Q1 2022 Chevron Corp Earnings Call
Good morning, My name is Katie and I will be your conference facility.
Today welcome to Chevron's first quarter 2022 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's fire assistance. During the conference call. Please press Star and then zero on your Touchtone telephone.
As a reminder, this conference call is being recorded.
I will now turn the conference call over to General manager of Investor Relations of Chevron Corporation. Mr. Roderick garnering please go ahead.
Thank you Katie welcome to Chevron's first quarter 2022 earnings conference call and webcast broader Greene G M of Investor Relations.
Chairman and CEO , Mike Wirth, and CFO , Pierre bread or on the call with me, we will refer to the slides and prepared remarks that are available on chevron's website.
Before we begin please be reminded that this presentation contains estimates projections and other forward looking statements.
Please review the cautionary statement on slide two.
Now I'll turn it over to Mike.
Alright, Thanks Roderick.
Before we turn to first quarter results I'd like to recognize the people of Ukraine.
Our Hearts go out to those affected by this tragedy and we hope for a prompt and enduring diplomatic resolution.
The last two years have been volatile and unpredictable driven by the global pandemic and geopolitical conflict.
Strains on economies and markets around the world.
Through it all our objectives have been clear and consistent.
And in the first quarter, we continued to make progress delivering book returns in the mid teens investing to grow both our traditional and new energy businesses and returning even more cash to shareholders, while maintaining an industry leading balance sheet.
Recent events remind us of the importance of energy.
Looking forward I know that Chevron is doing its part.
Raising this year as Permian production outlook and advancing two important renewable fuel transactions are.
Bunge, JV, which is expected to close shortly.
In the renewable energy group acquisition, which is expected to close around mid year.
While the future is uncertain.
Our actions are not.
We're on a path to delivering higher returns and lower carbon.
And rewarding our stakeholders all along the way.
With that I'll turn it over to Pierre to discuss our financials.
Thanks, Mike We reported first quarter earnings of $6 3 billion or $3 22 per share.
Adjusted earnings were $6 5 billion or $3 36 per share include.
Included in the current quarter were pension settlement cost totaling $66 million.
And negative foreign currency effects exceeding $200 million.
A reconciliation of non-GAAP measures can be found in the appendix of this presentation.
Adjusted <unk> was over 15% and our net debt ratio is below 11%.
A third consecutive quarter with free cash flow over $6 billion enabled us to returned $4 billion to shareholders and further pay down debt.
In addition, during the quarter, we received over $4 billion in cash.
<unk> 3000, current and former employees exercise stock options.
This quarters proceeds from option exercises or over four times, the historical annual average of around $1 billion per year.
About two thirds of the vested options at year end 2021 were exercised during the first quarter.
Lowering the potential future rate of dilution from the outstanding balance.
Over time, we expect our share buybacks to more than offset the first quarter dilutive effect.
Adjusted first quarter earnings were up $4 $8 billion versus last quarter versus last year.
Adjusted upstream earnings increased mainly on higher realizations.
While adjusted downstream earnings increased primarily on higher margins, partially offset by negative timing effects.
Compared with last quarter adjusted earnings were up more than $1 6 billion.
Adjusted upstream earnings increased primarily on higher realizations and the absence of certain fourth quarter DD&A charges.
Lifting is were lower in part due to lower production in the Gulf of Mexico.
Adjusted downstream earnings decreased primarily on timing effects.
The all other segment was down primarily on unfavorable tax items and higher corporate charges.
The all other segment results can vary between quarters.
And our full year guidance is unchanged.
First quarter oil equivalent oil equivalent production decreased 2% year on year due.
Due to the exploration of <unk> in Indonesia, lower production in Thailand, as we approached the end of the concession and lower entitlements due to higher prices.
Permian growth and the absence of winter storm, Yuri impacts, partially offset and drove U S oil and gas production up over 10%.
Now looking ahead.
In the second quarter, we expect lower production due to planned turnarounds at Wheatstone and Angola LNG.
Impacts from CPC pipeline and the expiration of the erawan concession in Thailand.
At CPC two of the three single Port Moorings are now back in service and Tcl has returned to full operations.
Downtime associated with the April repairs is estimated to be less than 15% of our second quarter turnaround and downtime guidance.
We anticipate a return of capital between 250 and $350 million from Angola, LNG in the second quarter.
This cash is reported through cash from investing and not cash from operations in.
In the first quarter, Angola, LNG returned over $500 million of capital.
The differences between affiliate earnings and dividends are not ratable.
And Tcf has not yet declared a dividend in 2022.
With higher commodity prices affiliate dividends are expected to be $1 billion is higher than our previous than our previous guidance.
We've utilized our Nols and other U S tax attributes and expect to make estimated U S Federal and state income tax payments in the second quarter.
These payments will flow through working capital accounts, just like our first quarter IRS refund did.
In the second quarter, we expect to invest $600 million as we closed the bunge joint venture.
And to repurchase shares at the top of our guidance range.
With that I'll turn it back to Roderick.
That concludes our prepared remarks, we're now ready to take your questions. Please try to limit yourself to one question and one follow up.
We will do our best to get all of your questions answered Katy Please open the lines.
