Q4 2022 Chevron Corp Earnings Call
Speaker 3: a question and answer session and instructions will be given at that time. If anyone should require assistance during the conference call, please press star and the number zero on your touchtone telephone. As a reminder, this conference is being recorded. I will now turn the conference over to the General Manager of Investor Relations of Chevron Corporation, Mr. Roderick Green. Please go ahead.
Speaker 4: Thank you, Katie. Welcome to Chevron's fourth quarter 2022 earnings conference call and webcast. I'm Roderick Green, General Manager of Investor Relations. Our Chairman and CEO , Mike Wirth and CFO , Pierre Brevert are on the call with me.
Speaker 5: Also listening in today is Jake Spiering, the incoming general manager of investor relations, who will assume this position effective March 1. Jake and I will be transitioning together over the next couple of months. It's been my sincere pleasure working with each of you over the last 2 years.
Speaker 6: Thank you for your questions, feedback, and investment in Chevron.
Speaker 7: We will refer to the slides and prepare remarks that are available on Chevron's website. Before we begin, please be reminded that this presentation contains estimates, projections, and other forward-looking statements. Please review the cautionary statement on slide two. Now I will turn it over to Mike.
Speaker 8: Thank you Roderick and thanks everyone for joining us today.
Speaker 9: Chevron had an outstanding year in 2022, delivering record financial performance, producing more traditional energy in advancing lower carbon businesses.
Speaker 10: Pre-cash flow set a record, beating our previous high in 2021 by more than $15 billion.
Speaker 11: enabling a strong dividend increase and the buyback of almost 4% of our shares.
Speaker 12: U.S. production was also our highest ever, led by double-digit growth in the Permian.
Speaker 13: Growth matters when it's profitable.
Speaker 14: Return on capital employed over 20% shows that our focus on capital efficiency is delivering results.
Speaker 15: And we took important steps in building new energy businesses.
Speaker 16: We successfully integrated REG's people and assets into Chevron, combining the best of both companies' technical and commercial capabilities.
Speaker 17: And we acquired rights to pore space for potential carbon capture and storage projects in Texas and Australia.
Speaker 18: We had many other highlights last year, to name just a few. At TCO, project construction is largely complete and we're starting up the fuel gas system.
Speaker 19: The focus is on commissioning and startup of the Wellhead Pressure Management Project by the end of this year to begin transition of the field from high to low pressure.
Speaker 20: We announced a significant new gas discovery offshore Egypt, which could build on our growing natural gas position in the Eastern Med.
Speaker 21: And our affiliate CP Chem reached FID for two world-scale ethylene and derivatives projects in Texas and Qatar.
Speaker 22: 2022 was a dynamic year with unique macroeconomic and geopolitical forces disrupting economies in industries around the globe.
Speaker 23: These events remind us of the importance of affordable and reliable energy with a lower carbon intensity over time.
Speaker 24: We don't know what's ahead in 2023.
Speaker 25: I do know that Shevron's approach will be clear and consistent.
Speaker 26: focused on capital, cost, and operational discipline.
Speaker 27: with the objective to safely deliver higher returns and lower carbon.
Speaker 28: With that, I'll turn it over to Pierre to discuss our financials.
Speaker 29: Thanks, Mike. We reported fourth quarter earnings of $6.4 billion, or $333 per share.
Speaker 30: Adjusted earnings for $7.9 billion are 409 per share.
Speaker 31: Included in the corridor were $1.1 billion in write-offs and impairments in our international upstream segment and negative foreign currency effects over $400 million.
Speaker 32: A reconciliation of non-GAAP measures can be found in the appendix to this presentation.
Record operating cash flows, in combination with continued capital efficiency, resulted in over $37 billion of free cash flow in 2022.
The only other year Chevron's operating cash flow exceeded $40 billion was 2011.
Free cash flow in that year was less than 40% of this year's record.
In 2022, Chevron delivered outstanding results on all four of its financial priorities.
Announcing earlier this week another 6% increase in our dividend per share.
positioning 2023 to be the 36th consecutive year with annual dividend payout increases.
investing within its organic budget despite cost inflation.
Inorganic capex totaled $1.3 billion, nearly 80% for new energy investments.
paying down debt in every quarter and ending the year with a 3% net debt ratio.
Returning record annual cash to shareholders through buybacks.
and exiting the year with an annual repurchase rate of $15 billion.
Two days ago, Chevron's Board of Directors authorized a new $75 billion share repurchase program.
Now is a good time to look back on our execution of the prior programs.
Over the past nearly two decades,
We bought back shares in more than three out of every four years, returning more than $65 billion to shareholders.
And we've done it below the market average price during the whole time period.
Going forward with the new program, our intent is the same.
be a steady buyer of our shares across commodity cycles.
With a breakeven Brent price around $50 per barrel,
to cover our CapEx and dividend.
And with excess balance sheet capacity.
