Q3 2024 Chevron Corp Earnings Call
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Justin: Good morning, My name is Justin and I will be your conference facilitator today.
Justin: Welcome to Chevron's third quarter 2024 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.
Justin: Instructions will be given at that time.
Justin: One should require assistance during the conference call. Please press Star and then zero on your Touchtone telephone.
Speaker Change: As a reminder, this conference call is being recorded I will now turn the conference call over to the head of Investor Relations of Chevron Corporation. Mr. Jay experience. Please go ahead.
Jay Experience: Thank you Justin.
Welcome to Chevron's third quarter 2024 earnings conference call and webcast I'm, Jake Spearing head of Investor Relations, our chairman and CEO, Mike Wirth, and CFO aim or butter or on the call with me today.
Jay Experience: We will refer to the slides and prepared remarks that are available on chevron's website.
Jay Experience: Before we begin please be reminded that this presentation contains estimates projections and other forward looking statements.
Jay Experience: A reconciliation of non-GAAP measures can be found in the appendix to this presentation.
Jay Experience: Please review the cautionary statement on slide two.
Jay Experience: Now I will turn it over to Mike Alright, Thanks Jacob.
Mike: This quarter Chevron delivered strong financial and operational results returning record cash to shareholders.
Mike: <unk> project milestones that are expected to deliver production and cash flow growth over the coming years.
We continue to see strong performance in the Permian and executed major turnarounds at Tcl and Gorgon ahead of schedule.
Mike: Worldwide production increased by 7% from the prior year instead of a third quarter record.
Mike: We started up the high pressure anchor project and began water injection to boost production at the Jack St Malo and Tahiti fields.
These projects combined with additional project startups through 2025 are expected to grow Gulf of Mexico production to 300000 barrels per day by 2026.
Mike: We've expanded our storage portfolio, adding over 2 million acres offshore Western Australia.
Mike: In September the FTC completed its review of the company's merger with Hess.
Mike: And we also recently announced several asset sales as part of our ongoing portfolio optimization efforts.
Mike: This quarter marked the one year anniversary of the PDC energy acquisition, we have successfully combined the two companies taking best practices from both and applying them across our shale and tight portfolio.
We've exceeded our guidance of $500 million in combined capital and cost synergies by more than 30% and have delivered more than $1 billion in incremental free cash flow since acquiring PDC.
Mike: Sure well performance is 40% better than the DJ Basin average and we continue to optimize development plans.
Mike: We have advantaged inventory with around 75% locations at a breakeven below $50 per barrel.
Mike: We expect to hold production at a plateau around 400000 barrels of oil equivalent per day through the end of the decade.
Mike: And our operations in Colorado are among the lowest carbon intensity assets in the industry benefiting.
Mike: Benefiting from Tankless production facilities to lower greenhouse gas emissions by 90% compared to older designs.
Mike: Where possible we utilized grid powered rigs that reduced more than 60% of our onsite greenhouse gas emissions from drilling.
Mike: At <unk> the team continues to deliver consistent progress on project milestones.
Mike: All forward pressure boost facilities are now online and operating with high reliability.
Mike: While production is flowing through these facilities, which allows optimization of existing plants enabled and enabled the highest daily production in the fields 31 years of service.
Mike: Remaining metering stations are all under conversion and we're confident in the incremental well capacity that will feed FTP.
Mike: We've initiated final leak testing for the west sour gas compressors and are preparing the crude processing systems for operation.
Mike: Complex commissioning activities will continue over the coming months, leading into initial startup activities in the first quarter of 2025.
Mike: We continue to divest non core positions at significant value.
Mike: We've announced asset sales in Canada, Alaska and cargo that will contribute before tax proceeds of approximately $8 billion.
Pending regulatory approvals, we expect to close these transactions in the fourth quarter.
Mike: In Canada, we received a compelling offer for our K, Bob Duvernay shale position and non operated interest in the Athabasca oil Sands project.
Mike: Both are good assets and we have a long history there but.
Mike: But there are a better fit for a reputable counterparty at an attractive deal value for Chevron.
Speaker Change: Now I'll turn it over to <unk> to discuss the financials.
Speaker Change: Thanks, Mike.
Speaker Change: We reported third quarter earnings of $4 $5 billion or $2 48 per share.
Speaker Change: <unk> earnings for $4 $5 billion or $2, 51%.
Capex was $4 billion for the quarter in line with our budget.
Speaker Change: Our balance sheet remains the strongest in the industry and in the quarter with a net debt ratio under 12%.
Speaker Change: Cash flow in the third quarter was the highest for the year, despite lower oil prices.
Speaker Change: Working capital decreased by $1 $4 billion on lower inventory levels.
Share repurchases for a record $4 $7 billion at the top end of our quarterly guidance range.
Speaker Change: Our financial priorities are unchanged and we plan to use our strong balance sheet to reward shareholders consistently through commodity cycles.
Compared with last quarter adjusted earnings per time about $150 million adjusted upstream earnings per day, mainly due to lower liquids realizations, and Heidi Tcl and partly offset by higher lifting.
Adjusted Dine stream earnings increased primarily due to favorable timing effects and higher U S volumes.
Speaker Change: This was partially offset by lower U S refining margins.
Speaker Change: Adjusted third quarter earnings were down $1 $2 billion versus the same quarter last year.
Speaker Change: Adjusted upstream earnings were flat lower liquids realizations and higher DD&A were mostly offset by higher lifting some timing effects.
Speaker Change: Adjusted downstream earnings decreased mainly due to lower refining margins all up.
Speaker Change: Other was down primarily due to interest expense.
Speaker Change: Third quarter oil equivalent production was up around 75 barrels per day from last quarter.
Speaker Change: Strong production in the Permian, primarily in our company operated new Mexico assets with the main driver.
Speaker Change: We expect full year average production growth to finish at the top end of our guidance range of 4% to 7%.
Costs always matter in a commodity business, we have a track record of managing unit costs, well below inflation by successfully integrating several acquisitions.
Hi returns required competitive constant safe and reliable operations.
