Q3 2022 Chevron Corp Earnings Call
Yeah.
Please standby.
Good morning, My name is Sarah and I will be your conference facilitator for today.
Welcome to Chevron's third quarter 2022 earnings conference call.
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After the Speakers' remarks, there will be a question and answer session and instructions will be given at that time.
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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 Sir.
Welcome to Chevron's third quarter 2022 earnings conference call and webcast.
Roderick Green GM of Investor Relations, our chairman and CEO , Mike Wirth and CFO Pierre Burger 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 I will now turn it over to Mike.
Thank you Roderick and thanks, everyone for joining us today.
We continue to see a challenging and dynamic macroeconomic and geopolitical environment.
Current events highlight the importance of balancing economic prosperity energy security and environmental protection.
In line with these three imperatives Chevron remains focused on our objective.
To safely deliver higher returns and lower carbon.
During the third quarter, we continued to make progress by delivering return on capital employed in the mid twenties.
Returning more than $5 billion to shareholders for the second quarter in a row.
Investing to grow both our traditional and new energy businesses.
Earlier. This week, we released our methane report with specific disclosures about our aim to be a leader in methane emissions management.
Our goal is simple keep methane in the pipe.
I encourage you to read our report available on Chevron Dot com.
Our strategy remains clear and consistent.
Our results keep getting better.
While future market conditions are uncertain.
We're well positioned to deliver value to our shareholders in any environment.
With that I'll turn it over to Pierre.
Thanks, Mike.
Third quarter financial results were strong.
In the quarter were $177 million of pension settlement costs and positive foreign currency exchange effects of $624 million.
The appendix of this presentation contains a reconciliation of non-GAAP measures.
We repurchased shares at the high end of our guidance range and ended the quarter with a net debt ratio under 5%.
Cash Capex was $3 billion.
Up over 50% from last year.
For the sixth consecutive quarter severance free cash flow exceeded $5 billion.
We are on track to beat 2020 one's free cash flow record.
Adjusted third quarter earnings were up more than $5 billion versus last year.
Adjusted upstream earnings increased mainly on higher realizations, partially offset by inventory timing impacts.
And other tax benefits are more than offset by higher operating expenses and other costs.
Adjusted downstream earnings increased primarily on higher refining margins and favorable inventory timing impacts.
The planned turnaround at our Richmond refinery was a driver of higher Opex and lower volumes for the period.
And other lower chemicals earnings were partly offset by higher trading gains.
Compared with last quarter adjusted earnings were down modestly.
Adjusted upstream earnings increased primarily on higher lifting and tax benefits.
Partially offset by higher charges for abandonment accruals and exploration leases.
Adjusted downstream earnings decreased primarily on lower refining margins and lower volumes and higher opex due to the Richmond plant turnaround.
The offsetting as a favorable swing in timing effects.
Third quarter oil equivalent production was flat compared to a year ago.
Growth in the Permian, along with the absence of turnarounds and Hurricane Ida impacts.
Offset by the expiration of our contracts in Thailand, and Indonesia, and the sale of our Eagle Ford asset.
Now looking ahead.
In the fourth quarter, we expect modest turnarounds.
After producing a record number of LNG cargoes in third quarter, we expect fewer spot cargoes out of Australia to the maintenance and summer temperatures.
In the third quarter, we received a dividend from Angola LNG and.
In the fourth quarter, we expect dividends from Tcl and Angola, LNG and we expect to end 2022 at the top end of our full year guidance for affiliate dividends.
As a reminder, chevron pays a 15% withholding tax on tcl dividends that lowers earnings and cash flow.
In the fourth quarter, we will pay over $700 million associated with the early termination of a long term LNG regas contract at Sabine pass.
This payment was accrued previously through working capital.
Also we expect to buy back shares at the top end of our guidance range.
In closing.
The third quarter showed again.
I'll chevron's higher returns lower carbon objective.
Its value for all of our stakeholders back to you 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 your questions answered.
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And our first question will come from Jeanine West.
Good morning, Jeanine Wai with Barclays.
Your line is open. Please go ahead.
Hello.
Janine.
Yes can you hear me.
Yes go ahead.
Sorry about that.
I have that right by now well good morning again, thank you for taking our questions. Our first question is on U S production growth, so either Mike or appear on the Permian was relatively flat quarter over quarter average a little under 700000, a day so far this year.
Industry dynamics and supply chain challenges can you provide an update on how operations are going and I guess, what we notice is that with only one quarter left in the <unk>.
For the year it looks like you'll be closer to the lower end of the 700 to 750000 guidance range and so we're just wondering if that's by design or if there is external factors driving that because.
I noticed this morning, one of your integrated peers in the Permian lowered their 22 growth expectations.
Yes Julien.
You know my number say a year to date, our Permian production, a little over 700000 barrels a day up about 15% from first three quarters of last year, which was just a touch over 600.
