Katie, the conference facilitator, welcomes participants to Chevron's Third Quarter 2023 Earnings Conference Call. The call will be recorded and there will be a question-and-answer session after the speakers' remarks. Jake Spiering, General Manager of Investor Relations, introduces Chairman and CEO Mike Wirth and CFO Pierre Breber. Wirth acknowledges the tragic events in the Middle East and discusses the company's priority of safety. He also mentions the recent announcement of Chevron's acquisition of Hess Corporation.

Chevron has made progress in delivering higher returns and reducing carbon emissions, with over $5 billion returned to shareholders and ROCE above 12% for the ninth consecutive quarter. They have also invested in traditional and new energy sources, and released a Climate Change Resilience Report. At TCO, the planned turnaround was completed ahead of schedule and the reservoir is performing well. The Wellhead Pressure Management Project is now expected to start-up in the first half of 2024 and the Future Growth Project in the first half of 2025. TCO production is forecasted to be lower in 2024 due to turnaround and conversion plans, but is expected to reach over 1 million barrels per day in 2025. Free cash flow from TCO is expected to be over $4 billion in 2025.

In the third quarter, the company's focus was on safe and reliable commissioning and start-up. The financials were strong, with earnings, cash flow, and ROCE all performing well. There were two special items, including a one-time tax benefit and pension settlement costs. The balance sheet remains strong and the company was able to repurchase over $3 billion in shares. Adjusted earnings were down compared to the same quarter last year, mainly due to realizations and negative timing effects. However, compared to last quarter, adjusted earnings were relatively flat. Higher prices and volumes were offset by unfavorable discrete tax charges and negative timing effects.

The paragraph discusses the financial performance of Chevron in the third quarter, highlighting an increase in adjusted downstream earnings due to higher refining margins but a decrease in other earnings due to unfavorable tax items and lower interest income. Oil equivalent production also increased, driven by two months of legacy PDC production but partially offset by planned turnarounds at TCO and Gorgon. The company anticipates affiliate dividends from TCO in the fourth quarter and expects share repurchases to be restricted due to a pending transaction with Hess. The speaker concludes by stating that Chevron's strategy remains consistent and they are well positioned to deliver value to shareholders.

In this paragraph, the speaker discusses the factors that affected the international upstream sector in the current quarter. These factors include non-cash charges, timing effects, and lower realizations due to a lag in LNG pricing. The speaker also mentions the impact of rising prices on inventory costs and the effect of abandonment estimates on depreciation. They explain that the quarter was difficult to model due to significant differences in pricing compared to previous periods. The speaker suggests that these dynamics were similar to those seen in the first quarter of 2022.

The paragraph discusses the factors that have affected Chevron's international upstream operations, particularly in the LNG and liquid sectors. These include lag pricing, a mix of contract and spot cargoes, and varying tax jurisdictions and product discounts. The company's TCO project is also experiencing delays, which will result in lower cash flow and dividends in 2024 and 2025. This is due to increased capital expenditures and lower production and cash flow from operations. However, the delay in the WPMP project will not have a significant impact on production.

Mike discussed the effects of the delay in the start-up of FGP on production. He mentioned that they have completed WPMP and mechanical completion of FGP, but have faced technical issues with their utility systems. As a result, they commissioned an independent cost and schedule review and made adjustments to their guidance to reflect a more conservative forecast of commissioning progress. They have also implemented changes, such as moving contract resources from 3GI to other commissioning work, to address the delays and discovery items that tend to come up in complex projects like this.

The company has made changes to its approach in order to improve its operations and has brought in experienced personnel to help with the restart of facilities. They have also added technical resources to address any unexpected issues. The company has a more conservative outlook and will provide updates on key milestones such as the start-up of compressor trains and conversion of metering stations. The next question was about Venezuela and the impact of sanction relief on production and willingness to invest in the region. The CEO mentioned that they have seen an increase in production due to sanction relief and could see a sequential increase by year-end. He also stated that Venezuela volumes are impactful for the company's corporate cash flow.

The U.S. government has taken action regarding OFAC licenses, which has opened up opportunities for others to operate. This change does not significantly impact the company's operations, as they are already seeing improvements in production and expect to reach 150,000 barrels a day by year-end. The cash generated from sales will be used to pay expenses and recover past dues. The company will continue to focus on field maintenance and production until the longer-term sanctions and political situation in the country become clearer. The company is not recording production or reserves due to cost affiliate accounting.

In the third quarter, the company did not see a significant impact from TCO on their numbers. They only record earnings when they receive cash, and they will continue to monitor the situation. The cash flow from TCO is modest, but it has increased compared to before. The company is pleased with the operations at TCO and will continue to receive cash from it. In terms of the Permian, production was down slightly due to non-operated joint ventures and delays in putting wells online. Overall, co-op production in the third quarter was flat compared to the previous quarter, as expected.

The speaker discusses various factors that are impacting production in the U.S., such as CO2 content in gas, federal regulations, and produced water limits. They mention that 60% of planned wells in New Mexico have been completed and overall well performance is in line with expectations. They also mention that more detail on type curves will be provided in the fourth quarter. The speaker then moves on to discussing the U.S. upstream CapEx number and mentions the incorporation of PDC.

