Chevron Corp (CVX) — Q2 2019 Earnings Call Transcript

Thank you, Jonathan, and welcome to Chevron's second quarter earnings call and webcast. On the call with me today are Jay Johnson, EVP of Upstream; and Pierre Breber, CFO. We'll 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. Turning to slide 3. And Pierre?

Thanks, Wayne. We had another solid quarter. The company delivered record production, led by continued strength in the Permian Basin and at Wheatstone in Australia. Jay will provide more detail shortly. First, an overview of our financial results. Earnings were $4.3 billion or $2.27 per share. This is the highest reported quarterly result since the third quarter 2014 when Brent was over $100 a barrel. The quarter's results include special lighting gains, totaling $920 million from the Anadarko termination fee and a tax rate change in Alberta. Foreign exchange gains for the quarter were $15 million. Excluding special items and FX gains, earnings were $3.4 billion or $1.77 per share. A reconciliation of non-GAAP measures can be found in the appendix to this presentation. Cash flow from operations was almost $8 billion excluding working capital changes. We also maintained a strong balance sheet with a low debt ratio. Importantly, our continued strong cash flow allowed us to deliver on our commitment to return significant cash to our shareholders. During the quarter, we paid over $2 billion in dividends. And after terminating our agreement with Anadarko, we resumed buybacks and repurchased $1 billion of shares during the quarter. Going forward, we expect share buybacks at the $5 billion annual run rate or $1.25 billion per quarter, in line with our updated guidance stated in May. We also continued to maintain capital discipline with a focus on increasing returns. Year-to-date organic CapEx was $9.6 billion, a little less than half of our $20 billion budget. Total CapEx, which includes acquisition costs that are unbudgeted such as the purchase of the Pasadena refinery, totaled $10 billion. Turning to slide 4. Cash flow was strong and the trend is in line with full year guidance. Cash flow from operations excluding working capital increased this quarter due to growing production volumes and higher liquids realizations as well as the termination fee received from Anadarko.

Thanks, Pierre. On Slide 7, second quarter oil equivalent production increased 9% compared to a year ago with shale and tight production increasing in the Delaware and Midland Basin and production from major capital projects increasing with ramp-ups at Wheatstone, Hebron, and Big Foot. Our base business production increased as Gulf of Mexico and other deepwater brownfield developments more than offset natural declines across the portfolio. Turning to Slide 8, second quarter production was strong at more than 3 million barrels a day for the third straight quarter. Year-to-date production excluding asset sales is about 5% higher than 2018 consistent with our guidance of 4% to 7% growth as shown by the middle bar. Second quarter production was impacted by planned turnarounds and asset sales, which together had an impact of almost 70,000 barrels a day. Looking forward to the second half of the year, we expect production growth to be primarily driven by our shale and tight assets as well as the continued ramp-up of Big Foot and Hebron. This growth will be partially offset by higher turnaround activity in the third quarter. Our full year outlook is expected to be in line with this guidance even before adjusting for the entitlement impacts of higher prices.

Thanks, Jay. Slide 14 highlights some recent commercial developments. First, through our joint venture, Chevron Phillips Chemical Company, we announced two new petrochemical investments, one in the U.S. Gulf Coast and one in Qatar. Each is in the joint venture with Qatar Petroleum. The long-term fundamentals of chemicals are strong. We believe these projects offer attractive returns underpinned by advantaged feedstocks, world-class scale, and leading technology. Also in the quarter, we closed the sale of our interest in Denmark and executed an agreement to sell our U.K. Central North Sea fields, which we expect to close later this year. Additionally, we completed our acquisition of the Pasadena refinery which will enable us to supply more of our retail market in the region and process more domestic light oil. In the renewable space, we recently agreed to purchase wind power to supply our Permian operations. This is a cost-effective renewable energy alternative to our current electricity supply in the Permian. Also, Chevron executed an agreement to be an equity partner in CalBioGas, a joint venture to produce end market dairy biomethane as a vehicle fuel in California. The project will capture methane that otherwise would be vented into the atmosphere and process it into renewable natural gas. Turning to slide 15. Our performance this quarter reinforces four key messages you've heard from us in the past. First, we have an advantaged portfolio that is delivering today and is positioned to do so over the long-term as Jay highlighted in the Permian Gulf of Mexico and at Tengiz.