Speaker Change: Executing turnarounds on budget and on schedule as a key performance driver and we've delivered outstanding performance in 2024.
Speaker Change: Our teams have collaborated across upstream or downstream to standardize the approach these complex maintenance events.
Speaker Change: Increasing the days of facilities are online and lowering unit costs.
Speaker Change: While we anticipate significant volume growth in the years ahead, we also expect to deliver $2 billion to $3 billion in structural cost reductions by the end of 2026.
Speaker Change: These cost savings will largely come from optimizing the portfolio leveraging technology to enhance productivity and change in high and where work is performed including expanded use of global capability centers.
Speaker Change: Now looking ahead in.
Speaker Change: In the fourth quarter upstream will have downtime, which is expected to be split between U S and international operations.
Speaker Change: Impacts to production from divestments are expected to be around 45000 barrels of oil equivalent per day for the quarter.
Speaker Change: Darn stream will have higher planned maintenance, primarily at Amsterdam and Pascagoula.
Speaker Change: We will also have a shutdown of the Pasadena refinery, enabling the light tight oil expansion to come online.
We anticipate affiliate dividends to be around $1 billion this quarter.
Speaker Change: Share repurchases are expected to be between four and $4 $75 billion in the fourth quarter unchanged from prior guidance.
Proceeds from asset sales are expected to be about $8 billion before taxes in the quarter.
Speaker Change: Back to Egypt.
Speaker Change: That concludes our prepared remarks.
Speaker Change: We're now ready to take your questions.
Speaker Change: We ask that you limit yourself to one question.
Speaker Change: We will do our best to get all of your questions answered Justin Please open the lines.
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Speaker Change: And our first question will come from Jean Ann Salisbury with Bank of America.
Speaker Change: Hi, Good morning, the main feedback I've heard from investors Hesitance on sovereign is wanting resolution on Tcl started up in tests at what point should investors consider tcl startup largely derisked is there like a specific milestone and the commissioning and startup process like like where you've listed here, where you could say okay. It started up.
Speaker Change: Probably really can't slip much from here and are we there now.
Speaker Change: Yeah. So thanks, thanks for the question.
Speaker Change: We are making really great progress and I think you saw that again this quarter as we've had several quarters now where we've laid out expected milestones and delivered on them. So the team is delivering predictable.
Speaker Change: Commissioning and startup activity and I ran through some of the current state relative to low pressure production strongest.
Speaker Change: Day of production ever.
Speaker Change: Et cetera.
Speaker Change: There is still significant and complex commissioning work still ahead, particularly on the future growth project.
Speaker Change: Work is well underway here.
Speaker Change: And we'd expect as we said two to begin startup procedures in the first quarter, so our cost and schedule guidance is unchanged.
Speaker Change: What are the key things for us and this is a learning from from other projects over the years is to ensure reliability, we want to make sure that we have everything ready to all startup safely and then run reliably as we go forward and so we're going to continue to be.
Speaker Change: It'd be very methodical in the way. We go go about starting up of the equipment there, but it is every quarter that passes it's being derisked I don't know that there's a magic threshold, where you can say it's entirely.
Derisked, but.
Speaker Change: Everything we say everything we see as very positive in fact, even or was there just recently along with Mark Nelson maybe humor, you can share some of the things you saw at <unk>.
Speaker Change: Yeah, Thanks, Mike and yeah. It was great to be back in to be with Mark and Jack and the team in Tengiz and when we were there.
Speaker Change: They actually achieved a key milestone on the day, we arrived in tengiz and that was when they fully transitioned to feeding all of the existing six production trends and with the with low pressure production fed through the pressure this facility. So.
Speaker Change: The fact that the production was at high levels and producing the pressure base facilities just shows the hydroelectric liability. That's been achieved there. We also visited three sites at Tengiz Dean on the first one was the operations and control center and there we saw.
Speaker Change: How they're leveraging the advanced process control technology digital tools to really optimize production keep the plant full on plan Tom work safely. So that was great to see that being part of the the project and is really enabling a whole new level of optimization.
We went to the sites that Mike talked about the word complex commissioning is ongoing to the <unk> side, the third generation side and Theres, a large and high number of equipment. That's being commissioned there. So we talked to the team about high diligence are being to ensure that we.
Due to the performance testing on the equipment, we commissioned the equipment and we did that in a very methodical way. So that was great to see and we also went to the start generation injection facility and with the design that we have we will be injecting all of the produced gas into the reservoir to help with pressure management and they were doing injection test.
Speaker Change: <unk> when we were there so that.
Speaker Change: A key bit of de risking to know that the wells will tick this argos into the back into the reservoir. So overall it was a great visit we came away really encouraged by the work of the team.
Speaker Change: And by the consistent progress that's been achieved but also by the just the rigorous planning and thoughts going into ensuring a safe and reliable startup and ramp up over the first half 2025.
Speaker Change: And so the question here.
Speaker Change: And our next question will come from Neil Mehta with Goldman Sachs.
Speaker Change: Yeah.
Neil Mehta: And Mike and team I, just want to spend some time on the Permian you had indicated in the prepared remarks that you expect to finish towards the top end of the 4% to 7% range in guidance and you highlighted strength in company operated new Mexico can you spend a little bit more time on packing that the sustainability of that.
Neil Mehta: And just how should we think about the path to ultimately getting to plateau at this asset.
Speaker Change: Yeah. Neil we are we did have a nice strong quarter again in the Permian I realize you know a lot of our activity now being in new Mexico. The data is not quite as timely and transparent maybe is on the <unk>.
Neil Mehta: Texas site.
Neil Mehta: So you may not see that.
Neil Mehta: A couple of things number one our new well performance has been very very strong in the Delaware basin.
We've got a lot of that in the third quarter in particular in the second bone spring and <unk>.
Neil Mehta: Being top quartile performance out of those wells are also in the AR on the Texas side in the Delaware and the Wolfcamp, a where we're outperforming expectations so new wells.
Neil Mehta: Completion to pop time on those new wells has been very very strong in the base business we're seeing.
Neil Mehta: Stronger reliability performance proactive maintenance efforts are paying off.
