Q2 2023 Chevron Corp Earnings Call
Good morning, My name is Katie and I will be your conference facilitator today welcome to Chevron's second quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the Speakers' remarks, there will be a question and answer session and instructions will be given at that time, if anyone should require assistance during the conference.
Please press Star then zero on your touched on telephone.
As a reminder, this conference call is being recorded I will now turn the conference call over to general manager of Investor Relations of Chevron Corporation, Mr. Jake Stern. Please go ahead.
Thank you Katie.
Welcome to Chevron's second quarter 2023 earnings conference call and webcast I'm, Jake sparing general manager of Investor Relations, our chairman and CEO , Mike Wirth and C. S. L. P are braver or on the call with me today, we will refer to slides and prepared remarks 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.
Thanks, Jacob and thank you everyone for joining us today.
Earlier this week, we announced several senior leadership changes, including peers plans to retire next year, along with second quarter performance highlights.
In a few minutes appear will share more details on our financials, which included return on capital employed at greater than 12% for the eighth consecutive quarter.
And another quarterly record and shareholder distributions more than $7 billion.
At T O.
Making good progress with commissioning and pre startup activities.
<unk>, introducing fuel gas to new facilities.
In the third quarter, we expect mechanical completion through the future growth project and to complete a major turnaround.
Cost and scheduled guidance is unchanged.
Conversion of the field from high pressure to low pressure is expected to begin late this year.
At F. G. P is on track to start up by mid next year.
We have unused contingency, which gives us confidence that we'll complete the project within the total budget.
After completion of these projects <unk>.
<unk> is expected to deliver production greater than 1 million barrels of oil equivalent per day and generate about $5 billion of free cash flow chevron's share at $60 Brent in 2025.
Chevron's Permian production set another record in the second quarter about 5% above the previous quarterly high.
We expect next quarter's production to be roughly flat before growing again in the fourth quarter on track with our full year guidance.
Early 2023, well performance at our company operated assets at all three areas is consistent with our plans.
In new Mexico, we've put on production that 10 wells.
Before year end, we expect to pop and additional 30 wells with higher expected production rates.
As a reminder, about half of Chevron's production as company operated with a balance non operated and royalty production.
While short term well performance is one measure we're focused on maximizing value from our unique large resource base is expected to deliver decades of high return production.
Over the next five years, we expect to develop over 'twenty 200, net new wells.
Growing production, while delivering return on capital employed near 30%.
And free cash flow greater than $5 billion in 2027 at $60 Brent.
Longer term, we've identified well over 6000, economic net well locations that support a plateau greater than 1 million barrels per day through the end of next decade.
Our deep resource inventory and advantaged royalty position.
Allow us to optimize our development plans for high returns.
Incorporating learnings and technology improvements as we expect to deliver strong free cash flow for years to come.
In the deepwater Gulf of Mexico.
The floating production unit anchor is on location and the project remains on track for first oil next year.
We continue to build on our exploration success.
And were awarded the highest number of blocks in the most recent lease round.
In the eastern med or Aphrodite appraisal well in Cyprus met our expectations.
We've submitted a development concept to the government.
At Leviathan, we're expanding pipeline capacity to nearly one four bcf per day.
We expect to close our PDC energy our acquisition of PDC energy in August after their shareholder vote next week.
Our teams are working on integration plans and we look forward to welcoming pdc's talented employees to chevron.
Now over to Pierre.
As Mike said strong consistent financial performance enabled Chevron to returned record cash to shareholders. This quarter, while also investing within our capex budget and paying down debt.
Working capital lower cash flow, primarily due to true up tax payments outside the U S.
Excluding tax payments working capital movements are variable our typical pattern in the second half of the year is to draw down working capital.
However, net debt ratio ended the quarter at 7%.
Significantly below the low end of our guidance range.
Surplus cash on the balance sheet was reduced during the quarter with cash balances ending at $9 6 billion.
Well above the cash required to run the company.
Adjusted second quarter earnings were down $5 6 billion versus the same quarter last year.
Adjusted upstream earnings were lower mainly due to realizations, partly offset by higher lifting.
Other includes primarily favorable tax items and income from Venezuela non equity investments.
Adjusted downstream earnings decreased primarily due to lower refining margins.
Opex was up mainly due to higher transportation costs and the inclusion of <unk>.
Compared with last quarter adjusted earnings were down $900 million.
Adjusted upstream earnings decreased primarily due to lower realizations.
This was partially offset by higher production in the U S and nonrecurring tax benefits.
Adjusted downstream earnings were down modestly lower.
Lower margins were partially offset with higher volumes.
Second quarter oil equivalent production was down about 20000 barrels per day from last quarter.
Primarily due to planned turnarounds at Gorgon in the Gulf of Mexico and.
And downtime associated with the Canadian wildfires.
This was mostly offset by growth in the Permian.
Now looking ahead.