We're positioned to return more cash to shareholders in any reasonable oil price scenario.
Turning to the quarter, adjusted earnings were down nearly $3 billion compared with last quarter.
Adjusted upstream earnings decreased primarily on lower realizations and liftings, as well as higher exploration expense.
partially offset by favorable timing effects.
Adjusted downstream earnings decreased primarily on lower refining and chemicals margins and negative timing effects, partially offset with higher sales volumes following third quarter turnarounds.
The other segment charges increase mainly due to accruals for stock-based compensation.
For the full year, adjusted earnings increased more than $20 billion compared to the prior year.
Adjusted upstream earnings were up primarily due to increased realizations.
Other items include higher exploration expenses, higher incremental royalties and production taxes due to higher prices.
partially offset by favorable tax benefits and other items.
Downstream adjusted earnings increased primarily due to higher refining margins.
partially offset by lower chemical earnings and higher maintenance and turnaround costs.
2022 production was in line with guidance after adjusting for higher prices.
As a reminder, Chevron's share of production is lower under certain international contracts when actual prices are higher than assumed in our guidance.
Reserves replacement ratio was nearly 100%.
with the largest net additions in the Permian, Israel, Canada, and the Gulf of Mexico.
Higher prices lowered our share of proved reserves by over 100 million barrels of oil equivalent.
2023 production is expected to be flat to up 3% at $80 Brent.
After adjusting for lower prices and portfolio changes,
primarily the sale of our Eagleford asset and the expiration of a contract in Thailand.
We expect production to grow, led by the Permian and other shale and tight assets.
We remain confident in exceeding our long-term production guidance.
Looking ahead to 2023, I'll call out a few items.
Burnings estimates from first quarter refinery turnarounds are mostly driven by El Segundo.
Based on the current outlook, we expect higher natural gas costs for our California refineries.
Full year guidance for all other segment losses is lower this year due to higher expected interest income.
and again excludes special items such as pension settlement costs.
The all other segment can vary quarter to quarter and year to year.
We estimate annual affiliate dividends between $5 and $6 billion, depending primarily on commodity prices and margins.
The difference between affiliate earnings and dividends is expected to be less than $2 billion.
We do not expect a dividend from TCO in the first quarter.
We updated our earning sensitivities.
About 20% of the Brent sensitivity relates to oil-linked LNG sales.
Also, we expect to maintain share buybacks at the top end of our guidance range during the first quarter.
Finally, as a reminder in Venezuela, we use cost-affiliate accounting, which means we will only record earnings if we receive cash. We do not record production or reserves.
2022 was a record year for Chevron in many ways.
We look forward to the future.
confident in our strategy.
with a consistent objective to safely deliver higher returns and lower carbon.
We'll share more during our investor day next month.
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'll do our best to get all your questions answered. Katie, please open the lines.
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Again, if you have a question, please press star 1 on your touch tone telephone.
Our first question comes from Janine Way with Barclays.
Hi, good morning everyone. Thanks for taking our questions.
Before we get started, hi, good morning, Mike. We'd like to wish Roderick well on his new position, and we really appreciate all your time and help over the past two years. So thank you very much.
Our first question may be just heading towards the buyback authorization topic. This week the Board authorized the buyback authorization up to $75 billion, no expiration date, which is pretty large versus the prior authorization that had a four-year expiration date.
We heard your comments on wanting to be a steady buyer of your shares across cycles and that you're positioned to return more cash to shareholders. Can you comment on the decision-making process for getting to that $75 billion and maybe the choice to leave the authorization open in timing versus the prior authorization did have an expiration date?
15 of the last 19 years. We've bought shares back lower than the market volume weighted average over that period of time. We look at the decision going forward in the context of the cash generating potential of the portfolio, the outlook.
for the market environment, the strength of the balance sheet. And we don't want to be authorizing a program every year, so we talked to the board about a multi-year outlook. The fact that there's not an end date on it is only...
significant if you're trying to do some sort of math and annualize this.
We think our track record speaks for ourselves and the steady consistent way that we've done this. And so, you know, we increased the rate three times last year as we saw the situation evolve and we're now at an all-time high with the rate of repurchases. So, you know, the last thing...
You said it, but I'll repeat it. It's sized, you know, to maintain our program through the commodity cycle. We aren't pro-cyclical, we're not counter cyclical, we're steady through the cycle and that is the intention. Pierre, do you want to add anything? Yeah, Jeanine. So the authorization from 2019 was going to be consumed in the second.
start the new one April 1st. So it is similar to the way it was done the prior time.
Thank you for that clarification. We appreciate that. Maybe our second question, it's that time of year again. Reserve replacement ratio, your ratio for 2022 was 97%. And we believe that compared to 112% last year, and then I think it was around 99% on average for the five years.
prices, FID decisions, you know, portfolio actions that we take to either, you know, sell or buy. And so the one-year number is one that will move around. The longer cycle number is the one that you ought to pay attention to. Remember also, you know, as we...
have this large position in the Permian we continue to develop, we can only book five years forward. And so, you know, each year we'll produce out of the unconventional assets and we'll add another year's worth of reserves on the on the back end of that. And so, if you were to look at the Permian unconstrained by that you'd have a very different view.
