Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News Mike.
Speaker 2: Obviously, everyone's going to be focused on the buy back
Speaker 2: and capital shareholder return as well as the hess question marks.
Speaker 2: But there were a lot of positives in the report,
Speaker 2: particularly when it comes to the Gulf of America. Can
Speaker 2: you walk me through some of them?
Speaker 3: Sure?
Speaker 1: Well, we had a very strong quarter, you know, our
Speaker 1: earnings were up six percent versus the prior quarter, oil
Speaker 1: prices were relatively flat, strong shareholder distributions seven billion dollars
Speaker 1: in the quarter and over the last twelve months.
Speaker 3: About fifteen dollars a share.
Speaker 1: And we're on track for industry leading free cash low
Speaker 1: growth by twenty twenty six, even at lower prices. And
Speaker 1: a big part of that is the Gulf of America,
Speaker 1: where we've started up three projects over just the last
Speaker 1: eight months, the Anchor Project, the Whale Project, and now
Speaker 1: bally Moore most recently. Our production there will go from
Speaker 1: two hundred thousand barrels a day last year to three
Speaker 1: hundred thousand barrels a day in.
Speaker 3: Twenty twenty six. And the Ballymore project, which we just
Speaker 3: started is very interesting.
Speaker 1: It's got some of the most prolific wells we've ever
Speaker 1: seen in the Gulf of America. They're expected to produce
Speaker 1: twenty five thousand barrels a day each, so three wells
Speaker 1: seventy five thousand barrels a day. Some of the highest
Speaker 1: temperature production we've ever seen, three hundred and twenty five
Speaker 1: degrees fahrenheit down in the reservoir. So a great example
Speaker 1: of engineering technology and the abundance of American energy part.
Speaker 2: Of that, though for especially deep water offshore, it's longer
Speaker 2: lead time, so more capital investment. Do those decisions get
Speaker 2: skewed when you have this kind of volatility.
Speaker 3: And oil prices? Yell.
Speaker 1: We look at long term views on supply and demand
Speaker 1: to arrive at our long term oil price forecasts, and
Speaker 1: we look at a range of prices. So a project
Speaker 1: that would take several years to develop, like a deep
Speaker 1: water Gulf of America project, and then would be online
Speaker 1: for multiple decades, our decision making is really not informed
Speaker 1: by the price of the day. It's informed by our
Speaker 1: view prices out over the life of that project, which
Speaker 1: can be multiple decades. And so the impact of the
Speaker 1: near term price is really more around short term decisions
Speaker 1: on cash management, the balance sheet, etc. But not long
Speaker 1: term investment decisions, they're really made out a different set
Speaker 1: of parameters.
Speaker 2: Help me understand this one. RBC Capital Marc has had
Speaker 2: a note doubt that talked about how oil prices need
Speaker 2: ninety five dollars a barrel for you guys to break
Speaker 2: even after capex, dividends and buybacks, and that's really high.
Speaker 2: What would you say to that kind of number.
Speaker 1: Yeah, haven't seen that report. We're growing production, as I said,
Speaker 1: we're growing cash flow.
Speaker 3: As we move into.
Speaker 1: Next year, our break even to cover the capital budget
Speaker 1: and the dividend will be down in the low fifties.
Speaker 1: We get beyond that, it'll move into the forties. And
Speaker 1: so if you pick any given quarter and do some
Speaker 1: of this math, you might reach a certain conclusion. As
Speaker 1: we look forward into the next few years, our break
Speaker 1: even will be low and going lower.
Speaker 2: Let's talk about the next few years, and a big
Speaker 2: part of that will be the purchase of Hess. Finally,
Speaker 2: you get a date arbitration hearing for the end of May.
Speaker 2: You've had a chance to look at each other's cases.
Speaker 2: How has your confidence changed?
Speaker 3: Well, it really is unchanged, Alex.
Speaker 1: The contract is very clear in the language of the
Speaker 1: contract that will be applied in the arbitration, and we've
Speaker 1: you know, steadily believed that the HESS side of this
Speaker 1: argument is the is the proper side of it. And
Speaker 1: so as we move closer to the date of the
Speaker 1: arbitration hearing and then a decision three months after that.
Speaker 3: Our view really is unchanged.
Speaker 1: We feel very very confident that HESS will prevail here.
