Chevron (CVX) CEO John Watson Interview

Chevron (CVX) CEO John Watson said excessive regulation is hurting growth prospects

“The power has shifted towards regulators in this country.  And I think that’s a risk for the economy.  I don’t think that’s a coincidence that we’re seeing sub-par economic growth, I think it’s a burden.  Doesn’t matter if you talk to healthcare executives or bankers.”

 

Source: Video Interview https://charlierose.com/videos/28073

May 17, 2016

Chevron 4Q15 Earnings Call Notes

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.”

Chevron at Jefferies Conference Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Jeff Shellebarger – President, Chevron North America Exploration & Production Company

Beneath the surface of a deepwater rig

“The well is on the seafloor or about 6 mile deep. The anchor chain could hold this thing in place would be anchored on the Northeast, Northwest, Southeast, Southwest corners of 610. And then the fields that we are producing from are Beltway 8 and I10 on one side, and Beltway 8 and I10 on the other side. So 15, 20 miles away there is seafloor pumps, booster pumps all kinds of kit to bring those things from the wellhead to this floating production unit and then there is an export pipeline that takes it to market.”

Innovation has re-opened North America

“when we talk about why are we back in North America, the headline I guess I would say is that the technology innovation over the last 10, 12 years in the industry is really unlocked or allowing us to pursue plays that we never thought possible 15, 20 years ago”

North America represents 30% of Chevron’s global production

“We represent – at the end of the third quarter, our year-to-date average is 731,000 barrels a day. This is about 30% of Chevron’s global production. Third quarter average was about 751,000 barrels a day. We are growing production year-over-year in North America most of that is driven by the activity that we got going on in the Permian Basin.”

Been in California a long, long time

“California is really the poster child of our base business. We have been there a long, long time. The Kern River field, Midway Sunset field, we are very actively investing in California today. Those are some of the best basis of investments we have in our portfolio.”

Chevron 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Our 2013 performance was solid

“Our financial performance in 2013 was solid. Once competition results are fully analyzed we expect to once again post the highest upstream cash and earnings margins per barrel compared to a broad set of peer competitors.”

Reserve replacement ratio 85%

“Our one year reserve replacement was 85%, brining our 3 year replacement ratio to 123%. We are proud of our performance this past year.”

$11 in EPS

“For the year earnings were $21.4 billion, this equates to $11.09 per diluted share.”

2.6 Million barrels per day

“Production declined by 13,000 barrels per day in 2013. Production averaged 2.6 million barrels per day for the year, 98% of our original guidance.”

Similar production forecast for 2014

“our net production outlook for 2014 is 2.61 million barrels oil equivalent per day based on average Brent price of $109 per barrel, which was the same average price as 2013. This outlook does not assume OPEC curtailments, material and security or other market impacts.”

Base business contracting at 4% per year

“Papa-Terra and in the Permian Basin. These are expected to be partially offset by declines from our base producing assets, where we continue to assume an average decline rate of approximately 4%. Our focus is on managing the decline rate related to our base business, which is performing very well and on executing with excellence”

Five big projects to add 500k barrels per day

“five large projects; Angola LNG, Jack/St. Malo, Big Foot, Gorgon and Wheatstone, which in total will add over 500,000 barrels per day of net new production to Chevron at full capacity. In 2015, we’ll see the start-up of Gorgon and Big Foot and additional ram up of Jack/St. Malo.”

We can understand the fundamental nature of the project. We can’t predict oil prices

“One of the reasons I have told you and others before, one of the reasons we haven’t put out long-term capital forecast is because it is very hard to predict oil prices, foreign exchange, local content requirements, cost of goods and services. What we have been fairly good at understanding is the competitive nature of our project, so when we put out long-term production forecast we’ve had a view that we know the world is going to need energy, we know that we’ve got projects that will compete because of the resource and general nature of the project.”

Argentina has the best shale outside North America

“Argentina, as far as we know it’s the best shale outside of North America. So we took the opportunity to bring those into the portfolio. ”

Not fond of the MLP structure, but don’t mind selling assets to them

“We’re in the process right now of making some sales in our midstream business for example. You referenced MLPs our approach – we’re not fond of the MLP structure as a way for us to hold assets, but we can sell into MLPs and get that value. And so we have been selling pipelines and we’ll continue to do so for pipelines where they are not critical to our upstream or downstream business, now there is more merchant type lines.”

With spread volatility, it’s good to be integrated

“I think when you look in the middle of the country today I think it makes all the sense in the world to be an integrated company. You’ve had tremendous volatility in relationship – in crude pricing and you capture refinery, recapture on the upstream side just depending upon how infrastructure moves and we’re capturing that in Salt Lake. So I frankly think that the integration story for us is pretty straightforward.”