In the third quarter, we have a planned turnaround at Tcl and a planned pit stop at Gorgon completed earlier this week.
Our full year production outlook is trending near the low end of the annual guidance range.
Since Pdc's proxy solicitation on July 7th we have not been permitted to buyback our shares.
After we close the acquisition in August we plan to resume buybacks at $17 5 billion dollar annual rate, which we expect to continue through the fourth quarter.
We do not expect the dividend from <unk> until the fourth quarter full year affiliate dividends are expected to be near the low end of our guidance.
Putting it all together, we delivered another quarter with solid financial results strong project execution and continued return of cash to shareholders.
Our approach is consistent and you can see that in our actions and results.
Back to you Jake.
That concludes our prepared remarks, we are now ready to take your questions. Please limit yourself to one question and one follow up we'll do our best to get all of your questions answered Katy Please open the lines.
Thank you if you have a question at this time. Please press star one on your Touchtone telephone you May ask one question and a follow up question. If your question has been answered or you wish to remove yourself from the queue. Please press star two if you are listening on a speaker phone. We ask you lift your handset before asking a question to provide optimum.
Sound quality again, if you have a question. Please press star one on your Touchtone telephone. Our first question comes from John Royall with Jpmorgan.
Hi, good morning, and glad to be the first one this call to congratulate appear in his retirement.
So my first question is on upstream production can you bridge us maybe from the midpoint of your production guidance to the low end that you mentioned at the opening sounds like the Permian is on plan. So what pieces have come in below the midpoint of plant the movies without will end.
Yes, John .
Where where guidance remains unchanged, we expect to be at the lower end of that and as we said Permian production has been strong.
The things that Pierre mentioned I think are the key things that we've seen.
There's been some.
Impact of fires in the.
In Canada.
That have impacted our ability not really our operations per se, we did some evacuations.
On a precautionary basis, but it was midstream and processing.
Yes.
Downtime that we werent able to move.
To move our production to market.
And the rest of it is.
<unk>.
Oh and Benjamin two I guess is the other one we have a <unk> in.
Thailand that had an incident in early in the year.
Let's take it off station and so that's another 10 or 11000 barrels a day net which is offer.
For the foreseeable future.
And so it's really those two things are the ones that are pushing us down that we're both unexpected.
Great. Thanks, Mike and then my next question is sticking to production, but just drilling in a bit on the Permian.
Well results generally look very strong in the first half, but still a bit below 2022 in new Mexico. Maybe you can just update us on what inning, you think youre in just in terms of optimizing the <unk> the.
The single bench developments in new Mexico.
Yeah. So.
That.
It is important to bear in mind is that.
New Mexico type curve, we showed there there are only 10 pumps represented.
Or 10 Pops that we achieved all in the second quarter. There. So there is no first quarter pumps and Theres only seven that actually had enough data to make it into the curve you see on the chart. So it's a very thin set of data.
We expect.
30, more pops in the second half of this year. So the bulk of the program is not represented of those curves.
And there's a couple of other things one the wells we did pop have had some facility constraints that have limited full productivity. So we actually haven't been able to move all the production due to some third party.
Facility constraints that we faced and the rest of the program is actually at a different part of the.
The new Mexico portion of the Delaware, where we expect higher productivity. So.
It's a combination of things, but I really I would caution you not to over.
Index on a very thin data sets with a lot more data to come in the second half of the year.
Thank you we'll go next to Devin Mcdermott with Morgan Stanley .
Hey, good morning, Thanks for taking my question and congrats on the retirement.
So I wanted to just stick with the Permian since since we're on that topic.
I was wondering if you could talk.
A little bit just around the mix trend youre seeing there and if we disaggregate the productivity a little bit further can you talk about how much of the uplift is coming from gas and Ngls first oil and then similarly as you progress towards some of your longer term production goals. How you expect the mix in the basin for you to trend oil gas Ngls over time.
Yes.
Drilling primary benches, so we can optimize the oil cut across the basin or production.
Remains roughly 50% oil, 25% Ngls, 25% gas.
We look at all of the commodities.
Oil Ngls and gas.
And have our own long term views on.
Prices in markets to run the economics to optimize to returns.
And.
The gas oil ratio in aggregate has been relatively flat for for a number of years and we don't see it changing a lot of it can vary a little bit.
Different parts of the basin, but if you take it for our whole portfolio.
At $50 $25 25 remains pretty good.
Way for you to think about it.
Okay, Great and then I wanted to shift over to Tcl good to hear that continued positive progress there as we get closer to the finish line.
There's a lot of moving pieces over the next year year and a half as we get the two phases of development online you gave the guidance for the turnaround impact in <unk> I was wondering if you'd talk a little bit more about how you see the evolution of production into the fourth quarter of this year and then through 2024 as we get to that 2025 run rate.
So shape it a bit for us as we look out over the next few quarters.
Yeah. So.
The headline here is no change to cost and schedule I think thats really important.
