Chevron Corp (CVX) — Q1 2019 Earnings Call Transcript

All right. Thank you, Jonathan and welcome back. We missed you. I'd like to welcome everybody to Chevron's first quarter earnings call and webcast. Our new CFO, Pierre Breber, and our Head of Investor Relations Wayne Borduin are on the call with me. We will refer to the slides that are available on Chevron's website. Before we get started, please be reminded that this presentation contains estimates, projections, and other forward-looking statements. Please review the cautionary statement and important information for investors and stockholders on slide 2. Moving to slide 3, today, I'll make a few opening comments, Pierre will review first quarter results and then we'll take your questions. As I've said before, we're well positioned to win in any environment. During our Security Analyst Meeting, we shared that our advantaged portfolio, strong balance sheet, low breakeven, capital discipline, and lower execution risk position us well to deliver superior shareholder returns. With the announced acquisition of Anadarko, our story gets even better. It builds strength on strength. We submitted our anti-trust filing yesterday to begin regulatory approvals. And we've begun joint integration planning. We know how to integrate two strong companies to create an even stronger one. We've done it well on prior transactions, and we'll do it again. We remain confident that the transaction agreed by Chevron and Anadarko will be completed. With that, I'll turn it over to Pierre who will take you through the financial results.

Thanks, Mike. Turning to slide 4, our disciplined returns-focused approach to the business continues to drive solid earnings and cash flow. First quarter earnings were $2.6 billion or $1.39 per diluted share. Excluding foreign exchange losses, earnings were $2.8 billion or $1.47 per share. Cash flow from operations for the quarter was $5.1 billion. Excluding working capital changes, it was $6.3 billion. We maintained a strong balance sheet with a debt ratio less than 20% at quarter end. During the first quarter, we increased our quarterly dividend to $1.19 per share, up 6%. Share repurchases during the quarter were around $500 million lower than our $1 billion per quarter guidance. During the quarter, we were restricted from buying back shares in light of the Anadarko acquisition. Turning to slide 5, despite lower refining and chemical margins, cash flow was solid and the trend is in line with full year guidance. Working capital effects in the quarter consumed $1.2 billion, generally consistent with our seasonal pattern. Free cash flow, excluding working capital changes was over $3 billion. Other cash flow items included pension contributions of about $325 million, asset sale proceeds of around $300 million, and TCO co-lending of $350 million.

Great, good morning.

Good morning, Devin.

So I wanted to start, so I'm sure it'll be asked if I don't, just on the Anadarko deal and the process there, appreciate the additional color in the prepared remarks. First, can you just walk through and remind us what the timeline is and key milestones and process from here, and any comments you can make on the competing offer from RCU would be helpful as well. I'll leave it to you, is that how you like?

Sure. So the timeline is probably a little different today than I would have told you a couple of weeks ago because we now have Anadarko’s Board back considering an unsolicited proposal. We made our anti-trust filing. I mentioned that that went in yesterday. We don't see any material anti-trust or anti-competitive issues that arise from the combination, and so we would expect that to be handled within a pretty reasonable period of time, say 60 days. Depends if they come back for a second review with any questions. And then we have an Anadarko shareholder vote that will be scheduled and could result in a third quarter close.

Understood. Makes sense.

Thanks, Devin. Do you have a follow-up.

Yeah, one follow up. I just wanted to shift over to TCO and the co-lending. You mentioned the guidance there is unchanged, but any color you can give us on the shaping and how we should think about that playing out throughout the year.

Yeah, Devin, this is Pierre, I mean, you should view it as roughly ratable, but again, it'll vary depending on prices, project spending, and affiliate dividends. But if you think of it being roughly ratable during the course of the year, that's appropriate at this point in time.

Thank you very much.

Thanks, Devin.