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Our first question comes from Phil Gresh with Jpmorgan.
Hey, good morning, Thanks for taking my question, Mike I will start with one for you on Tengiz.
There've been a number of events here in the quarter.
From the social unrest earlier in the quarter to the CPC pipeline uncertainty in the mornings issues.
I recognize production seems to be back up and running to normal now, but I am curious how you think about this in terms of the broader implications of what has been happening.
On the ground there and it's a very important asset for Chevron. So what are your latest thoughts.
Well, Phil it's an important asset not just to.
Our company, but to.
The Republic of Kazakhstan, and frankly.
The World Energy markets in Europe in particular.
It's a significant supplier at a time when.
There are concerns.
Supply security.
Familiar with so.
We're focused on safe and reliable operations as you would expect protecting people and the environment and our assets executing the major project, that's underway and working with all the stakeholders that are involved in that so that includes partners that includes obviously the government Kazakhstan and.
And our customers so.
The risks that I think you're referring to are risks that are present.
In Kazakhstan and in varying degrees in other parts of the world as well and that's part of what we do is manage those risks on the ground each and every day.
Excuse me.
There are times when.
When the.
The environment feels a bit more benign, but you can't take your eyes off those risks because they can they can materialize at any point so.
To this point in time, we've been able to make good progress on the project.
Some impact.
Really from the weather related downtime at the <unk>.
Loading buoys add novorossisk.
But two of those are back in service in the third one is slated for repair which would give us plenty of capacity. There. So we continue to stay very focused on every aspect of it.
Managing that our people on the ground are empowered.
To do what it takes and to be very responsive in real time, and I'm incredibly proud of the work that they've done in a very challenging environment.
Understood I appreciate your thoughts.
My second question would be for Pierre on cash flows or cash balances.
The quarter did come in a bit lower than expected on cash flows and I think you highlighted some timing factors.
But you did get a bunch of cash from the stock vesting. So cash balances are up quite significantly.
So I was wondering I don't know if theres anything else to highlight on the moving pieces in the cash flow but.
Even at strip prices with your buybacks it seems like cash balances it will keep going up so just what are your latest thoughts on managing the cash from here. Thanks.
Thanks, Phil first let me just talk about cash in the quarter cash in the quarter was very strong as I pointed out our dividends from affiliates are not ratable.
Particularly from Tcl, which historically has paid dividends in the fourth quarter, we increased our guidance on expected dividends, but they were light in the first quarter. So yes. That's timing I also pointed out that Angola, LNG returned $500 million of capital that is essentially operating cash that's a function of operating and <unk>.
LNG facility and selling it into the European gas markets at TTS prices. However, just due to the accounting rules.
It's flowing through cash from investing and not cash from ops, but for all intents and purposes. It is operating cash flow and at some point in time in the future it might revert back to that depending on the retained earnings in that affiliate.
Another item I did not mention it but its a typical item that happens in the first quarter, we pay out our long term incentive.
Compensation, which.
A portion of that is in the form of restricted stock and performance shares.
That is again happens annually, but with a higher stock price that was a higher payment than in previous years that does not flow through working capital that comes out of a long term liability account and then as I mentioned, we expect to make estimated tax payments next quarter, but that will flow through working capital in many of the analysts look.
At our cash flow ex working capital, but our IRS refund also went through working capital that we had guided to in the first quarter in terms of our cash balances were running a little bit high on our cash balance that's why we refer to net debt, but we have a couple of cash items coming up we expect to close <unk> around mid.
Year that $3 billion.
We have a.
And offering out right now to do a make whole calls on about $3 billion of bonds. These are bonds that are economic.
<unk>.
To call back and then on the buybacks I mean, we just increased our buyback guidance at our Investor day back in March to $5 to $10 billion.
We were at 5 billion right here in the first quarter was doubling it now to the top of the range of $10 billion. Then, we'll just see where the environment goes from here. We are not setting we are setting the buyback at a rate that we can maintain across the commodity cycle, we could have.
A higher buyback rate this quarter or next quarter.
But the goal is not to maximize the buyback rate in any individual quarter. It's to set it at a level that we can maintain when the cycle turns and therefore, we can rebalance our net debt ratio closer to our mid cycle guidance. Thanks.
Thanks Bill.
Thank you.
Thank you we'll take our next question from Devin Mcdermott with Morgan Stanley .
Hey, good morning, Thanks for taking my questions.
So the first one I wanted to ask is just on the Permian results and guidance increase I was wondering if you could talk through it a bit more detail. Some of the drivers there or are you adding activity is a better performance on the activity you would already have budgeted or is it non operated just walk through some of the drivers there and how youre thinking about that.
Yes Devin.
We did have a strong first quarter and.
A couple of big things too.
Bear in mind, there as we as we slowed things down in 2020 when.
Demand contracted due to the pandemic what happened is we ended up with an inventory of drilled but uncompleted wells that.
<unk> grew beyond.
What.
It would be kind of a normal run rate for our rig fleet.
And.
And so.
We've been working through that and we're back down now to what you could think of as a more normal factory model will always want to have docs out in front of the completion crews, but that had that had grown.
To a larger than normal rate. So as we've we've caught that up that's pretty efficient. It's the first place you turn as you see the cycle turn is completing those wells to get that production online and will be built.