Neil Mehta: We're seeing artificial lift optimization, though are sustaining strong production and and ores inefficiency gains and everything from completions designs.
Neil Mehta: Ordination logistics to reduce mobilization.
Talked about Triple Fracs before.
Neil Mehta: And so across the entire active.
Neil Mehta: Activity.
Neil Mehta: Portfolio in the base and we just continue to see improvement in the execution of that and then improvement in the performance of the wells as we move towards the <unk>.
Neil Mehta: The 1 million barrel a day Mark next year, we will begin to.
Neil Mehta: Shape, our profile there a little bit towards a plateau and will really begin to focus on free cash flow and so growth will become less the driver and free cash flow will become more of a driver if you will.
So we will bring capital spending down.
Neil Mehta: And I think what Youll see is.
Neil Mehta: This year is probably going to be the peak and in Permian Capex and as we move forward, we will start to attenuate that the growth, which has been at a 15% CAGR for the last three years, probably going be higher than that this year.
Neil Mehta: We will begin to attenuate as well and will really open up the <unk>.
Neil Mehta: Free cash flow there so more to follow in terms of you know exactly what that looks like I'm sure people are curious about that so we will we.
Neil Mehta: We will provide more guidance here over.
Neil Mehta: Over the next the next call or two.
So you can you can start to think of what that looks like but the headline here is continued efficiency and productivity gains strong free cash flow today, and we're going to manage it for even stronger free cash flow in the future.
Speaker Change: And the next question will come from Doug Leggate with Wolfe Research.
Speaker Change: Hi.
Speaker Change: Good good morning, sorry, I Uh huh.
Speaker Change: I'll give you my throat, Mike I appreciate the opportunity to ask your question.
Speaker Change: If I can observe is that kind of a precursor to my question.
Speaker Change: This is probably your best operating quarter in quite a while so congrats at share prices responding accordingly.
Speaker Change: But if you look at your relative under performance.
Speaker Change: Since you announced the <unk> deal was clearly a huge.
Speaker Change: Wait of uncertainty on the stocks basically wiped out the volume of Hess.
Speaker Change: As I ask question and it goes something like this you've now got FTC since we last spoke on the last call you have got the shareholder vote on you're moving ahead with.
Speaker Change: I guess, what many would think with the post test acquisitions.
Speaker Change: Acquisitions and disposals.
Speaker Change: The synergies, presumably they're not related to Guyana why not go ahead and close the deal. If you are so confident in your legal position.
Speaker Change: Well.
Speaker Change: Look yeah.
Speaker Change: The relative performance of the shares relate to a lot of things number one and so I wouldn't dispute. The fact that there has uncertainty is is a material contributor.
Speaker Change: But as you said we've had some performance.
Speaker Change: Unevenness that we've I think we've.
Speaker Change: Ironed out and we need to prove that but.
Speaker Change: <unk>.
Speaker Change: We announced the cost and schedule update the T. C O. During this period of time. So there's been a number of a number of things that I think are all part of that all of which are a high priority and as you see today are getting a lot of attention and I think improving.
Speaker Change: Look we've got a we've got a deal structure with Hess that has a condition precedent that if there's an arbitration that arbitration has to be concluded. We are confident that it will be successfully concluded but.
Speaker Change: That's our that's the way we set the deal up and we're going to execute the transaction. The way. The transaction is written and our integration planning is going very well, we're working very closely on everything that we can at this point in the process to prepare for the future and I realized that the timing on this is is.
Speaker Change: Unfortunate, but we're continuing to move forward and look forward to integrating the two companies and being really the premier oil and gas company prepared for the energy transition.
Speaker Change: Thanks, Doug.
Speaker Change: And our next question will come from Raj <unk> with RBC.
Speaker Change: Hi, there. Thanks for taking my question I wanted to ask around the kind of the sales. So if I go back to the.
Speaker Change: He has still you know the rationale was to buy.
Speaker Change: A long cycle high quality resource and obviously helps diversify your portfolio and Guyana is very different to Canada, obviously, but could you just talk about the decision to execute that divestment and one that now ahead of the arbitration decision, which was a surprise, but also more broadly and I would've thought you were a net buyer of all along.
Speaker Change: Cycle resources.
Speaker Change: Just talk about how you're thinking about that and how you're thinking about the portfolio that'd be helpful.
Speaker Change: Sure. So so brush, we've got a long history in Canada.
Speaker Change: It's been a good business AOSP has been steady.
Speaker Change: Tributary of cash for many years.
Speaker Change: But.
Speaker Change: We've also indicated that as a 20%.
Speaker Change: Non op position it wasn't really viewed as a core asset.
Speaker Change: Assets in the portfolio so.
Speaker Change: As we were marketing the unconventional position in the K Bob.
Speaker Change: Oh Duvernay, we were not actually marketing AOSP are but the buyer came to us and and proposed buying both and.
Speaker Change: It made us a very attractive offer to buy both.
Speaker Change: Duvernay well, it's a good asset with struggling to compete against the strength in other parts of our shale and tight portfolio and.
Speaker Change: At AOSP.
Speaker Change: As we've indicated for some time as a non core asset.
Speaker Change: We were willing to consider offers for it but there was a long time when I think potential buyers were struggling to.
Speaker Change: Give us the value that we saw to your point for a long duration asset.
The Canadian producers are are faring better today I think their equity.
Speaker Change: Valuations have have recovered and and so we were presented with an opportunity to to transact at what we thought was good value and we've been patient others have left the oil sands over the years.
Speaker Change: At what we felt were discounted values and we werent prepared to do that but when we got a value that we thought was a fair value.
Speaker Change: We were we were prepared to transact and.
Speaker Change: Yes, we want to add good quality of long duration assets to the portfolio, but we have a lot of those in our portfolio today and so I don't think you should read.
Speaker Change: Our desire for those kinds of assets to say that anything that would kind of broadly fit under that heading.
Speaker Change: <unk> is not eligible for a potential divestment, we're going to continue to high grade our portfolio over time, and as we add quality assets and use technology to improve the value of of assets in our portfolio will always ask ourselves if Bob if kind of the balance of the portfolio has more value to others than it does to us.