Hey, good morning. First question, in light of the competing bid that's put out there and the details behind that, I think one thing that surprised investors would be perhaps the degree of synergies that Occi talked about in their proposed transaction, even if you back out the capital reduction component. And so I think you've been asked about the degree of conservatism already to some degree about your synergy forecast. But now that's out there, I was just wondering if maybe you'd have a comment about your numbers and where upside could come from.

Sure, Phil, so look, I'm not going to comment on the details of another offer. I'll tell you our synergies are real and we're confident in our ability to achieve the $2 billion in run rate synergies in the first year post close, and delivering significant value from the deal. As I mentioned earlier, we've already begun joint integration meetings with Anadarko. We had full teams from both companies meeting for multiple days this week already. We're committed to delivering the synergies. We've got a strong history of successfully integrating two companies and meeting and often exceeding our synergy targets. This can go back to Gulf, it can go to Texaco, it can go to Unical. And so this is something we've done before and we're very good at it. We're very confident that we can deliver the $2 billion. And as we know what we know at this point, and as we get more detail, we certainly will know more.

Okay, fair enough. Just a follow-up question would be, obviously there's more to an acquisition than just the price offered, and I was hoping maybe you could help us think through why your lower priced offer should win from your perspective, and if Anadarko's Board is forced to go back and quantitatively decide that your offer's not good enough, is there a point at which you look at this and consider raising a bid, because it's return destructive to you to do so.

Sure. Well, I won't speak for the Anadarko Board, but even with the information that was made public this week, our offer was viewed by Anadarko as superior. And we have a signed merger agreement approved unanimously by the Boards of both companies. We strongly believe the combination of our two companies creates superior long-term value for shareholders of the combined company. The industrial logic of our transaction is very compelling. Anadarko's assets further strengthen already leading positions that we have in large and attractive shale, deep water, and natural gas basins. It enables a further portfolio high grade and cost reductions and focused investments in an even stronger company. Our financial position and balance sheet strength enables us to take on the leverage and issue the additional equity and still continue to increase shareholder distributions. Our companies simply have the best strategic fit. We can operate in the Gulf of Mexico in ways that others cannot. We're a world-class operator of LNG, we've got leading performance in many different dimensions in the Permian. And that strong balance sheet mitigates risk. We won't be over-levered coming out of the deal; we will be financially strong, with accretive cash flow, earnings, and full, certain value.

Hi, everyone. Good afternoon from London. Mike, when we think about the potential for you to bid higher, we look at your balance sheet, and obviously there's a tremendous amount of firepower there, but we suspect it's not how you would be looking at potentially adding to your bid. Can you talk about the metrics that you're looking at in terms of Anadarko value to Chevron? Thank you.

I want to wrap up by addressing Phil's earlier question that I didn’t get to earlier. Yes, we have been very disciplined in our approach to valuation. You asked if there is a point at which we would be done, and the answer is yes, there is. However, now is not the time to go into specifics. We have consistently stated that we will pursue actions that create value for our shareholders, and we don't need to make a transaction to have a strong story. In regards to Paul’s question, we examine various metrics, primarily focusing on whether a potential investment can enhance our free cash flow after capital spending, whether it can generate additional earnings, whether it provides a solid return on investment, and whether it offers ongoing opportunities to enhance our return on capital. This strategy aligns with what the entire industry is striving to achieve. The proposed investment provides us with over 10 billion barrels of resources at less than $3 a barrel, which represents a very appealing acquisition cost. Therefore, we evaluate a wide range of metrics in our assessment.

Yeah, and, Paul, I don't know if your question was getting to the mix of the equity and cash. I mean, we've talked about the 75, 25 was mutually agreed to. Anadarko shareholders wanted exposure to our stock. We have a very good stock. But clearly, we have the capacity to have alternative structures. We could have put more cash in if that's what Anadarko wanted to do, but we agreed to where we ended up.

Yeah, I realize, Mike, that you've talked about free cash flow, sort of point, accretion I should say, from your point this needs to be the single metric that we should look at. We’re just wondering how to think about that.

So Paul, sorry, was there another follow-up question in there?

