Q1 2021 Chevron Corp Earnings Call
Good morning, My name is Katie and I will be your conference facilitator today.
Welcome to Chevron's first quarter 2021 earnings conference call.
At this time all participants are in a listen only mode. After the Speakers' remarks, there will be a question and answer session and instructions will be given at that time.
If anyone should require assistance during the conference call. Please press Star and then zero on your Touchtone telephone.
As a reminder, this conference is being recorded.
I will now turn the conference over to the General manager of Investor Relations of Chevron Corporation. Mr. Roderick Green. Please go ahead.
Thank you Katie.
Welcome to Chevron's first quarter earnings conference call and webcast I'm, Robert Green General manager of Investor Relations and on the call with me today is Pierre <unk> CFO.
We will refer to slides and prepared remarks that are available on chevron's website.
Before we get started please be reminded 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 Pierre.
Thanks Roderick.
This quarter, we had our best financial performance for the last year as the global economy recovers.
Reported earnings were $1 4 billion and adjusted earnings were $1 7 billion or <unk> 90 per share.
Included in the quarter were pension settlement costs and legal reserves totaling $351 million.
Pension settlement and curtailment costs will be a special item going forward.
For comparability purposes 2020, adjusted earnings for recast to exclude these costs.
Also found in the appendix for this presentation as a reconciliation of non-GAAP measures.
Capex was down over 40% from a year ago, and we ended the quarter with a net debt ratio of 22, 5%.
For the first anticipate demick cash flow from operations, excluding working capital exceeded our cash capex and dividend spending.
Cash balances ended the quarter slightly higher due to timing considerations.
We expect cash balances to come back down later in the year.
Free cash flow, excluding working capital was $3 4 billion.
Up significantly from last year and higher than the 2019 quarterly average.
With oil prices back up to around 2019 levels.
In downstream earnings still recovering.
Higher free cash flow this quarter is driven by the change in cash Capex less.
Less than half of the 2019 quarterly average.
Maintaining and growing our dividend remains our top financial priority.
Earlier this week Chevron's board of directors approved a <unk> <unk> per share dividend increase about 4% now.
That positions Chevron to extend our streak to 34 consecutive years of higher annual dividend per share payouts.
Since 2005, Chevron is dividend per share has grown over 7% per year.
Beating the S&P 500, and more than four times, our peer average.
When our first three financial priorities have been met.
We also have a track record of repurchasing shares 13 out of the past 17 years.
As we look forward, we expect to begin the repurchase of shares when we're confident that we can sustain a buyback program for multiple years through the oil price cycle.
When making this decision we will consider the likelihood of future sustained excess cash generation and the strength of the balance sheet.
Adjusted first quarter earnings decreased about $700 million versus the same quarter last year.
Upstream earnings increased on higher prices and downstream earnings declined on a swing in timing effects and lower margins and volumes, resulting from the pandemic.
Both segments had negative impacts from winter storm here.
Other was down primarily due to employee benefit costs.
Compared with last quarter adjusted upstream earnings were up more than $1 4 billion due to higher prices.
Downstream earnings increased primarily due to margins and timing effects.
The absence of last quarter's yearend inventory valuation adjustment of more than $100 million.
Other was down in part due to employee benefit costs.
Upstream production was down three 5% from a year ago.
The increase in production due to the noble acquisition was more than offset by a number of factors, including declines asset sales winter storm, Yuri and OPEC plus curtailments.
Winter storm Yuri impacted both our upstream and downstream businesses with earnings impact of about $300 million after tax in the quarter.
All upstream production has been restored and major downstream and chemical units have restarted.
We also achieved first gas flow from successful execution of the al <unk> gas monetization project in Equatorial Guinea.
This project allows gas from the island field to be processed through existing onshore facilities.
Finally, the company announced an agreement to acquire all of the publicly held common units in MPLX.
The stock transaction is expected to close in mid May.
We continue to take action to advance a lower carbon future.
Last week, we announced an Mou with Toyota to work together to develop a commercially viable large scale businesses and hydrogen.
Also we continue to invest in emerging low carbon technologies, including announcing five venture investments this year and geothermal power offshore wind and green ammonia.
In addition, we're in the early stages of developing a bio energy project with carbon capture and sequestration in Mendota, California.
This plan is expected to convert agricultural waste biomass, such as almond trees into a gas to generate electricity and sequester emissions of 300000 tons of Cotwo annually.
Looking ahead.
In the second quarter, we expect turnarounds and downtime to reduce production by 90000 barrels of oil equivalent per day, primarily in Australia, Gorgon train III for the planned turnaround and repairs of propane vessels are underway.
The impact from OPEC curtailments is estimated to be 40000 barrels of oil equivalent per day, primarily in Kazakhstan.
In Kazakhstan, the FTP the FTP project recently placed the final module on its foundation.
Re mobilization of the construction workforce achieved about 90% 95%.
Of the end of first quarter objective.