Speaker Change: So you'd be willing to entertain that kind of a question.
Speaker Change: Thanks Roger.
Speaker Change: And the next question will come from Josh Silverstein with UBS.
Josh Silverstein: Hey, Thanks, guys just on the two to 3 billion cost savings how much of this comes from the announced the $1 billion of asset sales year to date versus what maybe comes from additional asset sales in structural cost savings and then any split between upstream or downstream. Thanks.
Yeah. Thanks, Joe So let me talk you through kind of our plan here given that it's a it's a knee and material. So first of all as you saw on the slide we've been disciplined in managing our cost comparatively over the years. So this program is essentially our next set of cost reduction steps is <unk>.
Speaker Change: And our discipline given that in our business costs are always matter. There are always important so what we're focused on here is reducing obsolete cause why we deliver significant growth in the business.
Speaker Change: And think about this program is focused on the controllable and we are expecting run rate reductions to be realized over the next few years by the end of 2026 from a 2024 baseline. So the full benefit will be seen in 2027.
And in terms of where the reductions coming from that the first.
Speaker Change: Category, it's really portfolio actions. So examples like what we've heard today on the call on the ninth Canada, Alaska condo sales. So there's a large portion of this is associated with that.
Speaker Change: The direct costs be reduced as the asset transfer and from our portfolio and then we would expect overhead costs associated with those assets to reduce over time. So that's.
Speaker Change: That's one part of this program. The second part is just improvement initiatives and these are initiatives that we see across the organization there coming from the business units all segments that are coming from the functions.
Speaker Change: Some examples of what we're talking about here is you know initiatives that leverage technology installations to reduce costs and drones robotics digital twins that have transformed how we think about.
Speaker Change: Operating and maintaining our facilities and that would be an example, another example would be and improvement initiatives that really look to hybrid doing our work where we do our work.
Speaker Change: Example, there would be the recent announcement of the engine and global capability Center and in India. So in these centers, we are looking to standardize and centralize more of our workflow. So that's really what the program is.
Speaker Change: When you think about the range what I'd say is the first $2 billion think about these as divestments.
Speaker Change: Cost reduction and cost reduction initiatives that are in our plan. They are firm there either execution ready are working towards becoming execution ready and think about the third billion as additional target that we have with initiatives that are underway that we haven't really quantified there not execution ready we have.
Speaker Change: Work to do to make them execution ready. So that's how I would describe the range and you know.
Speaker Change: We expect to provide updates on these initiatives will do that through 2025, as we execute on them and we deliver results.
Speaker Change: Thanks.
Speaker Change: And we'll go to Devin Mcdermott with Morgan Stanley.
Speaker Change: Hey, good morning, Thanks for taking my question.
Devin Mcdermott: I wanted to ask about the balance sheet and shareholder returns your net debt ticked up a bit quarter over quarter and <unk> for <unk> to keep hopping sport.
<unk> got strong buybacks and you are still well below your long term targets you have cash coming in the door from asset sale proceeds as you noted between now and year end and then nice inflection in the Permian and Tcl cash flow into next year, but I guess, Mike. My question is given how volatile commodity markets and oil markets specifically have been in recently, how do you think about continuing to use the balance sheet.
Devin Mcdermott: To support shareholder returns versus tapering it back and waiting for potentially lower commodity prices are over the next few years, so balance sheet use and how you think about that is the core of the question.
Speaker Change: Yeah, Devin let me, let me just address share repurchases and then I'll, let him talk about the balance sheet.
Devin Mcdermott: Uh huh.
Devin Mcdermott: Recent volatility in commodity prices to somebody who's been in this industry for 42 years is not new news.
Devin Mcdermott: That is a that.
Devin Mcdermott: That is the way this industry works and and we're in a volatile cyclical commodity business. So the.
Devin Mcdermott: The backdrop is nothing were not well prepared for first thing is I just want to reiterate our guidance you know the share repurchase run rate of 17 5 billion is unchanged. The range. We've given you kind of brackets the way we execute the program.
Devin Mcdermott: We're a little bit above the midpoint of that here. This most recent quarter, we got a strong track record of buying back shares which is our <unk> financial priority and that's after making sure we can sustain and increase the dividend where we've got a track record of doing that for 37 years in a row.
Devin Mcdermott: Reinvesting in organic projects to grow future cash flows to support that so the second priority. The third is to maintain a strong balance sheet, we got a double a credit and below 12% net.
Devin Mcdermott: Net debt and <unk> and then the fourth is to return excess cash to shareholders through share repurchases, which we've done for 17 of the last 21 years and so consistency.
Devin Mcdermott: In and financial priorities consistency and execution is a is very important and and I think we've got a track record that we can stand behind their through commodity price cycles, you know over the last 2021 year's worth of 17 of the 21 that we've repurchased.
Devin Mcdermott: We've seen a financial crisis, we've seen a pandemic we've.
Devin Mcdermott: We've seen the OPEC you.
Devin Mcdermott: I'll open up the taps and and.
Devin Mcdermott: Commodity prices respond accordingly, and so we've been through down cycles, we've been through unexpected circumstances and have maintained the strong track record of shareholder distributions through it in part because we've maintained a conservative financial position and a very strong balance sheet.
Devin Mcdermott: I'll, let them or talk a little bit more about the balance sheet, yes.
Speaker Change: Yeah. Thanks, Mike.
Speaker Change: When we look at the balance sheet.
Speaker Change: We're focused on.
Speaker Change: Maintaining its strength through the cycles right. It's an asset that we used to create value and to navigate the volatility that Mike talked about and reward shareholders consistently so when we look at our debt levels today, our net debt under 12%.
Speaker Change: That's at the low end of where we've been over the last 10 plus years. So we're under Levered and given this and all of the gross debt that's coming.
Speaker Change: And the additional asset sale proceeds that were expected in the short term and we're comfortable with where we are and we anticipate that that will come down a little bit in the near term with the asset sale proceeds that are coming but we're planning.