No, I think the other aspect was that you said if you can't up, which is obviously a tough thing to measure. But it does seem that you have a great fit. Could you talk a little bit about Mozambique and how you see that? I think that's one of the differentiators potentially between you and Occi. Thanks.

Sure, as I discussed on the call a couple of weeks ago, we view Mozambique as a world-class gas resource. We are pleased with the progress that the project has made. It's a very cost-competitive LNG project. And that matters. We do not intend to slow the project timeline down. We think that there's a good team of people working on this and that they've done a good job. I plan to visit Mozambique soon to see the site and visit with both government leaders and people working on the project there. And we think that this fits well into our portfolio and with our strengths. And so we like the project. We think we can bring some value. We've got the balance sheet to support the project. We've got experience in things like shipping that, this will have a large shipping component. So I think there are ways we can improve and enhance execution and value and mitigate risk in execution of the project. Thanks, Paul.

Thanks very much. I guess my first question is related to your ability to operate in the Permian. And the reason I say that is the competing bidder has talked about their ability to create the most return enhancement and their superiority as an operator. So Mike, can you address where you think you benchmark relative to competition in terms of Permian development right now?

I previously mentioned that we evaluate a broad set of metrics and it’s essential to assess performance across all areas. We have observed that some Permian operators optimize specific metrics, especially early production. We are cautious with choke management to maximize ultimate recovery. However, other operators may keep their chokes fully open and report impressive early production figures, but when you examine the situation over a year, the overall picture changes significantly. Therefore, my main point is to be selective about the metrics being analyzed; our emphasis is on value creation and returns. We are not focused on short-term production but rather on achieving long-term recoveries through a capital-efficient model that produces leading estimated ultimate recoveries, low cost per barrel, and high returns. Coupled with our favorable royalty position, this enables us to generate value that is hard for anyone else to replicate. Over time, our company's technological capabilities are unmatched, allowing us to increase value further by reducing costs while enhancing recoveries as technology continues to improve performance. In essence, we evaluate our metrics and performance with an emphasis on value rather than just production.

Thank you, Mike. My follow-up question is regarding the announcement of the transaction, where you raised the target for annual buybacks to $5 billion. I understand that the current run rates are influenced by the transaction being made public. However, was the increase to $5 billion dependent on the deal being completed, or is that a run rate you expect to maintain regardless?

It was an announcement we made to indicate our strong confidence in the cash flow accretive and value creation that this transaction enables and so it is tied to the transaction. And as I said, we got a strong case pre-existing the transaction with an increase from a run rate of $3 billion last year to a run rate of $4 billion this year. So the step up to $5 billion was a signal that this deal makes us even stronger.

Yeah, if I can just clarify again, the first quarter buybacks were lower, as Jason as you said, we had to stop buying back shares. We thought there was prudent when we believed we could find ourselves in possession of material non-public information related to the transaction. So we expect these restrictions to continue in the second quarter. Circumstances could change, and we could be able to buy back shares from time to time, but right now expect low to no buybacks in the second quarter. And then post-closing, we intend to increase the rate to the $5 billion annual or $1.25 billion per quarter.

Understood. Thanks, guys.

Thanks, Jason.

Hi, thanks for taking my questions. I just have one on your exploration strategy and this also relates to Anadarko. But we look a long by the Permian in terms of synergies, but it seems that is also quite a bit of upside to exploration in that if you combine the two portfolios and follow a infrastructure-led exploration strategy. Could you just talk a little bit about that and how you're thinking about that on the basis that this transaction just closed? And then the second question is there were a couple of articles in the year around you transferring your Permian royalty interest into a new subsidiary. I was wondering if there is anything to that or if that's just a non-news. Thank you.

