WEBVTT - Chevron CEO Mike Wirth Talks Oil Prices, Quarter Report

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, Radio News Mike.

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<v Speaker 2>Obviously, everyone's going to be focused on the buy back

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<v Speaker 2>and capital shareholder return as well as the hess question marks.

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<v Speaker 2>But there were a lot of positives in the report,

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<v Speaker 2>particularly when it comes to the Gulf of America. Can

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<v Speaker 2>you walk me through some of them?

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<v Speaker 3>Sure?

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<v Speaker 1>Well, we had a very strong quarter, you know, our

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<v Speaker 1>earnings were up six percent versus the prior quarter, oil

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<v Speaker 1>prices were relatively flat, strong shareholder distributions seven billion dollars

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<v Speaker 1>in the quarter and over the last twelve months.

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<v Speaker 3>About fifteen dollars a share.

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<v Speaker 1>And we're on track for industry leading free cash low

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<v Speaker 1>growth by twenty twenty six, even at lower prices. And

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<v Speaker 1>a big part of that is the Gulf of America,

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<v Speaker 1>where we've started up three projects over just the last

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<v Speaker 1>eight months, the Anchor Project, the Whale Project, and now

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<v Speaker 1>bally Moore most recently. Our production there will go from

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<v Speaker 1>two hundred thousand barrels a day last year to three

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<v Speaker 1>hundred thousand barrels a day in.

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<v Speaker 3>Twenty twenty six. And the Ballymore project, which we just

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<v Speaker 3>started is very interesting.

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<v Speaker 1>It's got some of the most prolific wells we've ever

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<v Speaker 1>seen in the Gulf of America. They're expected to produce

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<v Speaker 1>twenty five thousand barrels a day each, so three wells

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<v Speaker 1>seventy five thousand barrels a day. Some of the highest

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<v Speaker 1>temperature production we've ever seen, three hundred and twenty five

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<v Speaker 1>degrees fahrenheit down in the reservoir. So a great example

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<v Speaker 1>of engineering technology and the abundance of American energy part.

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<v Speaker 2>Of that, though for especially deep water offshore, it's longer

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<v Speaker 2>lead time, so more capital investment. Do those decisions get

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<v Speaker 2>skewed when you have this kind of volatility.

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<v Speaker 3>And oil prices? Yell.

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<v Speaker 1>We look at long term views on supply and demand

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<v Speaker 1>to arrive at our long term oil price forecasts, and

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<v Speaker 1>we look at a range of prices. So a project

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<v Speaker 1>that would take several years to develop, like a deep

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<v Speaker 1>water Gulf of America project, and then would be online

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<v Speaker 1>for multiple decades, our decision making is really not informed

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<v Speaker 1>by the price of the day. It's informed by our

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<v Speaker 1>view prices out over the life of that project, which

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<v Speaker 1>can be multiple decades. And so the impact of the

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<v Speaker 1>near term price is really more around short term decisions

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<v Speaker 1>on cash management, the balance sheet, etc. But not long

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<v Speaker 1>term investment decisions, they're really made out a different set

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<v Speaker 1>of parameters.

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<v Speaker 2>Help me understand this one. RBC Capital Marc has had

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<v Speaker 2>a note doubt that talked about how oil prices need

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<v Speaker 2>ninety five dollars a barrel for you guys to break

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<v Speaker 2>even after capex, dividends and buybacks, and that's really high.

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<v Speaker 2>What would you say to that kind of number.

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<v Speaker 1>Yeah, haven't seen that report. We're growing production, as I said,

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<v Speaker 1>we're growing cash flow.

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<v Speaker 3>As we move into.

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<v Speaker 1>Next year, our break even to cover the capital budget

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<v Speaker 1>and the dividend will be down in the low fifties.

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<v Speaker 1>We get beyond that, it'll move into the forties. And

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<v Speaker 1>so if you pick any given quarter and do some

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<v Speaker 1>of this math, you might reach a certain conclusion. As

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<v Speaker 1>we look forward into the next few years, our break

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<v Speaker 1>even will be low and going lower.

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<v Speaker 2>Let's talk about the next few years, and a big

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<v Speaker 2>part of that will be the purchase of Hess. Finally,

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<v Speaker 2>you get a date arbitration hearing for the end of May.

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<v Speaker 2>You've had a chance to look at each other's cases.

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<v Speaker 2>How has your confidence changed?

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<v Speaker 3>Well, it really is unchanged, Alex.

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<v Speaker 1>The contract is very clear in the language of the

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<v Speaker 1>contract that will be applied in the arbitration, and we've

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<v Speaker 1>you know, steadily believed that the HESS side of this

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<v Speaker 1>argument is the is the proper side of it. And

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<v Speaker 1>so as we move closer to the date of the

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<v Speaker 1>arbitration hearing and then a decision three months after that.

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<v Speaker 3>Our view really is unchanged.