Have a good draw more more of a factory model, so it'll it'll level out a little bit versus what might feel like a little bit of a search we also get some non ratable.
Joint venture bookings that.
That show up and so both of those contributed to a very strong first quarter and of course, you know by the time you look at how that would roll through and the continued activity.
For the rest of this year.
Clearly that will end up higher than the additional guidance that we had we have put out. So we haven't stepped up our program we haven't stepped up.
The number of rigs, we haven't stepped up spending.
All really a function of getting the machine running again.
And then underneath that there's ongoing efficiency improvements that we continue to see.
Got it that's very helpful. Thanks, and my second question is on your global gas and LNG portfolio and I was wondering if you just give us an update on how youre looking at some of the medium and longer term opportunities there given what's going on in market and specifically I'm thinking about eastern med and that gas position and then also whether or not.
Not integration into some type of LNG facility in the U S might make sense for some of your production growth there as well.
Sure. So you know LNG is on everybody's mind. These days, it's important to meeting Europe's needs, it's important to delivering a lower carbon energy system globally, and we see this strong market here in the near term.
Eastern Med is a wonderful asset I was just over there two weeks ago I visited the Leviathan platform spent a lot of time with our people in the business there and they've recently completed a project too.
Increased infrastructure access to redirect our regional markets and and we're actually employing more gas into Egypt. As a result of that we're looking at a number of other opportunities too.
Further increase production because of the resource there is is quite a prolific.
And that includes further coal to gas switching in Israel for the regional supply into neighboring countries or potential power generation for power distribution through the region.
Floating LNG potentially using OLED <unk> and the other LNG facilities in the region.
Number of different commercial options that are being evaluated and worked so more to come as those mature, but it's an area of high priority for us because the market demand for it.
When you look at the at the U S. Clearly, we've got a lot of gas production here that are largely prices and Henry hub today and there are these projects that.
We're in the process for LNG export facilities, we've had discussions with a number of those developers nothing.
Two to say more than we've had discussions at this point.
But.
As part of our LNG portfolio that we've been very focused on the Pacific Basin, historically and as the Atlantic Basin market Snow.
Look a little bit different as we flow gas from our West African.
Assets into the Atlantic Basin.
It may make sense for us to have some U S U S supply as well so we'll advise you as we are.
<unk> advanced anything there.
Okay. Thank you.
Okay.
We will take our next question from Neil Mehta with Goldman Sachs.
Good morning team.
Just love your perspective on the oil macro you always have a good read on it.
The strikes us that inventories for product and oil are very tight right now you've got jet fuel recovering over the summer, we'll see what happens in China shale has an inelastic supply response. So how does this ultimately resolve itself in the near term the ultimately need to software demand destruction through crack.
Or flat price of oil or is there something that we're missing.
No Neil I mean, youre, putting your finger on all the levers.
If you step back from it.
Supply always responds more slowly than demands to us and.
In normal times, which we have not been in for the last couple of years both of them.
Kind of gradually move in relative.
Sympathy with one another you've got storage out there.
It can buffer any.
Near term imbalances.
You know I'm repeating what you all know, but in 2020, we saw contraction. Unlike anything I've seen in my lifetime, and we had a really constrained activity. There was no sense of producing more oil when the world needed a lot less and it wasn't clear at the time how long.
That might last and how deep it would be and so so the entire industry every segment of the industry.
Responded to that and then as we've come out of the pandemic.
Demand growth has has surged and as you say, we haven't seen it all come back yet air travel wallets domestic air travel in the U S.
It was pretty strong international Air travel still has a ways to go to recover to pre pandemic levels and and then China and other parts of the world are still in various stages of lockdown at various points in time, and so we haven't seen a full recovery of demand there so even.
Even with that demand has now responded more quickly than supply can match it and.
And then you overlay a hose.
Have other issues right.
Independent E&ps.
<unk>.
More of an obligation to return cash to their shareholders some of the big integrated companies.
Have re prioritize new energy versus traditional energy and indicated they intend to shrink rather than grow there there.
Oil and gas production in <unk>, and then you know the season going around the world everybody's got a little bit of a different situations. So.
It's a market that is not stable, it's not an equilibrium right now as you say inventories are quite low demand is still strong and economies to this point seem to be seem to be handling. It at some point, particularly if prices were to move higher I do think it starts to be a bigger drag on the economy.
The than what we've seen.
To this point, but.
There's a lot of attention to this market and the supply response is.
Is coming you know were up 10% in the U S.
Year on year.
We're working on the Big project in Kazakhstan, which will start up over the next couple of years and others around the world have got things that they're doing as well, but it just comes in at a different pace than the demand has moved and I think we're.
We're in a market that is tight right now that has a lot of uncertainty and and and and and I think that.
Is not likely to resolve itself in the near term uncertainty.
Things like the SPR release in the near term can can do a certain amount of call on those markets but.
Over time, it's a cyclical business, but a lot of resource out there that can be produced at prices lower than we see today and you know.
One of the lessons of history is.
Just as the bad times don't last forever, neither do the times when prices are strong and so we can't start to believe they will always be like this but I think in the U S.
The relative short term here.