Okay, so the first one on exploration in the Gulf of Mexico. We talked earlier about that we would see exploration synergies as we bring the two companies together and our exploration portfolios. And we talked about the fact that we would have a very powerful infrastructure position in the Deepwater. When you combine that with extended reach tiebacks, which we're in the final phases of technical qualifications to significantly expand the tiebacks that we can do. We can cover a lot of the Gulf of Mexico without necessarily needing new surface infrastructure, and this allows us to begin to explore for accumulations that might not be economic on a standalone basis to support a new Greenfield project, but that could be developed through drilling and tie back into existing infrastructures or platforms as All Ridge opens up. And so it really enables a very different approach to exploration, and I think a much higher return, shorter cycle, lower risk way to look at the next phase of development in the Deepwater Gulf of Mexico. Not to say we might not have some Greenfield projects, because certainly there could be circumstances where that becomes the right economic outcome. I’d also point out that we're an equity holder in a discovery that was just announced this week, the Blacktip Discovery, which Shell is the operator on, encountered over 400 feet of net pay, it's about 30 miles away from Perdido and Whale. So we continue to see discoveries and we've got great strength in an area that has tremendous resource opportunity. And the challenge is to find ways to deliver it and generate better returns out of that. Your question on the Permian royalty, what we've done is consolidated all of our royalties into an entity which allows us to manage that royalty with focus and efficiency and ensure that as activity in the Permian continues to grow, and we have a strong royalty position that royalty is properly accounted for, collected, and managed. It certainly opens up options to do things that you've seen others do. I don't want to indicate that we would or would not do that, but it certainly positions us with an entity that could enable those kinds of alternatives if at some point we saw that as one that was desirable.

Great, thanks very much.

Good morning team and Congrats, Pierre again on the new role. So the first question I had was actually on the oil macro. Two months away from the OPEC meeting. Prices have clearly been very firm here off the bottom in 2019. Mike just wanted your perspective on some of the moving pieces as it relates to the oil macro. Has your view that we're in an age of abundance fundamentally changed as you've had a more conservative worldview? Or do you think price has been artificially lifted by OPEC cuts and how do you think about OPEC behavior from here? I'm not asking you to forecast the price, but your unique position to comment, given the fact that you play across the value chain and you operate in some of these countries?

Yeah, so…

Let me give you my best shot on that one today, Neil. You know, global demand continues to be strong. We're seeing demand go up by over a million barrels per day again this year; we had a very strong GDP number for the first quarter in the U.S., I think, surprisingly strong that has come out today. And, you know, we've consistently said that we don't see evidence of weakening around the world. We're across the value chain in many different products and many different geographies. So, our economic growth looks solid and oil demand growth continues to march upward. You know, at the end of last year, as we saw some weakness, there were concerns about trade in China and economic activity, and those have somewhat receded. On the supply side, you've got the usual set of dynamics underway, right. We've got geopolitical issues with the Iran waivers not being extended, which creates the prospect of some tightness. Venezuela continues to be very difficult, Libya is in and out of the news. And so you have some of the same things that create concerns and real tightness, in some cases on the supply side. And then you have OPEC plus the non-OPEC countries, which for the last couple of years, maybe three years or so, have demonstrated the resolve to manage their supply in a way that's consistent with more stable markets. You throw on top of that commentary from the President, which again today, I guess he's out with comments about OPEC. And I think you still have OPEC in a place where they do play a role in creating a forward expectation on the supply side. And so in some ways the dynamics while the specifics of which countries might have supply issues and how the global demand picture shapes up. It's a story of forward expectations on supply and demand and then the geopolitical overlay that can change that. Fundamentally, we still believe that the world needs more of all types of energy and so we're in favor of renewable energy; we're in favor of conventional energy; and economics, markets, and technology sorting out what the best mix is for each country around the world. There is no shortage of resource to be developed. And so costs matter and we continue to drive to be very competitive from a cost and supply standpoint. So I'm not I gave anything really brand new there, but that’s how I see it.