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<v Speaker 1>We feel very very confident that HESS will prevail here.

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<v Speaker 2>Obviously, Guyana is a huge asset and would be so

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<v Speaker 2>great for Chevron, So how quickly could that be a

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<v Speaker 2>creative to you guys, like what would that integrate and

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<v Speaker 2>look like?

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<v Speaker 1>Well, we've had plenty of time to prepare for reaction

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<v Speaker 1>and and so the teams have been working closely and

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<v Speaker 1>we're ready to move very quickly to integrate the two businesses.

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<v Speaker 1>So once we get a decision that that can happen

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<v Speaker 1>in you know, a matter of days and weeks, not

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<v Speaker 1>months or years.

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<v Speaker 2>Part of that also was you buying five percent of

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<v Speaker 2>HESH shares on the open market. Two thoughts, and there

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<v Speaker 2>are two very different thoughts. One is it just shows

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<v Speaker 2>how much confidence you do have in the deal. The

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<v Speaker 2>other thought is that it won't go through and you

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<v Speaker 2>still want to seat at the table if the deal fails.

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<v Speaker 2>Help me understand which side.

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<v Speaker 1>Well, the shares we're trading at a discount to you know,

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<v Speaker 1>the value that we would exchange our shares for in

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<v Speaker 1>the transaction, and so it made it economic just on

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<v Speaker 1>the on the surface, we do have confidence as I

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<v Speaker 1>just as I just expressed, and and so that's really

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<v Speaker 1>what what sits behind that it's a good company has

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<v Speaker 1>his performance has been exceeding expectations every quarter really since

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<v Speaker 1>we announced this transaction. The business is being run well,

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<v Speaker 1>their stock has. We viewed it as a good investment

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<v Speaker 1>back then, we viewed as a good investment.

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<v Speaker 2>Today, Let's move to another field that has the potential

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<v Speaker 2>to be a huge growth driver in the future, and

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<v Speaker 2>that's ten Gee's. Obviously that had a lot of startup issues,

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<v Speaker 2>but you're finally running at the same time that Saudi

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<v Speaker 2>Arabia is trying to enforce quotas for Opek Plus, which

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<v Speaker 2>is in Kazakhstan, which is where Tengi's operates. Have you

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<v Speaker 2>had any talks with the government about having to pair

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<v Speaker 2>back any production.

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<v Speaker 1>Well, we've got a long history in Kazakhstan and as

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<v Speaker 1>you say, the project we just completed has been under

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<v Speaker 1>way for about a decade. It's taken that field's production

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<v Speaker 1>capacity up to essentially a million barrels a day. We've

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<v Speaker 1>had it running at those levels or close to those

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<v Speaker 1>levels here during the first quarter of the year. So

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<v Speaker 1>I've had a chance speak to the President of the

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<v Speaker 1>country about that. We don't get involved in OPEC plus discussions,

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<v Speaker 1>and so I don't know what is going on there,

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<v Speaker 1>but I can tell you that our long history in

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<v Speaker 1>the country has been good for the Republic. It's been

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<v Speaker 1>good for the investors in the ten Geese field, and

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<v Speaker 1>those barrels are very high value barrels to the Republic

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<v Speaker 1>in terms of the revenue that they generate, and historically

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<v Speaker 1>they have not been subject to any cutbacks when we're

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<v Speaker 1>in circumstances where OPEC plus might be looking to make

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<v Speaker 1>some of those decisions. And so I'm not aware of

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<v Speaker 1>anything that would result in us being asked to produce

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<v Speaker 1>less there.

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<v Speaker 2>Okay, so the ask has not been asked, if I'm

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<v Speaker 2>just bearing that down right, Mike, That's correct.

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<v Speaker 3>We haven't had any conversations about that.

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<v Speaker 2>All right, let's broad out. You make long term capital

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<v Speaker 2>decisions like you were talking about with Gulf of America

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<v Speaker 2>for decades to come, right, So the oil price today

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<v Speaker 2>means less than the oil price in the future. What

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<v Speaker 2>is your future demand outlook? As tariffs seem to rewrite

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<v Speaker 2>the global economy.

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<v Speaker 1>Well, the population of the planet continues to grow. The

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<v Speaker 1>number of people that live a developed world lifestyle is growing,

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<v Speaker 1>but is still relatively less than those who don't yet

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<v Speaker 1>have the quality of life that those of us in

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<v Speaker 1>developed countries can take for granted. And so demand for

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<v Speaker 1>energy will go up. Demand for all forms of energy

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<v Speaker 1>will go up over the coming decades, and oil and

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<v Speaker 1>gas will continue to be a vital part of the

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<v Speaker 1>global energy system, even as we see other.

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<v Speaker 3>Types of energy grow as well.