You know, this year we had some additions in the Permian and Israel and Canada and the Gulf of Mexico, as Pierre mentioned. The largest net reduction this year were Kazakhstan due to the contract terms and the effect of higher prices. If you were to actually adjust that out, so, you know, we mentioned 100 million barrels were the price effect.
this year would be, think of it as 107% x the price effect. And so I do think over time, we intend to be in this business for quite a while and 100% is a number that you ought to expect to see that or greater over time. But in any given year or any.
Well, Roderick, I want to echo Janine's congrats on the new role and thank you for all the help over the years. It's been great working with you. It's been great working with you.
So I wanted to focus in on upstream, and it's good to see the continued progress on TCO and exciting to be getting close to the finish line on the expansion project there. We noted that WPMP is on track for commissioning and startup later this year. I just wanted to first confirm that the second part of that expansion, FGP, is still on track for 24. And then just stepping back.
Just walk us through your latest expectations to the impacts on both TCO production, CapEx, and then also affiliate dividends as these projects come online. Trying to get a sense of the changes in 24 versus 23, and then also how you think about the run rate on both volumes and spending for that affiliate post FTP.
Yeah, Devin, I'll talk to the project and let Pierre talk a little bit to the financials. First of all, no change to cost or schedule guidance. WPMP is trending toward a beginning startup by the end of this year. We've got a lot of work done. We've got a new power grid up and running. And this was a power grid built back in the Soviet days. Control room is up and running.
an important milestone to test the first of the three GTGs, begin the process of powering up electrical generation capacity and commissioning boilers, steam, and other utilities. So that all happens sequentially here over the next period of time, which leads to commissioning the pressure boost compressors.
in the third quarter and then converting the field from beginning the conversion from low to high or from high to low pressure by the end of the year. A couple of things that will bear on production. We've got two planned turnarounds of the old processing trains. They're called the KTLs. There's five of them. We've got two turnarounds this year that are planned in the third quarter.
So those will be down for a period of time, and then as those come back up, production may not fully recover on those two, as some of the wells won't resume flowing until we get to the low pressure system. So back half of the year, you'll see a little bit of that impact. And then as we move into 24,
We've got more of these high pressure to low pressure conversions in the field, and we've got FGP startup first half of 24. So you don't see the full effect of FGP roll through. You get partial effect in ramping in 24, and then the full effect will show in 25. Cash will kind of follow that pattern, so Pierre maybe you can talk about the pattern.
course of last year just due to uncertainties that are going on right now. The CapEx was included in our December release so it's nearly half of the three billion dollars of affiliate CapEx so that's 1.5 billion. Again you'd expect that to continue.
to roll off next year. And then if you go back to our investor day, we showed that at $60 Brent, you know, post startup in a full year of FGP production, that the free cash flow coming out of TCO on 100% basis would be $10 billion. And again, that's at $60 Brent. We'll provide...
you know, further updates as we normally do on investor day. But the takeaway, as we've said for a long time, now we've been investing in this project for, you know, six plus years through COVID, through the ups and downs. When it starts up, it'll generate a lot of free cash flow. We'll see that in the form of dividends and we'll see that in the form of paying back some of the loans that we co-lend.
meaningful.
Okay, great. Thank you very much for the helpful answer there.
Thinking about this year, 2023, in more detail, you talked about 0 to 3% total production growth for the year led by shale and the permeance. And last year, you had another strong one for the permeance. You had volumes throughout 16%. I was wondering if you could just talk through your expectations for that asset in 2023.
whether or not you're adding rigs there, overall activity trends, and then more broadly within that 2 to 3 percent range where some of the drivers can be moved to the upper or lower end as we move through the year.
Yeah, maybe I'll finish on the, I think the second question is about overall production and the first was about
Permian. So you know our outlook for 2023 at $80 is flat to up 3% so that puts between 3 and 3.1 million barrels a day. There's a modest adjustment to that relative to our investor day guidance. A couple of things driving that some project.
Deferrals like Mad Dog 2, which we thought would start up in 22 and now looks like a 23 startup. We've got some downtime, plans downtime that shifted from 22 to 23. And then our Permian growth would be a little bit lower in 23. A couple of things, one in 22 we had the benefit of a lot of prior ducks.
we space laterals into single or multi-bench developments. So our revised plan will have some deeper targets, a few more rig moves, and a few more single-bench developments, all of which brings that pace down a little bit. So that's kind of at the highest level of what is behind the production numbers.
Katie, we can go to the next question.
Katie, can you hear us?
We'll take our next question from Neil Mehta with Goldman Sachs.