That's helpful. The follow up from our side is if we were to take the Anadarko transaction out of the equation, one of the concerns some investors have expressed over the course of the year has been the Chevron portfolio that will drive in 2023 to 2028. And you kind of gave us some flavor of what that looks like at the Analyst Day post the Permian ramp and post thingies what's the next wage of growth and sort of it begs the question was the Anadarko eventual transaction and all sense this transaction where these types of transactions. So I just want to give you an opportunity to respond to that, because I think your view here is that you do have standalone opportunities at independent transactions but certainly something that's been brought up by investors.

Yeah, absolutely, I said it in March, and I will say it again, we do not have resource anxiety, we've been replacing reserves. We've got nearly 70 billion barrels of resource. We've given transparency on the production outcome for five years because people have wanted to see a longer view on that. And so you see this 3% to 4% growth now steadily being delivered over five years, which has been difficult for companies to do consistently over an extended period of time at the scale that our company operates. We're very confident that we can do that. and we stopped at five years just as a matter of convention, not because we think there is a problem after that. And so unconventionals don't flatten out after that. Our Permian position has got decades of resource not a few years. We tried to highlight our other shale and type resource position, which are in the very early stages of development and continue to have very strong performance metrics and economics that are converging on Permian level economics, which is really the goal that we've put in front of them. I've already talked on a call a little bit about deepwater where we've got Anchored Baltimore, Whale, Blacktip now. We've got the ability to bring tiebacks into a larger system or into the existing system. Your question is about the Anadarko transaction. We've got acreage in Brazil, Mexico, and West Africa. So there are positions around the world, and we're still operating in Venezuela, where there is an enormous amount of resource, and one day that will begin to be developed again. We got production offline in the partition zone. I'll stop there, but I'll simply say that the opportunities for us to invest in and develop resources that we hold today extends well beyond 2023, and it's a function of which projects compete the best for capital investments. A lot of short cycle stuff in there that is pretty low risk and then there are some longer cycle things that are large, and I think you'll see a blend of those deliver strong economic outcomes, which is what drives our decision, not production targets, but I think the cupboard is full, not empty.

Thanks guys.

Thanks Neil.

Thanks guys, good morning. Pierre, I'm sorry to flag the buyback, but I just want to make sure I'm 100% clear on this. Is it fair to say 2Q buyback should essentially be zero, and assuming that is the case, even when you ramp up to $1.25 billion per quarter, obviously on a full year basis, we're going to come in below that $4 billion number due to Anadarko deal. Is that the correct way to look at it?

Yes, that's correct. The $4 billion guidance did not consider the transaction or acquisition at that time. We're facing two types of restrictions. First, when we have material non-public information, we cannot buy back shares. Even once that situation is resolved, there are additional restrictions on buybacks during a business combination and when equities are being issued. Specifically, we cannot buy back shares during the proxy solicitation, and there are other limitations on buybacks compared to historical rates. So, we are in a different operating environment during this transaction. After closing, we have stated that the gross debt ratio should be below 20%, giving us plenty of capacity to increase it. Therefore, while there could be some buybacks, the guidance indicates low or no buybacks for the second quarter. Once we close the transaction, we will be able to meet our guidance without the constraints related to the acquisition.

Very clear, thank you. The second question is really on the Permian and more on the gas side. I know you've worked a lot to get firm takeaway capacity on the crude side; Wahoo pricing has been really weak. Can you talk about, I guess, what alleviation avenues you have on that side as far as takeaway or improving your price realizations as you continue to grow there?

