your interest in Chevron and everyone's participation on todays call. Please stay safe and healthy auger back to you.
Thank you ladies and gentlemen, this does conclude chevron's third quarter 2020 earnings Conference call you may now disconnect.
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