Q2 2022 Chevron Corp Earnings Call
Please standby were about to begin.
Good morning, My name is Katie and I will be your conference facilitator today welcome to Chevron's second 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.
Should require assistance during the conference call. Please press Star and then zero on your Touchtone telephone.
This conference call 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 second quarter 2022 earnings conference call and webcast Lottery Greene G M of Investor Relations, our CFO , Pierre Braver, and EVP of upstream Jay Johnson or on the call with me today.
We will refer to the 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 will turn it over to Pierre.
Roderick and thanks, everyone for joining us today we.
We delivered another strong quarter another quarter of strong financial results with Rosie over 25% the highest since 2008.
Special items. This quarter include asset sale gains of $200 million.
And a $600 million charge to terminate early or long term LNG regas contract at Sabine pass.
<unk> for the quarter was nearly $4 billion, including inorganic spend to form our JV with banking.
With the acquisition of <unk>, our total investment was $6 8 billion more than double last year's quarter.
Strong cash flow enabled us to fund this higher level of investment.
Pay down debt for the fifth consecutive quarter.
And returned more than $5 billion to our shareholders through dividends and buybacks.
Adjusted second quarter earnings were up more than $8 billion versus last year.
Adjusted upstream earnings increased mainly on higher realizations.
Partially offset by lower lifting from the end of concessions and Indonesia and Thailand.
Adjusted downstream earnings increased primarily on higher refining margins.
Compared with last quarter adjusted earnings were up nearly $5 billion.
Just the downstream earnings increased primarily on higher realizations.
Partially offset by tax and other items, including higher withholding taxes on tcl dividends and cash repatriations.
Adjusted downstream earnings increased primarily on higher refining margins and a favorable swing in timing effects.
The all other segment was up due in part to a favorable change in the valuation of stock based compensation.
I'll now turn it over to Jay.
Peter.
Second quarter oil equivalent production decreased about 7% year on year due to expiration of our contracts in both Indonesia and Thailand.
Sale of our Eagle Ford asset and CPC curtailments impacting Tc owe during April .
This was partially offset by shale and tight growth primarily in the Permian.
In the Permian, we're delivering on our objectives of higher returns and lower carbon.
Our development costs are down about 25% since 2019, and we expect to keep them flat this year by offsetting inflation with productivity improvements and.
An example, simultaneously where we perform completion activities on four wells at a time, reducing cycle time by a quarter.
We continue to design construct and operate facilities to limit methane emissions.
Of our Midland Basin sites recently earned the highest ratings from project Canaries Independent certification program.
Production is at record levels and growing in line with guidance with our royalty position, providing a distinct financial advantage for our shareholders.
At <unk> the drilling program is complete and the final metering station is online.
We expect to complete construction by year end with remaining project activities, primarily focused on systems completion commissioning and startup.
Total project cost guidance is unchanged.
<unk> P. M. P startup is expected in the second half of next year and F. G. P expected timing remains first half of 2024.
<unk> operations continue to generate strong cash flow, enabling a mid year dividend with.
With project spend decreasing we're expecting higher dividends going forward.
In Australia, we shipped 87, LNG cargoes from Gorgon and Wheatstone and the first half of this year up over 10% from last year.
Our reliability benchmarks in the first quartile and we intend to stay there with an ongoing focus on operational excellence.
Gorgon stage two the first backfill project is on track to deliver first gas in September .
Our Gulf of Mexico projects are progressing well with ballet more receiving F. D is a tieback to blind faith, and example of leveraging our existing infrastructure to improve returns.
The anchor Hall is currently sailing from Korea and work on its top sides continues in Texas.
Lastly, we recently signed agreements to export 4 million tons, a year of LNG from the U S. Gulf Coast with one 5 million tons, a year expected to start in 2026.
These agreements leverage our growing U S natural gas production and expand our value chains and Atlantic Basin markets now.
Now back to you Pierre.
Thanks Jay.
Closed the <unk> acquisition last month and integration is going very well.
Pleased to welcome Rg's talented employees to Chevron and T J Warner to our board.
Our teams have already identified further commercial opportunities and we quickly acted to lower insurance and financing costs.
In May we launched our joint venture with Bunge. The JV is operating to existing crushers and evaluation work is underway to expand crush capacity and add pretreatment facilities.
And carbon capture and storage we closed on the expanded JV to develop the Bayou ban Ccs hub.
The lease held by the JV is in Texas State waters near large industrial emitters.
And we believe it is the first U S offshore lease dedicated to Ccs.
Also we recently filed for a conditional use permit in Kern County, California to store Seo to emissions from one of our cogeneration plants.
Now looking ahead.
In the third quarter, we expect turnarounds and downtime to reduce production in a number of locations.
In downstream plant turnarounds are primarily at our California refineries.
We do not expect significant dividends from Tcl or Angola, LNG until the fourth quarter.
Our full year guidance for affiliate dividends is unchanged with upside potential beyond the top of the range depending on commodity prices.
Also we increased the top end of our share buyback guidance range to $15 billion per year and expect to be at that rate during the third quarter.
In closing.
We are executing our plans.
Increasing investment to grow both traditional and new energy supplies and.
And delivering value to our stakeholders.
Although commodity markets may be volatile.
Our actions are consistent through the cycle.
