Speaker 1: Join us now for more is Mike Worth. He is
Speaker 1: the CEO of Chevron. Mike, it's great to speak to
Speaker 1: you today, and I want to talk about the fact that,
Speaker 1: of course you did beat estimates the premium basin obviously
Speaker 1: a bright spot there. But then there's the fact that
Speaker 1: what's Texas crewed, for example, can't seem to reliably break
Speaker 1: above seventy dollars per barrel as we read. Of course
Speaker 1: you are planning cost cuts, but how do you thread
Speaker 1: the needle between bringing those costs down without sacrificing margins
Speaker 1: too much.
Speaker 2: Well, Katie is good to be with you this morning,
Speaker 2: and we did report a good quarter. We had strong
Speaker 2: operational and financial results. We started up some key projects
Speaker 2: in the Golf of Mexico, and we returned record cash
Speaker 2: to shareholders. In fact, production was the highest third quarter
Speaker 2: ever in the history of our company. Was the highest
Speaker 2: US production we've ever seen, and highest production in the Permian.
Speaker 2: And we started a big new project in the deep
Speaker 2: water Golf of Mexico.
Speaker 3: And have more to follow.
Speaker 2: We're going to increase production there from two hundred thousand
Speaker 2: barrels a day to three hundred thousand barrels a day
Speaker 2: by twenty twenty six and over seven and a half
Speaker 2: billion dollars return to shareholders through our dividend and share
Speaker 2: repurchase program. In a commodity business, we need to be
Speaker 2: prepared for cycles, and so capital discipline always matters. Cost
Speaker 2: discipline always matters, and we can't control commodity price, and
Speaker 2: it's very difficult to anticipate commodity price, so we have
Speaker 2: to prepare for down cycles. WTI and frankly, all the
Speaker 2: different commodities across our sector right now are seeing some pressure.
Speaker 2: But that's you know, that's inherent in our business and
Speaker 2: we're ready for that. We're built to win in any
Speaker 2: price environment with downside resilience and upside leverage, all.
Speaker 1: Right, built to win. Let's talk a little bit more
Speaker 1: about the Permian basin. It was interesting to see that
Speaker 1: your production there hit a new quarterly record. I know
Speaker 1: that you have a target for a million barrels per
Speaker 1: day from the Permian. When next year do you anticipate
Speaker 1: that you could hit that?
Speaker 2: Well, we've you know, any monthly or quarterly production is
Speaker 2: a function of drilling activity and when you bring you
Speaker 2: bring wells online.
Speaker 3: We've got a strong track record here.
Speaker 2: We've grown the Permian production at a fifteen percent compound
Speaker 2: annual growth rate over the last three full years. I
Speaker 2: expect will be up even more than that. Here in
Speaker 2: twenty twenty four. In the quarter we just completed, we
Speaker 2: were at nine hundred and fifty thousand barrels a day,
Speaker 2: and so it's very very clear that we'll reach a
Speaker 2: million barrels a day. It doesn't matter that much which
Speaker 2: month that occurs in or which quarter. We're on a
Speaker 2: strong ramp towards that. And the key thing is we're
Speaker 2: getting more efficient in everything that we do. We get
Speaker 2: better growth and better response for every dollar of capital
Speaker 2: that we spend.
Speaker 3: We're investing in new technologies.
Speaker 2: That allow us to produce more out of every well
Speaker 2: that we drill, and so all of that accruis stronger
Speaker 2: margins irrespective of the price environment than we otherwise would
Speaker 2: have had. And one differentiating thing about the portfolio that
Speaker 2: we have in the Permian is across most of our acreage,
Speaker 2: we have zero or very low royalties that are payable
Speaker 2: to others because we own most of that property, which
Speaker 2: is a bit unique. And so you put all that together,
Speaker 2: and the Permians a critical asset for our company and
Speaker 2: drive strong returns and a big part of the free
Speaker 2: cash flow growth story.