Further workforce additions are expected this quarter.
In summary, it was a good quarter with our strongest financial performance in a year.
<unk> progress towards advancing a lower carbon future.
And a dividend increase while maintaining an industry leading balance sheet.
During last month's Investor day, we shared our goal of higher returns lower carbon.
This quarter was another step in that direction.
As we look forward to the next few quarters.
And the World gets better control of this virus.
I'm confident that we'll continue to deliver stronger financial performance and help advance a lower carbon future.
With that I'll turn it over to Roderick.
Thanks Pierre.
That concludes our prepared remarks, we're now ready to take questions. Please try to limit yourself to one question and one follow up we will do our best to get to all of your questions.
<unk> Please open up the lines.
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Our first question comes from Jeanine Wai with Barclays.
Hi, good morning, everyone. Thanks for taking our questions.
Hi, Jenny Hi.
Hi, good morning.
First question Pierre maybe just.
Keeping item on the numbers can you provide a little more color on the moving pieces for cash flow. This quarter. It came in a little below street expectations and I guess, if we're doing it right. We apply your cash flow sensitivity for dollar change in brand and we are still coming up with a higher cash flow number than reported despite winter storm.
Gary So we're just wondering if for missing any other one offs other than the pension settlement since I know there is a lot going on this quarter.
Yeah, Thanks, our dividend breakeven the past couple of quarters with weak downstream margins has been around $50. It was a little higher this quarter there was nothing operational except the winter storm Yuri.
It is really primarily due to some non operational items like accruals for legal reserves and taxes those are non cash in the quarter, but when we look at cash flow excluding working capital of course, we're taking out that working capital effects. So those kinds of accruals which are charges.
Result in a lower cash flow ex working capital I'll point out, though that our free cash flow.
In the first quarter of 2021 was higher than free cash flow in 2019, even though 2019 had much stronger downstream margins and similar oil prices and that's primarily because of the cash capex. So I think youre doing the calculation right. The tricky thing about these cash flow breaking even if you don't hold everything else constant all of the other margins in <unk>.
Indicators and then some of these timing effects on accruals.
Okay, Great. That's really helpful. Thank you and then maybe my second question on the buyback and free cash flow. So on our projections, we see pretty strong near term free cash flow and the trajectory really meaningful steps up in 2020 for 2025 with <unk> and some of your long cycle projects starting up.
In the Permian, So I think to us the suggest that for the buyback. It makes a lot of sense to leg into a program kind of similar to what you did in 2018 and 19 versus consistent amount per year, which I think was the last commentary before the pandemic.
No James a ton of things so.
Can you provide any thoughts on how you envision the buyback getting reinstated.
We have a track record of buying back shares pretty consistently 13 of last 17 years over $50 billion of buybacks since that time at an average price in the mid eighties lessen a dollar higher than the ratable price if we'd been in for every single day during that whole time period.
As I said on the prepared remarks, when we start a program if and when we started a program will want to sustain it for multiple years, because we wanted to get it through the commodity price cycle shareholders feel differently about buybacks. There is a concern that we only buyback.
When our share price is high.
It's a perception that's not the reality because I just shared with you the actual numbers, but thats a perception that we have to deal with so at the common ground. We find is when we start a program have confidence that we can sustain it for multiple years and we're going to look to those two factors.
For the likelihood of future excess cash generation and the strength of the balance sheet to weather a down cycle in oil prices that we know is going to happen. So we're not yet on a sustained global economic recovery feel very good about where we are here in the United States and several other countries, but there are a number of countries, where we're still working to get control of the virus and so we think its approach.
<unk> increased the dividend, which is consistent with our financial priorities, we don't need we're not going to increase the capital. This year and we have tight guidance out five years, we have the balance sheet and a very good place. So yes in the short term any excess cash is going to go to the balance sheet, but over time excess cash will be returned to shareholders in the form of.
Higher dividends like you saw us announce a couple of days ago and in the form of buybacks over time.
Great very helpful. Thank you for the time.
<unk>.
We will take our next question from Doug Leggate with Bank of America.
Thanks, Good morning, Pierre good.
Good morning, and congratulations on your first earnings call.
I wonder.
If I could just hit.
What might be the 800 pound gorilla in the room, which is the.
For the acquisition of noble.
<unk> seems to have disappeared in the mix.
It's raising some questions at least from people, we speak to about what our chevron azam towards investing.
Sustained long term production capacity what would your response be developed.
We're not under investing we showed during our Investor day that we're very capital efficient and at our 2000 $14 billion to $16 billion Wayne.
In fact, we are going to grow production around 3% or not.
That's not an ambition of us to have production growth is an outcome of what's a very capital efficient program Jeanine mentioned, we're investing to increase production at tengiz.
We don't have that production now and Thats $2 $5 billion in the budget at Tengiz. So we have our eye on long term value through this whole crisis. If you really step back to when they started about a year ago. We did hit short term capital pretty hard we kept our eye on long term value, we didn't see the virtue and invest.