And focused on our objectives to deliver higher returns and lower carbon back.
Back to you Roderick.
That concludes our prepared remarks, we are now ready to take your questions. Please limit yourself to one question and one follow up we'll do our best to get all your questions answered.
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Our first question comes from Devin Mcdermott with Morgan Stanley .
Good morning, Thanks for taking my question.
So morning.
Good morning, So Jay I wanted to congratulate you on the retirement plans and take advantage of having you here on the call. My first one is on Tcl and it's great to see the project.
Progress there and with the W. Pnp portion of the project largely complete I was wondering if could talk a little bit more about the remaining milestones for that second phase F. G. P. As you progress towards that first half 2024 startup.
Thank you Devin for both the retirement wishes and the question.
But <unk>.
We've been just steadily making progress here and we had a very strong period in the first half of this year. We had the unrest in January of course, and the team responded well after that even with some of the <unk> impacts.
As we are finishing construction, we expect to finish construction on everything this year and be largely into the commissioning phase and this is largely putting together doing the pressure testing.
Filling with fluids cleaning systems and preparing them for eventual startup the WP E&P that we expect in the second half of next year will be around enabling us to boost the pressure from the field up to the facilities. So we don't expect to see a material change in our production at that.
One time, but it enables us then to move into the phase of startup for FTP, where we will start to see incremental production coming through the plant.
Some of the big milestones, we've already accomplished all 40 production wells are already now produced and completed and actually producing into the plant that helps us with the transition from the high pressure to the low pressure phase with.
We've got the injection wells already completed so we can begin the FTP startup field facilities are well underway in terms of the new gathering system will have about all the metering stations has to be converted to high pressure to low pressure there'll be done kind of one at a time. So we can maintain production through that period.
So those are the you won't see a lot of outward signs other than progress on the commissioning the number of sub systems completed and that's really what we're moving into rather than percent complete we're 93% complete overall now what's going to be more important than just the rundown curves as we bring each system to completion.
Great.
Thank you very helpful and great progress, there and sticking with Tcl when that part of your portfolio. There's been a lot of headlines around the CPC pipeline in recent weeks and months and I was wondering if you could give us a status update on where things stand there and then also to the extent that there were to be any further disruptions to flows on that pipe.
Can you talk a little bit about the impacts to operations for your base existing production in that area.
The CPC continues to be an important export route for us. It handles the majority of caused crude that's being exported to western markets and it represents an important supply to the world. It's about $1 4 million barrels of oil a day coming through that.
Oil that we put into the line from Kazakhstan carries a certificate of origin from Kazakhstan, and we've done a lot of work in Washington, and Brussels to make sure people understand the importance of the pipeline to world supplies.
And we've seen the reliability overall still and the capacity build are maintained at the levels we need.
The interruptions that we've seen have been managed we've gotten through those and as we look forward. We just continue to work with the Kazak government and with the International consortium that owns and operates the.
CPC pipeline to maintain this important source of ore export route for the crude.
There are some alternate export routes being developed but CPC remains the primary and most important route for us.
Got it and just to clarify at the moment operationally.
That normal nameplate and flow rates through the pipe.
We're at full capacity, both at <unk> and through the CPC.
CPC pipeline, they actually worked quite well with us when they do have to take the pipeline down for ongoing maintenance, which all pipelines have to do from time to time. They coordinate with the producers that are often coordinated with turnarounds that producing facilities are undergoing so the recent.
Downtime for CPC as they were dealing with some of the results of the survey work around the terminal.
Was coordinated with the NC yossi turnaround activities. So that it didn't have any impact at all on <unk> production.
Great. Thanks, so much.
Thanks, Doug.
We will take our next question from Neil Mehta with Goldman Sachs.
Good morning, Tim and Jay. Thank you for the thank you for all the insights over the years and wish you well in your retirement Sir.
Thank you.
The first question just on capital returns.
And you guys raised the top end the buyback guy.
Guidance here, So just talk about the math that went into it than that.
You think about the optimal return of capital.
Yes formation, whether it is through buybacks or.
Greg.
Thanks, Neil it's Pierre I'll take that I'll go through our financial priorities they've been consistent for decades literally the first financial priority is to grow the dividend we've done that for 35 consecutive years increased it 6% earlier this year, it's up 20% since right before COVID-19 in it.
Doubled since 2010.
The second is to invest and grow both traditional and new energy and you saw that our total investment first half of the year up 80% versus a year ago. The third was to maintain a strong balance sheet for the fifth consecutive quarter, we paid down debt. Our net debt ratio was at 8% that's well below our mid cycle guidance.
Of 20% to 25% and when we have cash in excess of those first three priorities, we buy back shares and we intend to do it ratably over the cycle. We repurchase shares 50 now last 19 years, we bought back almost $60 billion during that time at an average price of around $90 a share very <unk>.
Close to the weighted average price during that whole time and as you say, we just increased the guidance too.
<unk> increased the top of the range of our guidance to $15 billion a year that represents about 1% of our shares each quarter. The 15 billion annual rate is based on our current outlook.
It was tested against a number of scenarios the rate is consistent with our Investor day upside leverage case, which was a $75.
Brent flat nominal price over five years.
