Chevron Corporation held a conference call to discuss their second quarter 2023 earnings, during which they announced several senior leadership changes and performance highlights. The company reported a return on capital employed of over 12% for the eighth consecutive quarter and a record in shareholder distributions of more than $7 billion. They also discussed the progress of the commissioning and pre-start up activities at TCO, with plans to complete the Future Growth Project and a major turnaround in the third quarter. Cost and schedule guidance remain unchanged.

Chevron's Permian production set another record in the second quarter, and is expected to remain flat in the third quarter before growing again in the fourth quarter. Conversion of the field from high-pressure to low-pressure is expected to begin late this year, with FGP on track to start up by mid-next year. TCO is expected to deliver production greater than 1 million barrels of oil equivalent per day and generate $5 billion of free cash flow by 2025. Over the next five years, Chevron expects to develop over 2,200 net new wells, growing production while delivering return on capital employed near 30% and free cash flow greater than $5 billion in 2027. Additionally, they have identified well over 6,000 economic net well locations that support a plateau greater than 1 million barrels per day through the end of the decade.

Chevron has been successful in the deepwater Gulf of Mexico and Eastern Med with the Anchor project on track for first oil next year and the Aphrodite appraisal well in Cyprus meeting expectations. The Leviathan project is expanding pipeline capacity to 1.4 BCF per day. Chevron is also in the process of acquiring PDC Energy and is looking forward to welcoming its talented employees. Chevron has been able to return record cash to shareholders this quarter while also investing within its CapEx budget and paying down debt. Adjusted second quarter earnings were down $5.6 billion compared to the same quarter last year, mainly due to lower realizations and refining margins. OpEx was up due to higher transportation costs and the inclusion of REG.

Adjusted Upstream earnings decreased due to lower realizations, which was partially offset by higher production in the US and non-recurring tax benefits. Adjusted Downstream earnings were down modestly, with lower margins being partially offset by higher volumes. Oil equivalent production was down 20,000 barrels per day from last quarter, primarily due to planned turnarounds and downtime associated with the Canadian wildfires, which was mostly offset by growth in the Permian. In the third quarter, there is a planned turnaround at TCO and a pitstop at Gorgon, and full-year production outlook is trending near the low end of the annual guidance range.

Michael Wirth explains that the lower end of their production expectations is due to unexpected events such as fires in Canada and an incident with an FPSO in Thailand. He also explains that the well results in New Mexico are still below 2022 expectations due to the limited data from the second quarter, as well as facility constraints that have limited full productivity.

Chevron is currently drilling primary benches in the Permian Basin to optimize oil cut, and their production is roughly 50% oil, 25% NGLs and 25% gas. They look at all the commodities and have their own long term views on prices and markets to optimize returns. Chevron is also making positive progress in TCO and expects a turnaround impact in the 3rd quarter.

In the second quarter of the year, 98% project completion and commissioning was achieved, with mechanical completion of the three GI gas injection facilities and fuel gas into the flare system. In the third quarter, full mechanical completion of the Future Growth Project is expected, as well as a turnaround at one of the Komplex Technology Lines. This will enable the conversion of metering stations from high pressure to low pressure, which will take 10 to 12 months to complete. There will also be two more turnarounds next year, at SGI and another KTL, as part of a carefully choreographed sequence of turnarounds and startup activities to reach the 1 million barrels a day goal for 2025.

In Investor Day, TCO discussed the complex series of activities needed to rework the gathering and producing capacity of the field, and the production reflects that. The company has guided to a clean year in 2025 with $5 billion of free cash flow and $60 Brent. As CapEx rolls off, free cash flow will build up towards that point. TCO is also managing commodity prices and holding more cash on the balance sheet.

Pierre Breber explains that the range of the buyback of TCO is tied to the upside and downside cases presented at the company's Investor Day. The low end of this range is notionally tied to the downside case which would reach $50 in a couple of years and stay there for three years. The high end of the range is tied to the upside case which averages around $85 over five years.

Chevron has indicated that they are open to both building and buying businesses in new energies, such as renewable fuels. As evidence of this, they have both built a business and acquired Renewable Energy Group, and they recently acquired Denbury. Michael Wirth also mentioned that Chevron is comfortable gearing up their debt in order to sustain a steady share repurchase program. He also gave an update on Bayou Bend.

Denbury is looking for areas with good geology and pore space, access to concentrated emissions, and policy support to enable a business. The Gulf Coast is a potential site and Denbury is looking to drill strat wells in the onshore and offshore acreage to further characterize the subsurface. They are also in negotiations with potential customers in the Golden Triangle, Mont Belvieu, and the Houston Ship Channel. Additionally, they are obtaining the necessary permits and are looking to build midstream infrastructure either organically or inorganically.