<unk> capital to add short term production in a world that was going to be oversupplied for some time period and arguably still is with OPEC plus barrels constraint and again, we're not back to a full sustained economic recovery, but we preserve the options on long term value I'm very cognizant that we are a dividend obligation where one of the few companies that didn't cut the dividend or the only.
Company, that's increased the debt again.
And really a dividend increase that averages 6% per year during a very difficult time, and we showed during our investor day that we have the capability to grow free cash flow for the 10% per year over five years, and thats coming from Tengiz, which we'll see in a couple of years and growth in the Permian when the world needs the barrels so we're not going to chase.
Short term production, we don't see value in that our production guidance for this year is unchanged.
Zero to 3%.
Our reserve replacement numbers the noble acquisition.
Undoubtedly has helped remember we showed that Mike showed at the last quarter call that we have invested actually the same amount that we expected post COVID-19 just pre COVID-19, we pre COVID-19, we would have said $20 billion a year for last year and this year about $40 billion.
Organically, we are only going to do about 13 or 14, each year that when you add in the 12 or 13 from noble or is exactly where we were pre COVID-19. So we're not under investing we have to sustain and grow the enterprise, but we're doing it in a very capital efficient way.
I appreciate the salons are Pierre my follow up is actually related to Capex.
So I guess a quick one but you are obviously running well below your run rate for the year or is that just a timing issue. How would you expect the cadence to look over the balance of the year and I'll leave it there. Thank you.
Yes. Thanks, Doug. It is it is really timing I mean first quarter is normally a little light.
Winter Storm Yuri.
Youre not drilling wells when you are.
Shutting in production in dealing with the challenges of that extraordinary winter event and then there is just timing of some major capital projects that are more backend loaded so no change to our guidance of a $14 billion organic program you saw a small inorganic acquisition in the first quarter numbers, so that can be different going forward, but from an.
Ganic perspective, we're going to stick with the budget for running a little a little low as you say, we think it will end up pretty close to the budget by year end.
Thanks Allison.
Thank you.
We'll take our next question from Phil Gresh with Jpmorgan.
Hey, Pierre.
My first question here is actually a bit of a follow up on the cash flow in the quarter.
There was a $500 million headwind from affiliate.
Cash flows in the quarter and the cash flow statement.
And in the last quarter call you had given the guidance for the full year of zero to 500 million headwind.
There was not an update given in the slides. This time. So I was wondering if it was just front end loaded or if there is any change to that and I recognize the affiliates also can tie into the tengiz co lend.
So has that guidance changed either thank you.
Yes, Thanks, Phil we didn't change our guidance because it's just early I think you're right I think youre inferring that the guidance, particularly for Tengiz will get better we gave a co lending guidance of $1 billion to $2 billion.
Now we'd be at the low end of the range and frankly, we could be at zero, depending on if prices stay where there are right. Now so you should expect us to update that guidance.
At mid year, when we see a little more time with commodity prices, but clearly at tengiz when we have.
Prices over $60 that reduces the need for co lending it might not require any and again you could see a dividend out of tengiz is a decision for the <unk> shareholders to make but we have not had a dividend now for I think two or three years and so that would also be <unk>.
Positive in terms of affiliates.
That cash flow line against the difference the difference between.
Earnings from affiliates and the dividends the dividends were about flat between fourth quarter and this quarter. So that's not a variance.
Cash flow, but youre right that theres, some timing in that some of the.
Winter storm urea effects kind of factor into CP Chem.
Again, we will update that guidance when we get to mid year.
Okay.
And then the second question is on Tengiz, obviously, continuing to ramp that head count.
I think at this point most investors are assuming some kind of delay in the startup timing as well as <unk>.
Impacts to cost from from that potential delay.
Kind of hard to overcome maybe a timing delay but.
Is it possible that you can still in your mind be able to do this within budget, even with the timing delays.
I recognize you haven't given an official update here, but I just wanted to get your latest thinking thank you.
Yeah. Thanks, So let me just take us back or start with the Investor day.
We were at 22000, we mobilized for 25000, just short of our 26001st.
First quarter objective then you saw where we plan to go in the second quarter.
I mean I cited it also a big milestone was getting the last of 86 modules onto foundation. So we're still making very good progress we are managing through a pandemic. We have all the safeguards in place they're working we have a very low rate of positive cases right. Now. We are also starting to vaccination program at Tengiz. It includes both the project.
And the producing operations SaaS. So it's not just for the project also for the base operations. We've been allocated that 10000 doses administered already 7000 future vaccinations that will depend on more allocations from the Republic of conflicts on this is not a company program, we're doing it with the government and our allocated by the.
The government in Kazakhstan.
So to answer your question.
And at this time, there is more pressure on schedule and costs, we have a backlog of work because of the day mobilization last year and having to isolate work teams at times when we do have a positive case.