In the second quarter, we made really good progress as we said, 98% project completion and commissioning is essentially two thirds complete in the second quarter, we achieved mechanical completion of the three Gi gas injection facilities and got fuel gas into the <unk> system, which is very important to.
The on time start up of FTP in the quarter that we're in now the third quarter.
We expect full mechanical completion of the future growth project.
And.
And also <unk>.
Around at what are the complex technology lines or <unk>.
We will begin.
A lot of work and startup on utility systems boiler steam system. Other utilities that are required for start up of the pressure boost facility, which is the key driver of WP, MMP, which enables us to convert from high pressure to low pressure.
Across the field.
Once that that turnaround is done in the third quarter and you will see some production impact I think pure guided to that.
We expect to have two of the four big pressure boost compressors online.
Which allows us to begin the conversion of metering stations from high pressure to low pressure and that will.
Initiate we'll get that started at the end of this year. It will take 10 to 12 months for all of those conversions to occur next year, there will be turnarounds next year as well to more turnarounds wanted SGI and another one in one of the <unk>.
And in all of that is part of a very.
Carefully choreographed sequencing of turnarounds and startup activity.
It will bring.
Full fields to the 1 million barrels a day for 2025, so as we indicated at our <unk>.
Investor Day.
What you're going to see in 'twenty three 'twenty four is the.
Normal turnaround activity interlaced with all of this project startup activity.
This is not as simple as bringing on a new portion of the field where really.
Reworking the entire.
Gathering and producing capacity of the field and so it's quite a complex.
A series of activities to to execute all of that and so the production reflects that and we've put I think <unk> said it already.
Chart to kind of give you some guidance for both this year and next year.
Slide 10 from RSA. It has annual production in 'twenty three 'twenty four 'twenty five no change in that guidance.
Thank you we'll go next to Neil Mehta with Goldman Sachs.
Yes, good morning team I want to stay on Tcl and while there will be a volume inflection in 'twenty five.
It's probably going to be free cash flow inflection in 2020 for Justice affiliate Capex Rolls off first and so just can you talk about the cadence of.
That and how it manifests itself.
In terms of dividends.
Yes, we've been guiding nielsen's PR to the the <unk>.
Clean year, because thats, the $5 billion of free cash flow at $60, Brent in 2025 and.
And of course, we're guiding to free cash flow because as you recall, it's not just dividends. It's also repayment of the loans and the co lending that we have done along the way and the profile of those loans are disclosed in our SEC filings.
You'll see.
Exactly to your point Youll see.
A build towards that just as the Capex is rolled out it was not.
Not that long ago, we were investing $3 to $4 billion a year our share into the project and that's down to a 1 billion and a half or so.
This year and we will continue to trend down so there is that inflection point.
Also being managed of course.
Our commodity prices and.
Those vary.
As we've said you know Tcl continues to be conservative in managing its balance sheet, but as the so it's been holding more cash on the balance sheet has.
As the project gets closer to the end.
As we've demonstrated that TPC is running very reliably now for almost a year and a half.
Some of that cash to come on so I can't get in front of the board of directors of <unk>. It's a separate company that we are a shareholder shareholder in but we expect as we said a much bigger dividend in the fourth quarter than we saw in <unk>.
And we expect to see a release of some of that exit surplus cash that's been held on the balance sheet and that will continue over the next couple of years as we head into that $5 billion of free cash flow in 2005, and maybe the last thing Neil I know you know this.
<unk> has has really good price sensitivity, so I've seen at yours and other estimates at 70 or 80.
Cash flow was even stronger.
Yeah. Thanks, Thanks, Pierre that's great and the follow up is just on the return of capital.
Thank you.
While you have a big buyback range.
Market participants if kind of viewed your 17 $5 billion.
The P 50 outcome in any reasonable commodity price environment, and so thinking less of it like a flywheel and more as sort of a relatively fixed number unless commodity prices go wacky, just just any any thoughts on that statement.
And whether you youre trying to give us a little bit more.
Uh huh.
Surety around that number as opposed to a more volatile number.
Yes, the range Neil is tied to the upside downside cases that we showed at our Investor day, roughly right. So this $10 billion to $20 billion. So youre right. Its a wide range because it reflects.
Ride range of prices between that upside case in the downside case and of course in between there's a sort of a mid cycle case and as a reminder, that downside case gets to $50 in a couple of years and stays there for three years or so so that is a real downside case and that's what the low end of the buyback range is notionally tie too.
The upside case is a case, that's not too different from what we're seeing now it averages about $85 over the five year period, it trends down to 70 towards the end of that period and Thats why youre seeing a buyback very close to the top end of the range at 17, and a half a billion dollars. So it's certainly a signal that as we look out.
Over this commodity cycle and again, we think of the buybacks as being steady across our cycle.
That we feel good about it. So we said we could do a much larger buyback, but that would be.