As we've said with previous buyback rates, we intend to maintain buybacks at this annual rate for a number of years across the commodity cycle. As a reminder, our net debt is well below our mid cycle guidance range. So we will continue buybacks, even when the commodity cycle turns down and we will lever back up our balance sheet closer to that 20% to 25.
Percent.
Our guidance range.
The follow up is just on the Permian just talk about how youre thinking about.
The growth profile, there relative to what you guided at the beginning of the year does the upward drift in commodity prices changed the way youre thinking about prosecuting.
That asset.
Yeah, well I'll start out with that and then peer can finish if he's got any other thoughts the Permian.
Our approach to the Permian as you know for many years has been to be very disciplined very focused on generating the returns and the efficiency that allow us to be profitable regardless of the prices and so were not responding to short term price, but we are increasing our activity levels.
Since the turn down during Covid.
So we have seen our investment go up this year, it's $1 billion higher than it was last year.
And we also see the number of wells that were putting on production going up we should expect to do over 200 Pops. This year and so we're looking for about a 15% increase in our Permian production.
We've increased two additional rigs in July so we're running now with a fleet of 10 rigs across the Permian in in the current time and we expect to maintain that through the second half, but I'll remind you also one of our rigs today drills the equivalent of what two rigs could do in 2018.
So using just rig counts is a little bit of a.
You have to be careful because we're so much more efficient with our rigs in each frac crude today is also completing.
Roughly double the work they were doing back in 2018. So we're much more efficient than we were just four years ago, we expect to see our investment continue to grow we've given you guidance of increasing our investment rate up to about $4 billion a year by 2024, and then I would expect to see it relatively flat after that is.
We just maintain an efficient operation across the Permian.
We also have non operated activity and we currently have about nine net rigs running on the non op side and so that also contributes significantly to our production profile. Our guidance remains unchanged. We would expect to see about one two to one 5 million barrels a day of production ultimately as our plateau.
As we continue to gain insights and knowledge and as we look at our efficiency as we look at our portfolio and world demand that can change as we go forward. That's our guidance as we see it today and we will continue to update you as we move forward in time.
My only add is it's also among our most carbon efficient barrels in the portfolio and as Jay has said, it's a demonstration of our <unk>.
Delivering on our objectives of higher returns and lower carbon thanks.
Thanks Neil.
Thank you we'll take our next question from Jeanine Wai with Barclays.
Hi, good morning, everyone. Thanks for taking our questions.
Good morning.
Wish you all and thank you for all your time.
Yes.
I'll stick to two questions. Just so we can get to lessen with relief.
Thanks, Jamie.
Our first one is on LNG. This week there was an announcement that chevron along with a couple of other partners that you guys reached.
On development that will help boost Angola LNG plant volumes. So can you talk about how youre viewing expansion opportunities in Angola, and also hit on Equatorial Guinea, where you also have kind of an equity position that feeds and an LNG plant there and is there a preference on how your involvement evolves with.
LNG plants, because you have some ownership.
With your ownership, but we also know that you had a snare agreement.
Recently that was more just on the marketing front. So just wondering how you're seeing your role there on new opportunities.
That was pretty good Janine I think you've got three questions in there and I'm going to try and move right to the.
No.
I'm allowed to do that on the upstream guys.
Look on the LNG in Angola, you are right. We just took in the new gas consortium. There are two primary sources of gas for Angola LNG traditionally it was built for the associated gas Thats produced along with the oil resources in Angola, and that's been the main source of gas for Angola LNG.
Up to this point and we continue to develop new oil resources with our 20 year extension just secured really good terms on both the oil and the gas it encourages investment in that country Theres a lot of oil still in blocks zero. So that continues unabated and actually the investment will will move forward.
The.
Non associated gas in other words drilling and developing reservoirs that are gas only is a new investment mode and we're doing that through the consortium you mentioned and that is designed to be supplemental gas. So that we can keep the Angola LNG facilities full.
And so the ongoing effort to keep that plant running it's really economic because it builds on existing infrastructure. That's already been built the investments have already been made and importantly, it's supplying needed LNG into the European market.
It also gives us exposure to that Atlantic basin.
So that's been a good project for us and we're pleased to take that.
In EG again, we have exposure now to the Atlantic basin through that project.
Project.
We continue to produce there.
There's not much more I can say other than that that's also been a profitable area for us and it came to us through the noble acquisition. So it was kind of one of those more hidden jewels, we talk about eastern Med, we talk about the D. J basin in particular, but EG is supplying a very good return to us through those gas and LNG facilities.
In terms of our focus on ownership versus commercial were really pretty agnostic. We're looking for the returns and the scale that we can build out of the business. We're looking for multiple points of supply. So that we can maintain an active and profitable portfolio and so where we can do commercial deals.
And not have to use capital, but to really be able to leverage other's facilities. That's always a nice way for us to go and I'm pleased to get that exposure out of the Gulf coast into both European and potentially Asian markets. It gives us an access for a lot of our produced gas in North America to access those markets rather than just.
U S, but where it makes sense, we'll also make investments as we have in other places and own the facilities or run them through joint venture facilities or non operated facilities. We really look at what gives us the best opportunity to generate the returns we're looking for.
Great. Thank you we won't sneak in are unrelated follow up since that was a very fulsome response. Thank you.
Thanks, Sidney Thanks Sidney.