So we're seeing we're seeing good growth.
And for the quarter itself production was up about 10%.
708000 barrels a day versus 646 in the same quarter last year.
I think the thing that some.
Some people may Miss is during the pandemic.
You know drilled but uncompleted well inventory is really growth.
And rightfully so we didn't need to frac wells and bring them on online when there was <unk>.
Declining demand for the production.
So and we kept some drilling going so that inventory grew as we went back to work. The first thing. We did was send completion crews out and start to bring the ducks online.
And you saw that through the back half of last year and certainly the first part of this year, which may have missed led a little bit in terms of the rate of growth. Because this was this kind of surge capacity we're back to.
Factory drilling now our DUC inventory as kind of in line with what our plan would suggest it would be.
And so we're seeing production level out at a at a growth rate that.
Is more of the kind of underlying rate that you should see so we likely will be towards the lower end of the range, we get some non ratable.
Bookings from our non operated joint ventures, but we gave you a range because we expect to be in the range, but we don't always hit the high end of the range. So in this case, we'll be towards the lower end, but we're not changing guidance for <unk>.
For this year or our forward guidance.
Jimmy I'll, just add that low end of the range that represents 15% year on year growth. So that's very strong growth.
Okay, great. Thank you for that clarification.
Maybe Pierre just sticking with you here.
In terms of your comments earlier. This morning, I think I caught it in an article that 'twenty three capex would be at the top end of the 15 to 17.
Medium term guidance range.
A lot of moving pieces and I don't know if youre going to talk about this because you'll have to you'll please.
Is it in a month or so but the most obvious moving pieces that we see next year that tcs spend starting to roll off and some of that will be absorbed by the Permian, which we know is going to garner some more capital next year. So our question is if capital trending to the higher end of that range is that more a reflection of chevron responding to.
The macro environment or was that always part of the plan and maybe just some inflation is pushing the capital a little higher thank you.
So it was always part of the plan for us to increase investment coming out of Covid as Mike just spoke about.
We're in the final stages of improving our business plan and our capital budget. As you said, we will announce that in December you should expect it to be near the top end of the range again consistent with what our plans have been we're going to increase in the Permian and in other locations. We do have some cost inflation that is also a contributor.
To that we'll share all those details.
When we announced in December and Thats about a 20% <unk>.
Increase.
And next year relative to where we think we'll end up this year. So year to date, we're a little bit below our capital budget on organic basis, and so that will result in about a 20% increase which is very yeah again in line with our guidance.
And consistent with increasing investment and growing energy supplies.
Thanks Julien.
And our next question will come from Neil Mehta with Goldman Sachs.
Good morning, Mike <unk> team. Thank you.
The first question was around Carfax fun and Mike We just love your love your perspective on how you're viewing the assets out there both the development of Tengiz and then as you think through vacating barrels yet CPC pipeline.
Sure. So I'll start with the project we're on track to complete bulk construction by the end of this year no change to our cost or schedule guidance were <unk> 97.
Percent complete on construction right now.
There's still a lot of work to be done, but the risk and uncertainty are certainly narrowing.
The remaining risks tend to be smaller in scale and potential impact.
So we're moving into.
Commissioning systems testing and startup activities, we built a new integrated operations control center that I visited which is fully operational with systems online. Our drilling program is complete the final metering station is online.
So so very good progress on the construction side and we'll continue to update you as.
As we progress toward.
W. P M P. The pressure management startup.
Indicated right now for second half of 'twenty, three and then the <unk>.
Future growth project in 2000 and for an on the CPC in the pipeline.
There are no constraints on our ability to move barrels on that line.
Float everything out there that we've been producing and.
You've probably seen the media reports that a couple of the single point moorings, our offline right now for some repairs to the buoyancy system. Those repairs are underway and expected to be completed shortly so.
At this point everything flowing and it looks like we'll continue to do so.
Yeah, Thanks, Mike and Mike you spent.
Many years as a downstream or as well.
Have a great perspective on the global refining system I don't think I ever thought that <unk> would be up here. So just love your perspective of where we are in terms of the refining market. How do we work our way through the bottlenecks that seem to be existing in the system and.
What that means for your downstream business.
Sure.
It's been an interesting couple of years in the refining sector Neil.
With Covid.
We actually saw through that period of time, some refineries shut down around the world that.
Maybe at a rate greater than we would've expected before.
As the economics really collapsed as demand collapsed.
There were there's been some refineries in the U S that have been taken offline after storm damage or operating incidents that are not coming back.
See others being converted to renewable diesel.
So you had a constraint or a reduction in refining capacity that occurred over the last couple of years in a way we really haven't seen previously.
And the other thing that happened is some of the new builds that are in various stages of development, primarily in the middle East or Asia slowed down during COVID-19.
