Q4 2023 Earnings Summary
- Chevron is increasing its oil production with high-margin barrels, benefiting from recent acquisitions like Hess and expecting to add towards half a million barrels in the next 2 to 3 years, while maintaining a low breakeven price in the low $50s per barrel.
- The company continues to return significant cash to shareholders, with record share buybacks of almost $15 billion last year (about 5% of shares outstanding), and an 8% increase in dividends, more than twice their nearest peer and greater than the S&P 500.
- Chevron is achieving operational efficiencies in key assets like the Permian Basin, improving drilling and completion times, and expects to reach 1 million barrels per day in the Permian by 2025 without significantly increasing capital spending.
- The CEO could not provide specific data comparing current cost structure to pre-pandemic levels, making it difficult to assess cost management and indicating possible challenges in controlling costs.
- Midstream infrastructure issues in the Permian Basin, such as weather-related problems, regulatory items, and gas processing constraints, could adversely affect future production growth.
- The company has been hitting the low end of production guidance in recent years, and upcoming asset sales may offset production growth, raising concerns about their ability to meet growth targets.
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Hess Acquisition and Portfolio High Grading
Q: Can you update us on integration with Hess and portfolio high grading?
A: Michael Wirth stated it's premature to comment before the transaction closes but mentioned that Hess has a tight portfolio of well-performing assets. He expects greater contributions to the $10–15 billion divestment target from legacy Chevron assets rather than from Hess assets after the deal closes. -
Shareholder Returns and Buyback Plans
Q: Will you continue majority free cash flow payouts and stable buybacks?
A: Michael Wirth emphasized their commitment to steady buybacks across the cycle, guiding toward $10–20 billion in share repurchases annually, moving to the top end of $20 billion post-Hess close. Pierre Breber added they aim to be steady, not procyclical, with record buybacks of almost $15 billion last year and increased the dividend by 8%. -
Production Guidance and Expected Growth Inflection
Q: Does your production guidance imply a growth inflection point ahead?
A: Michael Wirth acknowledged that with upcoming contributions from TCO FGP startup and reaching 1 million barrels per day in the Permian, they expect production growth but aim for realistic targets they expect to hit. They finished at the low end of guidance in previous years but are comfortable in the middle of the 4–7% growth range this year. -
TCO Project Update
Q: Can you walk us through the TCO project progress and critical issues?
A: Michael Wirth confirmed that schedule and cost guidance remain unchanged for the TCO project. They are improving productivity, transferring learnings, and focusing on commissioning major equipment. The goal is to convert the field to lower back pressure, enhancing deliverability from wells and aiming to reach 1 million barrels a day. -
Permian CapEx Requirements to Reach 1 Million BOE/day
Q: What CapEx is needed to reach 1 million BOE/day in the Permian?
A: Michael Wirth stated that at the current capital level of about $5 billion, they can reach 1 million BOE/day in the Permian. He does not anticipate needing to increase towards $6 billion, emphasizing improved efficiency and capital discipline. -
DJ Basin Growth and PDC Integration
Q: What's the underlying growth rate in the DJ Basin post-PDC acquisition?
A: Michael Wirth reported they plan to hold DJ Basin production around 400,000 barrels per day, with synergies from PDC integration on track or better than expected. They are transitioning to a standardized design focused on return on invested capital. -
Permian Productivity Improvements and Infrastructure Issues
Q: Are recent Permian improvements due to technology, and how are you addressing infrastructure issues?
A: Michael Wirth attributed productivity gains mainly to drilling and completion efficiencies rather than new technologies, though pilots are ongoing. They are addressing infrastructure issues by ensuring reliable performance downstream of wells and prioritizing operational enhancements to prevent constraints. -
Permian Delaware Basin Type Curve Performance
Q: Did Delaware Basin type curves meet your Capital Markets Day forecasts?
A: Michael Wirth confirmed that their type curves in the Delaware Basin, particularly in New Mexico, are performing as anticipated. Second-half POPs align with the type curve, reflecting strong subsurface performance consistent with previous guidance. -
TCO Dividend Guidance and Cash Returns
Q: Are TCO dividends stabilizing and contributing to cash flow?
A: Pierre Breber affirmed that TCO dividends are on a higher trajectory as capital winds down and production increases. Timing variations exist, but overall, cash returns from TCO are expected to grow significantly, with loan repayments adding around $1 billion to cash flow next year. -
Increased Henry Hub Sensitivity and Gas Market Outlook
Q: Why has Henry Hub sensitivity increased, and what's the gas outlook?
A: Pierre Breber explained the increased sensitivity is due to added gas production from PDC and associated gas from the Permian. Michael Wirth noted that gas markets are under pressure with high inventories and lower prices, contrasting with more balanced oil markets.