We’re here. Thanks, Jonathan.

I believe we were cut off prematurely, so actually we'll begin with slide 16.

Okay. Thank you, Jonathan. This is Pierre and we understand that we cut off at slide 16, so I'm going to resume there and we're going to look ahead. In Upstream, we continue to expect 2019 production growth to be 4% to 7%, excluding 2019 asset sales. Planned turnarounds in Kazakhstan and Nigeria and the North West Shelf and Australia as well as the early July hurricane in the Gulf of Mexico are expected to impact production in the third quarter. Our full year guidance for TCO co-lending is unchanged at $2 billion depending upon price, investment profile, and its dividends. In downstream, we expect high levels of refinery turnaround activity in the third quarter, which guides to an estimated after-tax earnings impact of more than $200 million. For the third quarter, we expect to repurchase shares at a rate of $1.2 billion per quarter. With that I'll hand the call back over to Wayne.

Thanks, Pierre. That concludes our prepared remarks. We're now ready to take your questions. Keep in mind that we do have a full queue, so please limit yourself to one question and one follow-up. We’ll do our best to get all of your questions answered. Jonathan, please open the lines.

Yes, hi good morning. Can you hear me all right?

Good morning Phil.

Yes. So, I guess first question just looking at this Permian additional disclosure and your cash flow expectations; it seems like what you're implying here is that you can grow earnings and cash flow, and the ratio of cash flow to CapEx keeps going up. So, it seems to imply a pretty flattish CapEx profile, which I think is fairly consistent with the rig count trajectory you talked about at Analyst Day. So, I was wondering if you could maybe just kind of walk through that detail. And then secondarily, I know you recently had an announcement that you made with an enterprise talking about takeaway out of the Permian. I was just wondering how that all feeds into this ability to ensure you get the best realizations for your production. Thanks.

Okay. I'll take it and Pierre may want to add some at the end. From a CapEx standpoint, Phil, we are looking to maintain a relatively flat profile in capital and that's because essentially we're looking to have a very steady rig fleet as we go forward. We have 20 company-operated rigs. Those are basically on a 100% basis because we operate our own licenses. And then we look for about 30 roughly gross non-operated rigs which equates to about seven to 10 net non-operated rigs. So, as we move that forward, we expect to see capital relatively constant. We're building out infrastructure of course and we always have some exploration activity out in front of us and we also do pilot work to ensure that we are continuing to drive to increase the recovery and efficiency of our developments. In terms of the takeaway capacity, I'll break it into three different streams. I'll start with crude oil and basically for 2019, we're well covered on our takeaway capacity for crude oil. In 2020, we are also covered for the year. There may be periods of tightness in length as we move through the year, but we recently executed an agreement with an enterprise not only for takeaway capacity out of the Permian Basin, but also for export capacity that will lengthen our ability to supply crude not only in the domestic U.S., but internationally. When we look at natural gas liquids, we have full takeaway capacity for this year and next year. And as we turn to gas, we really think of gas in two ways. The first is just basic flow assurance. We need to be able to move the gas without having to flare or have any threat of mitigating production in our avoidance of flaring. So we have 100% flow assurance set up for the balance of this year and next year. In terms of takeaway of gas from the basin outward for export, what we look at is this year we're at about 20% of our gas can be exported from the basin. By the end of this year, we expect to be about 25%. By the end of next year we should be more like 60% of our gas being exported from the basin gives us more exposure to other price structures rather than just the Waha.

Thanks, Phil.

Okay, great. That’s helpful. Just my follow-up question then for Pierre would just be some of your balance sheet commentary. Your net debt-to-cap, I believe is a low since it’s been since mid-2015. I know you increased the buyback a bit. There's the situation where you had M&A considerations there that you walked away from, but I guess how do you think about that level of financial leverage? And where you want to keep that balance sheet for opportunities that might present themselves? Thanks.

Thank you, Phil. Our cash generation has been robust, and we've been returning cash to our shareholders. Earlier this year, we increased our dividend by 6%. As you mentioned, we raised our share buyback guidance in May to $5 billion annually. We are maintaining a disciplined approach to capital, sticking to our $20 billion organic budget for 2019. While our strong balance sheet will continue to improve in the short term, our strong cash generation will ultimately be returned to shareholders through higher dividends and a consistent share buyback program. That's my perspective on it. I won't make any comments on M&A. We are in a solid financial position and have a compelling value proposition for our shareholders, which we discussed during our March Analyst Day, and Jay elaborated on some key aspects today, which remains our focus.