Good morning team and congrats here on a good year. Hey Mike, I guess the first question I have for you is around global gas. Maybe you could talk about how you're seeing the market. There's obviously been a tremendous amount of volatility and remind us again how you're positioned from a contracted versus spot position.
then I have a follow-up on gas as well in the Eastern Met. Okay, well you know high-level you know we certainly have seen a very unusual and volatile year in 2022 which has settled out here as we've come into the winter primarily as you know we've seen
A bit milder winter in the northern hemisphere than is typical. And as in Europe , the successful build of inventories for this year and the reduction of industrial demand have both resulted in an outlook that is less dire.
for the European economies than it may have looked like several months ago. And so I think the market reflects all of that. You also have the fact that China has been, you know, the economy's been slow throughout the year, which is, you know, looks to be turning around.
I think it's good that markets have calmed. I mean the high prices really were creating a lot of stresses out there that are not good. And I hope we see these prices stay in a more moderate range as we enter 2023. Our posture is largely.
we've described it before, we're primarily contracted on oil index pricing, you know, biggest piece obviously out of Australia. We do have, you know, we ran really well in Australia last year, record number of cargos and so there were some spot cargos in the mix out of Australia.
West Africa, we've got a little more spot exposure in Angola and now with Equatorial Guinea as well. But think of us as primarily oil linked and we've got some sensitivities I think that Pierre has put out there and we've reiterated some of those in the guidance today.
out there as well. So how do you think about prosecuting that asset? Where does it fall in terms of prioritization and how big can it be?
Yeah, it's a high priority. You know, we took FID at the end of last year on a project to expand tomorrow from on a hundred percent basis 1.1 to 1.6 BCF per day. The first gas on that should come online in early 2025.
We are working on development options to expand Leviathan. Those are still being worked and you know we should narrow the concepts on that later this year and reach some decisions in terms of how we we intend to do that. The Nargis discovery it's just one well at this point but it encounters...
further to the west in the Mediterranean that we've not yet put any wells into, but we've got seismic and we're developing our exploration plans and you'll hear more about that as we go forward. So it's a high priority. The region needs gas both...
regionally in the Middle East, but also then obviously options to try to get that gas into Europe . And so the Nobel acquisition was really advantageous from that standpoint, and we're optimistic about the prospectivity of some of these additional exploration blocks.
All right, well stay tuned. Thanks, Mike.
Well, stay tuned. Thanks, Mike. Okay. Thank you.
We'll take our next question from Doug Leggett with Bank of America.
Thanks everyone. Roderick, I'd like to also pass on my thanks. You've transformed how Chevron does investor relations. Thank you for all your help. Guys, I wonder if I could go back to the buyback. I just want to try and understand a little bit about the comment around really just how you think about.
the purpose of the buyback. Is this really about dividend management at this point?
It seems to us that if you take your…
Brent, sensitivity into account, the run rate at the high end of the range puts you about a $90 breakeven on your oil price and I'm just wondering if this is about value or about managing confidence in future dividend growth.
Well, let me try to be clear on this, Doug. We do not do buybacks to manage dividends. Absolute dividend load is an outcome. It's not a reason that you would do buybacks. Our dividend is not a reason that you would do buybacks.
growth expresses confidence in the ability to grow free cash flow at mid-cycle prices, and it is a long-term decision, a long, long, long-term decision. We haven't cut the dividend since the Great Depression. Pierre mentioned we've increased the payout 36 years in a row now.
Buybacks are different. They signal confidence that we're going to generate excess free cash flow or we've got excess balance sheet capacity, which we have significant capacity in the current commodity cycle. And as we satisfy our commitments on the dividend, our reinvestment plans in a disciplined manner to grow free cash flows.
and maintain that strong balance sheet, we've got the capacity then to buy shares back through the cycle. You know, an outcome of buybacks is a lower absolute dividend, but it's not the driver. And so I don't want, there should be no confusion about that. We've got confidence in our dividend increases whether we're buying shares back or not.
So you made the point that your balance sheet is in terrific shape. Obviously you've got a lot of capacity there.
But also if I go back to that certain $90 breakeven, I'm on doing taking that 15 billion run rate, $400 million a year and adding it to the 50 breakeven, 90 bucks. What does that say about your outlook for us maybe stepping up growth capital? That would seem to imply that the growth capital is $17 billion.
compound annual growth rate at $15 to $17 billion dollars of CapEx in a market that's not growing that fast. We're growing well better than the overall demand for oil or for gas, which is going faster than oil is. And so we are...
growing production, but what we're really focused on is growing returns and cash flow. If we can grow returns and cash flow, the equation works.
We'll be happy to talk about this more when we're together at the end of the month, or at the end of next month. But we can grow cash flow, we can improve returns at the rate that we're spending at. And so I don't know why there would be a question about our ability.
to do that and the production numbers and the outcome of those decisions. It's not the goal.