Not steady and we wanted to be we don't Wanna be pro cyclical and we're trying to be across the cycle and.
And so yes, when we guide on buybacks, we're guiding with the intent of maintaining it for a number of years across the cycle, Yes, Neil I would just add.
You see in our second quarter results, where our net debt remains very very low and we've indicated multiple times that we don't have a problem gearing back up.
More debt on the balance sheet to get back towards the range that we've guided to through the cycle in order to sustain a very steady share repurchase program.
Thank you we'll go next to Stephen Richardson with <unk> with Evercore ISI.
Thanks.
Good morning, Mike I'm wondering if you could talk a little bit about new energies I think you've been clear from the beginning.
Build versus buy was part of the consideration of a lot of these businesses. We saw a big C O two pipeline and EUR company Transact recently, so maybe you can talk a little bit about the <unk> business as you view, it and why build <unk>.
Bi is maybe the better.
Choice for Chevron and then maybe I'll just go ahead of it with the follow up is maybe you could give us a little bit of an update on Bayou Ben Please.
Sure why don't I I'll put those two together actually.
Look.
We will do both build and buy I think in new energies I would fully expect us to do that.
In renewable fuels.
We have built the business, but then we also went out and acquired a renewable energy group. So I think youll see both.
Certainly.
The den vary.
Transaction is one that the market somewhat anticipated.
And as you can presume that multiple market players probably took a look at or had conversations with them.
For us in <unk>.
Ccs, we look for areas that have good geology or poor space Theyre near concentrated emissions that have the right policy supports to enable our business. The Gulf Coast is all of these things in the Bayou Ben.
We've got about 140000 acres of permanent Cotr sport ports poor space.
Both onshore and offshore.
Got the storage potential there of greater than 1 billion metric tons in.
In the second half of this year, we're going to drill as well in the offshore acreage to further delineate and characterize the subsurface and the first part of next year, we expect to drill a well in the onshore acreage and and do the same and of course, we're in conversations with a number of customers.
In that region in the Golden triangle up at Mont Belvieu.
All the way across the Houston.
Chip channel and we've got term sheets going back and forth. We're in negotiations with a number of different potential customers.
Commercial framework for this is still evolving.
And we're working on the other pieces you need so classics.
Well injection permits and in midstream assets, we've got RFP out right now with a number of midstream providers consistent with the way we have generally approach the midstream we owned assets if they're strategic if there's a way for us to go to somebody who is in the business of operating building and operating midstream.
Sure.
We certainly look at that as well so we're putting all the pieces together there for a phased development, we like the <unk> project and.
We'll report more but to your kind of underlying.
Question.
Well, we'll build organically and we'll do inorganic where it makes sense.
Great. Thank you very much.
Thank you we'll take our next question from Brian <unk> with RBC.
Hi, Thanks for taking my questions and best of luck with the retirement.
So my first one is on portfolio concentrations. Your analyst day, you talked about just over $20 billion of free cash flow at $60, a barrel and looking through today's slides roughly half of that in the medium term will come from the Permian plus Tcf. So I understand you want every dollar to go to the highest level ever.
Return, which is completely sensible, but I was wondering if you can talk about.
Finally, our concentration because it is quite unusual for a super major to have that level of concentration in terms of free cash flow. So how do you think about portfolio diversity and does this is this something you're actively trying to address going forwards and I've got a follow up on a different topic. Thank you.
Yeah barrage.
Look back over the last decade, we've cleaned up our portfolio, we had a lot of.
Assets that were kind of at the smaller end of the tail of that.
Pulled capital and management time and resources.
And we want a bit we want to be diversified we've got a diverse portfolio.
But we don't need to be diversified just for the sake of it we want to have assets that have scale in our material and long lived.
You can start in.
In the far east and look at our LNG positions in Australia, which arent drawing a lot of capital right now but are throwing off.
A lot of cash.
We've got a strong position in West Africa that we strengthened with the noble acquisition in the EG assets that can feed LNG into into Europe . Obviously, you mentioned <unk>. The eastern Med is a very strong position we have recently taken.
And are working on expansion projects for Tomorrow, Leviathan and have submitted a concept on Aphrodite.
So theres a lot of opportunity in that asset when we closed PVC, we're gonna be producing 400000 barrels a day in the DJ Basin, we've talked about some of our other shale and tight assets in Argentina and Canada.
We've got two crackers underway in CPE, Kim that'll come online middle of this decade, one in the U S. One in the Middle East we've acquired <unk> and are growing our renewable fuels business.
We have a we have exposure across a large portfolio and then of course.
We also have projects coming on line in the Gulf of Mexico, I mentioned to anchor earlier whale Valley more and we recently acquired.
More leases in this recent lease sale then.
Twice as many leases as in the biggest lease sale over the last eight years. So we're adding to our position in the Gulf of Mexico. So this idea that we are a.
A two asset company that permitted and TCE O I don't think really stands up to careful inspection. They are two great assets.