Thanks, Phil.

Thank you.

Good morning team. I guess, the first question I have Jay, you just came back from Kazakhstan sounds like. There are some questions around labor productivity as it relates to Tengiz. Can you just confirm everything is on track and then just in terms of the capital budget as well your confidence level in achieving the targets that you set out?

Yes. We just did come back in June and we talked about this at the Security Analyst Meeting and in previous calls. A big focus at site now is on labor productivity. We've got a lot of work to do as the modules come in or set on foundations. Last year, we were primarily focused on civils and undergrounds. This year we're making the transition to mechanical, electrical and instrumentation. As we look forward, we have to get through commissioning and then all the start-up activities. So we've put in place specific tools that can really help us, not only drive the productivity but understand what the drivers are, where we have gaps, from where expectations are and what we need to do to close those. Those tools are now widespread across the site and are proving to be very effective, so we've seen steadily improving productivity across the workforce and are actually feeling pretty good about where the execution is headed at this point. But it's early days. We're 40%, roughly complete on construction and we've got a lot of man-hours to go over the next couple of years. In terms of the overall capital program, you've seen we continue to be right in the middle, right on our guidance. We're about 50% expanded on our Chevron C&E through mid-year and we still expect to maintain our guidance of $18 billion to $20 billion for next year, so that should give you a pretty good idea of where things sit.

Appreciate this. And just a follow-up question, this might be for you Pierre. You've gotten a lot of credit from investors for stepping away from the Anadarko potential transaction and showing the capital discipline. Since the deal closed, the stock has materially outperformed other constituents of the XLE or XOP and others, independent E&Ps and that multiple arbitrage or share price ratio arbitrage seems to be opening up again. Just want to get your thoughts on M&A. Again, it felt opportunistic, but is another opportunity potentially opening up here?

Thank you, Neil. I can't provide any insights on M&A at this time. What I can emphasize is that we offer significant value for our shareholders. As we mentioned in March, we are guiding for production growth of 3% to 4% through 2023, supported by a disciplined capital program. Jay shared our 2020 guidance of $18 billion to $20 billion, along with long-term guidance of $19 billion to $22 billion from 2021 to 2023. We have strong upstream cash flow margins, leading earnings margins, and we are improving our cash return on capital employed by over 3%. This clearly indicates that we do not need to pursue a deal. However, as you noted, we have been opportunistic in the past when a strategic fit at a favorable price arises, like with the Pasadena refinery and Anadarko. That said, our priority now is to focus on delivering growing earnings and cash flows for our shareholders.

Thanks Pierre.

Thanks, Neil.

Good afternoon. I just had a couple of questions. One, can you talk a little bit about Anchor, which you're hoping to do FID next year? What do you think has to happen to move that forward? Because my understanding is, there are still some quite significant technological challenges. And the follow-up, if you can just talk a little bit, it's just sort of a question, just on the asset sales, that you announced the U.K. asset sales in the quarter. Can you talk about what happens on the decommissioning of liabilities associated with those assets, please?

We are currently in the FEED process for Anchor, which involves all the preliminary engineering work before moving on to detailed engineering. There are two key technologies being developed to support this project, which will also be applicable to future opportunities. The first is the high-pressure technology aimed at reaching 20,000 psi. This is progressing well, primarily involving the development of a thicker seal. We are in the qualification stages and do not see this as a significant technological hurdle; it’s mainly about following the necessary steps. The second technology involves higher hook loads for deeper wells, which will also assist in potential projects like Ballymore. We do not view either of these developments as particularly challenging but they are essential for completion. We expect to stay on track for the Final Investment Decision for Anchor early next year. As for the North Sea deal, we typically do not disclose specifics regarding our commercial transactions. I can’t provide much detail, but overall, we feel very confident about the deal as it has been structured and are collaborating with the buyer to finalize the closing process.

Yes. And I think I can add to Jay's comments that we're fully in tune with the importance of embedded obligations and that's carefully considered in terms of the financial strength of the partners or the parties that we transact with. And again, we won't be specific as it's commercially sensitive, but as you can imagine, the point of negotiation and something that we don't intend to be exposed to over time.