Appreciate the answers. We'll see you soon. Thank you.
We'll take our next question from John Royal with JP Morgan.
Thanks for taking my question.
So maybe just a kind of a spin on Doug's question. So with the balance sheet at 3%, is there a point where you think of yourself as actually under-weathered? And I realize that's a good problem to have, but if you ever got to that point, would the mechanism be to get leverage higher by increasing the buyback? Or how do you think about that generally, the 3%?
kind of where you want to be.
I'll take that. Our guidance is for the net dead ratio to be
between 20 and 25 percent and mid-cycle conditions. And as you said, we're at 3 percent, so we're much stronger than that. And that's what happens in the short term. So Mike has talked about our financial priorities. They're simple. We've been consistent with them for a very long time. And three of the four are pegged. We just increased our dividend.
6%. We have a 2023 CapEx budget of $14 billion, given guidance that keeps that CapEx flat over the next several years. And we have the buybacks at the top end of the guidance range of $15 billion. So swings in cash flow in the short term will go to the balance sheet.
And that's because commodity prices and margins, we just were talking about natural gas prices and refining margins and things are moving up and down. But over the long term, those cash flows will be returned to shareholders. And so we want to do it in a way that is steady across the cycle. As Mike said, we don't want to be.
procyclical. And by the way, we haven't, right? Our track record shows that over the past nearly two decades that we've been able to buy actually below what the market average price has been. So the intent is to, yeah, we'll be a little strong balance sheet depending on commodity prices and margins and how strong our operations have been. But then over time the cycle will correct.
and then we'll continue buying back shares. We've said we could have a higher buyback rate right now. We're sizing it at a level to maintain it for multiple years across the cycle. That means there'll be a time period where we'll be buying back shares off the balance sheet and we'll lever back up closer to that 20-25% guidance.
buying back shares. We've said we could have a higher buyback rate right now. We're sizing it at a level to maintain it for multiple years across the cycle. That means there'll be a time period where we'll be buying back shares off the balance sheet and we'll lever back up closer to that 20 to 25 percent guidance. Thanks, John .
Just to follow up on the TCO project, I was hoping you could give an update on the CPP terminal operationally and where that stands. Then what types of discounts are you seeing at that terminal right now? I think you called out a few quarters ago or maybe two quarters ago that it was – What –
I imagine that's come in a bit. So where's that discount today and how's that terminal operating?
Yeah, so, you know, last year there was probably more news than there was impact on a variety of issues relative to the pipeline and the terminal. There was work going on in the kind of late third and into the fourth quarters on the two of the three single point moorings. All that work is done. All three SPMs are you
operational today. There are no constraints on loading. There are no constraints on throughput on the pipe. Despite a lot of the things that...
people heard and worried about last year, the pipeline was very reliable. Our production was impacted less than 10,000 barrels a day over the course of the year, it was only a few weeks in March and April . And so everything there is running very smoothly now and we don't see any constraints.
Discounts have come in a little bit on CPC. You know, in the immediate aftermath of some of the sanctions and changes, you know, related to Ukraine, we saw a trading range that was like four to ten dollars below a dated Brent.
And before the conflict began it was plus or minus a dollar. We're seeing kind of one to three dollar discounts now. So maybe not quite at pre-invasion levels, but not as deep as they were immediately afterwards. And given the overall flat price environment and the way it has strengthened.
the impact to CCOs relatively muted. We'll take our next question from Roger Reed with Wells Fargo.
We'll take our next question from Roger Reed with Wells Fargo.
Where other than we could come.
Hello Roger.
Looking at let's call it refined product demand. You talked about gas demand earlier. I'm just curious as you look around the world, you know, we've got the positives of moving away from COVID on a year over year comparison and then.
everybody's got high expectations for the China reopening. I was just curious as you look across your operating base what you're seeing there. Yeah you know overall Roger gasoline demand I'll start there still just a touch below pre pandemic levels you know fourth quarter of 2022
maybe two or three percent below fourth quarter of 19. If you look at diesel, demand's pretty flat versus pre-pandemic jet recovering but still below. And so you know at the highest level we're kind of still
flattish to recovering from pre-COVID. I think that's why there is concern that as you know China's economy really does come through and return to a more normal level that we could see increased demand start to pull on these markets again.
seen announcements out of China about their intention. We see, you know, international flights and air travel now being scheduled at much higher levels than we'd seen before long. And if you see the kind of rebound spending and activity in that economy that we've seen in other economies around the world.
That's one of the things that could buoy the global economy and firm up demand for products. So, there's still some variables in the equation. We're not past the risk of recession and clearly central banks are still tightening to slow things in certain parts of the world. So, there's some puts and takes.
But net-net, this continues to trend in a recovering direction with the two biggest questions probably related to the two biggest economies, China and the US.
Always the big guys, right?