Speaker Change: With a multi year time horizon with a through cycle.
Speaker Change: And we're very comfortable with where we are right now at the balance sheet. Thanks.
Speaker Change: And moving on to Lloyd Braun with Jefferies.
Lloyd Braun: Hey, good morning.
Lloyd Braun: First congrats to you and your M&A team I think the divestiture our progress has been great I want to follow up quickly to barrages question E. O S. A L. S. P seemed very opportunistic does that change your long term goals and then <unk>.
Lloyd Braun: Really I wanted to ask about the D J and see where there are I mean, it just really impressive operating progress there.
Lloyd Braun: Synergies free cash flow, but I think the surprise has to be you guys holding it flat to the end of the decade, and maybe you can just comment on the opportunities there and whether there is more opportunities for scale.
Speaker Change: Yeah, So just to quickly touch on on AOSP.
Speaker Change: You know there was one kind of most logical buyer right and it was the operator and we've had discussions over the years and and have not been able to really get to a common view on value and so that's what's changed and so if you want to say that's opportunistic that's fine.
Speaker Change: But oh, we really wanted to to realize the value that we saw on that asset we've been able to do that.
Speaker Change: <unk>.
Speaker Change: The.
Speaker Change: The the D. J a look you know the first thing I'll say is the.
Speaker Change: Integration, there and the synergy delivery continues the track record that we've had over a long time of exceeding our synergy commitments and.
Speaker Change: You know when we do a deal and we come out with a target.
Speaker Change: Target, it's intended to give you a high confidence.
Speaker Change: A number that you can use and we've done the diligence we have at that point in our tracker to record as we find more and we deliver more.
Speaker Change: We're very happy with the quality of the asset.
Speaker Change: And the ability to to drive strong performance we've learned.
Speaker Change: From each of the companies that we've acquired I talked a little bit about the lower carbon footprint there.
Speaker Change: <unk> seen some other things.
Speaker Change: Like gas lift and a new laterals that are that have been used by some of these companies that we're starting to work with and some of our other parts of our portfolio.
Speaker Change: And then the last thing I'll say is the team there does a wonderful job of balancing this multi step permitting process and I know theres been some concern expressed by people about the regulatory environment.
We're working very closely with the regulator in Colorado to ensure that we.
Speaker Change: Can achieve their objectives and that we can achieve our objectives and I'd say, that's a very constructive.
Speaker Change: Our relationship we've got comprehensive area plans in place that derisk the longer term development.
Speaker Change: And the quality of the assets.
Speaker Change: 400000 barrels a day out through the end of the decade three years ago, We had zero in the D J basin and.
Speaker Change: So very pleased with it.
Speaker Change: We're big there were the biggest operator there. If the question was are you going to acquire some additional positions there.
Speaker Change: Wouldn't say that's high on the priority list the real key is to drive value out of this asset.
Speaker Change: And the next question will come from Betty Chen with Barclays.
Speaker Change: Good morning Betty.
Speaker Change: Okay.
Speaker Change: Again better your line is open perhaps you're just on mute.
Betty Chen: I was on mute I'm sorry.
Betty Chen: Good morning, Thank you for taking my question.
Betty Chen: <unk>.
Speaker Change: So I want to ask about Gulf of Mexico.
Speaker Change: Like there is a bit of technology Renaissance, that's happening in gone and <unk>.
Speaker Change: Including anchor project that just came along.
Can you talk about how the technology is opening up new resource opportunities forgone for the Chevron portfolio and does that represent any upside to how you think about the longer term.
Speaker Change: Production of resource opportunities in that area.
Speaker Change: Yeah sure.
Sure It does and it's an extension of the story of the Gulf of Mexico. Initially on the shelf as people move from onshore to offshore and then out into the deepwater and we began to.
Speaker Change: Develop techniques to explore and and ultimately develop and produce in the deep water now in the ultra deepwater and in the ultra deepwater now at ultra high pressures and temperatures and.
Speaker Change: The breakthroughs on the anchor project in the first one to be producing with 20000 Psi technology I mentioned last week and something I was doing just to help people understand that that's essentially the pressure that would exist if an elephant a full male African elephant, we're standing on a quarter.
Speaker Change: And so it's incredibly high pressure high temperature field.
<unk> the everything that goes along with that needs to be a case.
Speaker Change: Capable of dealing with those pressures that includes you know trees blowout preventer et cetera, we have a 3 million ton hook load now on the on the Drillships, which is the highest hook load we've ever seen.
Speaker Change: And that opens up a lot at least 20% of our exploration portfolio is going to require this kind of capability or we're using other things like ocean bottom nodal seismic now that helps us better characterized development and exploration opportunities to think of it as four D. Essentially.
Speaker Change: Technology out there we're working on AI tools to help guide exploration focus areas and predict geologic risk.
Speaker Change: There's more effectively so yeah. The I think the history of the Gulf of Mexico has been technology advancements to continued to allow us to identify and then produce resource out there. It's a vast area of the Mississippi River is.
Speaker Change: It wasn't as an was an incredible incredible conveyor belt for organic material out into the Gulf of Mexico over geologic times and in the industry isn't done they're buying by any means I think theres a theres a lot left to go.
Speaker Change: And maybe the last thing I'll say about it is.
Speaker Change: This is about unlocking new opportunities. We're also working hard to make better use of existing infrastructure.
Speaker Change: With near field development, the ability to tie back at longer distances and develop smaller.
Speaker Change: Discoveries.
Wouldn't support a standalone Greenfield development, but can very easily tie back is a brownfields to an existing facility valley more is a good example of this and.
And I think youre going to see more of those as well so the the heyday of the Gulf of Mexico is far far from over.
Speaker Change: And the next question will come from Paul Cheng with Scotiabank.
Speaker Change: Hi, good morning.
Speaker Change: Good morning, Paul.
Paul Cheng: Hi, good morning.
Yeah.
Paul Cheng: Excellent.
Paul Cheng: Production a record in both content.
Paul Cheng: And that.
Paul Cheng: That they have done well and it is particularly impressive.
Paul Cheng: Given both of them do you have time to run.