Thanks very much.

Thanks Alastair.

Hi, thanks for taking my question. And apologies, if I miss this on the call but, I have a question on LNG. You mentioned a higher ratio of spot LNG sales in the quarter. Could you just talk through what was driving that? One of your players has talked about buyers for their contracts not taking their full nominations. I was wondering if that was the issue or there's something else there. Thank you.

Thank you, Biraj. I'll address this generally first. As we improve our performance, our facilities are operating very well, reliability is increasing, and we have more production than we had planned. This additional production will be active in the spot market. In the second quarter, we had strong performance at both Gorgon and Wheatstone, resulting in extra production. Additionally, we postponed a turnaround that was scheduled for the second quarter to the fourth quarter, allowing for more cargoes to go to the spot market. Some of our buyers also exercised downward flexibility during the shoulder months, which happened in the second quarter. Furthermore, regarding our fixed-term contracts, there was a 3 to 6 month delay in the linked oil pricing, leading to some declines in that area. All these factors contributed to the results for our LNG in the second quarter. Looking ahead, we expect increased production as our reliability improves, and our goal is to ramp up to meet our expected production levels as we gain more confidence in the reliability of our facilities.

That's great color. And just a quick follow-up. At Gorgon in particular, I think in the past you talked about debottlenecking the project to increase capacity by maybe 10% or 15%. Could you just update us on where we are now and relative to the original nameplate?

Yes I don't recall us giving out specific guidance on percentages of increase. Our focus right now is doing a couple of things. First is just getting the reliability increasingly high and we've seen very good reliability. We're still learning these facilities as we continue to operate and we built learnings from some of the shutdowns and turnarounds that we've already accomplished in the future ones. As we look forward, what we are looking at is we're collecting the data literally daily as we move through an annual cycle of the ambient conditions as well as the performance of the plan. We look for where the restructuring to keep us from going to the next level of production. At this point in time, I'd say we're probably 2% above where we expected it to be on Gorgon production, around 6% above on Wheatstone. But it's an ongoing effort as we move forward to get more out of our existing investments and infrastructure.

Thanks, Biraj.

Thank you very much.

Thank you. First, regarding the Anadarko transaction, I recall you mentioned having both the capacity and the intent to enhance your deepwater involvement on a global scale, and you expressed enthusiasm about expanding your LNG portfolio to create a global presence. As you pursue new opportunities, should we anticipate that your focus will primarily be outside the U.S.? Secondly, could you provide details on your plans for the new refinery asset now that you have ownership of it? Thank you.

Thank you, Jon. This is Pierre and I'll begin. I mentioned earlier that we have moved on, but I want to touch on Anadarko for a moment. There are several components to the transaction, including the final investment decision in the Permian, the final investment decision in the Gulf of Mexico, and the LNG. We recognized the potential for synergies and believed the price was favorable for both their shareholders and ours. Regarding LNG, we are definitely interested in adding it to our portfolio. We have a strong position in Australia, which Jay just mentioned, that is generating significant cash flow, and we see opportunities to enhance that over time. We are always managing our portfolio, and LNG is one of the asset classes we are keen to explore, pursuing opportunities that align with our company's and shareholders' interests. Concerning Pasadena, we have three clear strategic objectives: to introduce equity products into our retail network in Texas, to optimize feedstocks and flows between Texas and our Pascagoula, Mississippi refinery, and to enhance our capacity to process more domestic light oil, particularly from the Permian. It's still early in the process, but all objectives are on track and consistent with our strategy. We are confident we can achieve them with this acquisition. We expect to increase our processing to 30,000 barrels a day of Permian crude oil in the coming months, which is more than we initially anticipated. There’s also work to be done on maintenance and reliability, but overall, everything is proceeding well, and we feel positive about it, though it is early. Thank you, Jon.

Thanks very much. Hello guys. I had a couple on the Permian, slide number 10. I guess the first one would be, obviously, some fairly impressive absolute performance in increasing EUR and decreasing development production cost on an absolute basis. I know you do a lot of benchmarking. How would you say stack up against the industry in those areas now?

