Chevron 4Q15 Earnings Call Notes

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Chevron (CVX) John S. Watson on Q4 2015 Results

Supply was more resilient than most expected last year

“Consistent with many of you, we believe demand will continue to grow. The larger wild card, or uncertainty if you will, is supply. Non-OPEC liquids production, which is shown on this chart, remained much more resilient in 2015 than most predicted. With the significant contraction in global investment caused by low prices, the world would see supplies drop off. WoodMac shows that occurring this year, thereby pushing the oil market into better balance. Until that balance occurs, prices will continue to be constrained and the financial damage to the energy sector seen in 2015 will continue.”

Our priority is to pay and grow the dividend

“I’ve given the priority is to pay and grow the dividend, and in order to do that, obviously you do have to invest in the business because we are a depleting resource business. So those are always the first two priorities that we have consistent with good economics on the spending.”

I think the ratings agencies are moving in the direction of a downgrade

“Yeah, so as John said, the rating agencies need to do what the rating agencies need to do and they have conservative oil price scenarios out there and I think that’s understandable. If you were in their position, you would be doing the same thing. And I think it’s perfectly reasonable to think Chevron, along with everybody in the industry in this particular price environment, would be up for review. They’ve indicated that many of the companies are up for a review. I’m certain that Chevron will be in that queue right after the first tiering goes through. So if a downgrade does occur, and I think they’re moving in that direction, but if that were to occur, we would not be the only one that that would happen to. I don’t see it materially impacting our cost of funds or materially impacting our ability to secure financing.”

The world’s going to need deepwater oil. Those costs haven’t come down as much as onshore

“If you look at the macro environment on where supplies are going to come from to meet any demand estimate that might be out there, the world’s going to need deepwater oil. It is a significant resource, and over time those barrels are going to be needed. Now, right now the costs in the deepwater haven’t come down quite as fast as they have onshore. We obviously have seen some rig rate reductions, but in general as we get to deeper and deeper water, some projects are challenged.”

It’s a terrible market to be selling oil related assets

“I think your point is spot-on. I think it’s a terrible market to be trying to sell most assets out there, particularly obviously oil-related assets. And that’s why I’ve been pretty circumspect around asset sales.”