Speaker 2: Obviously, Guyana is a huge asset and would be so
Speaker 2: great for Chevron, So how quickly could that be a
Speaker 2: creative to you guys, like what would that integrate and
Speaker 2: look like?
Speaker 1: Well, we've had plenty of time to prepare for reaction
Speaker 1: and and so the teams have been working closely and
Speaker 1: we're ready to move very quickly to integrate the two businesses.
Speaker 1: So once we get a decision that that can happen
Speaker 1: in you know, a matter of days and weeks, not
Speaker 1: months or years.
Speaker 2: Part of that also was you buying five percent of
Speaker 2: HESH shares on the open market. Two thoughts, and there
Speaker 2: are two very different thoughts. One is it just shows
Speaker 2: how much confidence you do have in the deal. The
Speaker 2: other thought is that it won't go through and you
Speaker 2: still want to seat at the table if the deal fails.
Speaker 2: Help me understand which side.
Speaker 1: Well, the shares we're trading at a discount to you know,
Speaker 1: the value that we would exchange our shares for in
Speaker 1: the transaction, and so it made it economic just on
Speaker 1: the on the surface, we do have confidence as I
Speaker 1: just as I just expressed, and and so that's really
Speaker 1: what what sits behind that it's a good company has
Speaker 1: his performance has been exceeding expectations every quarter really since
Speaker 1: we announced this transaction. The business is being run well,
Speaker 1: their stock has. We viewed it as a good investment
Speaker 1: back then, we viewed as a good investment.
Speaker 2: Today, Let's move to another field that has the potential
Speaker 2: to be a huge growth driver in the future, and
Speaker 2: that's ten Gee's. Obviously that had a lot of startup issues,
Speaker 2: but you're finally running at the same time that Saudi
Speaker 2: Arabia is trying to enforce quotas for Opek Plus, which
Speaker 2: is in Kazakhstan, which is where Tengi's operates. Have you
Speaker 2: had any talks with the government about having to pair
Speaker 2: back any production.
Speaker 1: Well, we've got a long history in Kazakhstan and as
Speaker 1: you say, the project we just completed has been under
Speaker 1: way for about a decade. It's taken that field's production
Speaker 1: capacity up to essentially a million barrels a day. We've
Speaker 1: had it running at those levels or close to those
Speaker 1: levels here during the first quarter of the year. So
Speaker 1: I've had a chance speak to the President of the
Speaker 1: country about that. We don't get involved in OPEC plus discussions,
Speaker 1: and so I don't know what is going on there,
Speaker 1: but I can tell you that our long history in
Speaker 1: the country has been good for the Republic. It's been
Speaker 1: good for the investors in the ten Geese field, and
Speaker 1: those barrels are very high value barrels to the Republic
Speaker 1: in terms of the revenue that they generate, and historically
Speaker 1: they have not been subject to any cutbacks when we're
Speaker 1: in circumstances where OPEC plus might be looking to make
Speaker 1: some of those decisions. And so I'm not aware of
Speaker 1: anything that would result in us being asked to produce
Speaker 1: less there.
Speaker 2: Okay, so the ask has not been asked, if I'm
Speaker 2: just bearing that down right, Mike, That's correct.
Speaker 3: We haven't had any conversations about that.
Speaker 2: All right, let's broad out. You make long term capital
Speaker 2: decisions like you were talking about with Gulf of America
Speaker 2: for decades to come, right, So the oil price today
Speaker 2: means less than the oil price in the future. What
Speaker 2: is your future demand outlook? As tariffs seem to rewrite
Speaker 2: the global economy.
Speaker 1: Well, the population of the planet continues to grow. The
Speaker 1: number of people that live a developed world lifestyle is growing,
Speaker 1: but is still relatively less than those who don't yet
Speaker 1: have the quality of life that those of us in
Speaker 1: developed countries can take for granted. And so demand for
Speaker 1: energy will go up. Demand for all forms of energy
Speaker 1: will go up over the coming decades, and oil and
Speaker 1: gas will continue to be a vital part of the
Speaker 1: global energy system, even as we see other.
Speaker 3: Types of energy grow as well.
