Workflow
Chevron(CVX) - 2024 Q3 - Earnings Call Transcript
CVXChevron(CVX)2024-11-01 18:53
Filings

Financial Data and Key Metrics - Q3 2024 earnings reported at 4.5billionor4.5 billion or 2.48 per share, with adjusted earnings at 4.5billionor4.5 billion or 2.51 per share [15] - Organic CapEx for the quarter was 4billion,inlinewiththebudget[15]−Netdebtratioendedthequarterunder124 billion, in line with the budget [15] - Net debt ratio ended the quarter under 12%, maintaining one of the strongest balance sheets in the industry [15] - Cash flow in Q3 was the highest for the year, despite lower oil prices, with working capital decreasing by 1.4 billion due to lower inventory levels [16] - Share repurchases reached a record 4.7billion,atthetopendofthequarterlyguidancerange[16]−Adjustedearningsweredown4.7 billion, at the top end of the quarterly guidance range [16] - Adjusted earnings were down 150 million compared to the previous quarter, primarily due to lower liquids realizations and higher DD&A at TCO, partially offset by higher liftings [17] - Adjusted Q3 earnings were down 1.2billioncomparedtothesamequarterlastyear,withupstreamearningsflatanddownstreamearningsdecreasingduetolowerrefiningmargins[18]−Oilequivalentproductionincreasedby70,000barrelsperdayfromthepreviousquarter,drivenbystrongproductioninthePermian,particularlyinNewMexico[19]BusinessLineDataandKeyMetrics−Worldwideproductionincreasedby71.2 billion compared to the same quarter last year, with upstream earnings flat and downstream earnings decreasing due to lower refining margins [18] - Oil equivalent production increased by 70,000 barrels per day from the previous quarter, driven by strong production in the Permian, particularly in New Mexico [19] Business Line Data and Key Metrics - Worldwide production increased by 7% year-over-year, setting a Q3 record [5] - Permian production was strong, with new well performance in the Delaware Basin outperforming expectations, particularly in the second Bone Spring and Wolfcamp A [34] - The company expects full-year average production growth to finish at the top end of the 4% to 7% guidance range [19] - Downstream earnings increased due to favorable timing effects and higher U.S. volumes, partially offset by lower U.S. refining margins [17] - The company anticipates 2 billion to 3billioninstructuralcostreductionsbytheendof2026,drivenbyportfoliooptimization,technology,andglobalcapabilitycenters[21]MarketDataandKeyMetrics−GulfofMexicoproductionisexpectedtogrowto300,000barrelsperdayby2026,drivenbyprojectsliketheAnchorprojectandwaterinjectionatJack/St.MaloandTahitifields[6]−ThecompanyexpandeditsCO2storageportfoliobyaddingover2millionacresoffshoreWesternAustralia[6]−InCanada,thecompanyreceivedacompellingofferforitsKaybobDuvernayshalepositionandnon−operatedinterestintheAthabascaOilSandsproject,withexpectedproceedsofapproximately3 billion in structural cost reductions by the end of 2026, driven by portfolio optimization, technology, and global capability centers [21] Market Data and Key Metrics - Gulf of Mexico production is expected to grow to 300,000 barrels per day by 2026, driven by projects like the Anchor project and water injection at Jack/St. Malo and Tahiti fields [6] - The company expanded its CO2 storage portfolio by adding over 2 million acres offshore Western Australia [6] - In Canada, the company received a compelling offer for its Kaybob Duvernay shale position and non-operated interest in the Athabasca Oil Sands project, with expected proceeds of approximately 8 billion before taxes [13][47] - The company's operations in Colorado are among the lowest carbon intensity assets in the industry, with tankless production facilities reducing greenhouse gas emissions by 90% compared to older designs [10] Company Strategy and Industry Competition - The company continues to focus on portfolio optimization, with asset sales in Canada, Alaska, and Congo contributing to significant value realization [13] - The integration of PDC Energy has been successful, with combined capital and cost synergies exceeding guidance by more than 30%, delivering over 1billioninincrementalfreecashflow[8]−Thecompanyisleveragingtechnologytoenhanceproductivity,withinitiativeslikegrid−poweredrigsreducingon−sitegreenhousegasemissionsbyover601 billion in incremental free cash flow [8] - The company is leveraging technology to enhance productivity, with initiatives like grid-powered rigs reducing on-site greenhouse gas emissions by over 60% [10] - The company is preparing for the start-up of the TCO Future Growth Project, with complex commissioning activities expected to continue into Q1 2025 [12] Management Commentary on Operating Environment and Future Outlook - Management highlighted strong operational performance, particularly in the Permian and at TCO, with major turnarounds completed ahead of schedule [5] - The company expects significant volume growth in the coming years, alongside structural cost reductions of 2 billion to 3billionbytheendof2026[21]−ManagementremainsconfidentintheTCOstart−uptimeline,withprogressoncommissioningandstart−upactivitiesbeingmethodicalandpredictable[26]−Thecompanyplanstomaintainastrongbalancesheetandcontinuerewardingshareholdersthroughconsistentsharerepurchasesanddividends[65]OtherImportantInformation−Thecompanyannouncedseveralassetsalesaspartofitsongoingportfoliooptimizationefforts,withexpectedproceedsofapproximately3 