They get a lot of attention, but we've got a lot of other strong assets in our portfolio.
Hey, if I can just build off that and go to the return of capital question that Neil asked and that's what gives us confidence not only on the buyback, but on the track record of dividend growth. So we guided to 10% annual free cash flow coming from all of those businesses.
Some are holding cash constant some are growing cash flow that Mike covered and that goes to a leading dividend growth, where we've grown the dividend over the last five years that rates double our closest peer and much higher than others, and where we have a buyback that is nearly 6% of our shares outstanding annually.
Our business is built for $50. So part of the confidence in our ability currently if you look at our breakeven and adjust for working capital. This quarter. If you look at the last.
Four quarters, it's actually probably a little bit lower than that with the strong refining margins that we've been seeing so we're built for lower prices of free cash flow is going to grow from this space that should give investors confidence in our ability to continue to grow the dividend at leading rates and to maintain buybacks and also very high rates.
Just a follow up on a different question, but.
Maybe the timing you'll be producing a lot more gas over time and you have expressed the desire to grow in LNG. So you've signed a couple of deals as an off taker.
Synthetically integrate your U S gas positions in global markets I wanted to ask about themselves.
Whether you'd be interested in owning the perfection of whether you feel big enough to take us enough because some of your peers have argued.
The benefits of integration and owning through the value chain.
I think in the past you've noticed the returns are typically lower and I'm, particularly interested in asking that question now because.
A number of players have signed off take agreements.
With companies such as venture Global and then actually they're not receiving the gas as agreed so just interesting how you're how you're thinking about that sort of value chain in LNG.
Yes. It is.
Consistent with what we've described earlier I think you've captured it.
It depends on the circumstance in places, where we've got remote gas.
Will you need to be in the entire value chain and you can you can create an economic model that supports the investments.
We've done that.
In other locations, where you've got other people that will put capital into the midstream assets and we can we can sell gas into that we can off take gas off of it.
But not participate in some of the very capital intensive a lower return low return portions of the value chain.
That's certainly a model that helps us support our aspiration to drive higher returns now you have to have good partners you have to have reliable operations and.
And we'll work closely with the companies that we have offtake with we've got them carefully and we.
We have confidence in the people that we are working with two to.
To provide those reliable operations, but we're really looking to drive high returns not necessarily to own assets for the sake of control unless it creates a differentiated value proposition.
Thank you we'll take our next question from Sam Margolin with Wolfe Research.
Alright.
Uh huh.
Yeah.
Hey, Sam you're breaking up.
The question is on the cash balance.
It looks like nominally it's.
Drawn down, but there are some inputs that would theoretically help it rebuild in the second half you've got working capital and I think TCT I was going to pay a dividend in third quarter and.
PDC had a very frontloaded capital program too so thats coming on with free cash. So just wondering about the cash balance and how you think about the level or.
If if we're if we're going to be in a rebuild phase for <unk>.
Well the direction that it goes depends of course on commodity prices and margins in a number of other factors youre right our cash levels.
Levels have come down in part due to working capital outflows timing of affiliate dividends and we've also paid down some debt. We've been I think very clear that we don't want to hold surplus cash is certainly not permanently.
It's where the cash goes in the short term, but over time that cash is going to be returned to our shareholders in the form of this.
Growing dividend.
And ratable buyback program. So we need only about $5 billion to support our operations were nearly $10 billion at the end of the second quarter. So that's more than sufficient we have access to lots of liquidity. We don't have any commercial paper now again, we've been paying down debt. So that's the more economically efficient way.
Two.
To manage the balance sheet, if we get there and whether the balance cash balance goes up or down again it depends on all the inputs and outputs that we've been we've been showing.
We are guiding towards a net debt as Mike said, the net debt is well below the low end of our guidance range. So we look at all of those factors and again, if cash balances head down to 5 billion that will be adequate to cover the operations on.
On working capital.
Our pattern in the second half of the year is that we tend to see.
Some draws on it but we're certainly not going to recover from what we've seen in this first half of the year a big portion of what we saw in the first half of this year on working capital are really tax payments tied to earnings last year. So you can kind of think of those as being offset from last year, where we had where we had that.
Favorable working capital environment, so there'll be ups and downs, along the way over time working capital tends to <unk>.
Average out over zero, but these are just timing effects, we look through them. We knew we were had taxes due and so that's all part of the planning as we look at the balance sheet and Sam I guess that we've guided to a TCR dividend in the fourth quarter, we do not expect a dividend in the third quarter.
Got it okay, sorry, I must have misread that mark.
Mark.
The follow up is.
Actually sort of on the organization. It's a follow up to Steve's question earlier, but you know peer spend some time and then ESG role on our low carbon role and the incoming CFO as coming from a role where there was a lot of.
Work on the ground on the on the low carbon front on the technology side and so Chevron has this really interesting sort of marriage between finance and low carbon that I think is differentiated when you look at some of the peers and so the question is.