We'll take our next question from Doug Leggate with Bank of America.
Thank you 41 years of one place Jay that's pretty impressive congratulations.
Thank you.
I Wonder if I could take.
Maybe two questions for you actually maybe Pierre might pick up the second one I want to go to the Permian first you have about half your production operated and non operated can you parse between the inflationary pressures between your operated and non operated from what Youre seeing currently.
It's difficult for me to really do that definitively what I can say, though is I think we have a competitive advantage in the Permian.
We have a couple of things working in our favor we maintain a global supply chain and we're able to tap suppliers of both equipment and materials goods and services over a much broader range than maybe some of our competitors. We also do multiyear contracts and other.
Mechanisms commercially that allow us to mitigate some of the inflationary pressures that we see today and then of course, our focus on driving for improved productivity improved efficiency has really helped us continue to counter the inflationary pressures I think the other area that we have a distinctive.
Vantage is we've been building out our infrastructure in the Permian and so just as a proof point the last 800 wells over the last five years to produce those 800 wells, we had to build 40 central tank batteries.
As we look forward. The next 800 wells, we only need to build an additional four central tank batteries. So while others are having to invest in this high inflationary period, we're largely using infrastructure that was built over the past five years with very small incremental surface facilities required and I think that.
Is going to be hard for others to match.
So that's the.
That's a very clear answer thank you.
I don't know quite how to answer this question I'm going to try and get partly in the part D. Perhaps I'll be respectful.
Mike was interviewed recently talking about the tightness in the global oil market.
Said something like I don't want put words in this month, but.
Any weakness in all this is going to be fleeting because of the under investments.
You guys, obviously have stepped up your spending from COVID-19 levels, but you're still well below pre COVID-19 levels 16 through 19, let's say.
With your balance sheet.
As in the depth of opportunities that you obviously have that you are not funding how.
How should we think about your.
Continued commitment to the current opex level or do we see chevron reengage in organic growth at some point.
You should think that there is no change in our guidance.
Our 2022 capital is on track, it's likely to end up below our $15 billion budget, we've been ramping up during the course of the first half of the year and I think youll see us higher in the second half of the year, but likely end the year below our 15 billion dollar budget or guidance that we share.
At our March Investor Day is $15 billion to $17 billion of organic capital investments through 2026.
Our budget. This year is around $15 billion. So we have $2 billion of room to increase activity and investment within the guidance and then as Jay just described our major capital project in Kazakhstan is winding down.
It'll it'll decrease spending by about 1 billion and that opens up another 1 billion. So we have we will increase investment in activity next year I expect that we're doing that work right now we will share the details in December when it's finalized and approved by the board.
But it will increase it within the guidance and that guidance enables us to sustain and grow the upstream business as we've talked about 3% compounded annual growth rate between now and 2026.
Add to our refinery capacity, we bought a refinery in Pasadena, Texas in 2019 kept all of our U S refineries through Covid and are making investment in that Pasadena refinery.
That was just recently deed and of course, all the activities, we're doing to grow new energies. We can do all of that within the guidance and as we recognized J one of the things. He deserves a lot of credit for is our upstream business is much more capital efficient than it's ever been and has a mindset of how do we deliver business results with less capital.
And if we do that there's more free cash flow for shareholders.
Thank you we'll take our next question from John Royall with Jpmorgan.
Hey, good morning, Thanks for taking my question.
Can you talk about your growth in the Gulf of Mexico in the upstream.
We're leaning in there with the number of brownfield projects. So can you just speak broadly on how you view come within your portfolio and how the returns look on those bolt ons relative to your other options globally in the upstream and then what does the service inflation picture look like in that part of your system relative to say the Permian.
Thank you John I'll start this and let Pierre add in but.
We're really quite pleased with the portfolio, we maintain in the Gulf of Mexico. It's a good area of exploration for us and it has some of the lowest carbon intensity in the world It's about six kilograms.
Per barrel produced so.
On a world scale uneven our company scale, which is already top quartile, it's right at the bottom end of that range. So this is a great area to develop for future production and carbon efficiency when.
When we look at the queue of projects. We have we've got the anchor project that is expecting to have first oil in 2024.
We've got whale is coming through we expect in 2024, we've been expanding our existing facilities. We're starting up the waterflood at St Malo, which is part of the Jack St. Malo complex, we've installed our multiphase pump center commissioning those that's going to be an important milestone technologically and our ability to step up.
Further and further we just took that idea at Valley Mall and valley more is an interesting one because it was a nice sized discovery, but.
But we could really capitalize and get a much higher return by taking three wells back to our host facility at blind faith and be able to develop that so we're pleased to be able to see that higher return coming from blind faith in.
And it also helps our existing production at blind faith.
As we continue to work forward I think we're going to see growth in our Gulf of Mexico.
Co production, but it's going to be important that we continue to be able to lease and acquire additional acreage in that basin, along with others. Because there's still I think room for continue exploration and tie back to this great chain of infrastructure that we have on <unk>.
<unk> produces lower carbon fuel.
Only add is hot rigs are largely contracted when rates are lower so clearly offshore rigs have increased but we're largely contracted at prior rates. Thanks John .
Okay. Thank you.
Yes, so on the downstream just had a question on.
Particularly California, just kind of your go forward views there.