Yes, that's a great question, Jason. We conduct extensive benchmarking, and this remains a developing situation. I would say we are competitive in these areas. We have a strong understanding, particularly regarding the type curves across the entire basin. We are capable of analyzing decline curves not only for our own wells but also for our competitors, which helps us assess our performance. We are quite confident in our overall performance, both in terms of recoveries and the economics resulting from our execution efforts. Additionally, when we leverage our midstream capabilities and our royalty position, it significantly enhances our overall financial performance. If you refer back to our Security Analyst Meeting slides, you'll find some competitor data, as well as how our actual type curves compare to our expectations, and they align very closely. Therefore, I believe we have a solid understanding, and we are witnessing continued improvement as we progress.

Yes. The only thing I would add to Jay's comments, this is Pierre. You can cherry-pick a lot of data out there to position how you look. We've been pretty consistent with what we've shown. And also we've done a lot, not just general benchmarking, but comparisons to our non-op partners or the operators on our behalf, where we know we have very good apples-to-apples data. So it is an area of focus and we feel we compete very well.

That's great. And maybe just – yeah, just a quick follow-up. I noticed the average lateral length that's planned for 2020 is starting to approach 10,000 feet. In the past you've had fairly frequently slides about swapping another positioning to kind of block up your acreage. And if you're moving towards 10,000 feet, I'm suspecting you're getting a long way towards doing that, but can you just kind of talk about whether there's further opportunity there?

As we proceed in our current development areas, we are increasing our average lateral length and are nearing the 10,000-foot mark. In the areas where we have made transactions, we acquired around 60,000 acres in 2017 and 95,000 acres in 2018. This has allowed for approximately 1,900 longer laterals, significantly benefiting our core development areas. As we continue to explore new development regions, we will maintain land activity to optimize our land positions. We estimate that about half of our total acreage consists of highly productive areas, and our strategy involves utilizing swaps, farm-outs, sales, and acquisitions to refine our development zones. We aim to execute this efficiently and ensure we are drilling effectively as we embark on each area. Our primary goal remains focused on delivering returns, rather than merely pursuing production or heightened activity levels.

Thanks guys.

Thanks, good morning everyone. Jay, could you clarify the assumptions you made regarding the cash margins in the Permian? Things have notably worsened due to factors beyond your control, particularly concerning NGLs and gas. How do you view the situation? What were your assumptions related to CapEx and cash flow? Additionally, reaching 900,000 barrels a day at a 3.3 or 3.4 this year indicates that your cash margin across the portfolio might diverge from the levels you have experienced in the past. I’m interested in hearing your thoughts on this. I have a follow-up question as well.

The assumptions we provided are included in our Security Analyst Meeting presentation, which you can refer to. Our goal is to ensure we have the ability to move gas out to other markets rather than being confined to the immediate area. For crude oil, we are already ahead of schedule. We transport our crude outside the area and are able to access and optimize various markets. Regarding the overall cash margin, we've shared that information, and we consider it to be very strong. There will always be market fluctuations due to varying demands in different locations, but overall, we feel confident about our production capabilities both here and globally.

I understand there are many factors at play. My follow-up question is connected to a historical trend where, when oil prices drop significantly, your discussions about sustaining capital have been frequent. This has clearly been positively impacted by the large LNG projects, which play a major role in the overall decline. As you continue to increase funding for a much larger share of your production and deal with a high decline rate from unconventional assets, how does this affect the sustaining capital? I recall you previously mentioned a $13 billion figure; how does that change as we approach the five-year plan?

This is Pierre, and I'll start and ask Jay to add some comments. We've never really discussed sustaining capital. We have a $20 billion capital budget this year, and we've provided guidance of $18 billion to $20 billion for next year, along with $19 billion to $22 billion for the period from 2021 to 2023. The guidance is clear and tight. This results in an enterprise production growth of 3% to 4% through 2023, along with leading cash margins. In past conversations, we've mentioned base decline, and we're investing in unconventional resources, particularly in the Permian where production is more than doubling while generating free cash flow each year starting next year, with returns increasing from 20% to 30%. We're very optimistic about our position. Our focus is not on maintaining flat base capital; we're concentrating on increasing returns, which leads to higher production and translates to higher earnings and cash flow. The high decline you mentioned is just part of the business. However, with our investments, we are more than compensating for that decline in a very economical manner. As we continue to enhance and maintain our facilities over time, this reinvestment represents a highly attractive use of capital for our shareholders.