The tensions that you referred to are likely to remain.
Yeah, it's great perspective, Mike It another Big picture question is if you think about 20 years ago at the beginning of the last Super cycle.
Had very similar very large multiple arbitrage is between the super majors, and even large independents and the majors and one could look at your multiple on consensus and say you trade at a premium relative to a lot of the global majors do you think there is value in Mega M&A.
The space and do you see yourself as a logical consolidator.
Given that M&A, such a core competency and it worked out incredibly well for you 20 years ago with Texaco.
Yes, we're always looking at these things Neil.
History would suggest the deals done.
In an up cycle or near the top of the cycle.
Don.
Necessarily look as well in hindsight as is deals that were done at a different part of the cycle.
Eight years ago, when the when there was a number of transactions that you referred to we were coming out of oil prices in the teens or the twenties.
And so consolidation made sense are there were a lot of synergies to be harvested as you put some of these companies together I think the entire industry is more efficient today than it than it was then certainly large companies, which you referred to kind of large scale M&A and so I think the synergy opportunities while no doubt there would be some.
May not be the same magnitude that they were 20 years ago. We've all used technology in other things to improve the efficiency of our operations.
<unk>.
Never say never but.
I don't know that just because we're trading at a relatively strong multiple right now.
That should lead you to believe that it means we're more likely to do something that our our track record of disciplined would suggest.
Thank you Mike.
Thank you we'll take our next question from Jeanine Wai with Barclays.
Hi, good morning, everyone. Thanks for taking our questions.
Good morning, Good morning, Jim Good morning, everyone.
Question, maybe we just hit back on cash returns the buyback for TQ annualized again is at the top of your range and Pierre I think you reiterated on Phil's question that buybacks are intended to be through the cycle can you just maybe provide a little bit of commentary on how you're viewing the buyback in relation to mid cycle cash flow.
Thanks Jeanine.
The.
Buyback rate of $10 billion is a company record in previous <unk>.
Its buyback rate was back in 2008, and as you say, we want to maintain it across the commodity cycle. So we're very in tune with what our mid cycle.
Cash flow capabilities Army, we showed at our Investor day.
Hello case at $50 Brent.
And so that we can maintain the buyback for multiple years, even though $50 notionally right around the breakeven for covering both our dividend and our capital.
And then of course, we set a high case of 75.
Where buybacks were in fact higher than than the current $10 billion guidance and we could buy back at that point in time, it was more than 25% of the company, it's a little bit less based on the current stock price. So that's exactly how we're thinking about it.
Neil's question and the macro it was just two years ago today on this earnings call that Chevron was the only company to show a two year stress test at $30 Brent.
And that was a real stress test and we showed that we could maintain the dividend invest in the business for.
For long term value, we certainly reduce some short cycle capital.
And yes, we would take on some debt, but we'd have a debt ratio that would still be.
Very manageable and in fact would be not far from where many of our competitors are entering the COVID-19 crisis.
So as Mike said, we're mindful of the cycles that are in our business, we have to plan and manage for them.
We could have we can afford a much bigger buyback program next quarter. We don't you know jeanine that our net debt ratio under 11% is not what we're targeting I mean, that's just how the math works we grew our dividend 6% earlier this year our dividend is up.
Nearly 20% since COVID-19 , while many in the industry cut their dividends during the last couple of years, our investment organic investment is up more than 30% versus last year. When you include our announced acquisitions total investment is up 50%. So clearly we're investing as Mike has said to grow both our traditional and new energy businesses.
And we pay down debt and we've been increasing our buyback as we've seen the strength of this <unk> upcycle and the likely duration of an increase but the cycle will turn and we will continue to do buybacks and so we want to set the buyback at a rate that we can manage it not only at our mid cycle cash flow generation capability, but even when it goes below that.
Again, we're gonna Theres going be a time, where we're going to be buying back shares and we'll be doing it on the balance sheet, because we want to re lever back closer to that 20% to 25% net debt ratio range that I've talked about.
Okay, great. Thank you very helpful and maybe.
Maybe if we just can move back to the assets on the Permian Permian for you guys is firing on all cylinders clearly have a big asset.
<unk> long term value.
One of the things that has been talked about a bunch recently assessed FTE on the gas side.
How you see that evolving just wondering how chevron is looking at that for your long term plans.
Yes.
Yes Jeanine.
I'm glad you talked about long term plans, because we've had a long term Permian plan and interestingly notwithstanding.
One of the most volatile two year periods, we've seen.
Our production profile doesn't look that different than it did just a couple of years ago in terms of where we're headed.
And of course that drives everything from Contra.
Contracting for <unk>.
Rigs and completion services to takeaway capacity for oil and gas liquids and gas.
Got sufficient takeaway capacity for our production.
Through the middle of this decade.
And as we look forward we're working on.
What it takes.
Beyond that period of time, so we.
No we don't flare in the Permian and so we've got to be sure. We've got gas takeaway or we're not going to produce oil.
And so it's a high priority for our.
Midstream team, but we don't we don't see pinch points anytime soon and we continue to be a very attractive shipper for the people that are that we you know we do business with because we're predictable are we've got a you know a strong track record of continuing to deliver the growth.