Chevron's U.S. upstream capital for the quarter has been influenced by several factors, including the integration of PDC into their operations, increased productivity leading to higher costs for materials and water, long lead times for ordering equipment, and the need for more produced water handling infrastructure. This has resulted in higher spending in the Permian region, while the Gulf of Mexico is on track with their original plan.

The speaker, Michael Wirth, responds to a question about the cost increase and schedule delay for the Tengizchevroil (TCO) project. He acknowledges that it has been a challenging project due to engineering issues and the impact of the pandemic. He explains that the project involves rebuilding the power infrastructure for a large area and that much of it dates back to Soviet times.

The commissioning process for the new power distribution system in the field has been complex and has caused delays in the project. The company has adjusted its schedule to account for this complexity and has added resources to anticipate and handle challenges in the future. They have learned from this experience and will incorporate the complexity of commissioning in future projects.

Pierre Breber, a representative from Chevron, discusses the company's affiliate dividends for the fourth quarter. The guide given for the fourth quarter falls short of the full-year guide due to lower petchem margins from CPChem and lower TTF prices from Angola LNG. However, TCO, a major contributor to the fourth quarter guide, had a $600 million dividend in the second quarter and is expected to have a significant increase in the total year dividend. This is a positive development after five years of negative free cash flow. Production is expected to be down next year and there will be an increase in CapEx, but the company is aiming for over $4 billion in cash flow by 2025 at $60. Breber acknowledges the disappointing news about the revised schedule but remains optimistic about delivering it within the front end of the range.

Doug Leggate is trying to defend Mike, who has been traveling, and is not happy about the challenges being faced by the company. He asks Mike about the steps being taken by the management team to avoid such issues on future projects.

CEO Michael Wirth discusses the market's reaction to the company's upcoming projects and explains why they are confident in their ability to execute on their timeline. He mentions the challenges they have faced with their current project and how they have learned from it. Wirth also highlights the importance of being selective in the projects they take on and how they have walked away from certain projects in the past. He concludes by stating that they will continue to learn and apply these lessons to future projects.

The speaker discusses the progress of a project and the impact it will have on the company's earnings. They mention that the company's performance in the quarter was strong and healthy, despite some non-cash and nonrecurring items affecting the results. They also mention that the recent acquisition of another company will contribute to higher operating expenses and depreciation, but they are confident in their ability to capture synergies and see potential for upside.

During the earnings call, the company's CEO and CFO discussed the recent transaction and its potential for operational and financial synergies. They also addressed concerns about the impact of taking Tamar offline in the Middle East and stated that it does not change their long-term view on development opportunities in the region. The CFO will address the cash and production impact of this decision.

Chevron is currently working on several projects in the Mediterranean Sea and is taking a long-term view on their development opportunities. In regards to their contracts, there are escalators tied to inflation and regional gas prices, but the impact on cash flow is expected to be modest. In terms of the Gulf of Mexico, the addition of Hess assets may not have a significant impact on their approach to the basin. Chevron has three projects scheduled to come online in 2024 and is making progress on them, but the specific timing has not been disclosed.

Chevron is planning to high-grade their exploration program with Hess, their partner in a few projects. They provide updates on their upcoming projects, including Mad Dog 2, Anchor, Whale, and Ballymore. The production for these projects will be spread out over the next few years, with some wells coming online in 2024 and others in 2025 and 2026. Chevron and Hess will discuss their plans further as they integrate their operations. Chevron also mentions that Hess will not be holding their Investor Day at the usual time.

The company is in the process of acquiring Hess and expects to hold an Investor Day after the deal is closed. The management team has been meeting with shareholders to discuss the acquisition and most investors see the long-term value of the combined company. Some concerns were raised about the price paid for the acquisition, but overall, it is seen as beneficial for both sets of shareholders.

The speaker discusses the potential nuances in people's reactions to the merger of two stocks. They believe that the long-term value and transparency of the combined company will benefit both Chevron and Hess shareholders. They also mention their consistent financial priorities, including sustaining and growing the dividend, and balancing growth and buyback programs.

The last 15 years have seen a 6% CAGR and an expected 8% CAGR next year, driven by disciplined organic reinvestment, a strong balance sheet, and share repurchases. The company has a range of $10 billion to $20 billion for share repurchases, and they expect to sustain this in both low and high price environments. Chevron's behavior and framework are likely to remain consistent and predictable. The company's re-weighting towards the upstream sector with the acquisition of Hess sets them apart from other integrated oil companies.

The speaker, Michael Wirth, is not bothered by the balance between the upstream and downstream operations of the integrated oil company. He explains that the company has been becoming more downstream-weighted in recent years, with investments in the downstream and chemicals sectors. However, with an upcoming transaction, the company will return to its historical balance of 80-20 or 85-15 upstream to downstream. Wirth believes that returns in the upstream are likely to be higher than in the downstream over the cycle due to government intervention and declining resources. The company has also been more oil-weighted compared to its peers.

The speaker explains that their company's portfolio is focused on natural gas and integrated operations, as they believe there are more alternatives for gas than for liquids in transportation. They also mention the importance of integration and the differences in their portfolio compared to their peers.

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