As we make progress through the low carbon development do you feel like you're embedded in the highest return areas or are there other ones.
Our capital is going to maybe pivot and I think that ties into carbon capture too because that seems like a place where the.
Incentives are pretty transparent.
Yes. So I think your question started with people and ended up kind of at our kind of investment priorities in new energies look across.
The entire leadership team, we've got a commitment to driving higher returns and lower carbon and people move through different kinds of roles. But this is part of every role in the company.
Today, So it's a it's a part of the business, it's something we're committed to.
Our focus is as we've said before it's on things, where we can leverage our unique capabilities assets value chains customers.
To create a sustainable competitive advantage in these new energy businesses, it's why we've not gone into wind and solar on a merchant basis, because theres others that can do that and we don't we don't really bring anything unique there.
Our renewable fuels business today is profitable and generating cash.
We expect to start up the geismar expansion of it would be producing more renewable diesel next year. So that's a business today that is is economic and attractive and we continue to grow particularly back into the feedstock side windows and acquisition.
This last quarter of a small company that's got some interesting feedstock technology.
Carbon capture and storage, obviously is being built.
We do it today and some assets, but as a business, where we're building out a biobank that I talked about we're working on projects in other parts of the world as well.
And we do believe that with the right technology the right.
<unk> business model and policy environment that there is a.
There is an opportunity there other things that we're working on hydrogen.
<unk> is one that both.
Electrolytic hydrogen and then traditional headroom paired with carbon capture and storage.
In the U S.
IRA incentives can.
Certainly.
Support.
The development of business models there so.
I think.
We will stay consistent with us we're looking at it you know always looking at new technologies, but the area. We focused on is the primary.
Primary or you should expect to see us investing.
Thank you we'll go next to Jason <unk> with TD Cowen.
Hey, good morning, Congrats on your retirement.
I'd like to go back to the Permian detail for a minute if I could in kind of two questions on this.
<unk> has as capex in the Permian in the Permian deviate at all from that $4 billion budget that you highlighted at the analyst day and the second part on the Permian inventory over the five year plan and long term how much what percentage of all of those locations would you categorize that.
As to your model.
Yeah, Jason our Permian Capex is up a little bit this year primarily.
Three things.
Number one we've actually seen our drilling performance continues to improve and completions performance continue to improve so.
Out of the same fleet of rigs and completion spreads.
We're getting more work done which means you consume more tubular is more sand more water et cetera. So that's kind of a good thing.
We're seeing some longer lead times on some of the critical etch.
Elements in our facilities and so we've actually had to make some long lead purchases for next year's program.
We didn't anticipate as we were lining up this year's program and then we've increased facility scope for water handling and some areas of the Permian, particularly as we're trying to manage some of these induced seismicity issues were being more and more careful we're moving more water and so that has all led to.
Some increase in.
In Capex not a lot of inflation there the inflation has been largely in line with what we had expected and the rig fleet as is being activated in line with what we expected.
Your second question on inventory, we don't really.
We haven't broken our portfolio into tiers.
There is not a very clear definition of that in a way to kind of do that on a standard basis.
So when we've outlined the drilling locations in the long term guide.
Guidance there, it's really based on economics, and we've got locations that are economic at our price.
View for the future, which has historically not been.
Our Super aggressive price view is based on today's technology and as is indicated we've got you know more than 6000 locations in that outer time window that are that are economic based on those assumptions by the time, we get to that window, we may or may not see a different price environment I fully expect we will see a differ.
Technology environment, which can can allow that number to grow even further so we look at it more in terms of the economics of the development then tiers.
Great. Thanks, and my follow up just going back to T. C L.
You made some comments on kind of maintenance effects over the next four quarters I don't know you showed it graphically.
Graphically, but are you able to quantify the actual.
In fact, our production over the next four quarters from all of these turnarounds and startup activities.
Well, Jason we do it quarterly.
Included in the third quarter guidance that.
We have provided and will continue to do that quarterly and youre seeing sort of annually, we're giving annual guidance on <unk>. So it's all embedded in there I think we showed it relative to 'twenty, two but theres just a lot of moving part.
But we will continue to give that guidance each quarter and you have annual guidance that incorporates all of that.
Thank you we will take our next question from Irene homeowner with society in General.
Thanks very much.
My first question is on the downstream. Please if he can talk around the <unk>.
Cool ones of these chemicals affiliates in particular in Q2, and then what you're seeing so far in the third quarter then.
Also what you would expect in terms of refining margin evolution in the second half of the year given the weakness in Q2. Thank you.
Yeah. So.
Chemicals business is cyclical as everybody knows we're certainly.
In a period now where we're seeing some.
Linked in supply due to newbuild.
Facilities some.
So there is some like there is weighed on <unk>.
Margins in the olefins chain.
In the short term, we think we're going to continue to see.
That'd be a pretty tough sector longer term as you get out to mid decade and beyond.