Balances not quite as tight as they are in other parts of the country, but then we're seeing some capacity come out due to Rd conversions. There. So I was just looking for maybe your medium term view on refining it in California, specifically.
On the downstream side, we had a strong quarter well, let good execution reliable operations high refinery utilization and I'm talking generally now U S West coast and Gulf Coast, Good cost control and were able to capture the margins in the marketplace. We had a slight benefit in the second quarter, because the Richmond turnaround was deferred.
So there's a little bit less of an impact than what we had guided to on the first quarter call and timing effects really werent a driver right timing. It is more of the absence of timing effects that you saw in terms of these markets. There. They are volatile right now I mean, we've seen margins come off.
From where they were before and the <unk>.
Second quarter, we saw demand response.
On gasoline.
Around the mid single digits across the U S a little bit higher in the west coast, a little bit lower in the Gulf Coast didn't really see much on the diesel side.
And Jed isn't really tied to the recovery of travel. So we'll just see where the market takes us on whether it's west coast or Gulf Coast, We're focused on safe reliable operations continuing to have good cost control and delivering products that our customers are demanding thanks John .
Thank you we'll take our next question from Jason <unk> with Cowen.
Hey, Thanks for taking my questions I have.
I have one on the upstream portfolio on them one on the financials.
On the upstream can you just talk about your other gas opportunities that you have available in the Q specifically.
Thinking about the eastern Med I know youre delineating some acreage there and it seems like there is.
A lot of gas available to exploit.
Then also.
I believe you have our haynesville position I'm not sure if that's in the money or not and Thats something.
But you're looking at and then.
I'll ask my follow up after.
Okay. Thank you we have a lot of gas opportunities and we've got a lot of infrastructure to build those opportunities on which is really important because it gives us an advantage from a return standpoint in the eastern Med, which I'll add is one of the lowest carbon intensity areas from a scope, one and scope two where two kilograms of carbon <unk>.
Evelyn per barrel produced.
We have of course supplied a lot of gas into the Israeli market and that opportunity continues to grow as coal has displaced we also take that gas into Jordan for conversion to electric power and now we're taking it into Egypt, where it can supply both domestic needs in Egypt, but also potentially.
Access some of the OLED that exists in the LNG facilities that are already existing in Egypt.
We are considering floating LNG as well as you know theres very benign conditions met ocean conditions in the Mediterranean that lend themselves to floating LNG. So it represents a viable option for us.
Developing additional gas capacity at Leviathan Tomorrow is well within the scope of those projects and would allow us to access these additional marketing opportunities through the LNG and the flexibility that provides.
We continue to have some upside potential in additional fields through EG and then we've got access as you pointed out in the United States, we are ramping up our drilling activity in the Haynesville and we expect to see rigs there starting later this year.
There'll be working that area. It was very profitable even at the low prices. It's profitable now so again, our focus is going to be on disciplined on continuing to drive for those efficiencies.
But we really are excited to get haynesville underway and add that to our portfolio in that part of the country.
Thank you.
Great Thanks and.
My follow up is just on the share count.
Believe it went up again this quarter despite.
The buyback and it's.
Gone up since.
The buyback started I think if you back out the shares issued for noble it's been flattish. So can you just discuss exactly what's going on there and your expectations for the share count moving forward.
With the higher buyback, but also.
At a higher share price.
Yes, the share count is.
Is going down and will go down.
What you see in the earnings press release is a weighted average during the course of the quarter not necessarily the end of the quarter. So youll see in our Q that the share count at the end of second quarter is in fact lower than the first quarter, which you would expect because we bought back $2 $5 billion of shares and issued 0.8. The first quarter. We had this very large.
<unk> issuance is for our employees and retirees exercising stock options and so we started the year with a lower share count issued those for our employee retiree stock options.
Therefore started second quarter at a higher rate and then worked our way down so the math does work it is going down.
You have to look and end of quarter to end of quarter, but what you see in terms of earnings per share. It's an average over the quarter and it's kind of a quirk that second quarter average was that it was higher than the first quarter, but it's just the nature of the pattern during the quarter share counts are going down.
Jason.
Thank you we'll take our next question from Manav Gupta with credit Suisse.
Okay.
Thank you guys. My first question here is I wonder who take expertise from Jay again.
This was a heavy turnaround quarter for you, but even then some of the things that you were turning around where very high margin barrel fall you. So whether it was <unk> Angola, our wheatstone and help us understand like in terms of opportunity cost.
This volume was somewhere in the lower margin business versus some of your higher margin business, because you're trying to say you know ups.
Upstream results were good but they could have been even better because some of the higher margin barrels we're actually not done it out.
I appreciate the question.
And one of the things that's really important to us is that we operate safely and reliably and so we look and we schedule, our turnarounds and they're predominantly to ensure asset integrity and ongoing reliable performance and when we schedule. Those we don't like to shift those because of market conditions and so we tend to want to exit.
Cute those on time, what's important is that we execute them within the time frames that we expected so that our production is in accordance with our planning and both Wheatstone and Angola LNG were done really really well I was proud of our teams. They went and they did the turnaround this means now.
In Australia, all five trains have been through the first round of term and rate of turnarounds and so that's an important milestone an important accomplishment.