billion by the end of 2026 [21] - Management remains confident in the TCO start-up timeline, with progress on commissioning and start-up activities being methodical and predictable [26] - The company plans to maintain a strong balance sheet and continue rewarding shareholders through consistent share repurchases and dividends [65] Other Important Information - The company announced several asset sales as part of its ongoing portfolio optimization efforts, with expected proceeds of approximately 8 billion before taxes [13] - The company is focused on maintaining a strong balance sheet, with a net debt ratio under 12% and plans to use excess cash to reward shareholders [15][16] - The company is leveraging digital tools and technology to optimize production and reduce costs, particularly in complex turnarounds and maintenance events [21][92] Q&A Session Summary Question: TCO Start-up Derisking - Management emphasized progress on TCO start-up, with complex commissioning work ongoing and start-up procedures expected in Q1 2025 [26] - The team is focused on ensuring reliability and safety during the start-up process, with key milestones already achieved, such as transitioning to low-pressure production [28] Question: Permian Production and Sustainability - Permian production is expected to reach a plateau around 1 million barrels per day, with a focus on free cash flow rather than growth [36] - The company plans to reduce Permian CapEx in the coming years, with 2024 likely being the peak year for capital spending in the region [37] Question: Hess Merger and Uncertainty - Management expressed confidence in the Hess merger, despite uncertainty around the arbitration process, and emphasized the importance of integrating the two companies [43] - The company is proceeding with the transaction as structured, with integration planning well underway [43] Question: Canada Asset Sales - The decision to divest Canadian assets was driven by attractive offers and a focus on portfolio optimization, with the Kaybob Duvernay and Athabasca Oil Sands project being non-core assets [47] - The company remains open to adding long-duration, high-quality assets but will continue to high-grade its portfolio [50] Question: Cost Savings and Structural Reductions - The company expects 2billionto2 billion to 3 billion in structural cost reductions by 2026, with a focus on portfolio actions, technology, and global capability centers [55] - The first 2billioninsavingsisfirm,withtheremaining2 billion in savings is firm, with the remaining 1 billion being a target for additional initiatives [58] Question: Balance Sheet and Shareholder Returns - The company plans to maintain a strong balance sheet and continue share repurchases at a run rate of $17.5 billion annually, despite commodity price volatility [63] - The company has a track record of maintaining shareholder distributions through various market cycles [65] Question: Gulf of Mexico Technology and Production - The company highlighted technological advancements in the Gulf of Mexico, particularly with the Anchor project, which is the first to produce with 20,000 psi technology [80] - The company expects continued growth in the Gulf of Mexico, with opportunities for near-field development and tie-backs to existing infrastructure [84] Question: Turnaround Execution - The company has improved turnaround execution across upstream and downstream facilities, with 8 out of 9 turnarounds executed in line with first-quartile duration targets [96] - Digital tools and benchmarking have been key to improving turnaround performance [92] Question: California Downstream Operations - The company expressed concerns about California's regulatory environment, which has led to higher gasoline prices and discouraged investment [113] - The company will continue to evaluate its California refineries within the broader portfolio but sees challenges in justifying new investments in the state [114] Question: LNG Market Outlook - The company expects the LNG market to remain balanced in 2025, with healthy inventories and new supply coming online in Qatar and the U.S. [117] - The company's LNG portfolio is 80% contracted, primarily on oil-indexed pricing, with limited spot exposure [118] Question: Chemicals Business - The chemicals business saw improved margins in Q3, driven by supply disruptions and strengthening demand, particularly in Asia [121] - The company remains constructive on the long-term fundamentals of the chemicals sector, with new projects expected to come online in the second half of the decade [122] Question: Eastern Mediterranean Operations - The company is focused on safety and asset integrity in the Eastern Mediterranean, with expansion projects at Tamar and Leviathan on track for completion in late 2025 [127] - The company has entered FEED for a larger expansion at Leviathan, which would significantly increase production capacity by the end of the decade [127] Question: Permian Royalty and Non-Operated Assets - The company sees strong performance across all components of its Permian business, including royalty and non-operated assets, with no significant variation in development pace [131]