Demand will continue to grow and we expect demand and supply will come into better balance and we'll see those margins.
Recover.
Out towards the middle and the second part of this decade.
Your second question I'm, sorry, I was thinking about chemicals there.
Well it can be signing this morning.
Margin refining refining margins, yeah, certainly we've seen refining margins come off the very strong levels.
They were at last year, there's been some new capacity come into the system around the world. Some big new refineries that have begun to startup or major projects that have come online and.
And so margins have softened year on year.
Certainly the west coast in our portfolio is important west coast margins, both in the refining and the marketing part of the value chain.
Hold up a little bit better because it's a market that is a little bit more cut off from the rest of the world than the Gulf Coast or Asia.
And so demand continues to be pretty strong out there a gasoline demand is strong jet demand continues to come back diesel demand is maybe flattened out a little bit, but certainly holding and so.
You know, we're in an environment, where I would expect your inventories or towards the lower end of the products and the number of parts of the world I think refining margins.
For the second half of this year.
It will be or are likely to be as good as they were in the first half of the year at least.
Okay. Thank you my follow up is.
Please continue.
Please continue.
I am I allowed to say, yes.
And Matt.
But following U S D for the pipeline in Israel I was wondering is that it for the time being for Leviathan or did the partners continue to examine other options like LNG. For example, thank you yeah. So we continue to evaluate other options in fact, we're working towards a con.
<unk> select for the next expansion of Leviathan ideally.
At the end of this year and in floating LNG is one of the concepts that we continue to look at.
Thank you we'll go next to Ryan Todd with Piper Sandler.
Great.
Thank you, maybe if I could.
A follow up on some earlier Permian conversations.
You talked a little bit about some of the new Mexico well performance.
Well performance overall that you disclosed that you know it appears that first half results are showing improved performance across across much of the base and as you expected or what have you seen to date in.
In terms of addressing some of I know you don't have a lot of data, but in terms of addressing some of the concerns from last year.
Particularly what have you learned regarding spacing single versus multi bench approach et cetera on the wells that you have.
You've done so far this year.
Yes, I mean, the performance is really consistent with our expectations and what we outlined at our Investor day earlier this year Ryan.
There are a couple of things just to remember I mentioned earlier.
In new Mexico, we saw.
Some infrastructure and third party constraints you can have that we've got that in some other parts of our portfolio as well. So there are things that will show up in these curves that are not necessarily just a reflection of the geology and the well performance.
And as we as we continue to change our development strategy on well spacing proppant loading.
L length et cetera.
Those will continue to be reflected in these curves. The thing that is really important as production, we put production out there because everybody likes to see it we're not optimizing the production we're optimizing the returns and so fluid mix EUR capital investments.
You know are all important parts of.
We're optimizing to its harder for you to see all the things that we're looking to optimize to drive returns.
When youre just looking at production so but.
A high level answer is a performance in line with the expectations as we've.
You've continued to evolve our program.
Okay. Thanks Ann.
Maybe if we if we turn to the Gulf of Mexico, as we think about your Gulf of Mexico deepwater portfolio, you've got an impressive string of projects startups coming over the next few years.
How exposed are you to escalating trends in deepwater drilling and development costs.
As you look across those projects do you have costs locked in the Cros.
Some of those projects rigs under multi year contracts et cetera or is this a.
Yeah, I guess, how much are you able to mitigate.
Cost escalation as we think over kind of capex requirements over the next few years.
Yes, those projects were contracted at a different time, so they reflect mostly locked in rates as you would expect procurements well behind us as were getting as those projects are pretty far along.
New exploration activity will get exposed to some of the higher rig rates on that but for an existing major capital projects that largely locked in when we came into the year with three rigs under contracts that were contracted back in a different environment.
Thanks Ryan.
Okay, we've got a handful of people still in the queue.
We'll go next to Paul Cheng with Scotia Bank.
Hey, guys good morning.
First of all just this.
This pia assay.
An exciting and very happy post retirement, thank you for the App over the past 20 plus years.
Maybe two questions if I could.
One you're talking about you're somebody like <unk>.
Despite this discovery.
Can you give us a little bit.
In terms of the timeline what should we expect.
And also what is the memory.
Sign ups.
I'm just going to look like in the scale and what kind of time that it's going to see the finish line.
One question that you haven't talked much about Argentina and hope.
The government seems to be pretty excited.
Sure.
Development and you have a position there can you give us an update once it thinking thank you.
Yeah, Paul and.
In Cyprus we've.
We're pleased with the outcome of the recent appraisal well we have submitted our development plan to the government for their approval and involves a capital efficient way to take the gas to market would be a subsea tieback to existing infrastructure.
But this is all pending government approval, if we get that we could be into feed later this year, but it's a little early for us to really lay anything out on first gas. So as we get we get through the government approval process will be back to talk to you about the timeline on that one.
On Argentina.