This work that we do while it may seem like we're giving up some opportunities in the near term. It allows us to continue to drive higher and higher reliability, which means our overall production will be higher and our costs will be lower and our safety will be higher and so that's really how we think about this.
Thank you and I have a quick policy question.
A month and a half ago things got a little heated between the oil companies and the lighthouse, but as he understand when the actual executive meetings happened between you guys and all other than the secretary of energy those are pretty cordial and you guys are looking for solutions out there help us understand what happened in the meter.
With energy Secretary and how did those go.
No not that we won't comment on the specifics of our engagements I think.
Youre right that where it's constructive and productive I'll point out our U S oil and gas production first half of the year was up 7% versus last year, our U S refined product sales up 10% versus last year. The administration wants energy supplies to increase redoing that art investment globally up 80% first half of the year. If you look at the U S more than <unk>.
Double when you include RG, So chevron is growing energy supply increasing investment and we're engaging constructively with Congress and this administration.
Thanks Manav.
Thank you we'll take our next question from barrage.
With RBC.
Hi, Thanks for taking my questions.
Just just one for me on Australia.
I mean is this gas shortages in.
Any geographies in Europe in particular, but there has been some talk about.
Or noise around that in Australia, I wanted to understand.
Whether we should expect any.
Export issues at Gorgon and Wheatstone are you in discussions with the government around.
Proportion of cask domestic market versus what they export it or anything like that so any color would be great. Thank you.
Thanks barrage the shortages that you've heard about in Australia are all on the East coast and there are no pipelines connecting the west coast and the East coast. So actually the only way that we could supply any gas to the east coast of Australia is in the form of LNG.
So we are under long term contract with customers throughout Asia. We also sell into the spot markets with those facilities, we have interest in northwest shelf as well as of course, Wheatstone and Gorgon, the Western Australia and market is well supplied its a part of our agreements for that supply and so there really are no <unk>.
<unk> I don't see any impact to our export capabilities in Australia.
Okay understood.
Hello.
On the same topic.
Sure.
A couple of years ago, I think I have a conversation with care around.
The potential for increasing nameplate capacity at Gorgon and Wheatstone overtime.
And then as you go through the various Debottlenecking exercises are you able to provide an update.
Whether that's still in the works might you are and what kind of timeline that would be all.
As possible.
Yes, we continue to focus on incremental capacity increases at both Gorgon and wheatstone and that can happen through expansion of deep.
Debottlenecking, where we actually expand the capacity of the facilities, but importantly, it also.
Happens as we increase the reliability of facilities and their utilization is higher.
If you just look at this year, we've supplied 87 cargoes as I've said, that's up 10% on production from last year.
Even with the turnaround that we had so you can see the improvement happening there we have seen capacity increases at both wheatstone and Gorgon and I expect those to continue as we move forward.
Thank you we'll take our next question from Sam Margolin with Wolfe Research.
Hi, good morning.
I'm going to say I wanted I wanted to revisit.
The LNG topic, and maybe specifically tie it.
To the Permian.
Because you know there's a lot of resource in the Permian that's not <unk>.
Sure.
That includes different zones of what Youre already developing plus you know areas that are not on your development calendar in the near term and LNG didn't historically help with that because it's expensive, but obviously.
Things have changed now and so.
Just love your perspective on what happens to your Permian resource or your overall opportunity there or the duration of it in an environment, where you can add some extra capital.
Or even commit to a spread but you know monetize gas for a double digit price.
Look what I would characterize it what determines our pace of activity in the Permian is a balance on what we can accomplish efficiently and we have a factory model all the way from land acquisition, we do deals all the time to fill in the checker boards and ensure an efficient developed.
<unk> plan.
As an example, just since 2017, we've executed over 260 transactions that have added 3500 long laterals, that's allowed us to drive for this efficiency in the higher returns.
Our activity levels really arent determined by how much we can export from the United States. All of these projects that we have would be economic at much lower prices. So it's really not the price that unlocking the Permian, it's developing the infrastructure for export from.
From the basin into the markets that we supply both domestic and international so it's all done in a coordinated fashion, we do it so we stay within the capability of the organization to execute efficiently and safely and that's really what drives the Permian. So it's nice to have access to these additional markets and the optionality there.
Provide we have an advantage in working closely with our midstream group, who has great capability, both again for the domestic off take and setting up.
Potential for international export, but its really not what I would view as the limiting factor on our pace, we determined that based on our overall balance of free cash flow the returns in our resource and reserve replenishment.
Okay, and then I mean, maybe just to follow up like are there any ancillary factors that might be a consideration like an opportunity.
To fit in it.
Another <unk> project.
On a on a facility or what it might contribute to like a flaring mitigation effort or anything.
You know besides just like you said a price signal.
Yes, Pierre said earlier, the Permian actually has very good carbon intensity on our scope one and two basis. We're at 15 kilograms of Cotwo across the basin. We're now benchmarking our facilities in achieving certification of platinum status on most facilities with project Canary.
Which then provides independent third party certification of our methane emissions and the performance that we have been talking about we are working with both our Chevron technology ventures, which is our venture capital arm and our new energies segment on.
On the carbon capture and sequestration and carbon capture in particular is critically important for not just us, but the world and so we have three pilots going on at San Joaquin Valley operations to capture the C. O. Two that's coming off of our co. Gen units. There and then of course, we are gaining experience at Gorgon and quest up.