I might just build on what Pierre said, because he's absolutely right. As we have a larger percentage of our overall production constrained by facilities, that means we have the ability to be very stable on our production. And the same in some respects actually applies in the Permian, while any individual well may have a relatively high decline rate, it does approach an asymptotic curve. But the facilities we install for each of the development areas, our goal is to keep those full. And one of the advantages of the Permian is that, in the initial drilling we fill the facilities up, but then we can go back through infill drilling programs and by going after the subsequent benches in a given development area, and just continue to keep those facilities full, and the amount of rig activity it takes is much less for those subsequent drilling campaigns to maintain that production in a given development area. So I actually feel pretty good about where the whole portfolio has moved and really I'm not too worried about what some people see as a problem with these individual Permian wells.

It’s a great answer guys. Thanks for taking my questions.

Thanks, Doug…

Yeah. Thank you. Good morning.

Morning Roger.

Let me just dive in here. Kind of following-up on some of the Permian questions, with your royalty position and others developments and with some of the problems we're seeing from some of those E&Ps, any risk to your outlook from those who might have overstepped their bounds in terms of the way they were developing the Permian?

Well, Roger this is Pierre. I mean, you're right. I mean, we don't control the royalty barrels because that's being operated by others who own the working interests we're landowners and as Jay said, we receive those barrels with no capital, no operating costs. But the flipside is that if we don't control the development, so we're doing it based on an outlook and an expectation, it certainly we know what the actual had been. But you're right that there is some risk of that. It could go either way. It could go bigger or lower than what we're showing dependent on what those operator's activity levels are.

Okay, great. And then from a guidance standpoint on the downstream, the hiring refinery turnaround activity, and for the third quarter I was under the impression you'd had fairly high turnaround activity earlier in the first half of this year. So I was just curious was that the right interpretation, and maybe if there's any geographic specific exposure on the high TARs at this quarter.

We have now adopted a practice of providing clear guidance on planned turnaround activity in the downstream, categorizing it as low, medium, or high. You’re correct that the second quarter was high, which is associated with $200 million of after-tax earnings impacts due to both increased costs and lost profit opportunities from not producing at full volume. In contrast, the first quarter was low, with effects up to $100 million. The third quarter is also expected to be high, which is not unusual; it really depends on how the planned turnarounds are organized. We won't disclose specific locations as that information is commercially sensitive, but we can discuss it afterwards. For reference, the second quarter included planned turnaround activity in Pascagoula and Asia. We believe we are providing clear guidance, so you should anticipate that the after-tax earnings impact of planned turnarounds in the third quarter will be similar to that of the second quarter.

Pierre, I'll leave it there. Thanks.

Thanks Roger.

Good morning. Jay, since you're here and you mentioned the incident in Tengiz involving your contractor, it appears there has been significant discussion about the relationship between the foreign contractor and the local community, possibly with differing objectives. Could you provide an update on that and any initiatives taken to address the issues there?

Yes, Paul, I can provide more details. This situation primarily involves one contractor at the 3GP site, where there were some disagreements between their workers and the management. When the issue arose, we decided to shut down the entire 3GP site, although the other site remained unaffected in terms of production. Our main goal was to address and contain the problem while identifying its root cause. We've collaborated with that contractor, who is implementing corrective actions to address the concerns raised. This particular contractor is the only one facing an extended ramp-up period, and they are working towards returning to their regular capacity, which we anticipate will happen by the end of August. Currently, we do not expect this issue to have a significant impact on the overall progress of the work. This contractor had actually been ahead of schedule by about a month, so while we've lost some of the buffer time that had built up, we believe we can manage the overall impact effectively. Maintaining good workforce relations is always a priority for us, and we remain focused on this matter. As we shift our attention back to the site, I assure you that we will continue to engage with our workforce to preemptively address any other concerns.

And the second question Jay. I think in Angola Block 14, I think that the expiration is 2023. And in Nigeria the Agbami I think is 2024. When you guys will start the process for renegotiation on those?

Well, that's not something we normally are going to talk much about publicly, Paul. That's between us and our partners and the government. So, I can tell you that those discussions and the planning for that is well in hand, but I really won't be able to go into much detail on those at this time.

Okay. Understand. Thank you.

Good morning. Hi.