We remain very positive on the on the resource there, there's an election coming up the country's got its some.
Some kind of macroeconomic challenges that is facing right now, but we like the we like the Bakken where to particularly our L. Trappy all area, where we're doing.
Some more development work now with.
Some increased capital that flows with that and we'll talk to you about that at Investor day, and beyond but no real changes there it's going to be part of the growth story.
Thanks, Paul Thank you.
We'll go next to Doug Leggate with Bank of America.
Thanks for getting me on guys PR, it's been a pleasure congratulations and good luck to everybody in my view as well on your extended tenure.
Guys. My first question is on the Permian rates ability and it looks like you've got about a couple of hundred Pops. This year, you know wells to sales.
2000 over the next five years is that reasonable or how should be think about the step up in activity.
Hey, just one thing it's the co op Pops is 200, but if you were to include net Pops again half of our portfolio is non op in royalty it'd be more like 300, so it looks more consistent right. The long term plateau in the well inventory that 'twenty 200 over the next five years incorporates.
All of the activity and the pop that it was just on company operate. So there is some increase but not as not as large as it as it looks.
Get apples to apples.
Fairly ratable peer like 500, the year type of deal it four times a year type of deal.
Yeah, as we as we get up to activity and as Mike said, we're becoming more efficient as our other operators that we work with yes, it's going to be pretty ratable. Once we get fully up to our full full rate activity, yeah and of course, Doug you know quarter to quarter Theres. Some variability as we saw first quarter to second quarter of this year third quarter is going to be a little.
So there can be some surges in plateau is quarter to quarter, but on an annual basis, yes, it's going to be pretty ratable.
That's helpful. Thank you.
Follow up guys is on tengiz, but it's a slightly different question.
I guess PMI are similar vintage to sign Tengiz in 1993 and.
It expires six years after the end of your analyst day trajectory through 2027, a quarter of your free cash flow. So Mike. My question is what are your options there whether it be extend or replace them.
Perhaps maybe some color on what the production profile looks like post 2027, with Mike How's it going into fairly subdued decline. After 2030. So I'm just wondering what youre thinking about the long term.
Sustainability of those free cash flows.
Yeah, so the concessions a decade away we're focused on delivering the project right now.
This is a big complex asset a big complex project, we will certainly be in discussions with the government over time about potential.
Potential extension of this it will reflect what we see in terms of reservoir performance and in production.
Opportunities out into the future.
These concession discussions have to create value for the country and for Chevron.
Got to find something that works for both parties.
We've walked away from concessions as you have.
Covered extensively Doug where it didn't work for us in.
In places like Indonesia, and Thailand.
Extended in places like Angola, where it did so well we'll be talking more about that over time, but right now we're really focused on project execution and delivering FTP.
Thanks, Doug Thank you.
Our last question comes from Roger read with Wells Fargo.
Yeah. Thanks, good morning, everybody.
Morning, Roger.
I guess my first question for you.
With the extension of your tenure.
You willing to share with us what some of the things youre, hoping to get done and the extra time will be.
Or maybe what some of the real opportunities are here.
That you'd like to Shepherd through.
Well Roger you know, it's been a pretty turbulent.
First part of my tenure with a major restructuring of pandemic and oil prices that collapsed the war in oil prices.
That spiked.
The political and geopolitical noise that comes with those things the ongoing climate in ESG issues, three acquisitions, one of which we still haven't closed.
And so I'm actually looking forward to a little smoother water I hope one day and look we still got work to do to continue to drive higher returns and lower carbon and so it's.
To continue that continue that work we've got good momentum in our business we've delivered strong results.
Through all of that turbulence and and have maintained strong shareholder distributions throughout and strategic consistency throughout where we've seen others in the industry buffeted around a little bit by these.
These forces and so I'd like to continue that and into.
Drive more value to our shareholders and.
Higher returns with lower carbon.
Alright, I commend you for not trying to duck duck out when things finally look good for or at least a short time.
My follow up question is really much more on a modeling front if.
If we look at your realizations on oil they were much stronger here in the second quarter I think that contributed to some of the outperformance, but what we really saw was a dip Q1, an improvement Q2 kind of back in line with traditional so I was just wondering as we think about.
Is that a timing issue a regional issue first quarter and anything you should we should be thinking about as we look at your realization or capture on oil prices going forward.
Hey, Roger our view that not quite pick that up so I want to follow up with Jake after the call and make sure we understand your question.
Our best take on it but our oil realizations have looked good and our natural gas realizations have looked strong we had a little more we had better timing in the first quarter. So if you look quarter on quarter in some of our international gas you might it might seem a little weaker but I'm not sure on liquid. So please follow up with Jack.
Thanks Roger.
I would like to thank everyone for your time today. We appreciate your interest in Chevron and your participation in today's call. Please stay safe and healthy Katie back to you.
Thank you. This concludes chevron's second quarter 2023 earnings Conference call you may now disconnect.
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