Speaker 1: The thing in oil and gas that's always important to
Speaker 1: bear in mind is oil fields decline over time, so
Speaker 1: production decreases every year from existing fields, and it requires
Speaker 1: investments to maintain production even at steady levels, let alone
Speaker 1: to meet any incremental growth. And so the opportunities for
Speaker 1: companies that are capital efficient, that are very disciplined in
Speaker 1: how do they run their business to continue to supply
Speaker 1: the energy the world needs and create returns for shareholders
Speaker 1: will exist long long into the future.
Speaker 2: And as we've seen, it's more a rig cutting issue
Speaker 2: with say smaller companies rather than larger companies like yourself.
Speaker 2: Something that I keep hearing though a lot about Mike
Speaker 2: is what happens to NGLs, So overall liquids in particular
Speaker 2: when it comes to global trade, and as the wells
Speaker 2: and the Permian or in US shale get gass eer
Speaker 2: are we looking at a potential glut of NGLs in
Speaker 2: the world.
Speaker 1: In the US, so, the US has become a very
Speaker 1: large producer of natural gas liquids. Propane is a big
Speaker 1: export commodity now. The US exports ethane as well to
Speaker 1: markets around the world where these tend to be used
Speaker 1: as feedstocks for petrochemical production. They can also be used
Speaker 1: in heating and other applications, and so as trade rules
Speaker 1: change and trade flows change, that can affect where those
Speaker 1: flows go. It can affect the netbacks that producers and
Speaker 1: sellers of these commodities realize. China is certainly a purture
Speaker 1: of both purchaser of both of those commodities, and so
Speaker 1: reductions in flows to China would need to be met.
Speaker 3: By supply from elsewhere in the world.
Speaker 1: Often the Middle East and US exports may go into
Speaker 1: the markets that the Middle East exports are currently going
Speaker 1: into so you'd see some reorientation of flows. And if
Speaker 1: you have a non tariff market that's the most efficient
Speaker 1: distribution of those, you have a slightly less efficient market
Speaker 1: at work, and that could affect at the margin the
Speaker 1: realizations that producers see for their exports.
Speaker 2: Had some good context, Mike, just to end sort of
Speaker 2: on the question that you know you're going to hate,
Speaker 2: is excluding has your looking at nine billion dollars an
Speaker 2: annual free cash flow growth at sixty brent and that's
Speaker 2: for twenty twenty six. Give me perspective as to how
Speaker 2: long would WTI need to remain below sixty for you
Speaker 2: to start revamping your outlook in a material way.
Speaker 1: Well, it's it's kind of a hypothetical alex because it
Speaker 1: would not only take a long period of time, but
Speaker 1: then it would also depend upon our view for how
Speaker 1: things play out as there's some sort of a recovery.
Speaker 1: And look, we've got a very strong balance sheet right now.
Speaker 1: We're below our historic average at a fourteen percent in
Speaker 1: that debt. We've got a double A credit rating, We've
Speaker 1: got costs and capital discipline. We've brought capex down coming
Speaker 1: into this year. We're taking costs structurally out of our
Speaker 1: business two to three billion dollars in costs, and we're
Speaker 1: going to grow free cash flow nine billion dollars at
Speaker 1: a sixty dollars rent price, so we've got staying power
Speaker 1: well into the future. If the future is dramatically changed,
Speaker 1: we could look at adjustments, but we don't see anything
Speaker 1: right now that suggests that that's the case.
Speaker 2: And same for debt. You feel confident in not having
Speaker 2: to increase any debt if we get those oil prices
Speaker 2: more sustained below sixty.
Speaker 1: Well, we've guided the market to a twenty to twenty
Speaker 1: five percent net debt level through the cycle as something
Speaker 1: we're very comfortable with for an efficient capital structure.
Speaker 3: We're at fourteen.
Speaker 1: Percent today, so we've always maintained that we will gradually
Speaker 1: increase our debt levels to get back into or close
Speaker 1: to that twenty to twenty five percent range. And I
Speaker 1: think you can expect that to happen, but that's not
Speaker 1: anything that anyone should be overly concerned about. We've indicated
Speaker 1: that that's what we would expect to do in really
Speaker 1: any kind of a price environment and through the cycle,
Speaker 1: so it's very consistent with the guidance We've given the
Speaker 1: market how we think about our business and look been
Speaker 1: through cycles before. I've been in the room in two
Speaker 1: thousand and eight, twenty fourteen, twenty twenty with Covid and again.
Speaker 3: Now we know what to do.