Paul Cheng: Nope.
Paul Cheng: A lot has gone well and maybe that comes in.
Paul Cheng: Bob the thing.
Paul Cheng: All the time, so it's been a one off or that you have changed the course that so that business.
This is a repeatable benefit that we could expand in the future.
Paul Cheng: Paul its the ladder and we've been working this both upstream and downstream because these facilities are starting to look a lot more similar than they are different and and to deliver higher returns are one of the keys is to execute turnarounds well ensure the work is done enables reliable.
Paul Cheng: Our operations in between turnarounds and to continually improve on this.
Paul Cheng: I mentioned earlier that Amer was just out in in Kazakhstan, and it has been in the Gorgon.
Too much earlier.
Speaker Change: Maybe you can talk a little bit more specifically about what youre seeing on turnaround execution, yeah, no problems and thanks, Paul for the question Yeah to Mike's point, I mean, our complex facilities, whether theyre in refining our upstream assets like Tcl and Gorgon and they're there they're more similar than different and so this has been an area of focus for us to try and.
Speaker Change: Standardize how we approach these complex turnarounds to really drive performance and we've been working on it diligently for for a few years and I think that.
Speaker Change: The improvement actions that I would point to.
Speaker Change: Would include maybe the first one is just how do we think about the scope with a turnaround and.
Speaker Change: Think about this is is looking at all of the units and equipment and discerning can I do the maintenance work on the wrong or do I need to do the maintenance work only when the plant shut down and so there's a lot of improvement being delivered because we've been very diligent bite and discerning what's in I'm not trying to call out rigorous scope management and.
Speaker Change: The second improvement talks to the digital tools that we've used to really help with not only planning, but execution and prioritization I'll give you a couple of examples of the digital tools digital tools that help us with permits digital tools that help us with isolation digital tools that help us with.
Speaker Change: Leak and testing and flange management. In addition to digital tools that help us with managing the span and control given that these turnaround bringing huge numbers of personnel at once and that's another area. The third one which I believe we've taken a whole different level of benchmark.
Speaker Change: And we benchmark turnarounds, we benchmark the units, but the benchmark and that we're doing today, the benchmarking goes down to the equipment level and so just the rigor and the benchmarking to look for improvements and to learn where we can be more efficient is yielding positive results and finally I would say we have experts.
Speaker Change: In this area from an or capability perspective, we have employees that have spent most of their careers and turnarounds their masters in turnarounds and so we have looked for opportunities to share resources and to cross pollinate with these experts so that the lessons that we learned in T cell, we can learn them in GOR.
Speaker Change: And vice versa. The lessons that we're learning and refining we can implement those lessons learned and the upstream. So all of those things coming together has really driven a step change in our performance.
With nearly <unk>.
<unk> executed this year almost all of them have been delivered at industry level performance that we're very pleased this work given the criticality of it to base business Excellence and where these results are industry, leading Paul eight out of the nine turnarounds were executed in line with first quartile duration targets the GOR.
Speaker Change: Organ train two turnaround was our best Gorgon turnaround ever with a 14% improvement in duration.
Speaker Change: <unk> K T. L. One turnaround was a 23% improvement in duration compared to the last one and in several of our refinery turnarounds, so cost decreases of up to 50% compared to the prior turnaround of that same unit. So I think there's some real quantifiable progress that you can see across the across.
Speaker Change: The system, that's being achieved.
Thanks, Paul.
Speaker Change: And the next question will come from Bob.
Speaker Change: Brackett with Bernstein research.
Bob Brackett: Good morning, if I returned to the structural cost reductions and I want to put it in the context of the relocation from California to Texas is that relocation and opportunity to the cost reductions.
Bob Brackett: Believe it redesign processes and organizations or is it a threat to the cost reductions rather as those payoffs and Michael continuity, how do you think about that.
Speaker Change: Uh huh.
I don't think it's I don't think it's a threat Bob we're going to we've talked about the relocation of occurring over a period of time, we're going to be very thoughtful about.
Speaker Change: Moving work from one location to another moving people from one location to another not not all of the work that's being done in San Ramon necessarily will go to Houston. So it may go to these global capability centers that humor.
Speaker Change: As talked about earlier some of it we may find the technology tools that help us to do the work more efficiently and automate things and so.
Speaker Change: I think it's a little bit of a simplistic reduction to think about just lifting and shifting everything from San Ramon to Houston, It's a migration of work two different technology platforms different locations.
Speaker Change: And we'll we'll do that thoughtfully.
And methodically over.
Speaker Change: For a period of time, we'll make sure it's been planned out and and de risked and so.
I think it's part of an ongoing.
Speaker Change: Work evolution in a global company that has a workforce around the world that can do work in many different places that historically did a lot of work in business units because that's the way it had to be done.
Speaker Change: But now there's other ways to approach this work and we're looking for ways to do it best to deliver the best work product.
Do that at a at a cost structure that's ever improving.
Thanks for the question.
And moving on to Lucas Herrmann with BNP Paribas.
Speaker Change: Yeah, Thanks, very much and new machina.
Lucas Herrmann: And the obvious question I guess I just wanted to talk to you.
Lucas Herrmann: Wondering if you could talk a little bit more about capex going forward and maybe it's another.
Lucas Herrmann: Appropriate time in December will be better.
Lucas Herrmann: If I look at what's happening with the business.
Lucas Herrmann: Let's say tanker stocks up.
Lucas Herrmann: Assets in the Gulf I'm coming from.
Speaker Change: Going on you're talking about you know driving for free cash flow driving per NPV value in the Permian and Capex coming down there if I think about the current rates of capex spend including associates. It feels as though it's around 18, 19, and a half billion dollars if you'd call. It at the beginning of the year.
Look at the opportunities for that Capex to start to pull those projects.
Production plateaus projects come on it feels as though you know it may be three 4 billion of Capex opportunities.
Speaker Change: She was just full capex decline.
Speaker Change: Well, it's really hard.
Speaker Change: As to see where that where that goes.