And you know a lot of the industry slowed activity until we had a better view on how we were going to come through that period of time I think those will.
Those will come back.
Into development, and eventually online, which will ease some of these global constraints, but the system is tight right now.
And what you see is when you have some maintenance that runs long some unplanned events as we've seen on the west coast or when do you see things like the strikes that we've seen in France here recently markets.
Tighten up really quickly and.
That sends a price signal to try to bring supplies them from further away.
And so the entire refining complex right now is a little more tightly.
Balance than it historically has been.
I think in the short term if you want to call that the next year.
Plus or minus probably stays that way, maybe a little bit longer to some degree and then I think you'll see some of this new capacity come online.
Get back into a situation, where it's not quite as finely balanced as it is today, but to no doubt we're in a.
A market that we really havent seen probably in my career in terms of the overall.
Tightness on supply and demand.
Thank you Sir.
And our next question will come from John Royall with Jpmorgan.
Hey, guys. Good morning, Thanks for taking my question.
So I was just.
Thinking about your buyback range.
Five to 15 billion three.
<unk> was a strong quarter from a fundamental perspective, but maybe it feels more repeatable to me then.
An upside case than <unk> did.
<unk>, you still generated free cash flow well in excess of both your dividend and the buyback is the top end of the range. So my question is do you think you could go further than the 15 billion at the top end given you still have a good amount of deleveraging happening at this point in the cycle, but it doesn't seem quite as extraordinary as to to date.
Yes, John .
We've actually increased our rate of buybacks three times. This year, we announced the first one at the end of last year.
We've steadily moved the range up and in the rate of repeat purchases up.
And so we're at a you know it.
All time high in terms of the rate of share repurchases and you're right. We've got strong cash flow right now which allows us to.
Support all of our financial priorities.
And maintain the strong balance sheet I think the thing.
You know that I, just would reemphasize as we want to maintain the buyback program throughout the cycle and we're not pro cyclical or countercyclical willing to operate across the cycle.
So that our shareholders see consistency out of us and.
I know that they can count on that and so.
We're positioned in a way where we're confident we can maintain that.
And we regularly reassess it is our view on.
Our business in commodity markets.
Continues to evolve and so we'll continue to do that at a price you have anything.
Further <unk> do you want to add anything to that.
I'll just point out that.
We increased our dividend 6% earlier this year, we've been growing our dividend at a compounded annual growth rate of 6% for 15 years and that is our first financial priority. So theres a lot of attention on the buyback, but it's clear our fourth priority after.
Staining and growing the dividend investing to grow of both traditional and new energy businesses, maintaining a strong balance sheet and as Mike said, we intend to do it across the cycle for multiple years.
Great. Thank you and then just looking at your bridge for International upstream and I think Peter I May have mentioned in his remarks as well.
You have this tailwind of about $300 million from tax.
Is that an impact from country mix or are there other moving pieces, we should think about there.
Should we think about this as a sustainable.
In terms of international upstream the benefit in the third quarter was primarily around our record LNG cargoes out of Australia in a fair amount of Gorgon and Wheatstone. So we're very happy to see that it was a time when the world needed the energy and again a lot of that is under long term contracts, but that included cargoes in the spot market, which we know.
Over at high prices, so we signaled that we expect fewer.
Fewer LNG cargoes in the fourth quarter because during the summer temperatures in the southern hemisphere. Its just how you just produce less and then we do have a pitstop of that is planned for one of our facilities in terms of tax items those are.
Items that can be onetime in nature, and so I would not look for those to be necessarily repeating.
Okay. Thank you. Thank you John .
Our next question will come from Roger read with Wells Fargo.
Yes, good morning.
Uh huh.
Maybe just ask a question that kind of ties a little bit in to the question on the Permian, maybe as you said lower in the non op portion.
And the Capex discussion, but just a broad question on inflation and not just inflation in the price, but some of the productivity challenges that come when you start getting busier.
<unk> got as.
<unk> global footprint is anybody in.
I'm just curious how you'd characterize that as you look across and is or is it becoming more challenging to mitigate some of those issues.
Yeah Roger.
I'd like to tell people, we plan, our work and work our plan and.
So we've indicated for frankly, if you go back to pre Covid.
A trajectory that we've.
Pretty much stayed right on even with the you know the.
The interruption of.
Covid and so in terms of contracting for rigs completion crews.
<unk> San you name it.
We tend to have a longer term visibility into that we commit to our service providers earlier.
And that can result in both quality and availability of <unk>.
People equipment et cetera, So we don't see any <unk>.
Meaning for constraints on our ability to execute our program certainly we are seeing some cost inflation and.
The Permian is probably the strongest that we see around the world.
You know kind of into the low double digits.
Year on year.
In other parts of our portfolio the.
The cost pressures are probably a little bit less than the constraints aren't quite as as pressing so.
