CVX
#Yes, that's a real good question.
In fact, 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.
We sold $11 billion over the last two years, but we're giving you a 5 to 10 for the next two years in the numbers that I've given you.
And from a strategic point of view, there are some opportunities out there that I think will be tough to execute, and if we can't execute them, we won't sell them.
If you look at the kinds of things we have sold, we've gotten very good value.
So for example, the last two years, there was a lot of strength in the infrastructure market selling pipelines, for example.
And on strategy grounds and on valuation grounds, we felt that we were going to limit our investments in the pipeline business to those that are critical to our upstream and downstream sector and we could sell those.
Things like Caltex Australia, we thought values were very strong and assets had ---+ we've been very well aligned with them, but they were heading off potentially in a growth direction and we felt that, from our strategic point of view, that it would be best to exit when we did.
So we've been very careful and I can tell you the assets going forward, we don't advertise them, but if you look at the ones where there's information in the public domain, I think you'll see that those are assets where there are potential buyers out there at good value.
So I think your admonition is a very good one and it's why we haven't put big numbers out there.
Yes, it's a good question.
Obviously, for any project we had in flight, we went back to all the project teams and created an expectation that they will look to try to capture cost reductions.
In some cases, where you have ---+ where you bid contracts and the terms and conditions are fixed, you are where you are.
But on anything where you have not taken FID, you have some flexibility to go back to the providers of those services.
And that's why we've delayed our costs.
Part of the recycle of projects is to see if there's a different development scheme and things like that.
For example, Rosebank has a different development scheme, but part of it is also to be sure you can capture the cost reductions that are available ---+ that might be available in the marketplace, and sometimes you have to just say we're not going do this if we don't get better costs and that tends to focus partners and others.
So we expect to see declining breakevens as a result of those initiatives both to reframe projects in some cases, or to try to drive costs out.
In terms of what we've got actually planned, most of the effort ---+ most of the things that we would call FIDs are really things like infield drilling.
So for example, the next phase of drilling at Agbami, the next stage of drilling at Jack/St.
Malo, which are utilizing existing rigs and drilling off of existing ---+ to support existing infrastructure.
In terms of big, new greenfield projects, it's relatively few.
There are some that could be in the budget, but it's going to depend on that price/cost balance I've been talking about, and that's why I say we have significant flexibility going forward as we complete things like Gorgon, Wheatstone, Mafumeira Sul, Angola LNG and others.
Yes, in general, the sales would be under contract.
In fact, you've probably seen recently, we have signed a couple of additional HOAs.
We've said all along that we thought that it's appropriate to have about 85% under long-term contract for Gorgon and Wheatstone and with those HOAs, assuming those turn into SPAs, we'll be over 80%.
So we feel pretty good about that and those are medium-term type contracts that we've put in place.
So we feel good about it.
But during the rampup, we've got contracts that are available for these volumes.
Now as far as the overall LNG market, it's lousy when you look at the spot ---+ at spot cargoes and prices.
And I expect we're going to go through a challenging ---+ as an industry ---+ we're going to go through a challenging period for any volumes that will be sold spot into the marketplace.
It's a fair question.
The short answer is there's some judgment that we're applying.
We have been on a pathway in the Permian of first assessing what we have.
So we've been drilling both vertical and horizontal wells.
Over the last year, we've really converted our entire program to horizontal wells and really getting ---+ an overused term ---+ but getting our factory model in place.
And we've done that.
And our costs are now very competitive with some of the best in the business.
So that is taking place.
We want to continue that effort.
Our view is not that prices are going to stay at the low range they are today, but part of living within your means is limiting just how many rigs you deploy.
We've got 6 operated rigs today.
We've got 14 NOJV rigs that are operating today and we think that's about the right balance.
We have flexibility to move up and what I've told our people, if they stay on the cost trajectory that they are, we're going to look to fund them.
The economics in some of the best areas at strip-type prices work.
They are not as good as we like at higher prices, but they work.
And so that obviously is guiding us, but I would hate to lose the momentum that we have in the Permian with some of the cost-reduction efforts we have underway.
We've told you we've got 3000 locations that we think meet economic threshold at $50, so obviously prices aren't $50 today, but it's indicative of the strength of the portfolio that we have.
Well, thank you for a silver-lining question.
We're looking for this internally too.
You are right; it is very tough times.
A couple thoughts that I will give you.
One, I think the cost reductions we're going after, most of them will be permanent.
For example, the efficiencies that we've gained in our drilling, those are permanent regardless of what happens to rig rates going forward, so whether it's the Deepwater that I talked about earlier or onshore, so that's number one.
Number two, I think the benefits that we're taking on in some of our organizations and some of our structures, I think a lot of that will be permanent.
And I think we've undervalued what simplicity in organizational structures can provide.
So obviously we're taking out some layers.
We've got rolling reorganizations that are being implemented around the world and I think that simplicity and clarity will be a positive for the business.
In terms of resource capture, there are better opportunities today than there might have been a year ago and the balance between what I will say the expectations and value of resources getting better aligned, so there are opportunities emerging.
Our priority is obviously the things I've been talking about this morning, but we are in a resource business and you do want to be attentive to the opportunities that are out there.
In general, the two are somewhat related.
Our base decline has been good because we've operated very reliably and we've actually gotten quite efficient in our business.
So we have been able to mitigate the declines.