Yeah, I will take that Blake and then Pierre might have some perspective as well. We have got takeaway capacity for all our production and so whether it's oil, NGLs, or gas we are moving it and taking it to market. We are not engaged in routine flaring and would not intend to flare gas to enable production. We had a little bit of dry gas. So if you don't have liquids right now, sometimes it's better just to keep that gas in the ground for a better market. Our current production in the Permian is 75% liquids and 25% gas. We're focusing on liquid-rich ventures, and as we described and you alluded to, we've been looking at takeaway capacity several quarters ahead of our production the entire time here. I think what you've seen in the market is something that you should expect to see for a number of years in the future, which is you've got a lot of people out there that are developing resources, you've got a lot of people investing in the midstream infrastructure, and there are going to be times when those all sync up and you see pretty normal transportation type differentials, and you'll see other periods of time where the market may anticipate some tightness and you will see the differentials widen out. I know Wahoo has been pretty ugly here lately. Kinder Morgan's got some pipes that come online this year and next year, which would probably start to change that equation. You know, the Mexico market has been a little slow to come than people expected. And we've got some Wahoo exposure in our portfolio, but it's not anything that is material in the scope of our company. And I think we're, like I said, we are well positioned on the takeaway capacity across all the commodities quarter production in the future.

Thank you.

Thank you for taking my question. I want to discuss the CapEx and capital aspects of the transaction. First, I believe the high grading process you plan to implement after the deal closes hasn't received enough attention. I would like to understand this better because as we look towards the future combination, it’s important to consider what you might be doing in this regard. Can you confirm if you see this as part of the value proposition, indicating that there is value to be gained from the disposal process related to portfolio management? Secondly, is this process already in motion? Thirdly, could you share some insights—not necessarily about specific assets but about your thoughts on the type of portfolio you would like to integrate, including the criteria you will use? Additionally, could you confirm that the billion dollars in CapEx efficiencies identified as part of the transaction are aimed at achieving similar outcomes with reduced costs, rather than merely scaling back activities, which would complicate any like-for-like comparisons? Thank you.

Okay, well, there is a lot in there, Jon. That was well done. So let me start with the portfolio and try to frame that up for you. And then I'll come to the capital. You asked about the process, we've got an ongoing process where we look at and high-grade our portfolio. You know, we've had $2 billion to $3 billion in assets sales kind of on average over a long period of time. We're continuing, always looking to high grade that portfolio from a strategic alignment standpoint, the ability to compete for capital, what the assets are that will allow us to compete and deliver strong returns into the future. Oftentimes those may not be the same ones that satisfied that criteria in the past. As I thought last week, I mentioned to people if you go back about 15 years, when you think about our upstream portfolio, Tengiz was our real flagship asset. It was in the process of an expansion with SGI SGP that took 100% production from 350 to 650 or 7,000 barrels a day, our share of that was half. So we were on the way to the asset that we have today. And the Permian was kind of out of sight out of mind for most people. Our Australia LNG projects had not been sanctioned, none of our LNG products had been sanctioned. And we were just beginning to move on off the shelf into the deepwater Gulf of Mexico. If you think about it today, in Australia, we're producing 400,000 barrels of equivalent at nice cash margins. Tengiz is on its way to a million barrels a day on 100% basis, our share half of that, so 500,000 a day. The Permian we outlined is on its way to 900,000 barrels a day, our share and it doesn't stop when we get to that number. The Deepwater is with the combination of the two companies pushing close to 400,000 a day. So we now have four positions that have scale, that have resource depth and length, that have strong economics, that have lots of running room. And we have the ability to drive costs down and returns up through the way we manage and invest in those resources over time. So it's a very different portfolio than when we would have had. Just one smaller asset and a lot of other ones that we’re required to have the scale to compete. So we need to take a look at the rest of our portfolio and determine those assets that really can't still compete for capital and offer the low-cost, high-return characteristics, the resource length, and will compete for capital over time. I hope you're still with us, Jon, it sounds like you might be back…

Yes, sorry. It's the classic timing of the annual weekly test, and I apologize for that.

I will be brief so you can comply. We have a different portfolio and will make decisions on assets that can really compete for capital, offering potential resources and value for our shareholders over time. We will disclose which assets those are as we engage in transactions. The capital we've discussed should be viewed as reductions in spending across both companies and ensuring efficiency in that spending. We will evaluate contracts and our ability to execute, driving capital efficiency within the system and reducing overall spending, all while increasing our investment in the Permian, which we've indicated is our intention. We aim to extract capital from the combined system, enhance efficiency, and find ways to accelerate activity in the Permian to bring value forward.