I think.
Youll see a little bit of that in our capital guidance as it comes out as we wrap up our planning and we look to next year.
And I do think that it is.
Probably very real.
Called the governor, but a constraint on industry.
The pace.
This of industry activity and ramp up as.
As we get into the next year you hear other people talking about it from their point of view and I'll, let them comment, but yes, it's very real and we.
We've seen this we've seen this movie before in the Permian, we've seen it up in the oil sands a decade earlier.
You know in a cyclical business. This is part of it.
Yes for sure.
Follow up question renewable natural gas RMG, we saw big acquisition announced here a few weeks ago on that front you've been one of the leaders said I was just curious as you look at what's been going on in terms of.
Some of the legislation that's come out federally as well as just the extent of the impact of the L. CFS in California any updates we should think about in the R&D business.
One of the things mentioned in that acquisition was the position that company already had in terms of I guess you'd call. It lease holds right on landfills and stuff and just characterize kind of where you are relative to where you want to be in.
Where are.
Maybe this competitor is setting up.
Sure we feel very good about where we are we're a leader in orangey leveraging strengths across the entire value chain from feedstock to customer.
We've been a partner of choice for a lot of the dairy farmers, we've got a strong brands to pull through we've got a really strong market position in California, where the El CFS provides.
The strongest incentives for this so we like the position that we've built up we've got.
75, <unk> sites online or in progress right now through the retail side. So.
Our efforts, we were an early mover and.
<unk> preferentially focused on dairy.
As opposed to landfill gas.
So.
There are certainly are others that are active in this area I don't want to comment on how somebody else looks at things I would just say.
Our businesses is up and running and.
We're we're.
We're supplying customers today.
What kind of planning.
Out into the future and kind of banking on that I mean, we intend to grow it further, but it's a real business for us today and.
It's performing well.
Great. Thank you.
Thanks Roger.
And our next question will come from Devin Mcdermott with Morgan Stanley .
Hey, good morning, Thanks for taking my questions.
Good morning Devin.
So I wanted to stick with the new energies first in a few weeks ago. There was announcement that you joined a consortium to look at out hydrogen ammonia project in the Gulf Coast I wondering if you could talk in a little bit more detail around that and then more broadly with the inflation reduction Act passage, how youre thinking about the opportunity set in your new introduce platform over the next few.
<unk>.
Sure so.
We're excited about the announcements to work with a number of really good partners.
Try to develop hydrogen.
Opportunities there on the Gulf Coast.
One of the things that I think youre going to see in these new energies.
Businesses as they evolve as we don't have to build an entire new value chains and that means we're going to partner with different people, who have expertise in different parts of these value chains and can bring technology can bring customers can bring.
Experience.
Two two adventure that.
No one company necessarily would have all of that but collectively we can work with people that are that.
Can build these new value chains and so.
It's early days on many of these things we're studying all the different opportunities in terms of blue hydrogen green hydrogen theres a lot of different colors that are <unk>.
<unk> as you get down into the details of it.
And it will require significant investments so I don't want to I don't want to get ahead of ourselves here. This is to really develop.
Well informed perspectives on the investment opportunities the business models.
And ultimately how we would we would build the business up there, but it's a it's exciting other high quality partners that we.
We are working with and I think youll see more of these efforts announced here we've got a lot of them that we're working on.
Around the world not just here in the U S.
Great. Thanks.
Thanks, So much look forward to seeing the additional details there over time.
Second question is actually on M&A, and just consolidation and if we think back over the last few years, you've had a great track record the noble deal in 2020 already more recently I Wonder if you could talk a little bit more about how you're viewing the landscape for further acquisitions upstream downstream and even new energies going forward.
Sure Devin So we're always looking we've got an evergreen process, where we scan all the different sectors that are of interest to us.
And so we watch we watch companies, we watch sectors, we watch opportunities, although we've had a pretty high bar, which is why.
We've only done a few deals and as you say.
We feel like the deals we've done are likely.
Likely to turn out well.
We got a strong portfolio, we've got a really strong base case, and so we don't need to do a deal unless it really improves on what we expect to deliver otherwise.
I would just say we're going to continue to be very disciplined we don't have an open checkbook, even when times are good like this especially when times are good like this we walked away from a deal a few years ago, rather than chase value out of it.
We've sold assets out of our portfolio well times and as you say the last couple of deals where we're done it at a pretty good time so.
Over time, I think in the in the oil and gas business, there's likely to be some more consolidation.
You need fewer and stronger companies that normally happens at the bottom of cycle rather than at the top of the cycle.
In new energies Theres, a lot of activity to devins question.
I think there's a.
Very active.
Market out there, where you could see some things come together because nobody has all the pieces and I think as you look at building. These businesses, we're gonna find combinations probably are necessary to.
It's actually.
Begin to put put those pieces together, but.