We have indicated we got a strong balance sheet and.
And all those things mean that people like to do business with us So we.
We feel pretty good about that for the next few years.
Great. Thank you.
Thank you Julia will take our next question from Paul Cheng with Scotiabank.
Good morning.
Two questions first on <unk>.
Jason.
Peter I, just curious that in for your Capex for the next say two or three years.
Do you have a percentage you can share.
What percent of your Capex.
Pretty much fixed price contracts, although subject much to invasion and what percent would equate to an inflation.
And also when when you're looking at your Capex for this year.
T J the 600 million dollar investment is that.
Cool.
Your original budget or that this would be an addition to your original budget.
The first question.
The second question, maybe it's called <unk>.
That with the much are sharply higher commodity prices.
When you have discussion and negotiations with their NOC the host government.
Is there a change in the attitude or does it become more difficult for you to get.
Better terms or that this is happening too quick and so.
You haven't really see any change in the way how you cut it up.
The discussion with your counterparty the national oil companies or Scott.
Thank you.
I'll start or do you all want to start on.
Yes go ahead.
And the first question there.
Parts of it so firstly, a bungee joint venture anything that is an acquisition inorganic is not included in our $15 $3 billion budget that we shared back in December . So I think we cited that in fact in that press release that <unk> would be in addition, and then the other potential.
Inorganic there was a little bit of inorganic in the first quarter that included an investment in carbon clean a technology company. <unk> also will not be included you won't see our EG, though even in our total capital our total see any because it's a company acquisition, let me just talk about cost inflation.
A little bit.
We're seeing more cost pressure in the Permian, it's manageable, but if we go outside the U S seeing hardly any or much more modest increases and none of that is changing our $15 $3 billion of capex budget that we've talked about I'll remind everyone that the Permian is 20% of our capital budget. So it gets a lot of attention.
But again, 80% of it is not are outside the U S is not seeing much cost pressure at all in the Permian as Mike said, we plan our business. So we have all the equipment and services to execute our plan.
And.
And we've seen a little bit more than we had budgeted, but we can offset some of that with efficiencies in the Permian and with reductions elsewhere in the portfolio. Our focus is turning to 2023 and securing all of the equipment and services that will need to execute that plan, but we will share the details.
We update our annual budget, which we do every December .
In General Paul you can think that we contract 30% to 40% of our total.
Supplies each year so.
Every two to three years on a rotational basis. It can vary it depends by location, but we don't.
Notionally, we are going to be exposed to.
Some of these higher prices.
As we move into future years, and we've been able to manage this year very well depending on.
How we contracted previously our $15 billion to $17 billion capital guidance, which goes on for five years kind of assumes mid cycle.
Additional so it has the ability to absorb some of these cost increases that are transient.
And so we will execute within that and we have tengiz coming up which will open up more room in that capital guidance and again, we will share all the details when we.
Release, our capital budget in December but the bottom line is we're seeing modest increases we said overall our capital budget had just a few.
Low single digits.
<unk> inflation for this year, a little bit more than that in the Permian. Its all very manageable and we're working hard to secure contracts for future years activity.
Mike.
Okay. Paul Your second question was on discussions with host governments on concessions and how how that may be affected by the price environment.
I would tell you that right now we're pretty early into this price up cycle and I'm not sure that I can say, we've seen a lot of change as you know people are really adjusting to the environment. We're in but on the broader issue of concession extensions look we've got to find.
These opportunities and negotiations that create value for the company and for the host country and so you really have to look at it through the lens of both.
We have long histories in both Indonesia and Thailand.
Would've liked to extend those concessions that are rolling off last year and this year, but we couldnt find a an outcome that satisfies the host governments XP.
Expectations and that would compete for capital within our portfolio, which has got a lot of alternatives.
The flip side of that is Angola, where we are last year extended our blocks zero concession from 2030 out to 2050.
That's a partnership that started more than 60 years ago.
And there was a lot of common ground there contributing.
Contributing to the.
Reliable and cleaner supply for Angola rich.
Reducing greenhouse gas emissions, there and finding.
A way to do that on terms that will attract capital within our within our portfolio. So we.
We approach each one of these things looking for value for our shareholders and to provide a you know a proposition for other stakeholders that they find acceptable.
We can achieve that other times, we cant.
So more and more to follow probably in terms of if this turns out to be a long up cycle, how that may change those dynamics, but I think the fundamental approach that we take is unlikely to change.
Thank you.
Yeah.
Thank you we'll take our next question from Roger read with Wells Fargo.
Yeah. Thanks, good morning.
Good morning, Roger.
We could maybe talk a little bit about some of the bigger projects and thinking about your answer earlier, Mike on some of the macro items that are now under investment I know you have some things in the Gulf of Mexico, You've obviously got an extensive.
LNG footprint globally.
How do you think over the next couple of years blending in your kind of known deepwater projects and then the possibility of doing something again on the LNG front.
Yes so.
We've got a nice set of projects under development in the deepwater Gulf of Mexico.
Jack St. Malo has a a multiphase pumping project that will start up this year next year, we will hit the first waterflood injection on St Malo and some additional development drilling there Bigfoot, which is on production right now and we've got ongoing development drilling and water injection soon to follow.