A follow-up question to come back to the Permian, and I recognize the investor day coming, but Pierre, when we were at the sell-side dinner end of November , there was a lot of discussion over kind of the changing of the range and how that was really just a function of messaging more so than – Defence
overall change in the way you're developing the Permian. Kind of following from that to the comments about things a little different, the bench and the duck comparisons here over here.
overall change in the way you're developing the Permian. Kind of following from that to the comments about things a little different, the bench and the duck comparisons here over here. Tie
Do you look at it as any different from the messaging at the end of November or is there something else here?
No, nothing different. We'll show that at our investor day. Again, we were in the middle of the range. You can see the fourth quarter number was 738, so that was strong. We had some learnings, as Mike said, in 2022, and we've adjusted our plans to go to deeper targets and more single-beds development.
carbon. It's a big source of free cash flow. Our free cash flow growth over the next five years is really driven by Permian, Tanguise, Gulf of Mexico, a few other assets. And it's remarkable to have an asset that can grow at that rate and do it free cash flow positive the whole time and free cash flow growing the whole time. So it will ebb and flow a little bit as we learn more, but what you'll see
We'll take our next question from Irene Himona with Society General.
Thank you very much for taking my questions, which are both related.
ask both at the same time. So firstly thinking about balance sheet strength of course the other use it can be put to is M&A. You've been very disciplined with your M&A timings both with Noble and Reggie. How do you see the current market?
in these two, let's say, pots, legacy oil and gas versus low carbon? And then secondly, has the IRA act perhaps changed your appetite for faster expansion in low carbon businesses, please? Thank you.
Thank you, Irene. So, you know, we do have the capacity to do M&A. We don't need to do M&A, and so we'll only do deals that are value creating deals.
Interestingly contrast you know the traditional oil and gas market with a new energies market. What I would...
observed is given commodity price strength in oil and gas, we've seen companies that previously might have been languishing from a value standpoint strengthen and I think there's some optimism in the eyes of the market onion angle of the world continuing to pass.
other companies about the future. And so the bid ask spread on oil and gas companies is, you know, maybe a little wider right now given the, you know, the strength versus when we, you know, did our deal a couple of years ago. In lower carbon, with interest rates rising and...
and SPACs kind of receiving and the like, a little bit of the kind of froth may have come out of that market, but there's still some optimism in valuations there as well. And so we'll be very thoughtful and careful as we evaluate those. And there are a lot of...
lot of companies out there that have got, you know, business models in the space. So we watched them all. We will be back to talk to you if we have anything that's interesting. Let me touch on IRA and then ask Pierre to add a little more color. The IRA will...
probably accelerate some activity in the US. There's no doubt. Hopefully what that does is allows technologies to be de-risked, the cost of technologies to be reduced and the attractiveness of these investments to improve.
A bill like that with a grab bag of different policy incentives doesn't necessarily change our long term view on how we want to build businesses.
It does perhaps change the trajectory at which some of those businesses become more economically viable. And if that's the case, that could feed through into our solar investment decision. But it's kind of a second order effect rather than a first order effect. And just to add some of the other important effects permitting really critical for traditional energy, super critical for new energy.
new technology developments. He's seen us make some investments on technology to reduce the cost of capture of CO2, and then scale, getting costs down. So it's helpful, but it's just one element, as Mike said.
Thanks, Irene.
We'll take our next question from Ryan Todd with Piper Sandler. Great, thanks. Maybe if I could ask a couple on the downstream side. First, there's been a lot of noise earlier this year about refinery maintenance activity looking to be well above average in the US.
particularly during the first half of the year, especially amongst independent refiners. Your first quarter guidance.
Seems to suggest turnaround activity in one queue that's reasonably light or at least not terribly heavy. Any thoughts on whether your 2020-2023 outlook as a whole for Chevron looks normal or heavy in terms of refining maintenance?
And then maybe more broadly how you see general tightness in global refinement markets this year or over the course of 2023. Yeah, I would say it's a pretty typical year for turnaround activity. We've got the FCC at El Segundo in the first quarter of this year, which sector displayed a hit pa f combos is one of
which Pierre mentioned in his comments, but there's nothing unusual in our turnaround plan for this year. What you do see across the US and I think in some of the other markets are two things that are really kind of still echoes of COVID. One is you just seen capacity go out of the system and two you see maintenance that was deferred.
during COVID is, you know, it had to be rescheduled and replanned. And so there's probably still a bit of a bow way of pushing through the system in some places of activity that needs to get done for safety and reliability and regulatory reasons. And so that could be driving some of the speculation. I can't really
Comment on other companies plans. I'll let you talk to them about that Thanks, and then maybe On the other side of your downstream business on the chemical side, you know, it's clearly been weeks of the last little while Looking forward from here is the combination of lower natural gas prices and the reopening of China having any impact
And so at the margin, I think that's economic growth and development in China is a positive, but you don't slide into the lower part of the cycle quickly or easily, and you generally don't come out of it quickly or easily. So these things track over a longer period of time. So.