In Canada, where we learn more and more about what it takes to effectively and efficiently sequester cotwo into storage.
So these are all going on the beauty of having a portfolio like we do is we can put these pilot projects and we can put these demonstration projects wherever it makes the most sense both from a regulatory fiscal and return standpoint and develop these technologies that we're all going to need going forward.
Thanks Sam.
Thank you we'll take our next question from Irene homeowner with Society General.
Thank you good morning, and congratulations on the strong quarter I wanted to ask festival about what you're seeing on the ground in terms of any signs of.
Persistent demand destruction at retail, but also industrial customer level. Please.
I mean, I said it very quickly earlier I mean, we've seen I would call a demand response to higher prices.
That in the second quarter was around in the mid single digits in the U S. On gasoline again, a little higher in the West coast, a little lower in the U S. Gulf Coast and I think we've seen some recovery since because prices have come off so we'll see where our third quarter ends up on diesel it's very hard to see not as price sensitive it's tied to commercial.
<unk> industrial activity, maybe a little bit of response at retail diesel and then they get Jed is largely tied to the recovery in air traveling I think people are wanting to get out and see people in places Asia, where we also have retail is a little more variable because it's been still COVID-19 restrictions and so it's hard to kind of see.
The data I mean, what's interesting is there's obviously concerns around the recession.
A tailwind as we saw a very low unemployment and we have a consumer that.
Wants to spend money to go out and do things they haven't been able to do for a couple of years.
When prices were higher in the second quarter. They made some choices and if you look at the that demand response on gasoline that's in line or even higher than some past recession. So it's not clear I guess, what I'd say is.
Demand I think we'll be much more recession.
As a resilient going forward, just because we've seen a little bit of that response in the second quarter and again diesel will be tied to underlying commercial activity and I think generally depend on if the airlines can get all the flights scheduled and have pilots and all the rest and some of the challenges that had been happening over there. So that's a little bit of a sense of the demand we saw response.
Second quarter seeing some of that come back here early third quarter, and we'll just see where it goes from here.
Thank you for my follow up.
You you mentioned youre launching some new carbon capture projects.
I wanted to go back to Australia, and ask if you can firstly talk around D. The recent performance at the Gorgon carbon capture projects and easy utilization improving and is there any REIT to perhaps on the technical side from that project to the lunch you're launching now thank you.
Thanks Irene.
At Gorgon, we've now stored successfully about $6 6 million tons of cotwo into that reservoir.
Ironically the biggest issue. We're having currently is just the ability to remove water at a sufficient rate from the storage reservoir to create the space for the C. O two to enter we've already demonstrated the capacity and capability to inject full C O two rates into that reservoir.
But the water that were producing had some solids in it and some other contaminants ironically oil and gas because its an oil and gas basin and we need the surface facilities that can just remove those before that water is injected into a third reservoir.
These are not new or particularly high technology challenges at all it's what we deal with in everyday life around the world. So it's just it's compounded a little bit because gorgon sequestration is in a class a nature reserve. So it is a very cumbersome process to approve additional facilities and additional wells.
But these problems are solvable and they do not represent in my view any kind of restriction on the viability of carbon sequestration as a means of storing C O two prolonged periods.
What I would expect as that.
And we said this before as we learn as we go through this what it's teaching US is that there are uncertainty ranges on any reservoir, whether youre producing from it or injecting into it and having sufficient contingencies and mitigation depend.
Depending on where you find yourself in those uncertainty ranges when you actually put the facility into operation is important and we'll need to keep these in mind as we develop sequestration projects around the world. So the science is good the technology works. Its just the basic issues that we face on reservoirs around the world that we now need to over.
<unk>.
Thank you we'll take our next question from Paul Cheng with Scotiabank.
Hey, guys good morning, Jay.
I add my congratulation. Thank you Paul Hope I think yes, I appreciate it.
Thanks, Paul.
Two questions.
First.
Touch on the inflation in different parts of your business, but can you get them or given your footprint can you give us an oval gear with that what is sharepoint expectation on the in patient for next year I know there's still early.
But are we talking about a 10% 15%.
Some of your largest supplier seems to suggest that.
Everything is all used up.
Manpower and equipment, so don't know whether that you agree with that assessment.
And then if you can tell us that where do you see a longer supply chain yes.
Because.
Maybe peso corn and with that you see in these patients the repair shop.
So that's the first question the second question on Mexico and Brazil.
You guys and I think a couple of years ago and have some ball over there.
<unk> heard you guys talk too much about those so wait those rank within your portfolio today and what is the next step dose. Thank you.
Thanks, Paul I'll take the first and then I'll hand, it to Jay on the second on the onshore U S. We've seen cost inflation this year in the single digits.
<unk> been able to mitigate.
Part of that through good planning smart procurement and good relationships with suppliers and as Jay pointed out we've been able to also get more efficient with our drilling and completion operations, which also partially offsets it outside of the U S. We're seeing much more modest inflation that we talked about our Gulf of Mexico offshore rigs, which are contracted at a time when a rig.
Rates were lower as.
As were looking towards 2023, we're doing that work right now we're confident that we'll be able to secure all the goods and services that are needed for our program again, our program will be a higher activity program next year and that includes the Permian.