Mad dog two.
Is slated for first oil this year.
We've got our anchor which is expected to first oil in 2024.
Well also expected to have first oil in 2024, we just sanctioned ballymore, which will have first oil in 2025.
So there are.
There is a queue of these things that is.
Rolling through and.
It's a little bit different than in the past as they're not all.
In the same phase of development at the same time. So I gave you those kind of in the order of when they come on production.
We don't have them just sitting on top of each other so a lot of the lessor.
The lessons of maybe the last up cycle, where don't take on more than you or your suppliers and contractors have the capacity to do well in any given period of time and we're really trying to.
To apply that here so it doesn't it doesn't get as much attention or or interests as we get from that.
The Permian these days or Kazakhstan, but really important part of our portfolio really nice projects in very low carbon energy.
For.
For the World I mean, this is sort of the lowest carbon intensity stuff in our portfolio our portfolio averages about 28 kilograms of C O two per Boe.
Our Gulf of Mexico averaged six.
It's not only.
Economic its low carbon and something that.
I think that our country is blessed with and should continue to advance leasing in the deepwater Gulf of Mexico on the other question LNG I addressed earlier, a little bit of the you know we've got a number of options in the eastern Mediterranean.
We're talking to some people here in the U S.
You may have seen the media reports that we have.
Been talking to <unk>.
In the middle East about expansion projects there so.
We're evaluating a number of different opportunities, we'd like to grow our LNG position the world needs. It.
Similar to my response to Paul got to compete for capital in our portfolio Pierre mentioned, we're going to stay disciplined on capital. We've given you a range we've stuck within that range ever since we started putting that out here and that would be the intent so just because something looks.
Good through the lens of growth and commodity exposure. It's also got to compete for capital in a disciplined budget and so we'll just see which of those are.
Ultimately if any.
You know kind of pass that screen.
That's great. Thank you.
Thank you we'll go next to Ryan Todd with Piper Sandler.
Great. Thanks.
Maybe.
A follow up on LNG I mean, the last couple of quarters.
It had been impacted by various LNG volumes offline I know you've wheatstone in LNG.
And since the second quarter.
Any any kind of clarity you can give in terms of how much volume impact that might have and beyond that can you give an update as the other potential volume to strike disruption that crossed your LNG operations.
Yeah. So.
In the first quarter, we had a little bit at Gorgon from some of the things that we had talked about earlier so some.
Discovery work that was proactive not related to an incident, but it was asset integrity work across all three trends a little bit of that came into the first quarter of this year.
Wheatstone has a turnaround underway right now of one of the two trains and also the.
Offshore platform and some common facilities, which that requires both trains.
To come down when a when you take the offshore and common facilities. So the good news is that as part of the turnover is behind US right now and we're in the process of.
Resuming production on one of the two trains at Wheatstone and <unk>.
Should have our first LNG any day now.
And actually the second trend will be early may so we're nearly through that turnaround and then we also have a turnaround at Angola LNG.
And so that'll be.
In the second quarter late late in the second quarter and.
And those are that's really we've got planned for this year.
But as you guys Digest second quarter. It takes all of the planned turnaround activity essentially are the majority of it.
Okay.
And then maybe.
Second question on refining.
Can you just talk about some of the I guess as you as you think about the.
Some of the headwinds.
There may be felt during the first quarter and relative to the headline margins.
Whether it's lagged on timing effects, the secondary products or things like that can you can you talk about how some of those trends may may reverse a shift into the second quarter or looking forward and how you think about.
You know the ability to kind of capture some of that back as we're looking through second quarter and third quarter.
Yeah, I'll take a pass that Pierre might want to add something.
We see this in our in our downstream business, where we're a little bit differently positioned than some of our peers and that we've got.
Pretty heavy.
The us West coast exposure and heavy Asia exposure, but then were pretty light in the middle East are Europe , and some of the other basins. So our portfolio is a little concentrated.
More so than others and.
And so.
We're subject to the dynamics in those markets China has been in a lot of you know.
Ongoing Lockdowns, California, frankly has had a little more.
More aggressive.
Covid policy longer than some other parts of the world and so demand has reflected that.
To a certain degree and then in a rising crude market. We have two effects that tend to roll through our downstream. One is just the way our inventory is valued and so in a rising market, we tend to see inventory negative inventory effects due to the.
LIFO accounting that are that we use and we also tend to see.
We're long physical and short papers, we try not to take price exposure that paper marks to market until the physical closes and so in a rising market.
Your papers marketing negative the physical obviously as gaming and and so you see that paper and then you know.
The physical deliveries you close out the paper and and you match those up so.
In a rising market those two effects tends to cause negatives I think are.
In the second quarter of this year, we'll probably see a lot of that reverse.
Yeah.
Great. Thank you.
Thanks, Brian .
We'll go next to Manav Gupta with credit Suisse.
My first question is a quick clarification you did indicate there was a storm at CPC I think it came somewhere late March but it dropped the impact will probably be felt more into Q. So help us understand how long the facilities were down and then how should we model the impact on production because of.
This particular storm.
Yes.
Yes, do you want to handle that Terry go ahead.