It's possible, but hard to fully make up the schedule.
We also have incurred higher costs as a result of COVID-19.
But we've had some cost efficiencies and some foreign exchange benefits that may be able to offset the higher costs. So as we've said in the past we need to demonstrate that we can re mobilize.
Fully re mobilized stay at full numbers meet productivity targets and achieve our milestones while managing through a pandemic and.
In the spring and summer work campaigns are very important to give us the data that will help us get a reliable update on cost and schedule.
Okay, great. Good luck over the summer thanks.
Thanks fillings for Ya.
We'll take our next question from Devin Mcdermott with Morgan Stanley.
Hey, good morning, Thanks for taking my question.
Good morning, My first one is a follow up on some of the production questions from earlier and it relates more specifically to the Permian and I think one of the things that stood out in your recent Investor day was the fact that even at a much lower capital spending level, you were still able to achieve a similar level of growth.
In the Permian or for the next two years differed slightly versus pre COVID-19 plans, but still.
<unk> growth there as you think about the resumption of activity to facilitate that growth here over the next few years can you talk a little bit about the cadence and timing or from a market standpoint, what signals in terms of oil prices or otherwise that you'd need to see to begin increasing activity there to reserve for that plant production.
<unk>.
Yes, we've been focused on three.
Metrics are three conditions. So again oil prices are going to move up and down we're focused on the fundamentals. We've been looking to three indicators. The first is is the global economy on a sustained path to recovery.
Not quite there yet clearly optimistic here in the United States with high vaccination rates on the stimulus package a few other countries, but again a number of countries don't have control of the virus. So we need to get on a sustained path of economic recovery. The second is we need to see hope like OPEC plus barrels get back into the market. We're starting to see that we need to have Clare.
And what actions are going to take.
Still a lot of production that is being curtailed and then the third and I think the third condition has been largely met its inventory.
Back to near normal and so the inventory surplus for the most part has been worked off so I would say one of the three conditions now that's for us to increase Capex not this year. Our budget is fixed this year 2000 $14 billion, but within the $14 billion to $16 billion five year guidance that we talked about so we're still talking about a modest a modest.
Increase.
In terms of the Permian everything is going very well there in the first quarter production was clearly impacted by winter storm Youri, that's about 60000 barrels of oil equivalent a day for.
For the quarter.
But if you take that out production I think.
It looks looks looks good our declines we shared last second quarter Jay shared that.
<unk> could decline, 6% to 7% if we stayed at low activity levels.
It's probably a little bit better than that it might be closer to 5%, but undoubtedly we're at the low investment levels that we're doing right now we'll see some declines that is okay.
That is.
Correct response to an oversupplied market in particular again, when we're keeping our eye on long term value. So what you could see later this year as we could bring right now operated we have five rigs two completion crews are net non op is a similar rig count certainly we could bring back a completion crew later this year.
And that would help us produce some of our drilled and uncompleted wells, but in terms of getting on the trajectory that we showed at our Investor day. There is still time that outlook kind of factored in that we would still be in this kind of not full recovery at this point in time and then it ramps up over the over the next year and the year.
After that so.
Can we do it faster we absolutely can can we hold it where we're at here longer if necessary. We can it's very flexible it's the appropriate response, but the long term value and the point that I think of your question is there right. The 1 million barrels a day that we showed in 2025, but more importantly, a highly accretive to returns strong free cash.
Flow right free cash flow positive last year growing free cash flow. So it's a fantastic position. We have we were advantaged because of the royalty we intend to invest in there, but we're going to do it at the right time.
Got it that makes a lot of sense.
As we think about de Carbonization energy transition and returns I think you have got a very thoughtful approach on that and focusing on returns enhancing investments decarbonising or existing portfolio integrating renewables into the portfolio has been one of the pillars. There you've had some.
<unk> here over the past few months in both venture activities are highlighted on the slide the hydrogen Mou and my question is you've seen some of your peers in the industry for new business ventures focused specifically on commercializing technology and scaling up new business opportunities.
We become growth engines over time returns enhancing growth engines can you talk a little bit more about chevron strategy for transitioning some of the investments and opportunities to be able to capture so far into new growth ventures over time, including the monetization strategy or scaling strategy for some of the venture.
<unk> that you've talked about here in your prepared remarks.
Yeah, well, if you summarized our strategy pretty well I'll hit it really quickly. The first is to make the oil and gas that we produce is low carbon as we can.
We put out 2020 targets that have a 35% reduction we think we're top quartile will stay top quartile and we showed a slide that said, we go beyond that and get the carbon intensity down into the mid teens in terms of kilograms per barrels of oil equivalent. So that's the first.
It's really done in the segment. So that's really where the work gets done the second is to increase renewable energy alongside our conventional products. So renewable natural gas sold along with conventional natural gas renewable diesel.