We're gonna be we're gonna be disciplined as we have been all along and if we do anything.
Come out to to explain to you, how it's going to create value for shareholders.
Great. Thank you.
Our next question will come from Doug Leggate with Bank of America.
Thanks, excuse me good morning, everyone.
Already done.
Good morning, Mike.
Maybe I've got one for each of you guys. You know go to pure first.
So, yes, I think you've been or both of you guys have been very clear about monitoring the buybacks through the <unk>.
A cycle and I think we'd all go.
Totally agree that your breakeven is not one of the best in the industry.
Are you still end up building a ton of cash.
And your share prices.
It gets pretty close to an all time high.
I'm just curious.
Last thing you had this situation you had multiple parallel projects going on to manage almost close to a net debt balance sheet.
What's to prevent you from building cash on the balance sheet being opportunistic whether it be through M&A.
It would be a cyclical opportunity to buy back your shares a little level I'm, just curious how you're thinking about.
We've had a philosophy that goes back a long time and the track record again, I think that speaks for itself.
35 years of dividend increases again compounding at 6% for last 15 years.
Our investments in our traditional new energy growing both our guidance on upstream production growth is 3% compounded.
Now the second largest bio renewable diesel producer in the country with our <unk> acquisition.
And when we generate cash in excess of that at first goes to the balance sheet. So we've been very clear that our stated net debt ratios between 20% to 25% that's still a very strong balance sheet. If you recall as.
As we.
Entered Covid, we were the only company that showed a stress test at $30, Brent and our net debt ratio was kind of goes into the low thirties. If in fact, we would have had two years at 30, but that would've been where many of our peers started into COVID-19. So we've always maintained a strong balance sheet and we think that's appropriate over the cycle to.
In that range, but we're well below that our net debt is under 5%. So that's just a function of <unk>.
Cash coming in in our.
Just a commitment to not be pro cyclical we could have a larger buyback program today, absolutely. If we wanted to just peg our net debt ratio at a higher level, but I think our shareholders would.
Appropriately question that strategy is not being across the cycle. So resetting the buyback at a level that allows us to maintain and across the cycle and when prices do correct. We'll continue to buy back shares near the top in the range that we've been talking about in terms of.
Acting counter cyclically in terms of M&A or any kind of major capital project, we have the capacity to do that at all kinds of balance sheets, we've shown that on.
On M&A, we use equity because we think it makes a lot of sense there as oil price risk in any kind of transaction. So we don't need to do it all with cash it will come with that very likely so.
To have some capacity.
Using equity in oil deals makes a lot of sense.
And again, we have a great a great portfolio of projects, but we've shown a 10 year profile. In addition to our five year guidance, where the growth continues we have a lot of great projects to choose from.
The goal here is to sustain and grow the enterprise with the lowest capital possible, where more capital and cost efficient than we've ever been we've talked about that.
And we're not really paid for growth by the market. So we're growing at a very appropriate rates strong rates for the next five years and again, we've shown beyond that but we certainly have the balance sheet.
And the capability to do more if we think again as Mike said, it's in the interests of our shareholders.
Very thorough answer thank you Pierre for that Mike and I hate to put you on the spot.
So the privilege or the challenge I guess of meeting with the administration recently I asked this question to your larger peer earlier today and I'm. Just curious if you would care to share your thoughts on.
Some of the legislative potential legislative risks.
<unk> industry.
I guess, a big picture level I'm curious, whether you feel that the pendulum from investments Investor standpoint is beginning to swing back in your favor.
And towards human to assure them that.
Sure Doug So look when we.
With policymakers, including those in the administration.
What I would talk about is the importance of the energy of balancing economic prosperity.
Energy security and environmental protection.
And all three of those things matter.
Economic prosperity affordable energy underpins the ability of the economics or the economies too to thrive reliable energy.
Is.
Tied to National security, and we're seeing that play out.
In.
Different parts of the World today, and then of course, there are the concerns about the environmental impacts of energy production and energy use and we have to take those very seriously as well and so my message to the policymakers is to be sure that we consider the appropriate balance of all three of those and policy because if you over index on just one.
You can create unintended consequences and vulnerabilities.
They don't manifest themselves for a little while but they are there.
Eventually they do materialize and so.
I'm, a believer that we share a lot of common ground with governments around the world as we talk about these issues.
We share a common ground, which.
Our investors who are concerned about these things as well and and so.
Look we've been doing ESG for a long time and keep a book on my desk called the standard oil spirit that was written in $19 23, and it talks about our commitments to people that talks about our commitment to protecting the environment and this has been in the ethos of the company Forever. That's evolved our society has evolved.
And so we're committed to being a responsible company and been a part of the solution here.
In the U S and around the world.
Thanks for the answers.
You bet Doug.
And our next question will come from Ryan Todd with Piper Sandler.