Yes, that's in our guidance Manav that we've provided in for second quarter production impact from planned turnarounds and downtime and again, the TBC Tcl impact is about 15% or less than 15% of that total.
Okay and then the second thing is you're right Manav. It was late March when it came up so the effect is really in the month of April .
Perfect.
At your energy transition D. You had provided certain targets for growing your renewables to the franchise and Veggie gets you a very long way when it comes to renewable diesel but another area you would generally bullish on was sustainable aviation fuel you had indicated that long term you believe this is a big growth market. So.
Can you help us understand since then and going forward, how does chevron plan to build on its sustainable aviation fuel business. Thank you.
Yes.
Obviously aviation demand is he is going to grow as we go forward and finding a solution. It's one of the hardest to decarbonize.
Segments of the economy, because you need to have.
High energy density.
For aviation fuels are planes can't carry much in terms of in terms of their cargo.
So.
It's an area of focus and.
In a traditional refinery.
The distillate portion of the barrel you can move molecules from diesel to kerosene or jet fuel.
In the renewable diesel.
Investments that we're making there is a certain.
Flexibility that you have there as well and so we will have the ability to produce in fact, we've already produced sustainable aviation fuel in El Segundo.
And we'll see more of that coming through some of our renewable diesel facilities. We have also got negotiations underway with some.
Other companies that have different technologies that wouldn't necessarily.
<unk>.
It'd be the same as what we would do in a refinery.
So we're looking at alternate.
Pathways feedstock partnerships and pathways.
This is all going to take time to come together.
Quality control is really important and aviation fuels reliability of supply is really important and as we introduce new feedstocks, new technology pathways, you have to be really diligent in ensuring that the.
The fuel that you ultimately produce himself is going to perform in the air.
Engines that it's you know it's going to be consumed into.
The last thing I'll say is none of this stuff is inexpensive and sustainable aviation fuel today is not competitive with with traditional aviation fuel from a cost standpoint are there has been some talk in Washington about various policy incentives that could be.
<unk>.
And put into place to encourage more a sustainable aviation fuel. There's a letter that was published by a whole host of people Airlines and others just in the last week or so calling for action and I think.
To see this scale, we got to keep working on technology and feedstocks, but it's likely that some sort of policy incentives will be part of the equation in order to see more.
More capital drawn into sustainable aviation fuel.
Thank you.
We will take our next question from Doug Leggate with Bank of America.
Hi, Good morning, everyone. Thanks for getting me on I appreciate the time.
Mike I know you use.
Flogged to death, I guess, the question's runs CPC, Kazakhstan, and so on I Wonder if I could just ask a slightly different question.
Around was around what's happening to realization.
Insurance rates, whether that could be a durable discount on the volume of the bottle coming out of tengiz and over what timeline. So I don't know if you can offer any color there, but obviously, it's still going to be noticed going on.
In the market.
Sure. So you know.
The invasion.
CPC.
Discounts were you know, maybe a dollar or so to dated Brent.
Post invasion of the trading range has kind of been.
$4 two to $10 and at prices that are at a pricing point called Augusta, which includes.
Insurance and freight.
So yes, there has been there.
There's been a move it's call it seven or $8 today, probably.
Now you know absolute price, obviously has moved up a lot more than that but but there's a there's a little bit that you could argue is being left on the table.
I think a lot of it.
Doug depends on how things are resolved in Ukraine, and what the longer term.
Posture is relative to.
Sanctions the perceived risk of lifting at Novorossiysk, and how that translates into demand from customers and in.
And the expectations from ship owners.
And whether it's freight rates insurance et cetera are people willing to send ships back in there the way they historically have or not so.
Yeah, it's all hypothetical and I think that I can't really speculate on how that settles out, but I think it's a it's a function of how this whole situation is resolved.
What kind of risks people perceive.
On the other side of the conflict resolution.
I know, it's a tough one to ask in the relatively early stages of this whole thing. So thanks, Mike for a public school.
I guess my follow up on I think.
Neil I mentioned earlier.
<unk>.
Obviously, probably the best in the industry can give lead thought so.
And well earned but your balance sheet.
<unk> as you thought.
No what is kind of by almost <unk> 2013, 14 levels, if you project out a year or so.
And those strategic opportunities as this whole thing evolves, particularly perhaps in U S gas LNG and so on so I wonder if I could ask the M&A question, a little differently as well, which is when you look at your business today on how you've invested in how are you.
<unk> two <unk> and so on is there any way you would identify for want of a better expression, a strategic one or a strategic hole.
That you would like to fill in what would what would that look like.
Yes, Doug.
Doug I appreciate the comments about our our M&A track record and our financial strength. Those are two things that we've worked hard to establish.
I'll tell you, we like we like our portfolio.
We've provided again I think in this year's Investor day.
10 year outlook that says how much resources, we captured and could conceivably flow into production not that that's a production forecast, it's really a look at our resource depth.
We've talked a little bit today about gas.
We're a little earlier than most and so overtime can we increase some of our gas exposure would be one question. We like petrochemicals, we like C. P. Chem a lot we've got a big chemicals business embedded in our Korea and GSK <unk>.
The growth.
Prospects in the petrochemicals business continues to look attractive and then we've been active in new energies and so.
Well fuels business that we talked about.