I do think we're, you know, it feels like we're kind of bumping along near a bottom here, but I don't know that there's a steep climb out as opposed to a gradual climb over time.
We'll take our next question from Jason Gableman with Cowen.
Morning. Thanks for taking my questions.
I wanted to first follow up on the affiliate distribution guidance because it is taking a step higher year over year and it sounds like that was due to TCO having excess cash. Is that kind of five to six billion dollars something you can maintain assuming oil price stays stable? Interesting question can someone say, we've scaled some of these to be our were no wrap stays stable, what is your hypers biting just
until the project actually starts up until TCOFGP starts up or would you expect that to fall off after this year? And then my second question is on a different topic, Venezuela. I believe you have now boots on the ground there again. Could you just discuss?
what you're seeing in terms of the health of the infrastructure there, the ability to ramp production, and the desire from Chevron's standpoint to participate in that. Thanks.
On affiliate dividends, there are two main factors why the guidance is here is higher than last year. You hit one of them on TCO not held excess cash last year. The second big one is Angola LNG. If you recall, a lot of their cash distributions were actually returned to capital. It's an
accounting concept tied to whether you have book equity or positive book equity or not. Now they're in that space. So we expect most if not all of the cash coming from Angola, LNG, N23 to be characterized as dividends. It was cash either way. It's just one shows up in cash from ops, the other one shows up in a different part of the cash flow statement but that's the second driver.
comes up, we expect more dividends out of TCO going forward. And then again, we have the loan that we also expect TCO to pay back during the next several years. Yeah, Jason, on Venezuela, we always did have boots on the ground. We just were very limited in where those boots could go and what.
we do have a little more ability to, you know, have influence and involvement in some of the decision-making. Your question about the state of the infrastructure, you know, there's been a lack of investment there for a number of years in the infrastructure.
reflects that and it'll take time for things to turn around. We have seen some positive production response already in the entities that we're involved in. They're producing about 90,000 barrels a day now, which is up about 40,000 barrels a day since we saw the change in these license terms.
That's been a good short-term effect. I'm not going to say you can extrapolate that, but it's where we are today. We are continuing to work on the ground to expand production, but it's too early to guide to anything.
We're also lifting oil and bringing it to the US. We've got a couple of cargos coming into our Pascagoula refinery. We're going to be delivering cargos to other customers on the Gulf Coast and then the revenues go into a series of structured channels to pay expenses and other obligations.
On the accounting standpoint, we're using cost affiliate accounting, so we'll record earnings only if we receive cash and at this point, I would say the cash flows are expected to be modest. So you know, this is a stepwise change in the environment there. We're going to go into it thoughtfully.
It's a six month license and you know, it's a dynamic environment. So we'll continue to advise you as we learn more as things evolve.
Great. Thanks a lot for the detail. You bet. We'll take our next question from Sam Margolin with Wolf Research.
Great. Thanks a lot for the detail. You bet. We'll take our next question from Sam Margolin with Wolf Research. Hey good morning. Thank you.
I'll ask about the Rockies. The Rockies is interesting. It's a place where you could...
maybe add a little bit of activity to
face your aggregate lower 48 activity levels, but without some of the inflationary pressures.
and just infrastructure tightness in the Permian and an inventory depth there is good. Is the Rockies a place where there may be a little bit of extra focus? And I asked that in the context of sort of the broader theme around your overall resource depth and production and all these topics that are sort of flowing into the broader conversation today.
Yeah, absolutely, Sam. We got over 320,000 net acres there. Last year we started out with one rig and one frac crew. We ended the year with three rigs and two frac crews working. The plan for this year is activity in that level.
It's been a positive movement in terms of activity and production expectations there. It's a really nice resource. It's a low carbon resource. We've got a lot of this is powered off the grid. There have been some permitting questions about this in the past. There's been...
large areas done under development plans and we've got permits well out into the future and continue to work that closely with the authorities there. So you know it's one we can talk about a little bit more at Investor Day. It's a really positive part of you know addition to our portfolio out of Noble and the Eastern Med.
over the long term are getting attention, but you know we'll get to this at the analyst day I'm sure, but is there a way right now where you can kind of add it all up and and size you know the Gulf of Mexico, other shale and tight eastern med gas and and just kind of frame that aggregate resource number against you know maybe what you see in the portfolio today as tail resource.
and just speak to a final answer around your organic portfolio and how it extends.
Yeah, I might have Roderick work with you so we're clear on the question when we get to the investor day on how to compare and size things relative to the portfolio. But we said today in our press release that we're very confident we're going to exceed our 3% compound annual growth rate over the next five years.
You can't do that unless you've got depth in the portfolio, which we have. And you've got quality projects and they're moving along on a good pace. And so I'll assure you that that is the case. We'll talk about this more at Investor Day and you'll have a chance to kind of go deeper into it with our folks.