Sold alongside our conventional diesel have you seen for going to co process at our La refinery later this year bio feed along with conventional feed and make renewable products have renewable diesel biodiesel up more than half of our service stations in the United States. So good progress there and then the third is to grow low carbon businesses.
And thats exactly thats hydrogen carbon capture the venture investments are important and they are really making sure. We're staying connected to all the latest technology, but we intend to do exactly what you say is grow these businesses. So let me talk about project Mendota in California, It's wind partnership with Schlumberger and Microsoft is going to capture the emissions for.
Agricultural lease so they burn almond trees after a certain number of productive seasons normally those emissions just go to the atmosphere. This project would capture those emissions.
Converted into synthetic gas that can then generate power and use that power to compress the cotwo injected in the ground and then sell excess power into the grid and that's a project. That's in a front end engineering and design, we're looking at another carbon capture pilot with savant.
In Bakersfield, so the venture investments as an enabler to growing hydrogen and carbon capture business. That's exactly what we intend to do over time. These are nascent businesses require lots of partnerships, but we're going to be a player in it.
Great. Thanks, so much Kevin.
We will take our next question from Neil Mehta with Goldman Sachs.
Good morning, and thanks for taking my question. So the first one is just on Gorgon.
Pierre can you just talk about the state of play there it sounds like train three is going down.
And that the back half you are going to be running.
Closer to the nameplate capacity, but just talk about maintenance, there and where we stay stand with the project.
Yes, Neil it's pretty straightforward, we're doing are the scheduled train three turned around.
Separately or just it turns out at the same time, we're able to do.
The repairs and we expect that to be completed by the end of this quarter and then you're right we'd be operating all three trains in the second half of the year. There was a short there was a time period in the first quarter, where we saw all three trains operating between the train one turnaround in the start of the train three work. So we know what those units can do and we're excited to get back to it here in the third.
Quarter of Wheatstone will have a planned turnaround late third quarter early fourth quarter, but again, we expect Oregon to be running full during the second half of this year.
Pierre you guys have been really good at M&A.
Being well being opportunistic willing to step away when.
When the bid went away from you.
And taking an asset like noble towards the bottom of the cycle, It's a core competency for chevron.
As you look at the landscape, how do you think about M&A and whether there are opportunities out there and how are you evaluating them.
Neil Yeah, we're really happy with the noble acquisition again, if we step back and think of July It was still an uncertain time and announcing being the first to announce a major transaction closing at first in October having now two quarters, where we've been integrated seeing everything we said the free cash flow accretion the returns accretion.
Earnings accretion.
The synergies doubled from 300 $600 million achieved 80% of them, we'll get the rest before the year end.
Good good very happy with the talent from the noble employees that have come across D. J basin in eastern Med. So again, what was a very good deal looks even better now.
Look it's a challenge to obviously replicate that we'll always be looking we have a very high bar noble.
Got over the bar with the quality assets and the value that we saw we don't need to do an acquisition to Doug's earlier question, we are sustaining and growing this enterprise I'm very cognizant of that and again, we need to do that to sustain and grow the dividend at the same time, there's times inorganic can enhance the company and so if we see something that will.
Make that Investor Day story, we told even better.
Then we'll pursue it.
I do think industry consolidation will continue undoubtedly as valuations have moved from back where we were in July.
It's a long game, we're very patient and again, we don't need to do a transaction.
Thanks Pierre.
We will take our next.
Cheng with Scotiabank.
Hey, guys good morning.
Good morning.
Pierre two question first.
Among your peers I think you have puppy to happier concentration in California.
And with the.
It doesn't the latest proposal.
How that May impact your overall operations or how you might restructure yet or you do need to restructure and yet.
So want to see that how are you guys thinking about the policy outlook impacting on your business in California, both in the downstream and upstream.
The second question that yes.
If we look at some of the smaller test centers.
In the last half E&P in the last 12 months I think one of the movement into the better both day patent which is not the right thing for a day.
Major oil companies such as you guys you guys always use the share buyback. So just curious that.
Internally that tap the board and management.
Ethan condensate the debate about dividend versus buyback to see which is a better way to return cash.
To the shareholder.
Sure. Thanks, Paul I'll answer your second question first of course, we pay close attention to what everybody does we have not been convinced that theres a better.
Cash return story than what we do which is a steadily growing dividend again with a 4% increase announced 34th consecutive year of growing dividends, 7% compounded rate for the last 15 years.
And a ratable buyback program 13 out of 17 years very close to the actual ratable price during that whole time, so we talk to our shareholders all the time.
I think our shareholders support our framework, but of course, we'll keep an open mind, but we don't see the value in it look I think those those approaches are gaining favor in part because dividends have been cut by other companies and other actions that have not been as consistent as predictable and as reliable as what we've done over that track record of 34 years.
On the dividend and 17 years on the buyback.
You go to California policy.
There is I'm not sure exactly which one you're referring to there was an internal combustion.