Michael Wirth explains that Chevron has a diverse portfolio of assets across the Far East, Eastern Med, DJ Basin, Argentina, Canada, the US, the Middle East, and the Gulf of Mexico. He also mentions that Chevron has been cleaning up its portfolio over the last decade, removing smaller assets that were pulling capital and management time and resources. He emphasizes that Chevron wants to have assets that are material, long-lived, and have scale, and that they are actively working on expanding their LNG positions in Australia, Leviathan, and Aphrodite.

Chevron has recently acquired more leases in the Gulf of Mexico than any other lease sale in the last eight years, making it clear that they are a company with more than just two assets. Pierre Breber explains that Chevron is built for $50 oil and their strong refining margins make them confident in their ability to grow their dividend at a higher rate than their peers and maintain a buyback of 6% of their shares annually. They also plan to produce more gas in the Permian and have signed deals as an offtaker to integrate their US gas position to global markets.

Michael Wirth discussed the benefits of owning through the value chain, but noted that returns are typically lower. He stated that in some cases, they will sell gas into the midstream assets and offtake gas off of it, but not participate in the capital intensive and lower return portions of the value chain. He emphasized that they are looking to drive high returns, not necessarily to own assets for the sake of control unless it creates a differentiated value proposition. He also mentioned that they vet their partners carefully and have confidence in them to provide reliable operations. Lastly, he noted that the cash balance has nominally decreased, but there are some inputs that could help rebuild it in the second half.

Pierre Breber states that the cash balance of the company is more than sufficient and that they only need about $5 billion to support their operations. He also states that the cash balance is likely to go down due to working capital outflows and the payment of debt. He explains that the cash balance will be returned to shareholders in the form of dividends and buyback programs and that the net debt is well below the guidance range.

Chevron has a unique combination of finance and low-carbon initiatives, and they are committed to driving higher returns and lower carbon. The company is focused on leveraging its unique capabilities and assets to create competitive advantages in new energy businesses. Pierre had spent some time in an ESG role and the incoming CFO has experience in the low-carbon space. They do not expect a dividend in the third quarter, but they have guided to a TCO dividend in the fourth quarter.

Michael Wirth explains that the CapEx in the Permian has increased slightly this year due to three primary factors, but is still within the $4 billion budget set at Analyst Day. He also states that a large percentage of the Permian inventory over the five year plan and long term can be categorized as tier one.

The company has seen an improvement in their drilling and completion performance, but has had to make long lead purchases for next year's program due to longer lead times on critical elements. Additionally, they have increased facility scope for water handling in some areas of the Permian due to induced seismicity issues, leading to increased CapEx. The portfolio is based on economics rather than tiers, and there are more than 6,000 locations in the outer time window which are economic based on current technology and price view. The company has also commented on maintenance effects over the next four quarters.

Pierre Breber discussed that they provide quarterly and annual guidance on TCO that incorporates all the moving parts. Michael Wirth then discussed the cyclical nature of the chemicals business, noting that there is currently some length in supply due to newbuild facilities, which has weighed on margins in the olefins chain. He expects that demand and supply will come into better balance in the mid-decade and refining margins will recover in the second part of the decade. He then discussed that refining margins have come off from strong levels from last year.

Chevron has seen improved well performance in the Permian Basin in the first half of the year, as expected. They are continuing to evaluate the performance and have made progress in addressing some of the concerns from last year. They are also working towards a concept select for the Leviathan pipeline expansion, with floating LNG being one of the concepts under consideration.

Michael Wirth explains that performance of wells done this year is consistent with expectations. He mentions that there are infrastructure and third party constraints that can affect the performance of the wells, and that they are optimizing returns, not production. Pierre Breber then explains that the projects in the Gulf of Mexico have been contracted at a different time, so cost escalation is mitigated.

Michael Wirth of Chevron discussed their plans to develop a gas field in Cyprus, including submitting a development plan to the government for approval, and potentially beginning the FEED process later this year. He also discussed their interest in Argentina, where they have a block in the El Trapial area and are doing more development work with increased capital.

Doug Leggate of Bank of America asked Pierre Breber and Michael Wirth about the ratability of Permian POPs, with Breber noting that the number is closer to 300 when non-op and royalty is included. Wirth added that there may be some variability quarter-to-quarter, but it will be fairly ratable on an annual basis. Leggate then asked about Tengiz, which expires in 2027 and is a quarter of their free cash flow. He asked about their options for extending or replacing it, and for some color on the production profile post 2027.

Michael Wirth is looking forward to a smoother period for his tenure as CEO of Chevron, after dealing with a major restructuring, pandemic, oil price fluctuations, political and geopolitical noise, climate and ESG issues, and three acquisitions. He hopes to continue to drive higher returns and lower carbon while doing so.

Chevron reported strong results and maintained strong shareholder distributions throughout the turbulence of the past year. Roger Read asked a question about their realizations on oil, to which Pierre Breber suggested he follow up with Jake Spiering. Jake thanked everyone for their time and participation in the call before the operator concluded the conference call.

This summary was generated with AI and may contain some inaccuracies.