And just to add, we maintained a 3% to 4% guidance on production through 2023 as a combined company.

Right, cool. Thank you, and I'm perfectly safe. Thank you.

Yeah. Good morning. Hopefully, you can hear me and I don't believe there are any problems in the background right now. I guess, Mike, kind of an unusual situation here in terms of the bidding and typically you put your teams together, you expect them to be very focused going forward. I was wondering in an environment like this, do you end up having to divert people's attention to dealing with what may be an ongoing process here in terms of the Anadarko bid? And then how do you think about managing your way through that, kind of keeping everybody doing the things they need to do, plus the team that's focused here on the merger and integration and all that stuff?

Look, I mentioned that we've put together joint integration teams already and that they met this week. And this isn't just a small group of people. This was a sizable group of people that spent multiple days together. And we've got a playbook for doing this. We did Unical a decade ago, Texaco a few years before that. We have some of the same people involved that lead those integrations. People have their eye on the ball and are focused on moving forward with things. So just to remind everybody, we've got a signed deal that's been approved by both boards. And we're moving forward with integration planning so we can deliver value.

Okay, well, good luck on that. Maybe to flip back and actually think about the operations here. In the quarter, we saw a little lighter on the gas side globally, stronger on the crude side. Just curious how much of that is we had some unplanned downtime I believe in Australia with the LNG. As you look going for this kind of global mix between oil and gas and taking into account maybe some dry gas remain shut into the Permian for a while.

Yeah, I mean, I do think what you saw was primarily some downtime at one of the trends in Australia, Gorgon. And because that's a bigger part of our portfolio now, and we've got a train down for some work we will see that. The dry gas isn't a big number, so I wouldn't worry about that too much. There's also some weather in Australia that created an impact. There's a cyclone that came through and we had to take some slowdowns at both Wheatstone and Gorgon as we rode through that. So, those are really the things that are hitting the gas production.

Just real quick, if I could follow up on that, is there any planned downtime between Gorgon and Wheatstone we should consider as we look at the rest of the year?

Yeah, we're moving into normal turnaround mode now for both of those. The plan at Gorgon would be to only have one train down in any given year. And so our plan right now would be to execute train one on Gorgon later this year. The upstream in aggregate from a turnaround standpoint, the turnaround season begins really in the second quarter. You can think about the third quarter as probably the heaviest quarter because we'll have one of the KTL lines at TCO in turnaround there. And then as we go into the third into the fourth quarter, you'll see one train at Gorgon down for a turnaround. But we're into the normal operations and turnaround cycle with LNG plants.

And Roger, this is Pierre. I mean, we generally will provide guidance if there's heavy upstream turnaround activity in the earnings call.

Appreciate that. Thank you guys.

Thanks, Roger.

Yeah, thank you. Good morning, everyone. Thanks for getting on the call. Mike. As you know, we are big fans of what you guys have done here, but I want to ask a little bit of a sensitive question, if I may. There's been some speculation, I guess, some fact checking in the press that given the Anadarko already had a bid in hand from Occi, as per their letter, they then went ahead and increased their change of control for their senior management. I wonder if you could speak to your opinion on that and how what perspective you would offer in terms of perhaps the history of your discussions that may have led to that point. Obviously, it's a little bit sensitive, but it's something that some shareholders are raising some concern about.

Yeah, Doug, there are numerous aspects of our negotiation in the deal that will be explained in the S4 filing; it is premature and inappropriate for me to comment on any of the aspects of how this all came together. I'd encourage you just to read the S4 when it's filed.

