Chevron Corporation — 2024 Q1

Yes. Sam, let me talk a little bit to the project and operational dimensions of this, and then I'll let Eimear comment on the financial ramifications of that. So look, we're really pleased with the progress that's been making and pleased that we've begun the initial start-up of WPMP with the first PBF compressor online and processing crude through the plants after conversion of the first metering station.

Yes. Thanks, Mike. Yes, Sam, well, after years of investing, as the project starts up over the next couple of years, we do expect the CapEx profile to continue to decline, and that will enable free cash flow over the next couple of years to grow.

My question is really on the exploration program. Specifically, you have an interesting position in West Africa and Namibia. So maybe you can just give us some historical context of how you got involved here. Is this an asset that you see a lot of opportunity in, especially given some of the announcements from peers over the last couple of weeks? And how do you think about prosecuting it going forward?

Yes. Thank you, Neil. We've got a nice portfolio of exploration opportunities around the world and including numerous prospects on Block 90 in the Orange Basin offshore Namibia, which lies just outshore -- outbound of where there was a recent discovery announced by another company. We're planning to spud the first exploration well in that block late this year or early next year based on rig availability. The rig will be completed in early '25.

You guys did a small deal look like on the retail marketing asset, adding over 200 stations in the Gulf Coast and West Coast. I actually don't remember. I think since you've become the head of downstream, say, call it, 20 years ago, you guys have been selling asset there. So is there a change of your view in terms of the overall strategy we made to that part of the business? And whether that -- this deal you are going to be owning the asset or that this is wholesale marketing [ drop ] network type of deal that you are acquiring?

Yes. Thank you, Paul. As you know, I come out of that part of the business. I love talking about retail. Look, we've got 3 really strong brands around the world. Caltex internationally; in Asia, primarily; in Middle East and Africa, a little bit. Chevron and Texaco here primarily in the Americas.

Mike, just -- so we're seeing that the U.S. operations look pretty strong quarter, especially with Permian holding in better than expected relative to your expectations. Could you just talk about what drove the better performance in the Permian and how you think the rest of the year unfolds? And then just anything else within the U.S. that you want to highlight?

Sure. So yes, first quarter production in the Permian was good, 859,000 barrels a day, down about 1% from the fourth quarter of last year, stronger than what we had anticipated. Really good, strong performance in our company-operated business, building off the momentum from the fourth quarter of last year. We have seen reliability improvements that translate into a slightly less decline in our base production.

You had around $1 billion of debt this quarter to manage some of the working capital and really distribution timing. Do you see the cash balance growing sequentially? Did you repay the commercial paper in 2Q? Just wanted to get a sense of where the cash outlook may go sequentially.

Eimear, why don't you take that?

Yes. Josh, yes, so we had some commercial paper issued in the first quarter, and it was just to manage short-term liquidity. Timing of affiliate dividends can be a bit lumpy, repatriation of cash can be a bit lumpy. So this was normal business for us in the first quarter.

I wanted to ask a follow-up on the Permian. So you put out there the updated well productivity slide, which is very helpful. But a few quarters ago, Mike, you talked about some of the broader constraints in the Permian, whether it's CO2, water handling and so on. It doesn't look like it's impacted your volumes in the near term, which have performed very well. So could you just refresh us on if anything has changed in your views on that there?

Yes. Thanks, Biraj. Nothing's really changed. I mean this is a very large base business now with thousands of wells over a very large footprint. And it's important that we focus not only on productivity, efficiency and reliability and drilling and completions, but also in all aspects of operations. And that's midstream takeaway, it's gas processing, it's water handling.

Mike, I just wanted to maybe get an update on Venezuela. There were some reports that Biden administration is reinstating some of the export bans on that country. Specifically said that Chevron was not included, but just your thoughts on sort of the future of oil production and exports from the country and how it would impact Chevron?

Yes. Thanks, Nitin. So you might recall that the Department of Treasury and OPEC, a division within treasury, has issued a couple of different, what are called general licenses for operations for companies in Venezuela. There's one called General License 41, which primarily pertains to our position in the country. There's some specific licenses as well that kind of go along with that. And then there had been a second one that was issued subsequently called General License 44, which applied more broadly. That's the one where the administration has announced some changes. And those don't really impact us. There have been no changes to GL 41. And so we're not really affected by the news you've read about recently.

Yes. Nitin, just as a reminder, for Venezuela, we do cost accounting, not equity accounting. So Chevron is not recording the production here or the reserves. We record earnings when we receive cash, and that shows up under other income and income statement. Just to put this into context, in 2023, the cash was modest, probably less than 2% cash flow from operations.

I wanted to ask about the divestment program. I know when the Hess deal was announced, you discussed $10 billion to $15 billion. But given that's in a bit of a holding pattern here, I'm just wondering what you expect the cadence or the target for divestments to be. I think historically, you've done about $2 billion a year. So that's not too far from what the guidance was with the Hess deal. Just trying to try and lay those 2 numbers and getting a sense of what the divestment program could look like while that deal is in a bit of a holding pattern. If you could just remind us the assets that have been discussed in the market, that would be great.

Yes. Yes, sure. Happy to do that, Jason. So the first thing is you're right. We're always high-grading our portfolio. And it's not because we need the cash. You already covered the strength of the balance sheet. But it's really to set value to optimize our portfolio. We find times there are things that don't compete for capital in our portfolio and they fit better with somebody else.