I don't know if its a ban or rulemaking proposal to reduce that by I think 2035. There is also a governor requested the rule makers to look at rules on hydraulic fracturing.
I can say is that certainly on hydraulic fracturing has been done safely in California under under comprehensive regulations for a long time, it's been done safely elsewhere in the United States and safely all around the world.
And I think when policies restrict supply it just moves energy production to jurisdictions that likely have less regulation and it also moves the jobs and the government revenues and increases the trade deficit in I'll say the jobs in the oil and gas are good paying jobs that you can raise a family on so in terms.
Of our operations.
If some sort of hydraulic fracturing ban was implemented through the rulemaking process.
It would not be material to chevron's upstream operations in California, it impacts future drilling out a field that represents less than 10% of our production of course will work with governor Newsome, though to make those those rules as.
Advance the environmental objectives, while continuing to support.
The jobs and the economic benefits of our industry in terms of any kind of internal combustion engine band what I'd say is with.
We support the Paris agreement, we support a price on carbon.
Light passenger vehicles represent less than 10% of global greenhouse gas emissions. So let's make sure. We also focus on the other 90%.
But if you want to look at to Evs and transportation put a price on carbon.
And let let the technologies compete in the marketplace.
Thanks, Paul we'll go to the next question.
We'll go to Ryan Todd.
Okay.
Hey, Ryan are you there.
Katy.
We go through the next caller please.
And we'll take our next question from Roger read with Wells Fargo.
Hey, good morning.
Hi, Roger good morning.
Oh right range lost my game.
A couple of things I'd like to follow up on.
More look back and look forward.
Gorgon.
First quarter, we had some fairly significant gas prices, you're typically more contracted and spot market. I was just wondering how that performed at a time, where you were.
Probably werent able to participate much in the spot market I was just curious how you covered the contracted side and how you think about that a little bit going forward and then the other question I had hasnt gotten much play recently, but it is part of the curtailments within OPEC plus how the neutral zone restart is going what the impacts are there for you.
Sure. So on Australia, we've said that with one train down of Gorgon, which has been largely the case since mid year last year. If you think of our Australia system is having five trains.
And so for out of five trains have been operating that lines up pretty close with our contracts. So it's not an exact match because.
Some of the wheatstone contracts and <unk> contracts are a little bit different but fundamentally we're balanced so yes, the real opportunity costs from the Gorgon downtime was not participating in the spot market. So we didn't get the benefit of a relatively balanced there were some trading puts and takes I would say in the LNG spot market, but nothing worth pointing out.
In terms of PC that ramp up continues very well at 660000.
Barrels a day our share.
Pre the shut in was about 80000, so we expect to get there here during the course of the year and then of course any OPEC plus curtailments at this point in time, it's not being curtailed, but that's really subject to the local governments.
Thanks Roger.
We'll go next to Manav Gupta with credit Suisse.
Hey, guys I just quickly wanted to focus on two questions on the California project. The first one is because you are sequestering and storing in California does that mean that on top of ILS 45 credit you also get the Lcs credit because if you are not starting in California as I understand then as CFS.
Not available and the quick follow up there is one.
I'm wondering is it only because the carbon intensities minus AP or does it also because it's just you and one more day teasing that feedstock. So what we're seeing in the soya bean oil market that doesn't replicate so if you could tell us why Korea as a feedstock.
Yeah, well, let me just step back for a moment just remember we're just talking about transportation.
Fourth largest source of greenhouse gas emissions globally right. The first is manufacturing.
In power generation third is agriculture, and land use and enforce this transportation so agriculture and land use is an important source of greenhouse gas emissions you've seen our work in renewable natural gas, which again captures the methane from dairy cows and so.
It is worthwhile area for us to look into so.
The agricultural waste, it's just that that's what happens is it gets burned and those emissions go to the atmosphere.
Partnering with Schlumberger and Microsoft.
While project to capture an admission that otherwise we've ended the atmosphere.
Burnt submitted to the atmosphere and converting it.
Sequestering essentially in generating some excess power. So it's early days you're right. It's all policy enabled including federal policy in California State policy.
We're doing the front engineering lots to a lot of work to do but I think you are getting the right ideas that we're looking for.
Projects that are higher return lower carbon and so this is a project that can generate a return with the policy support and reduces carbon.
Thanks Manav.
Sure.
We'll go next to Ryan Todd with Simmons energy.
Sorry about that.
My phone call dropped right, Jeff Great question.
Maybe if I could follow up on one of the earlier questions in terms of the restarting of the buyback.
Okay.
Mark through two of the things that you needed to see which is sustainable excess cash flow generation and a strong balance sheet, you mentioned that near term cash goes onto the balance sheet is that because.
It's just a place to hold the cash well the sustainability.
Full of confidence that you are.
You are okay with or is that because you actually feel like the balance sheet needs to be strengthened a little bit more before you restart the buyback.
It's a bit of both I mean, it's just how the math works right. If you have excess cash.