And we will share estimates of what we're seeing in terms of Cogs inflation, when we disclosed our capex budget in December but just in the in the middle of that work right now feel very good that we'll have all the goods and services that we need and we're finalizing our plans.
Okay.
Yeah, Thanks, and Paul in terms of Mexico, and Brazil, we have not had exploration.
<unk> discoveries there we are turning our attention I would say towards Egypt, where we have a very nice exploration position. We're shooting seismic. These are in areas that have been unexplored before because they've been in restricted areas and now available to us as well as in Suriname. So as we do in exploration, we're always going through.
And looking for the next opportunities.
But I would say our focus primarily is shifting now towards Egypt in Suriname. Thanks for the question.
Thank you, we'll take our last question from Ryan Todd with Piper Sandler.
Okay. Thanks.
Maybe first one on the biofuel side.
Ill close both the register and the bungee deals on.
On a.
Within that business can you talk a little more about what you're seeing in those markets.
And whether you can elaborate at all about the broad types of commercial opportunities that you see that you mentioned in your prepared remarks.
Thanks, Brian we're really excited to welcome <unk> people to Chevron and T. J Warner to our board seats already participated in our first board meeting some fantastic has great knowledge of traditional and new energy businesses and it's just a great add.
To our board and as.
As I said, we had some early wins I won't get into the details of the commercial opportunities, but it's.
What we saw in the combination the strength that <unk> has in terms of feedstock acquisition, primarily of waste oils, and then combining that with our retail and marketing footprint and just bringing two great teams together.
Seeing as you would expect one plus one is more than two we've got our renewable fuels business headquartered in Ames, Iowa.
I'm very excited about it we closed in mid June just a question just a comment on the accounting.
There were no results in our second quarter results, because we chose a convenience day of June 30th So all Youll see in our all you saw in our earnings release and Youll see in the Q is just the purchase accounting.
Starting in third quarter, then we will see <unk> in our in our results <unk> had a good second quarter.
Margins had been bouncing around but the results are largely in line with expectations and Geismar continues on track and same thing with Bungie operating two crushers are very excited to be part of that invested in cover kras jointly which is.
A.
A crop that won't compete with food.
So lots of work in this space as we work to get our renewable fuels, Quebec capability up to 100000 barrels a day and still working its still on track to convert diesel hydro treater at El Segundo to.
You have renewable fuel capability in and work across other parts of Chevron system. So the combination of RTG, our bunge joint venture and our own assets along with our customer relationships. We're all pulling that together to have what we think will be a very.
Successful viable renewable fuels business.
Thanks, Peter and maybe the final one for Jay.
Congrats on the retirement I wanted to ask kind of a higher level question on upstream project development technology, and there's been a pretty significant shift over the last five to 10 years and the and the way that you've approached project development more standardization.
Oftentimes smaller and more capital efficient style projects, probably more as a great example of this.
That has lowered the cost of supply a lot, especially in the deepwater as you as you pass the baton and look forward kind of into the next 10 years are there are there things that you that you can see on the horizon, either either strategically or technologies that may continue.
Continue to drive.
Changes in project development and technology that May drive things forward, even further whether it's.
20, K kit in the deepwater Sir from flow line improvements that allow longer tie backs in.
What what could this mean for.
The future of your resource development portfolio.
Thanks for the question and it's a pretty exciting I mean, the one bad thing about retirement, you don't get to be part of the next steps and I'm excited about them.
I would start by just saying I think we've accomplished a mindset shift and chevron and this is throughout our workforce being very focused on returns not chasing a production target, but continuing to run this as a business and thinking about the returns we can get scale is important but it's an outcome of the opportunity set that we have and the investments in capital.
That we choose to invest.
Getting more focused the factory model has been really important to us and Ironically this started where we drilled lots of wells in places like dairy in San Joaquin. We've now successfully transferred that into our unconventional plays in Permian and the DJ in Duvernay in Argentina, and now were actually taken that factory.
It'll into places like the Gulf of Mexico, where we do what we call urban planning and we try and have a steady progression of projects and we're developing that capability for further and further reach.
And earlier that Jack St. Malo is now putting into service multi phase pumps and these multiphase pump sit on the seafloor, but they allow us to reach 30, 40, and even maybe 50 miles out from a host facility, which really gives us great capacity to make even smaller accumulations economic can give us.
The returns we're looking for while extending the life of these major hubs.
I think the Gulf of Mexico will continue to be an important proving ground for some of these technologies that can then be exported around the world.
Our focus on standardization or focus on minimum viable facilities, our focus on capital efficiency over just scale an MPV. All these together are resulting in and aligning with our technology center. So that we continue to develop the technologies that are giving us the returns that we're going to need going.
Forward and with the resource base that we have today and the team of people that we have in our technology groups and in our businesses I'm really excited.
Hey, Ryan Thanks for that question, we will Miss J that his legacy will live on and you'll see it in the performance at the upstream has been delivering and will continue to deliver.
Thanks Ryan.
I would like to thank everyone for your time today. We appreciate your interest in Chevron and everyone's participation on today's call. Please stay safe and healthy Katie back to you.
Thank you. This concludes chevron's second quarter 2022 earnings Conference call you may now disconnect.
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Yes.
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Okay.
Thank you.
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