Great. Thanks.
Maybe one follow up question on Biofuels, but on the liquid side of the Biofuels market.
Could you maybe provide an update of that.
How youre seeing the liquid biofuels market.
Maybe relative to your expectations, particularly with a little time with with the <unk> acquisition under your belt.
We're expanding pretreatment in Germany in Europe , especially in things towards sustainable aviation fuel.
How is the market playing out relative to your expectations. How do you see the SaaS issue playing out between U S and Europe and then maybe any.
Date on the progress of the Geismar renewable diesel facility that you acquired from Reggie.
Sure So I'll start.
With the <unk> acquisition.
The assets are good that people are even better.
Any surprises so far have been to the upside we've already identified quick wins commercial opportunities, we've lowered insurance and financing costs.
Integration efforts are all on track and delivering on our expectations. We're seeing placement of biodiesel in the chevron's West coast refining and marketing network and that continues to ramp up we're optimizing freight and feedstocks across the system. So all of that builds on.
The strength of both companies had in the renewable fuels value chain and we just see it as a really nice a nice combination here.
The Geismar expansion is.
Underway and.
We're we're halfway already to our renewable fuels target as that's completed.
You indicated were going to grow to a 100000 barrels a day, we're well on our way to do that and of course, we're investing at other.
Relationships, we've got a joint venture with Bunge.
Where we're now participating in the soybean crush spread and bringing feedstocks into our into the system.
We're working on converting a hydro processing capacity at some of our refineries to be able to run.
Bio feedstocks. So this is part of our business that will grow the economics on it.
You know like anything in the in the downstream are a function of feedstock cost supply demand in markets.
But they've been they've been good so far and we expect.
As the cycle in and out at the time that they're going to continue to be an important part of our portfolio. We are seeing more people go into renewable diesel so it's a market that.
You know like any other commodity market at times may get long and.
And margins with May reflect that but you know what.
We're familiar with those dynamics from our traditional business.
Okay.
Thanks, Mike and maybe.
One more.
Maybe a little speculative, but any thoughts on what you think the impact of of a Russian product.
<unk> band to Europe on how that could play out in terms of product flows of those barrels was likely to find a home in Latin America or Africa, or do you think that we may actually see a decent amount of that Russian product disappear from the market.
Yeah any of these export bans have to be looked at within the context of the broader market and as you say just as we've seen on crude.
Where the U S as bands the imported Russian crude.
Europe Hasnt, yet that's coming.
But it's a global market and you've got other buyers that.
<unk> needs.
They need the products and and they're not participating in the sanctions necessarily and so.
Going to the earlier question from Neil about the products side of the business markets are tight right now the diesel in particular as we've seen here recently and likely to stay that way through the winter I think.
Further.
We get into the first quarter when the product's band comes into effect in Europe , and I think that's going to be set against a backdrop of pretty tight product markets and you are going to find countries around the world need that fuel and.
You get into logistics, then you've got longer shipping legs, which you know.
Do you have enough ships to move it and how do you how does the system re optimize its a less efficient optimization for sure then moving into the natural.
Closer markets, but I do think that you'll see those products continue to flow, although just go to more distant markets with <unk>.
Increased costs and logistics and continue to keep some of this pressure on the overall balances out there.
Thank you.
Thank you Rob and our next question.
Our next question will come from Lucas Herrmann with Exane.
Well thanks, Mike.
Thanks, so much.
Chance to chat with you.
Two if I might.
Just remind me in terms of the associated contribution towards the top end of the range I think the indication as to where you believe it's opened up the range, but biopsy could.
Give us an indication of the level of dividend between pay downs of associate to date.
Just a little surprised that in the current environment.
Thanks.
We associate dividend would be.
Beyond the $3 billion.
And then Mike just if you could just give us a whirlwind tour will win but just talk around the Gulf on the development.
Taking place that within your own portfolio and how those will proceed in your current thoughts on timing.
Alright, thank you.
Okay, I'll, let Pierre start and then when I come back I'll, just ask you to clarify Gulf of.
Mexico or are you talking about Mexico.
Okay.
Okay very good.
Sure.
Go ahead.
Lucas you are right that affiliate dividends like last quarter, we guided to be above the top end of the range and now we're guiding at the top end of the range, which we increased it during the course of the year.
And that reflects really two items Angola LNG.
<unk> has in the in the affiliate income line been generating earnings all year, but during the first half of the year. The cash return was a return of capital and not a dividend and so it's showing up in a different part of the cash flow statement and then the second item is given the uncertainty at TPC.
T O is holding more cash will get more cash out of T. C L.
Tcl appropriately, it's just being cautious and Mike said all of our barrels are flowing and in October we expect them all to flow in November we expect the repairs to be completed shortly now that said they are just being cautious and holding a little higher cash balances. So we will be at the top end of the range.