We'll take our next question from Paul Sankey with Sankey Research.
Hi, good morning everyone and Roderick, congratulations. All the best.
Mike, I was a bit surprised by the major buyback announcement. Obviously the 725 billion is very splashy.
But within that it seems that your guidance has remained that you'll be in the $5 to $15 billion a year.
range based on the Q1 guidance. Is there, are you expecting to step that up or is this a five year authorization?
and were you conscious that it would probably cause a lot of political backlash? Thanks.
Yeah, so Pierre answered the question earlier. It's not a five-year authorization. It's an open-ended authorization. It is, you know, it's our intent to maintain it across the cycle. I'll just say that again. It's actually aligned with our upside and our downside cases from the 22 investor day.
and consistent with our track record of being in the market steadily, buying two dollars below the market over nearly the past two decades. And, you know, we could increase our guidance range, Paul. We'd need to be confident we could maintain that higher rate for multiple years across the cycle.
And I think that you should read it as a signal of confidence and we'll continue to talk more. We raised our buyback rate three times last year. So we're not averse to doing that and I would just say stay tuned. In terms of the reaction to it, I think it's perhaps been a touch overblown given that it's an open-ended. I don't think we're doing that. Again, I appreciate that you've come back on that pigeons and were connected to us anderr, that's something I think all investors are very tasked with, is having an open-ended view. When I say open-ended, I don't think I want to hated or shrank anyone who's allowed to
program and we could have sized a smaller one and just been prepared to do another one sooner. Pierre said we're closing one out. We just looked at something that would last over a number of years and we were trying to be splashy. We weren't trying to create any reaction out there. We're just trying to indicate the confidence we have in our cash generation.
Understood and an offset to that Mike you're spending more on exploration. Could you Just talk about the highlights that you see coming up in 2023 Obviously, we're aware of Eastern Med, but you know, there's other stuff out there and the spending has stepped up quite a lot, hasn't it?
Yeah, I don't know if I described the spending as being up quite a lot. We've got a nice portfolio that we like and I'll just touch on, you mentioned Eastern Med, we still have a lot of blocks in the Deepwater Gulf of Mexico.
We've got blocks in Suriname that we're still working on and that are on trend with some of the things in that region. We've picked up acreage in Namibia that's on trend with explorations in that part of the world as well. And so we've got stuff in Brazil, we've got stuff in Mexico that we acquired a few years prior to that.
So we've got a nice portfolio of opportunities that we continue to work on. And we don't go out and drill the wells until we're ready to drill them, but it's spread across a number of basins where there's good working oil and gas systems.
The Nargis discovery is a recent example of what happens when you focus in those areas. And I'm optimistic that we're going to see more of that in the future.
Our last question comes from Viraj Borkataria with RBC.
Thanks for taking my question. So the first one on the share count, just going back to early 2022, there was a period where you're stepping up the Vyber Act program, but the dilution from the employee options was offsetting that. So I'm just trying to understand, I know you took a charge today in the corporate line –
Do you expect 2023 dilution to be a similar level to 2022 or should it be lower? Any sense on that would be helpful.
We expect fewer employee and retiree exercises of stock options. That was extraordinary unusual in the first quarter and it's a zero-sum game. In other words, if employees and retirees do it early, there's fewer to do going forward. But that will be up to them in the stock price performance. And the share buybacks, I mean, you just divide, depends on what our stock price is. We give guidance....
issuances and we expect that to continue. That's very clear. Then the second question is just thinking about asset sales, looking at your guidance 2023 plans are fairly muted. I appreciate that you're basically at close to zero debt so you don't actually need to do anything.
But in a high commodity price environment, maybe counter-cyclically, you might want to accelerate something. So is this a function of just the limited cleanup needed in the portfolio or a view on bid-ask spread or anything else? Just get your view on the asset sale market at the moment. Thank you.
Yeah, so Baraj, we are a little lower than what our typical level of guidance has been or level of activity. Over the last decade, you know, we've generated about $35 billion in asset sales. So, you know, that's say three and a half.
There was some portfolio cleanup underway there that was you know needed to be done and we got good value as we as we sold those. You're always looking at your tail. There's always you know when you when you sell things off, there's a new you know part of your portfolio. It's okay this sits at the margin and so you're always challenging that. If we were to find you know interested buyers and some of the things that might fit better for others than they do for others.
do it based on what Mike just said, high grading of the portfolio, where we can get the best returns for capital, projects that can compete for capital. Some of the impairments that we took in the fourth quarter are a result and outcome of projects that are good projects, they're just not good enough to clear the bar. So it does ebb and flow a little bit, as Mike has said, but I just want to be clear, we do it as part of our capital discipline and driving higher...
safe and healthy. Katie, back to you.
This concludes Chevron's fourth quarter 2022 earnings conference call. You may now disconnect.