Okay, I knew it was going to be a tough one to answer. So I appreciate you trying. My more specific question to Gorgon. Obviously post deal, those are going to be a very significant tailwind from synergies and all the things that you've laid out. One assumes that if you did match the higher bid, does that change anything by way of your buy plans, that would then go through that to any of those kinds of issues? And what I'm really getting at is that if for some reason you did hit a high bar or you did not decide to move forward and not event, I realize it's unlikely, but the bulk of your future growth due to '2023 is largely it looks like a lot of it is coming from Permian gas. So I'm just curious how absent this deal, would you be able to sustain the buybacks and commit to a strong growth trajectory for dividends? And I'll leave it there. Thanks.

Yeah, I'm not going to speculate on what Anadarko’s Board may do and how that plays out. I'll just tell you in our base case, we produce 75% liquids in the Permian. So it's not primarily gas. We've indicated that we expect to see our industry-leading cash margins sustained as the production grows. And that we've initiated a buyback program that we intend to stick with through any reasonable commodity price environment. And so there are not risks to the cash that would support shareholder distributions here in the vein of what you're talking about. So we're very confident in the plan we've laid out and our ability to deliver. Thanks, Doug. Good luck. Thanks.

Can you hear me now?

Yes, we can.

I just have a quick question. We've been through a lot on the Anadarko topic already. I've got a question for Pierre, a follow-up to the TCO topic earlier. You know, if TCO keeps taking up the co-lending program, theoretically, it's to preserve dividends. But if that's happening at the same time that commodity prices are broadly higher than what was planned for, does that flow into the Chevron Capital program as sort of like a net cash surprise, or is the authorization part of your sort of free cash flow outlook and it's not dynamic what TCO decides to do? And then, just as a follow-up, like if it's the former, does Chevron then have headroom to rotate cash at the Chevron level into other things like Permian, incremental Permian, for example?

Thank you. The financing does not influence how we define capital. Capital reflects what is invested in the project, which consists of affiliate capital, meaning it is non-cash. What can change is related to your question about prices. If prices increase, TCO generates more cash, making it easier for them to invest and distribute dividends. This may reduce the need to use the loan. We are providing guidance on financing, but it will depend on prices, the level of investments, and dividends, all of which interact with each other. If prices remain high for an extended period, TCO will have more flexibility to either reduce borrowing or increase dividends. In either scenario, it results in more cash for the company, which is reflected in various sections of the cash flow statement. However, this does not impact capital expenditure.

Okay, yeah, that's why I was asking because it sounded like there was a potential outcome where TCO is self-funding and inclusive of the dividend, but if that's happening at the same time you’ve got like surplus cash, but I guess it's not, it wouldn't affect anything else. So okay. All right, thank you very much.

Thanks, Sam.

Yeah, thanks for taking my question. I'm not going to ask about the Anadarko deal because it seems like it's been covered on the call. I want to actually ask about what's going on in California right now, just given you guys have a pretty big footprint in the state. Congress is in the process of reviewing a bill to kind of institute a change in how oil production goes on there, kind of the setback rule similar to what Colorado tried to put forth. I'm wondering what do you see as potential risks, if any, to your portfolio in the state, both on the refining side and the production side, relative to that regulation? Thanks.

California has quite strong proposals for regulating our industry. The bill you mentioned, AB 345, is currently in the assembly and won't affect downstream operations. You can compare it to recent developments in Colorado, with the main issue being setbacks for activities. Our operations in California are mainly located in the San Joaquin Valley, which isn’t as densely populated as the LA basin. Historically, a lot of our company and the industry have roots in the LA basin, where there are higher population density and concerns about the proximity of drilling to residential areas, schools, and commercial properties. We are collaborating closely with state government to communicate the effects of these regulations, and others in the industry and trade associations are doing the same. The legislation being considered primarily affects the permitting of new wells and does not impact existing production. Our current production is substantial and situated in a part of the state that is likely to be less affected than if we were more concentrated in the LA basin. Okay, thank you very much. Jason, I think we are right about the top of the hour here, and I know everybody's busy on a Friday. So want to thank everyone for your time today. Appreciate your interest in Chevron and your participation on the call today. Jonathan back over to you.