Through <unk> I think we are at about $2 billion of affiliate dividends you can confirm that with Roderick, but the reason why youre seeing that.
Cash flow line of affiliate income less dividends being a little bit larger than maybe you would expect it's primarily those two drivers in terms of the cortex of Angola, LNG accounting and Tcl holding cash balances, which will be a temporary thing and we expect that that will see higher cash.
In the future from them.
Okay Gulf of Mexico, Lucas as you know, we're one of the largest leaseholders in the Gulf. We've got over 270 leases out there and a strong base business a lot of installed infrastructure that enables capital efficient brownfield development and importantly, it's one of the most carbon efficient assets in our portfolio.
So with the carbon intensity of about six kilograms of Cotwo per.
Barrel of oil equivalent.
Lease sale 257 is the one that was in question.
Here a few months ago.
As a result of the inflation reduction act that's been clarified in that lease sale is proceeding we picked up 34 leases in that sale and we look forward to continued leasing by the federal government.
As indicated in the kind of encouraged by the inflation reduction Act and we'll participate in those in terms of production growth.
We will advance a number of projects that are underway right now.
Jack St Malo has a multiphase pumping project.
That starts up this year and some additional development drilling Bigfoot has ongoing development drilling and water injection that will begin in the first quarter of next year.
Mad Dog two is operated by one of our partners and I would refer you to them.
For an update on that project.
Got it St Malo, our waterflood first injection plan for next year.
Anchor our new Greenfield project, we expect first oil on that in 2024.
Whale another Greenfield project operated by one of our partners expect first oil on that towards the end of 2024 and then we recently took in.
In the second quarter of this year on the value more project and expect first oil on that one in 2025. So I. Appreciate the question because oftentimes I hear people say well, we can see the Kazakhstan growth, we can see the Permian what else do you have we've got a string of projects there in the deepwater Gulf of Mexico.
That are kind of sequentially lined out that will steadily contribute to.
To to production growth here in the U S for the from the deepwater.
Alright, thanks very much appreciate it.
Thank you Lucas.
And our next question will come from barrage, well Cataria with RBC.
Hi, there thanks for taking my questions I've got two left please the first one is just coming back to.
Kazakhstan and CPC.
My understanding is theres been fortuitous timing for tengiz, because one of the other projects and in Kazakhstan has been offline, which is allowed tengiz to flow.
Despite the pipeline capacity, obviously being lower so I was just trying to understand you know hypothetically if Kazakh production comes back up to full capacity, but the pipeline capacity is maintained to be reduced or is not at full capacity and do all the projects get pro rata down equally or is there any other.
So we need to be aware of there as it relates to tengiz.
And then the second question is on your LNG portfolio performed extremely strong this quarter.
Can you say what proportion of your LNG portfolio is.
Sold under long term contracts and what proportion are installed on a spot basis.
For the year for you know over the medium term. Thank you.
Yeah. So it's.
At CPC I mentioned earlier that right now only one of the three single point mooring.
Is operational the other two R.
Our down for some maintenance and repair work.
That's well underway.
And so we would expect that work to be completed and and to be able to handle full flows on CPC here before too long if for some reason that didn't happen and we were constrained to the one S. P M.
That has the capacity to load out about 70% of what CPC can move when it's when it's operating.
Paul So there would be some.
Some constraints on movements.
Tcf has.
Long been the initial the largest.
And.
In many ways I think the most important shipper on that line and that's reflected in some of the you know the practices or whatever I don't want to get into.
The details, but we would still be able to flow barrels maybe not all of our barrels, but but I think.
<unk> would be well positioned to not be disadvantaged, let me say that.
If there were some sort of proration underway.
I'll just add that the nominations for CPC for November have already been put in place and Tengiz Tcl essentially got a phone them nomination even for November and again, that's even in a situation if the.
Spm's are not repairing and of course, if they're repaired by then find issue, but even if they stay down for November TC has already received a full nomination.
On the LNG question garage, it's notionally around 80% contracted 20% spot. That's a combination of both of our Australia, LNG operation and our West Africa operations, our West Africa tends to be.
Almost all spot in Australia is closer to 90 10, so that averages out to about 80, 20, and we'll give we'll give guidance on our spot price sensitivity.
We'll do that in the fourth quarter call at the end of January it depends on how many spot cargoes are produced both out of again, our West Africa, and Australia operations.
Thank you that's great color I appreciate that.
And our next question will come from Irene homeowner with Dr. Ken.
Thank you very much good afternoon, and congratulations on the very strong results.
My first question your financial framework is clearly to manage through the cycle, but at the same time. The current uncertainty on the commodity price outlook is he's really been extreme and that is partly because of that.
As with any sector. So my question is.
As you look at your downstream businesses, whether in the U S or Asia.
<unk> seen any signs of an economic slowdown which.