Given the launch of Future Energy Fund III, can you give us a thought of what you saw success cases coming out of I and II that caused you to move to III? And maybe compare and contrast how you do it yourself in-house solar to hydrogen, for example, versus where you might see third parties to try new technologies.

Yes. So I appreciate that. This is one that we probably haven't talked about with investors as much as some of the other parts of our business. Funds 1 and 2 were smaller, $100 million, $300 million. And they're not actually fully subscribed yet, but they're getting there, which is why we announced fund #3. We've been in the venture investing business for 1/4 of a century, so going back to the late '90s when we first set up our venture investing organization.

Can we talk a little bit about Eastern Med? I know at one point, operations shut down. It sounds like everything is back up and running. But also you would kind of tie that into Egypt a little bit, where there's been some exploration talk and in the government trying to do some things to improve the overall investment, I guess, environment there.

Yes, you bet. So first of all, we are back in full operations in the Eastern Med. We've -- Tamar was down for about a month at the very beginning of hostilities. But we're excited about the opportunities there. Just to remind you, we've got the 2 existing platforms, Tamar and Leviathan, in service. And we've really structured our development plans there to focus on capital efficiency, higher returns, to the earlier answer, things we've got to compete for capital in our portfolio.

I know we've covered a lot of ground this morning. We talked about the Permian productivity, which looks really good. But could you just touch on the DJ? And that production looks stronger than we expected. And then also any political risk you might want to comment on that there?

Sure. So yes, first quarter production in the DJ was above 400,000 barrels a day, kind of higher than what our long-term guidance is. We had timing -- a lot of fourth quarter '23 wells put on production there. You'd typically expect some weather-related downtime in Colorado over the first quarter. We saw some of that, but less than what we had planned for. So production was good.

Yes. It's been about 9 months since we closed with PDC Energy. We're really pleased with the progress that we're seeing, the synergies. On the CapEx side, to date, we've captured $500 million, which is $100 million more than what we had initially guided to. We're also seeing capture on the OpEx side as well. So we're nearing $100 million there.

I wanted to bring it back to TCO. And Mike, I think you've talked in the past about how there is some similarity in the design between [ WPMP ] and FGP as a result of that. As you bring WPMP online, it helps derisk part of the FGP ramp as well. I was wondering if you could remind us what some of that commonality is. And as you look at the milestones you look out over the next few months at WPMP, which are the ones that you think about as being key to help derisk FGP as well?

Yes. So it's -- just to remind everybody, this is a massive field. Some of you have visited it. And FGP, the Future Growth Project, is taking things we did almost 20 years ago now with the second generation plant in sour gas injection, where we injected about half of the sour gas. And we're now injecting all the sour gas, increasing production. And at the same time, we're reducing back pressure on the field and using compression to push the production into the facilities so that we're not relying on field pressure to do that. And that increases the life and longevity of the production out of the field.

Maybe one on the renewable side of your portfolio. I mean you announced FIDs on a couple of different renewable projects, one in biofuels, one in solar to hydrogen. Can you provide some color on what underpins confidence in these specific projects, whether it's commercial or technical or regulatory support? And do you see further opportunities to develop similar projects in the portfolio going forward? Or are there specific things about these ones in particular that make them attractive?

Yes. So the 2 projects. One is an oilseed processing plant in our joint venture with Bunge. It's a project at Destrehan, Louisiana. And so FID was announced for a new oilseed processing plant there. This one will feature a very flexible design, and that's important because it gives you feedstock flexibility, which matters in any fuels manufacturing business. So in this case, we can process soybeans and softseeds, but we can also be able to process winter oilseed crops, things like winter canola, cover crest. And so it gives us a greater range of potential feedstocks that can then feed into our renewable fuels business, particularly the Geismar real diesel project, which will start up later this year. And it's really important that we have exposure across these value chains.

So my question is on West Coast refining. We now have one West asset producing gasoline on the West Coast, and TMX should be increasing the availability of heavy crudes once it's ramped. But it's a tough regulatory climate. And you're well positioned as one of the players that still has multiple assets in California. How are you thinking about that region today? And should we see structurally higher gasoline margins in California given we've had some capacity come out?

Well, look, we've been in California for our entire existence, 145 years. We've got an integrated value chain that allows us to serve 2 competitive refineries and advantaged logistics that take us out into a market where we've got a very strong brand and where the demand for all forms of energy continues to grow, be it power, be it transportation fuels. It's an economy that is large and demand continues to go up.

Mike, can you help me understand a bit the sequencing of the base case on the Hess timetable? I've read all the documents, but just to get your sort of view. We've got a shareholder vote in May and we got limbo pending regulatory issues, but obviously, importantly, the arbitration. But maybe just talk about the arbitration timetable.

Yes. So there are, I think, really 3 things, if you're looking at sequencing and timing here. One is the shareholder vote. And as I said, the proxy will be mailed out in April, and the shareholder vote will occur in May. You've got regulatory approval through the FTC, and we're making good progress on that. We're working closely with the FTC in respect to their role in the process and expect us to be substantially complete with that here by midyear.

Yes. So there's a couple of kind of broad framing points, I think, to bear in mind as you think about that. Number one is we've guided to a long-term capital spend at around $16 billion. This year, we've got $15.5 billion to $16.5 billion as a range. And we intend to be very disciplined with our capital investment and only invest in the most attractive opportunities.

We 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.