And you don't change your capital program the dividend, we just increase so that's not going to change.
So just by definition it goes to the balance sheet and so but it also I think you can infer in my comments that again, we're looking to future excess cash generation and the strength of the balance sheet to weather the commodity price cycle. So I'm not going to give you a hard target. This is we're going to use judgment.
Because theres judgment on future excess cash generation. This is our first quarter actually with the current excess cash generation. We expect the next couple of quarters to be potentially even better because <unk> got oil prices above 60, refining and chemicals margins much stronger.
So it could be even better at the same time.
We don't have a sustained global economic recovery. So it's reasonable for us to be cautious we want to be confident that when we start the program. We're going to continue it for multiple years and we can sustain it through an oil price cycles. So I know that.
Folks want a formula or a trigger I know some of our competitors have those numbers, we're going to use judgment and we're going to consider what we see in front of us in terms of.
The likelihood of future excess cash generation, we're going to want the balance sheet and a strong enough position that if oil prices cycled down we can continue the buyback program relying on the balance sheet. Our balance sheet is very strong right now.
But yes in the short term excess cash is going to go to the balance sheet, that's kind of by definition, but it also serves the dual purpose of lowering our net debt ratio and putting us in a better position for when we start if and when we start a buyback program.
Okay. Thanks, and then.
Maybe on a separate topic quickly.
Talk a little bit about refining.
I know you don't comment on headlines you were mentioned recently.
News article connecting to a potential refinery acquisition in the U S. In the northwest you did acquire refinery in recent years.
Can you talk about how you think about your portfolio exposure on the downstream side in general.
Appetite for increasing or reducing that exposure in any way Ed.
The general view on the refining outlook over the medium term.
Play into how you look at managing your portfolio.
Yes, so again I won't comment specifically on that report.
The refinery in the Gulf Coast is very small acquisition that we made.
Something that.
I had foreshadowed I was leading the business at that point in time.
Because we only had one refinery in the Gulf Coast region.
The only owned the company really major company with that setup. We did not we were on the eastern side of the Gulf Coast in Mississippi.
So our retail in Texas was supplied by third party barrels so.
We had talked about that we didn't have to do that but when the opportunity came and that transaction is kind of working.
As we envisioned so on the West coast, we're a much different place we have a two refinery system, we have a leading brand.
Really strong infrastructure.
We are.
We're growing a little bit in Mexico, some of our retail.
Volumes there so I'd just say we're in a strong position on the west coast and in the Gulf Coast were also strong, but we felt we could make us even better by getting something on the eastern side in the Texas side, and we did that so I wouldn't read too much into it we did in small Australia retail fuels, which again was enabled our value.
Chain out of Asia, So theres been some very targeted modest acquisition in the refining business and retail business, but for the most part that we haven't focused geographic footprint very competitive business.
As we look forward look it's going to get better winter storm Yuri is difficult.
That event was for for everybody in the region.
One of the outcomes was it tightened inventories for fuels and especially for chemicals. So those margins have recovered a little more quickly than they otherwise would have been we think for next couple of quarters are going to be good and we are well positioned in our in our downstream and chemicals business.
Thanks, Gary I appreciate all that color.
Brian.
We will take our next question from Jason <unk> with Cowen.
Thank you.
Hey, Thanks for taking my questions I guess following up on the downs downstream since that's being discussed.
Just comment on specifically your markets Youre focused on California, and kind of the Asia Pacific region, and it seems like.
Vaccine deployment and return to normalcy is kind of lagging there. So when you look across your portfolio do you see.
Kind of different pace of margin improvement and a return to normal Ed do you expect your refining results to reflect that throughout the year and then secondly.
On the Toyota Mou, you announced there was a comment in the press release mentioning that the Mou.
In the pursuit of hydrogen.
Leverage existing market positions and assets that Chevron has can you maybe elaborate on that comment a bit what market positions our assets are or at least the types of market positions and assets.
That the Mou will leverage thanks.
Yes, Jason I'll be real quick on the second one because it's early days, it's an Mou, it's really to explore this alliance is to work together to grow the hydrogen business.
In passenger vehicles and heavy duty.
Would expect that the focus would be around California, which makes sense in the reference to assets like hydrogen.
Fuel dispensing at some of our service station. So that's the comment more to come we're very excited too.
Partner with a great company like Toyota on the fuel cell technology.
You'll hear more over time in terms of the regional differences, you're absolutely right there are regional differences.
If I contrast, first west coast and Gulf Coast.
At Gulf Coast is a little bit stronger I mean, Florida looks.
Really pretty much back to normal.
The West Coast.
On track with gasoline and diesel really has come on strong now the the southern California resurgence earlier. This winter has worked its way through the.
For the rates are very low and youre seeing that come back domestic travel strong again in the Gulf Coast region seeing it come back in California, with a little bit weaker we're seeing on the west coast is because the big airports in San Francisco and La are such are so heavy for international travel that clearly is lagging now.