Speaker Change: Particularly given obviously everything going on in the space at the moment. So is it right now to start thinking about capex coming down very materially as we move forward over the next two three years and you're really starting to benefit more emphatically from our portfolio.
Speaker Change: His teeth in resource, but pretty long duration.
Speaker Change: Alright, the long yes.
Speaker Change: You've covered a lot of waterfront there Lucas let me, let me try to address some of it and ill, let him or share some of her thoughts.
Speaker Change: Number one I think an important point is if you look at the rate ability of our capex.
Speaker Change: We used to have a program that had a lot of big.
Speaker Change: Long duration capital projects, there was a pattern where the back half of the year fourth quarter in particular tended to be a little bit heavier first.
Speaker Change: Quarter, a little bit lighter, we're very ratable now we've been about $4 billion on our organic capex all three quarters this year.
Speaker Change: So it's become much more ratable and predictable that's a reflection of the nature of the projects that we're doing.
Speaker Change: Two.
Speaker Change: You talked about Capex coming down a decade ago, our capex was $40 billion.
Speaker Change: Today, it's bringing.
Speaker Change: Bringing affiliates as you say, it's 18, something 18, and a half or whatever that number is so it's less than half of where we were so it has come down substantially even as production has grown as the company generates more cash we're doing it.
Speaker Change: Much more capital efficient manner than we ever have before and then 0.3 is yes, we will continue to seek further ways to optimize and improve the capital efficiency of our company a larger portfolio does over time require capital to maintain it and so are there in lies the tradeoffs that you.
Speaker Change: You evaluate as you look at.
Speaker Change: Your capital investment opportunities the readiness of those to move into execution.
Speaker Change: And I think in the near term, what's very clear is our affiliate Capex will come down next year as the project in Kazakhstan concludes.
Speaker Change: So youll see affiliate Capex come off.
Speaker Change: We are in the process right now of finalizing our business plan for 2025, and so it is a bit premature for me to guide you to that number.
Speaker Change: But where we're looking at all the trade offs in that and we'll talk more about that after we complete our planning process, but our intent is to stay very disciplined which I think is something we've demonstrated here over many many years now our guidance range of $14 billion to $16 billion is unchanged.
Speaker Change: And I think you should expect us to respect that and if that does change by some quantum and you throw out some larger numbers there.
Speaker Change: We'll cover that with everybody and talk about how to change how it has changed why it's changed and how you should think about what that means going forward.
Speaker Change: Or do you want to add anything to that.
Speaker Change: I think you've covered most of it Mike given that were putting our plans together right now I look at all I'd say is that the projects that you referenced and how we see the capex profile is coming off and the free cash flow growing as those projects complete.
Speaker Change: It's a key focus for us. So we will give you more information on our fourth quarter call as we complete the process. We don't want to get ahead of the process right now thanks for the question.
Speaker Change: And the next question will come from John Royall with Jpmorgan.
John Royall: Hi, good morning, Thanks for taking my question.
So could you talk about your position in California, and the downstream still.
John Royall: Still having two refineries there and we've had another closure announced over the past couple of weeks is shutting capacity something you've considered in California, and how do you think the market will be impacted by this latest closure do you think we'll see a structure.
John Royall: Structurally higher profitability there as a result are or maybe things will adapt to kind of back to where they were.
Yeah John.
First of all.
Speaker Change: I think what what I would say is we've seen another ill-conceived move by a state that has implemented policies to deliver its residents the highest gasoline prices in the country.
This most recent action to insert.
David: David bureaucracy into turnaround planning and inventory management as likely to use to make prices go higher not not go lower putting bureaucrats in charge of centrally planning key segments of the economy hasn't worked in other socialist States and I doubt it will be any different in California.
Policies that constrained supply.
David: Faster than demand is adjusting.
David: Create more volatility and they tend to create a greater likelihood of higher prices and so on.
David: Unfortunately, these measures are advertised as doing the opposite but the reality is for anybody that looks at them and things to them through this.
David: Discouraging investment in constraining supply.
David: When you still have strong demand is going to lead to just one conclusion and so look we've operated in California for over a century both of our refineries are over 100 years old we've got.
David: They're very competitive refineries.
David: And we've got a strong integrated value chains with very strong brands strong customer relationships and so.
David: So these are.
David: These are competitive businesses that we will continue to evaluate within our portfolio like every other asset as we've discussed earlier.
David: And so we will continue to meet our customer needs and compete we will evaluate.
David: Alternatives, if and when it becomes evident that that's the appropriate thing to do.
David: But I'll tell you, it's very tough to justify any new investments.
David: And that system, and it's only getting tougher.
Thanks for the question.
Speaker Change: And we'll take a question from Roger read with Wells Fargo.
Roger Read: Yeah, Thank you and good morning.
Speaker Change: Good morning, Roger.
Roger Read: Yes, I'm going to ask you, Mike the LNG market globally.
Roger Read: We've seen some some new units get delayed we've seen a couple of other companies this earning season and talk about.
Roger Read: The outlook in terms of supply demand balance kind of tapering tightness in 'twenty five just curious as you look at it and maybe if you could remind us your contract versus spot exposure. So we can think about how that might play out.
Speaker Change: So the margin potential for Chevron employee cost.
Yeah. So you know.
Speaker Change: LNG demand continues to grow.
Speaker Change: But it comes against the backdrop of very healthy inventories you asked about 2025 inventories in Europe are strong for this time of year inventories in the U S are very healthy for this time of the year Youll see that reflected in <unk> and Henry hub prices and so overall.
All we've got.
A market that currently has a healthy inventories and.
Speaker Change: Reasonably good supply becomes somewhat weather dependent and so you know that can change with a very cold winter, but.
Speaker Change: But right now I would say you know it doesn't look like 2025 is setting up to be a particularly tight.
Market.
Speaker Change: And then longer term of course, we have supply coming on in <unk> in.
Speaker Change: In Qatar.
Speaker Change: Supply coming on in the U S and so there's more supply coming to that market.
Speaker Change: And so I think in the you know the short to medium term, it's a market that is not.