Speaker 4: I also want to go to efficiency a little more.
Speaker 4: I know you've told analysts that cost efficiency is near
Speaker 4: to your heart, and you have a flagged possible job
Speaker 4: cuts in the latest plan to reduce costs as well.
Speaker 4: I know that there could be asset sales as well.
Speaker 4: You mentioned new technology, But as it pertains to jobs
Speaker 4: in particular, how should investors employees be thinking about how
Speaker 4: many jobs could be reduced in the United States.
Speaker 2: Well, I think it's premature to speculate that. What we've
Speaker 2: talked about is two to three billion dollars in structural
Speaker 2: cost reductions over.
Speaker 3: The next couple of years.
Speaker 2: Some of that will come from portfolio actions where we
Speaker 2: take cost out and move some assets out of the portfolio.
Speaker 2: A good portion of that will come from productivity improveds
Speaker 2: and the application of technology to do things at lower cost,
Speaker 2: so it will come out of our supply chains. And
Speaker 2: then some of it will come from changes in how
Speaker 2: and where we execute work. That is where it could
Speaker 2: impact people. But it's early for us to be very
Speaker 2: definitive about that. We've got work underway to define that
Speaker 2: as those projects in network is further along, we'll speak
Speaker 2: more about that first and most importantly to our workforce
Speaker 2: and then to investors. So I would say stay tuned,
Speaker 2: but don't read the intent to continue to become more
Speaker 2: cost efficient, which is inherent in a commodity business and
Speaker 2: something you can never step away from as only being
Speaker 2: about jobs.
Speaker 3: It's about much, much more than that, and jobs are
Speaker 3: a small part of the total.
Speaker 4: I want to also ask you about the capital return
Speaker 4: plans here, because the decision to tap into debt to
Speaker 4: return money to investors through the form of buybacks. How
Speaker 4: long can you maintain the current buyback schedule and what's
Speaker 4: the optimum debt level for you to take on in
Speaker 4: order to do so, especially in the face of volatile
Speaker 4: oil prices.
Speaker 2: Sure, so we can sustain the current level of distributions
Speaker 2: for a long time. We've got a discipline set of
Speaker 2: financial priorities that we've had for decades. First and foremost,
Speaker 2: to grow the dividend, and we've done that for thirty
Speaker 2: seven consecutive years.
Speaker 3: We don't cut our dividends since the Great Depression.
Speaker 2: The second is to reinvest cash flows to grow future
Speaker 2: cash flows. The third is to maintain a strong balance sheet,
Speaker 2: which I'll come back to, and the fourth is to
Speaker 2: return access cash to shareholders once we've satisfied those first
Speaker 2: three needs. Sixteen of the last twenty one years we've
Speaker 2: returned cash through share repurchases, a very consistent and rtable program,
Speaker 2: not only when times are good, but through the cycle,
Speaker 2: and we're very under levered at this point. Our net
Speaker 2: debt ratio right now is less than twelve percent. In
Speaker 2: the fourth quarter, it's likely to go down even further
Speaker 2: as we complete some asset sales and continue to see
Speaker 2: strong cash flow generation in our core business, could be
Speaker 2: back down into the single digits through the cycle.
Speaker 3: We've guided to.
Speaker 2: A range of twenty to twenty five percent net debt
Speaker 2: as something that we think is appropriate to maintain the
Speaker 2: strong double A credit rating that we currently have. And
Speaker 2: so in a commodity business, there are times when your
Speaker 2: cash flow is in excess of your dividends, your capital
Speaker 2: and your shary purchase needs. There's other times when it
Speaker 2: doesn't meet those which is why you have a very
Speaker 2: strong balanceing and a lot of capacity so that you
Speaker 2: can stay consistent through these cycles, which is what our
Speaker 2: track record has demonstrated and certainly what our commitment to
Speaker 2: our shareholders is.