We've also flagged though that with a lower level of spending on base business, infill drilling in places like Bakersfield and elsewhere, you are going to see declines slightly higher, so that's why we've suggested that and we do expect to see that across the industry.
The history has shown during downturns like this you can see an increase of a percent or two industrywide in that base decline.
So that is ---+ I think that's clear.
In terms of the resiliency that we've seen in production, it's partly related to that, but, to me, it's been ---+ if you look at 2015, the impact of projects that were in flight has probably been more than we, as an industry, anticipated.
So we're not the only ones with Jack/St.
Malos and Bibiyanas and other projects that are under construction that are coming up.
Secondly, of course, you've had the impact of hedges in the unconventional business and the brief uptick that took place in the middle of 2015 in prices did allow some additional hedges.
So you've still got a few hedges that are out there in the industry in 2016 that will allow some level of activity.
But increasingly all that is wearing off as all the projects come online, as base business declines start to take over and as hedges are no longer available.
So I think that's why you are seeing those volumes.
The other piece that I've consistently said has been underrepresented is the stress around the world, the stress on host governments, the stress on those government partners, national oil companies and others.
And you've seen announcements that have been made because while we tend to think of living within our means as a function of forward capital spend; for host governments, living within their means is social, the choice between social spending and reinvesting in the business.
And you've seen some of those choices play out in the guidance that's been given by host governments to national oil companies in certain countries.
So I think the cumulative weight of all this action will tend to bring things into balance.
You still have potential sources of supply out there.
Obviously, Iran is bringing volumes on, but I think the trend is inexorable.
Yes, that's a very good observation.
The range is widening and you've got multiple moving parts in the business.
Let me see if I can give you a little bit of color.
Just if you look at the difference between $30 and $60 per barrel, just on price effects, it can be over 100,000 barrels a day for that alone.
And so you are right; there is a range there and what happens in a place like Indonesia, for example, for a given level of spend, and you have cost barrel reimbursement, the lower the price, the more barrels you get.
And these curves aren't all linear in different locations around the world.
So there is a considerable variability from price alone.
If you think about rampup of production, I will give you an example on Gorgon.
Gorgon, the three trains at Gorgon, our share is a little over 200,000 barrels a day.
So if you think about each train as 65,000 to 70,000 barrels a day, and we've said that we expect production to commence within a few weeks.
There's an industry curve ---+ there are industry averages around a rampup schedule that takes place over a period of months.
To the extent you're at the high end of that range where you have a smooth startup, we have the well capacity.
So you could have a very rapid rampup.
Our people in Australia don't know what they don't know and so we have taken more of an average approach.
And to the extent you encounter something unusual, you can be on the downside of that.
Our people at Angola LNG at this point are pretty gun shy because we've had challenges, but that's 60,000 barrels a day and we've said that we expect to be introducing gas later this quarter and to have cargoes in the second quarter, but there's variability around that and the rampup.
And so all of those ---+ and by the way, there's a second train at Gorgon as well later this year.
So all of those can impact the pace of development.
And then there's just the outright spend that's a function of rigs and activity.
I think it's fair to say that if we keep seeing prices in the low $30s, we're going to drop rigs as the price moves on.
And then the last piece, and it's one that I won't provide much in the way of specifics, is really divestments.
Because we've indicated, for example, that our shallow water, our shelf activities that we have packages for sale out there and those have some volumes attached to them and then there are some another potential assets in the upstream that are under consideration.
But it really depends on getting value and the timing of those and so that is why you get a range.
And you are correct; the range can be broader than indicated there.
But I felt if I gave you any broader a range, you'd say this wasn't very helpful.
What leads me away from temptation.
I know you've heard me over the years, but if I just ---+ just to ground everyone that's on the phone ---+ we've said over many years that we're in the resource business, it's declining and we'll replace resource through a combination of exploration, discovered resource participation and acquisitions and Chevron has done that over time.
Our growth position has been pretty good and so M&A hasn't been a particular priority for us.
But we are mindful of the opportunities that are out there.
I wouldn't want you to think our focus is anything other than getting the projects we have under construction and completing the work we have and ramping up the assets that we have because I think we've got a pretty nice business profile going forward.
But we do need to look at what is out there and we're going to be value-driven, but there are opportunities that could present themselves in the current market, so we'll be mindful of that.
But remember, we're trying to grow the dividend and invest for the long term here and so we're not driven ---+ we're not particularly transaction-driven at any period of time.
I have time for one more question.
The increase, of the 44,000, about two-thirds of it was Permian/Wolfcamp and the rest of it was between Argentina and some of our Appalachia activity.
And in terms of what's forward-looking, I think I'm going to leave that to the security analyst meeting that we've got coming up in March where we'll give you a little deeper insight into our work in the Permian and kind of the range of rampup that we could see there.
And we've done that every year and we will update you this year based on both the cost improvements that we've seen and then the realities of the price market that we're in.
Okay.
Well, I will answer the second question first, no.
We're not able to do that so we don't.
I would just say that we've got our hands pretty well full.
We always look at opportunities when it's legal for us to do so around the world, but I don't have any particular insight into Iran.
You have seen the range of speculation around their ability to ramp up production.
Some have speculated that it's going to be a little harder than advertised, but I don't have any particular insight to offer you and perhaps others can help you with that.
Okay, I would like to thank all of you for being on the call today.
We appreciate your interest in our Company and your participation.
We look forward to seeing you at our March meeting in New York.
Thank you.