Hopefully it's coming soon after domestic travel we saw the announcement in Europe that fully vaccinated Americans could go to Europe. This summer. So so we will just see that as hopefully not too far behind we saw in China, and Australia that domestic travel fully recovered once those countries got their arms around the virus. So I'm confident domestic travel will come back very quickly.
Here in this country.
But again international travel will lag a little bit and we'll just see.
Asia Asia is a big.
It varies some countries have much better control of the virus than others and then the excess some of the new refining capacity in China becomes relevant there so.
The U S has strengthened for sure as I said earlier, we're in a storm here and Youre seeing that in petrochemicals students. So I do think second quarter third quarter are going to look better it.
It is a global market. So these markets do stay connected Asia has also recovered somewhat and we will see where the results are over the next few quarters.
Thanks, Jason.
We will take our next question from Sam Margolin with Wolfe Research.
Hi, Thanks, a lot.
So I just have one question and I want to revisit this reinvestment topic because it seems.
Influential right now.
So as you know you feel a lot of questions about your organic maintenance capital and then.
Inorganic.
It's supposed to be accretive to some metrics.
Whatever people choose but I think is it fair to say that with noble what we're seeing is.
A flexible strategy to reserve and production management, if you're generating surplus cash youre building capacity for inorganic adds.
To manage sustainability and we should think about it as kind of a multifaceted approach instead of the Siloed point of view that.
That people seem to be few warning you into is that fair.
I think so Sam Yeah, I mean when.
When we look at just the organic capital and you say again, we were $13 billion and some change last year 2000, $14 billion and we had planned to be at 20 billion each year pre COVID-19.
And you look you can make that comparison, but to not include the inorganic seems to not tell the whole story and I think you saw that in.
A lot of them.
Reserve replacements of other numbers and you saw that in our Investor day, our ability to basically get pretty close to the same production guide.
Guidance five years out this year versus where we were last year is a reflection of greater capital efficiency, but also the noble transaction now so that I agree with you.
We do that again or not that's a separate question again, we don't have to do that we can sustain and grow the enterprise.
Our sustaining capex on the upstream side, excluding exploration, how we've defined it as about $9 billion. So we are above that.
Of course, we are investing in tengiz, which we know is going to result in higher production and much stronger higher cash flow. So again, we showed a free cash flow growing 10% for years. So I do understand all the questions. I think you are hitting it it's a little bit focusing on half of the story you've got to look at the whole story of course, we're managing the whole company.
And again, keeping an eye on long term value.
Thanks.
Thanks Sam.
We will take our last question from Neal Dingmann with Truest Securities.
I'm wondering two things one you haven't talked to.
I don't perceive this to be an issue, but because based on your cost. So I'm. Just wondering are you seeing any concern just with you would talk a little bit about oss potential in place in both domestic and international and then same sort of thing around any raw material shortages.
And maybe include personnel there.
Yeah short answer is nothing at this point in time lots of talk about it but we are not seeing request for price increases or that in terms of inputs certainly steel prices are up so that would flow through to our our wells and the oil or <unk>.
<unk>.
And we are seeing this impacts more of the downstream trucker shortages and so that.
In terms of personnel, we're seeing that I think that's in part.
The Amazon effect and all the delivery EPS than the rest.
Pulling a lot of truckers off so we think that will work itself out. So those are pretty minor and targeted in terms of general oil field services inflation not seeing it here in the U S or internationally, but we're cognizant oil prices are higher and we're certainly hearing the talk just not seeing it on the ground.
Okay, and then just lastly, you talked about the new kind of conversation.
Project in California, I'm, just wondering as you transact in sort of jump into more of those is that going to be more sort.
Return based or what is sort of driving as you see opportunities that I just wanted maybe from a broader standpoint, if I could ask.
Yeah, we're very clear that our message and our goal is higher returns lower carbon and that's true in our conventional business and Thats true in M&A and how we how we walked away from Anadarko in how we did the noble transaction and Thats true in energy transition.
When you look at our hydrogen and carbon capture you are reviewing those as growth businesses.
<unk> can do both higher returns and lower carbon there are other parts of our energy transition strategy.
Lowering the carbon from our operations, which I mentioned earlier, increasing renewable products all of those also need to generate returns. So we're very clear what we do in the space has to be good for the environment and good for shareholders and so far we're able to accomplish both and we think it'll activity will increase going forward.
Thanks, So much for squeezing me Ed.
Thanks Neil.
That will conclude our question and answer session. At this time I would like to turn the call back over to Mr. Green for any additional or closing remarks.
Thanks Katie.
Like to thank everyone for your time today, we appreciate your interest in Chevron and everyone's participation on the call today.
Please stay safe and healthy Katie back to you.
This concludes Chevron's third Corp, first quarter 2021 earnings Conference call you may now disconnect.
Okay.
Thank you.
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