Hey Sam.

So, in the Permian one of the things that you talked about contributing to your rig count staying relatively flat is that you're building up a nice stack of vintage wells and you've got some legacy production that's supporting the performance of new wells. Just really quickly Jay can you shed some light on the performance of those older wells? It sounds like you're leading edge wells are meeting your expectations, but how are the vintage wells doing as far as how are they holding up and as they get a little long in the tooth?

Actually they're doing quite well. Our focus from day one has been to maximize the returns that we can get from our investments in the Permian. So, there has been a lot of questions why don't we increase our rig fleet, why don't we be more aggressive? But the reality is to continue to learn as everyone in the industry as we move forward and I think a lot of the moves we've made to stay focused on returns now are paying off. Many people talk about how high their initial production rates are in the first six months rates, but what we're really looking at that can actually damage wells and cause aggregated decline curves. So, we're looking at the total expected recovery. We're looking at the economics of the well over its life. We're very careful in our drawdown rates in those early months to make sure that we don't cause damage in the wellbore or in the formation. When we put all that together, we're seeing our base production. That is the production that's already online continuing to perform such that, when we drill these new wells, we can add that on top. And as you saw from the chart, I believe it was on probably page nine, we've been able to continue to deliver right on our production profile and we feel very good about how our wells are performing.

Thank you so much. And then - this one should be relatively quick and just in reference to the strategic partnership between CPChem and Qatar; Qatar's got a portfolio of other things that Chevron is probably a good candidate to participate in. Do you see that relationship deepening as you kind of advance on the chemical side throughout the Chevron organization? Or do you see that siloed into Chems?

No. No. Look, we have a good relationship with Qatar Petroleum for sure and so do CPChem. And when the Qataris look at CPChem they look at it as three companies, right; Chevron Phillips, Phillips 66 and ourselves. And so, we have a good relationship with them. I will say that the trend – the deals stand on their own; I mean, the project in Qatar was bid out at U.S. Gulf Coast again there's other alternatives that are considered. So each transaction stands on its own. But we're very proud that we have this platform within and whether that leads to other opportunities or not I won’t speculate, but we certainly have a good base to work off of.

Thanks so much.

Thanks for taking the question. You alluded to the gas takeaway issues in the Permian and that you're trying to avoid flaring as much as possible. But of course your realized gas price was $0.60 in Q2. So I'm curious if it might get to a point where you have no practical choice, but to either flare gas or shut in wells. And if that happens which would you choose?

We do not flare gas. We are committed to avoiding flaring and have consistently maintained this practice. Our main focus is ensuring flow assurance, which we have successfully secured, allowing us to move gas without resorting to the options you've mentioned. As I previously noted, we plan to increase export capacity from the basins to achieve better market realizations, which aligns with our overall strategy to optimize returns from our investments in the Permian.

You're discussing the issue of reducing carbon emissions, which many U.S. oil and gas producers are also addressing. However, during recent debates, it appears that this perspective is not resonating with the policy community. I'm interested in your thoughts on what the industry might not have effectively communicated, and what factors have contributed to this gap between your messages and the beliefs of policymakers.

That's a significant question to wrap up the call. It really depends on which policymaker's perspective we consider. We are experiencing an energy transformation in the United States. Wind and solar play a vital role, but developments in the Permian Basin, along with the Marcellus and Utica areas, and the increasing production of natural gas and crude oil, alongside exports to global markets, all have noteworthy geopolitical implications. Our President frequently addresses these points. At the same time, we acknowledge concerns regarding climate change. During the earnings call, we mentioned several investments aimed at reducing the carbon intensity of our operations. For instance, we entered a wind power purchase agreement in the Permian, allowing us to use renewable electricity and decrease our carbon footprint. Additionally, we are involved in renewable natural gas projects in California that capture methane otherwise released into the atmosphere, process it, and integrate it into the grid. We have off-take agreements with trucking companies that generate low-carbon fuel under California's regulations, which requires modest capital but offers an attractive return. We believe these initiatives benefit both the environment and our shareholders, and we aim to increase our efforts in this area. It's a complex issue, and we intend to be part of the discussion.

Thanks Pavel.

Well, I'd like to thank everyone for your time today. We do appreciate your interest in Chevron and everyone's participation on today's call. Jonathan, back to you.