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<v Speaker 1>The thing in oil and gas that's always important to

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<v Speaker 1>bear in mind is oil fields decline over time, so

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<v Speaker 1>production decreases every year from existing fields, and it requires

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<v Speaker 1>investments to maintain production even at steady levels, let alone

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<v Speaker 1>to meet any incremental growth. And so the opportunities for

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<v Speaker 1>companies that are capital efficient, that are very disciplined in

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<v Speaker 1>how do they run their business to continue to supply

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<v Speaker 1>the energy the world needs and create returns for shareholders

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<v Speaker 1>will exist long long into the future.

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<v Speaker 2>And as we've seen, it's more a rig cutting issue

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<v Speaker 2>with say smaller companies rather than larger companies like yourself.

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<v Speaker 2>Something that I keep hearing though a lot about Mike

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<v Speaker 2>is what happens to NGLs, So overall liquids in particular

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<v Speaker 2>when it comes to global trade, and as the wells

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<v Speaker 2>and the Permian or in US shale get gass eer

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<v Speaker 2>are we looking at a potential glut of NGLs in

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<v Speaker 2>the world.

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<v Speaker 1>In the US, so, the US has become a very

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<v Speaker 1>large producer of natural gas liquids. Propane is a big

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<v Speaker 1>export commodity now. The US exports ethane as well to

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<v Speaker 1>markets around the world where these tend to be used

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<v Speaker 1>as feedstocks for petrochemical production. They can also be used

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<v Speaker 1>in heating and other applications, and so as trade rules

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<v Speaker 1>change and trade flows change, that can affect where those

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<v Speaker 1>flows go. It can affect the netbacks that producers and

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<v Speaker 1>sellers of these commodities realize. China is certainly a purture

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<v Speaker 1>of both purchaser of both of those commodities, and so

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<v Speaker 1>reductions in flows to China would need to be met.

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<v Speaker 3>By supply from elsewhere in the world.

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<v Speaker 1>Often the Middle East and US exports may go into

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<v Speaker 1>the markets that the Middle East exports are currently going

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<v Speaker 1>into so you'd see some reorientation of flows. And if

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<v Speaker 1>you have a non tariff market that's the most efficient

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<v Speaker 1>distribution of those, you have a slightly less efficient market

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<v Speaker 1>at work, and that could affect at the margin the

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<v Speaker 1>realizations that producers see for their exports.

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<v Speaker 2>Had some good context, Mike, just to end sort of

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<v Speaker 2>on the question that you know you're going to hate,

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<v Speaker 2>is excluding has your looking at nine billion dollars an

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<v Speaker 2>annual free cash flow growth at sixty brent and that's

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<v Speaker 2>for twenty twenty six. Give me perspective as to how

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<v Speaker 2>long would WTI need to remain below sixty for you

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<v Speaker 2>to start revamping your outlook in a material way.

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<v Speaker 1>Well, it's it's kind of a hypothetical alex because it

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<v Speaker 1>would not only take a long period of time, but

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<v Speaker 1>then it would also depend upon our view for how

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<v Speaker 1>things play out as there's some sort of a recovery.

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<v Speaker 1>And look, we've got a very strong balance sheet right now.

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<v Speaker 1>We're below our historic average at a fourteen percent in

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<v Speaker 1>that debt. We've got a double A credit rating, We've

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<v Speaker 1>got costs and capital discipline. We've brought capex down coming

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<v Speaker 1>into this year. We're taking costs structurally out of our

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<v Speaker 1>business two to three billion dollars in costs, and we're

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<v Speaker 1>going to grow free cash flow nine billion dollars at

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<v Speaker 1>a sixty dollars rent price, so we've got staying power

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<v Speaker 1>well into the future. If the future is dramatically changed,

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<v Speaker 1>we could look at adjustments, but we don't see anything

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<v Speaker 1>right now that suggests that that's the case.

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<v Speaker 2>And same for debt. You feel confident in not having

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<v Speaker 2>to increase any debt if we get those oil prices

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<v Speaker 2>more sustained below sixty.

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<v Speaker 1>Well, we've guided the market to a twenty to twenty

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<v Speaker 1>five percent net debt level through the cycle as something

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<v Speaker 1>we're very comfortable with for an efficient capital structure.

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<v Speaker 3>We're at fourteen.

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<v Speaker 1>Percent today, so we've always maintained that we will gradually

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<v Speaker 1>increase our debt levels to get back into or close

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<v Speaker 1>to that twenty to twenty five percent range. And I

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<v Speaker 1>think you can expect that to happen, but that's not

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<v Speaker 1>anything that anyone should be overly concerned about. We've indicated

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<v Speaker 1>that that's what we would expect to do in really

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<v Speaker 1>any kind of a price environment and through the cycle,

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<v Speaker 1>so it's very consistent with the guidance We've given the

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<v Speaker 1>market how we think about our business and look been

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<v Speaker 1>through cycles before. I've been in the room in two

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<v Speaker 1>thousand and eight, twenty fourteen, twenty twenty with Covid and again.

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<v Speaker 3>Now we know what to do.