Speaker 1: And Mike, I just counted again, we're four days away
Speaker 1: from the presidential election. So of course I have to
Speaker 1: ask you a little bit about policy here, because when
Speaker 1: Americans head to the polls, I'm curious what's at stake
Speaker 1: for the US energy industry, what's at stake specifically for Chevron,
Speaker 1: especially when you think about long term investment decisions that
Speaker 1: you might be made.
Speaker 2: Well, the most important thing for a long cycle business
Speaker 2: like ours, where we allocate capital over years and decades
Speaker 2: and have assets that operate for many decades, is to
Speaker 2: try to seek some consistency in energy policy and to
Speaker 2: try to help shape policy that balances economic competitiveness and
Speaker 2: prosperity with energy security.
Speaker 3: And with environmental protection, and not to.
Speaker 2: Over index on any one of those at the expense
Speaker 2: of the others. And so good policy is balanced, It
Speaker 2: encourages investment to keep our economy strong, to keep our economy.
Speaker 3: Secure, and to protect the environment.
Speaker 2: And so whatever the outcome of the election, those are
Speaker 2: the messages that we will take to the new administration,
Speaker 2: and we'll sit down and engage on things that we
Speaker 2: think are good for the US economy and allow us
Speaker 2: to continue to invest in this country.
Speaker 1: Appreciate the context there. I do also want to talk
Speaker 1: about your share price. I mean it's not just Chevron,
Speaker 1: like the entire energy industry really trades at a discount
Speaker 1: relative to some of the other sectors in the S
Speaker 1: and P five hundred, such as big tech. And that's
Speaker 1: on the cusp of of course, record oil production in
Speaker 1: a lot of cases, of course, the progress that you're
Speaker 1: making in the Permian, for example, What do you think
Speaker 1: investors are missing about the energy story or not appreciating.
Speaker 3: Well? I think your points are very good. One.
Speaker 2: Our weighting in the S and P is roughly half
Speaker 2: of our earnings or cash contribution to the S and P,
Speaker 2: and so multiples and valuations in the sector are low.
Speaker 2: I think a decade ago that was a function of
Speaker 2: the fact that there wasn't a lot of cash being
Speaker 2: returned to shareholders by many companies. Most of the cash
Speaker 2: or all of the cash was being reinvested in growth.
Speaker 2: I think the industry has changed. We don't see that
Speaker 2: condition today. We see companies that have become much more disciplined,
Speaker 2: that have robust dividend and.
Speaker 3: Share repurchase histories.
Speaker 2: Now they're building ours has gone back over many decades,
Speaker 2: but the industry has, I think now begun to exhibit
Speaker 2: those same characteristics, and I think shareholders are beginning to
Speaker 2: take another look. The other question I think that has
Speaker 2: weighed on the market has been the duration.
Speaker 3: Of future cash flows.
Speaker 2: A lot of talk and a lot of interest and
Speaker 2: commitment to evolving the energy system to one that's a
Speaker 2: lower carbon energy system, but what I think investors haven't
Speaker 2: fully grasped is that that doesn't mean that the age
Speaker 2: of oil and gas is ending anytime soon. Hydrocarbons represent
Speaker 2: more than eighty percent of global energy supply today, roughly
Speaker 2: the same number that they did twenty years ago, and
Speaker 2: as you look out many decades into the future, that
Speaker 2: mix may change, but it will change slowly, and that's
Speaker 2: against the backdrop of an energy demand that will continue
Speaker 2: to grow.
Speaker 3: And so the duration of these cash.
Speaker 2: Flows are much longer than I think they're being discounted
Speaker 2: into the valuations of the stock, and it's a real
Speaker 2: opportunity for investors to rewait into the sector with the
Speaker 2: strongest companies, and we're beginning to see some of that,
Speaker 2: but I think there's a long way to go.
Speaker 1: All right, Mike, that feels like a good place to
Speaker 1: leave it. Really appreciate you taking the time to speak
Speaker 1: to us this morning. That is Chevron CEO Mike Worth