Cause you some concern as you look ahead to Tianjin, <unk>, which might perhaps drive a more conservative approach to Capex Gov. Thank you.
Yeah.
Thanks demand remains pretty strong globally.
Across the product's barrel, though there are some variations in that.
Certainly the U S West coast, which had some refining issues in prices reflected that we saw gasoline demand in the third quarter.
Responsive to those higher prices and a little bit of softness there.
Diesel demand has been pretty strong around the world, maybe a little less so in China, given some of the Lockdowns that theyre seeing at aviation demand has been steadily coming back as people are flying again, not quite to pre COVID-19 levels, yet, but but steadily increasing and so.
Overall, I wouldnt say that product demand that we've seen to date.
<unk> is sending a strong signal that a recession is underway or that the economy is significantly slowing.
As I said, there's always some kind of regional or maybe sectorial.
<unk>.
Unique characteristics, but no we're not we're not really seeing that yet arena.
Thank you my supplementary question, if I can go back to the natural gas. Please.
Ellis TFS prices have more or less policies over the last year.
I Wonder if you can help us understand that.
The impact if any on your own R&D does it create some pressures to perhaps.
We work more on the technology to try and reduce the costs given that the value of the incentive is half what it was last year. Thank you.
Sure so let.
Let me set the incentive aside for a second and every one of our downstream businesses, we're always working on reducing costs and improving technology and finding ways.
To become more efficient and so that's inherent in our business.
The dynamics around L CFS credits rens.
<unk> 32.
Credits in California.
The EU trading scheme.
All of these things we have to manage.
Through their own cycles and.
It's a part of our business that is.
Related to but not.
Not necessarily correlated to the fundamental supply demand dynamics that drive physical flows because you have.
Government allocations of credits and.
Whether people are building inventories of credits or drawing down inventories of these credits and so they don't necessarily.
Correlate with the underlying commodity and we've got a fair amount of experience in managing that certainly the economics on something like our N G.
Rely on the credit structure and the regulatory framework that incentivized those businesses and if you see the credits.
Declining in value that.
<unk>.
It starts to erode a little bit of the margin of that business. We have to take a long term view on these things and I think the.
You know the regulators do the same and as they see credit values reflect a lot of length and credits that suggests that the technology is advancing the supply is advancing and they can.
Set more ambitious targets and so these things evolve over time.
And I think our people have a pretty good track record of managing in that environment.
Thank you. Thank you very much.
And our last question comes from Paul Cheng with Scotiabank.
Hi, good morning, Thank you.
Everything from my end and peer.
One question for a person that's a simple one.
In the policy in your presentation, when you're talking about downstream, you're only talking about what's the chemical earnings.
Sequentially at that point that they are.
At all times, you Dan mentioned minions presentation. At this time is that means that chemical earnings factor.
At least flat, which is surprising given how much is done Martin JOL, we're seeing in the industry.
The first question second question.
On my yes, Paul de O N G longer term strategy most of your peers that have been pretty aggressive in growing their LNG operation do you have Mary path at all or at least very cash rich.
LNG operation, but you don't really have much tend to grow at least on the table.
Maybe you know that point that one as well.
Longer term medium to longer term strategy in LNG.
Thank you.
Sure Paul quickly on <unk>.
Chemicals earnings were a little bit lower quarter on quarter.
And that's really a function of margins we had.
Higher ethane prices and lower polyethylene prices and so the olefins margins, which is the largest driver of our performance.
Squeezed so.
It did go down sequentially.
On LNG strategy.
<unk>.
Long favored the Pacific Basin, given the best.
Best customers.
In the.
Japan Korea, Taiwan.
Our markets and our resource position in the Pacific.
The Atlantic Basin, we've got exposure to it but you know Europe traditionally has been a market, where you're competing with Russian pipe gas.
Less attractive.
With the changes now that we see in markets.
We're increasing exposure to Atlantic basin.
LNG, we've done a couple of deals with Gulf coast projects that are being developed that will give us offtake that we can move into global markets and then we.
We're advancing projects in the eastern Mediterranean.
Assets that were acquired with a novel acquisition that would potential.
Potentially allow an expansion of the Leviathan field too.
Provide LNG supply that can go into global markets.
We've looked at other things so you know the.
Big processes underway in Qatar, we certainly.
Sure.
Deeply involved in evaluating that opportunity like everything that we look at.
LNG has to compete against the other investment opportunities in our portfolio, we're going to stay very disciplined on capital and we won't invest in everything that we could we're going to invest in the best things that we can and I expect that will include some LNG projects over time.
Thank you Paul.
I would like to thank everyone for your time today. We appreciate your interest in Chevron and everyone's participation on the call today. Please.
Please stay safe and healthy Sarah back to you.
This concludes chevron's third quarter 2022 earnings conference you May now disconnect.
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