Some other things that we're looking at and in that space as well and so.
Look we're trying to leverage our strengths to deliver lower carbon energy to a growing world and and I think thats.
<unk>.
It drives the way, we think about our portfolio today and tomorrow.
And a number of things I've mentioned, there right, our lower carbon contribution to economic growth and prosperity. So.
That would be how we think about it but I don't want to leave the impression that where we're off to the races to do anything tomorrow, because we we like our portfolio as it sits today and don't feel like there's a whole, but it has to be filled.
In the short term so we really can take a long term look we can be patient we can you know.
Be selective if if we decided to do anything.
Okay.
Yes.
You bet. Thank you Doug.
We'll take our next question from Jason <unk> with Cowen.
Hey, Thanks for taking my questions.
First I just wanted to.
Clarify on the LNG maintenance, what is the cadence of maintenance across your assets going forward in future years, you've obviously had a period of very concentrated maintenance events is it one train a year or how do we think about that.
Normalized basis, and then my follow up is just given the changing energy dynamics.
I Wonder if your discussions with governments, both domestically and abroad. If if the discussions and the sentiment has changed at all in terms of the ability.
We need to invest in places and and if that's in any way starting to reshape the way you look at your investment opportunities.
Okay.
LNG turnarounds, where we're typically on a four year turnaround cycle. So.
What that means is the gorgon with three trains.
Youll have three out of four years, you'll have one turnaround at wheatstone with two trains.
Two out of every four years, you'll see a turnaround in Angola, LNG, where we've got a single trade one out of every four years, so you'll see a turnaround on our.
Government discussions, it's just early Jason to say I don't think anybody's.
Really fully adapted or Lord knows what.
The environment is likely to look like.
A year from now two years from now five years from now so I think that's one that is.
All work in progress.
Thanks.
Thank you we'll take our next question from barrage of broker Tarrier with RBC.
Hi, Thanks for taking my questions.
The first one is just thinking about the capital framework.
And to the various presentations and in recent years. The management team has been very consistent in talking about improving book returns.
<unk> been quite in fact take around stating that the market doesn't reward high capital spending given the industry's track record.
I understand that the Capex budget and the range is when you put out there a short while ago, but obviously a lot has changed in recent months as the market clearly once more energy you are generating record amounts of cash to buy back sort of at the top end of the range shares at close to all time highs.
We think the market is sending signals yet that would support a capital budget increase beyond what youre doing in the Permian, maybe through more exploration or otherwise.
That's my first question and the second question is on <unk>.
<unk> and the growth projects there.
Is there anything that's happened in the last couple of months impacted your thinking around the timeline to deliver those.
Both projects.
Going forward. Thank you.
Yeah.
Brian I'll take the second one and then Pierre has been spent a lot of time with investors and let him talk to you about whether the market is signaling we ought to change our capital spend.
<unk>.
Just had a pretty extensive update on the project here.
<unk>.
Week before last we made good progress through the winter.
We're close to having our annual cost and schedule update done but the the.
The high level message on that is.
We look pretty good.
Budget still.
We look good on the schedule for the.
The future growth project, which is slated up.
Slated to start up in the first half of 'twenty for a little bit of pressure on W. P. M P, which I believe our last update on that was second half 'twenty three late.
<unk> 23, so cost and schedule, despite the challenges of Covid and.
And the other you know kind of regional uncertainties.
Uncertainties.
Still still holding well the project team there is doing an excellent job. So I think JL beyond the second quarter call and he can give you a more complete rundown on things. So we will have all these cost and schedule review is completed but nothing there that signals a significant change up here, maybe you can talk about signals from the market on <unk>.
Capital.
We don't intend to change our capital guidance. The objective is to sustain and grow the enterprise.
The lowest capital level were much more capital efficient.
And then we were just a few years ago, let alone a decade ago, we showed and Mike just referred to that we can sustain and grow our traditional energy business at very.
Reasonable rates and the rates that we don't need to grow faster and we don't get paid for that.
No time in our history, where the market has <unk>.
<unk> growth then we that's why we emphasize return on capital employed because we are.
Yes.
Income oriented dividend paying.
Returns type of investment.
And then of course, we're growing new energies and we have two big transactions are expected to close soon and more on the way. So if we're able to sustain and grow this enterprise traditional energy.
Rates that are in line with the industry growth rates, new energy faster and we can do that at lower at less capital that leaves more more cash flow for shareholders and so what youre seeing and back to <unk> question. The other questions. We generate at whatever oil price you assume we generate more free cash flow than we ever have in the past and that means we're able.
To.
Grow the dividend at very competitive rates and have this buyback that we can maintain across the cycle. So we.
We are very sensitive to doing our part and as we said we're growing energy supply in the U S in the Permian and other locations.
At the same time the objective for a capital intensive commodity business is to do it in the most capital efficient way in a more capital efficient we are the more capital gets returned to shareholders.
Thanks, Brian Yeah. Thank you.
Thank you I'd like to thank everyone for your time today, we appreciate your interest in Chevron and everyone's participation on the call.
Please stay safe and healthy Katie back to you.
Thank you. This concludes chevron's first quarter 2022 earnings Conference call you may now disconnect.
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