Speaker Change: Not really prone to becoming nearly as tight as what we saw a couple of years ago. When the situation in Ukraine began our particular portfolio is 80 plus percent contracted primarily on oil indexed pricing on long term contracts most of our sales are into.
Speaker Change: Into.
Speaker Change: North Asia.
Speaker Change: And 20% or less spot exposure.
Speaker Change: And a lot of that is out of our.
Speaker Change: West Africa position, and we will have some spot cargos from other other parts of the system occasionally, but primarily long term contracts primarily tied to crude price.
Speaker Change: Thanks Roger.
Speaker Change: And moving on to <unk> Kumar with Mizuho.
Hi, good morning, Thanks for taking my question.
Speaker Change: Mike I wanted to just maybe touch touch a little bit on the chemicals business. It seemed like it was a tailwind to earnings.
Speaker Change: This quarter, what are you seeing from your supply chain, particularly in Asia.
Speaker Change: You've heard about some.
Speaker Change:
Speaker Change: Hum.
Speaker Change: Stimulus to be offered there, but just looking at what the earnings look like for the campus business.
Speaker Change: Yeah.
Speaker Change: Polyethylene chain margins have.
Speaker Change: Strengthened over the course of this year so it's been.
Speaker Change: It's been an improving market backdrop some of that I think there's been some short term supply disruptions in certain areas.
These are long cycle commodity markets that.
Speaker Change: Demand grows.
Speaker Change: Kind of steadily but.
Speaker Change: Slowly supply comes on in Big chunks, and so we've had a market that's been a little bit oversupplied and that's put pressure on the olefin change.
Speaker Change: Particularly in Asia.
Speaker Change: And so.
I think over time, we expect to see margins improve.
Speaker Change: We've got a couple of projects that will come online in the second half of this decade and you can't time these things perfectly but.
Speaker Change: I think they're they're likely to come on after the trough and into a into what's an improving olefin chain markets. One of those projects in the U S. One in the Middle East Asia, the big market, obviously Knapp.
NAFTA and naphtha cracking being the alternative.
Speaker Change: You do have some interrelation on margins with crude oil prices and if at the margin Asia naphtha crackers or what.
Speaker Change: And ethane cracker in the middle east or in the U S is as competing with you've got some interplay between those two and so we'll watch it overtime.
Speaker Change: It becomes a well run business G S Caltech.
Speaker Change: And Korea is a well run business and we've seen these kinds of cycles before we remain very constructive.
Speaker Change: Constructive on this sector overtime as we think the fundamentals will be very good and <unk> in particular has a lot of ethane based feedstock, which makes it very competitive.
Speaker Change: Thanks, Dan.
Speaker Change: And moving on to Ryan Todd with Piper Sandler.
Ryan Todd: Thanks Neely.
Speaker Change: Yes.
Ryan Todd: Hey, good morning, maybe one on the eastern Mediterranean.
Ryan Todd: Could you maybe just provide a status update in terms of kind of current operation the tomorrow expansion efforts.
Ryan Todd: The next leg of potential expansion of commercial development, there and what impact I guess, what is and is not happening or moving forward given the current uncertainties in the region right now.
Speaker Change: Sure. So obviously you know the first priority is the safety and wellbeing of our employees and the integrity of the assets.
Speaker Change: We have seen.
Speaker Change: The demobilization of the pipe lay vessel that was working on.
Speaker Change: The current expansion projects at both Tomorrow Leviathan as the contractor.
Speaker Change: <unk> concluded that.
Speaker Change: The current risk environment was one that.
Speaker Change: They were not comfortable with we see both of those projects still being completed late next year. We will keep you advised obviously this will depend on.
Speaker Change: When that is re mobilized but.
Speaker Change: But we've got projects underway in the short term at both Leviathan.
Speaker Change: To increase production.
Bye bye.
Speaker Change: 200, or 200 million cubic feet, a day to one four Bcf and tomorrow.
Speaker Change: Tomorrow is about half a billion cubic feet per day from one one to $1 six.
So those are on track for late next year, we've entered feed for a larger expansion at Leviathan.
Speaker Change: It would take us up.
Speaker Change: Significantly more theres some room on the platform to add more processing capacity. That's a project that would be completed towards the end of this decade.
Speaker Change: And we're in feed on that now so more to follow I think in the short term obviously, we're going to we're going to make sure people are safe we've had to.
Speaker Change: Actually take production at <unk>.
Speaker Change: Leviathan down a couple of times because some of the risks in the region, but we're meeting all of our supply commitments both in the country into original customers and have been able to do that despite.
Speaker Change: The conflict has been underway.
Speaker Change: Yeah.
Speaker Change: And our last question comes from Alastair Syme with Citi.
Speaker Change: Oh, Hi, Mark in a minute Mike you talked earlier to the I'll call. It took possession I just wanted to get a sense of what youre seeing in the Knowhow and the royalty piece.
Speaker Change: Are we seeing it to speeds operating system of the basin with respect to Bulgaria software discipline. Thank.
Thank you.
Yeah.
Speaker Change: We've seen strength across all three of the components of our our business.
Speaker Change: Our club growth this year as I said, it's probably give me a little bit higher than the 15% we've seen in the last three years.
Speaker Change: Royalty may be a little lower than that in our JV a little bit higher.
Speaker Change: I think I think you said do we see a two speed development approach.
Speaker Change: I don't I wouldn't say that I'd say, we're all kind of in the same the same fairway certainly.
Speaker Change: Some of our <unk> JV and royalties in the highly attractive sweet spots and I think of the economics on that are very very good for our partners or our operators, where we hold the royalty interest and and.
Speaker Change: And I wouldn't say there is significant enough variation between our program and what we see with with with others to describe it as a two speed program. If that was if that was the question.
Speaker Change: Thanks, very much elster.
Speaker Change: I would like to thank everyone for your time today. We appreciate your interest in Chevron and your participation on today's call. Please stay safe and healthy Justin back to you.
Justin: Thank you.
Justin: This concludes chevron's third quarter 2024 earnings Conference call you may now disconnect.
Justin: [music].
Justin: Okay.
Justin: Okay.
Justin: Yeah.
Justin: Okay.