CVX
#Well, I think on the capital side we've given you everything that we anticipate at this point in time.
Right now we're sitting at the midway part of the year, trending on a $25 billion sort of range.
We think that's where we could end; possibly a little bit lower than that.
We're actually trending on $24 billion at the six-month mark, $24 billion may be where we end the year.
So somewhere between $24 billion and $25 billion I think is the appropriate level for you to think about.
And then in terms of 2017 and 2018, we've given you the range there of the $17 billion to $22 billion; but obviously, we need to be market-responsive and so right now we're thinking it's towards the lower end of that range, and if in fact the market doesn't move prices anywhere off of where they are today we'll probably be lower than that or certainly at the very low end of that range.
So that's as much guidance as I can give you on capital at the moment.
We're rolling up the business plans, and we'll have more to say as we get towards the end of the year.
On operating expense, our target really ---+ we came down on operating expense $2 billion between 2014 and 2015, and our target is to come down another $2 billion between 2015 and 2016.
We have a number of organizational impacts that have occurred through the first half of this year, but there will be more that will come in the second half of this year.
We also continue to work through the supply chain.
We've got another set of targets internally for continued effort to reduce cost through the supply chain.
I think we are now fully competitive with these other players.
We may not be flashy, but we're steady.
We have taken all these learnings in.
We've been very methodical in our approach and very systematic.
Our goal, as I said before, is to be fully competitive on an operating basis so that when you add in the advantaged royalty position it gives us a clear incremental value proposition over competitors.
We'll continue to stay focused on this.
And as I said, we're ramping up the number of Company-operated rigs, but we're going to do so in a manner that allows us to maintain those efficiencies.
The one other thing I'd say is that our current view is that we're building infrastructure into some of these initial development projects.
As that infrastructure comes into play it provides a solid foundation for us to continue to incrementally improve economics as we move forward.
Yes, <UNK>, we have had the same financial priorities for a long period of time.
Dividend return to shareholders being first, and then re-investments in the business second, and then having a prudent financial structure being third.
I don't see those priorities changing going forward.
We're going to obviously work to balance those priorities under the circumstances that are presented to us.
I don't see that there is significant C&E increases coming for us.
I think we're going to increase our dividend when cash flow permits it; we're going to make the investment profile that we've talked about, where we're moving to shorter-cycle, higher-return projects and not as many of the long duration of return, lower-return projects.
FGP/WPMP is the only significant project that we have taken to FID.
We do see additional major capital projects in our future, but they are not going to come with the same pace that we have had most recently here.
We want to be much more ratable and predictable in our capital program.
And we are going to have to take some of the cash that we're generating in the future and use it to restore our balance sheet.
In the Partitioned Zone, this is really an issue between the Kingdom of Saudi Arabia and Kuwait.
They continue to engage to work this forward.
Our view is that we would like to see a return to production; that's what we advocate.
But in the meantime what we've done are two things.
We've tried to bring all the preservation work and maintain the field in a state of readiness so it can be restarted.
We've also done quite a bit of work to understand and use the opportunity with our technical people to model the entire field and look for efficiencies that we can build into this field when it restarts, and we've been quite successful in some of the planning that we have for the restart.
We've also been bringing our cost structures down, and there will be more of that to come if this continues forward.
In terms of Nigeria, this is an area where we've operated for a long time.
There are some issues there.
The government is working these issues.
Our priority is on protecting people and making sure that we protect our operations.
But I really won't say too much more about it, other than this is an issue that continues to be addressed by the government.
Right.
What I can say is that we are fully aware of the 28-year annual dividend payment increase.
We are also fully aware that an increase needs to occur in 2016 if we are to keep that pattern alive.
The Board fully understands the value of the dividend increase, and they understand the value of growing the dividend over time.
So the Board will be looking at cash generation and our ability, from a sustainable sense, to support a higher dividend going forward.
I guess I would just reiterate, we do see our cash flow circumstance improving over time.
We've got the confidence in our future growth in production.
We've got confidence in our future cash generation.
I'll take you back to the $2 per barrel margin increase that we showed at the Security Analyst Day on the portfolio.
Assuming flat commodity prices, that's the margin accretion that we get out of these LNG projects predominantly.
It raises the cash margin on the entire portfolio.
We also believe that we can compete very successfully and sustainably over time here with a much lower capital program, because we've got assets, for example, like the Permian and other unconventionals.
So we feel very comfortable about what our future holds.
I can't really get into divulging our economics and our view of it, other than to say we have been very disciplined in our capital.
We're putting that capital where we believe it's going to give us a good return.
We look at a lot of things when we consider the performance of a project, and part of it is the risk we're taking on as well as the potential for additional upside to be gained.
I talked about those earlier.
Ultimately, the economic value of this project will be a function of the prices realized over the period of time between now and the end of the concession.
But we're taking a lot of steps to make sure that we're building as much value into this as we can.
We see it as an attractive project.
Well, the financing is really in place as an assist.
The entire project is not being funded by the financing.
We have a combination of co-lending, we have a bank facility, and we have the bond issuance.
So that combination, coupled with the cash generation of TCO, which is actually quite strong, should provide sufficient funding for the project as well as ongoing value to the shareholders.
Yes.
You can see the red line shows where we actually are relative to that view, and we're on plan with the initial growth there.
As we said, we saw about a ---+ over a 20% growth in the Permian relative to last year.
Now that's done even with less rigs.
We're running about the same number of rigs we expected on the Company side.
Our non-operated rigs are actually less; but we're actually accomplishing our objectives with fewer rigs.
We're going to be going from six rigs to 10 rigs by the end of this year, so we're staffing up and ramping up our activity level.
I would say the bias on this is upwards going forward.
I think of the projects in two categories.
We've got an existing set of deepwater projects that are already in operation in the Gulf of Mexico, and they are very profitable.
And more than that, they provide a good platform for additional investment, as we talked about earlier in the presentation.
Going forward, the key really is getting our development cost down and we're very focused on doing that in a couple of ways.
Our deepwater drilling has improved fairly substantially.
If you look at just in the last year or so, we've seen 30% faster drilling rates in the deepwater.
And with the cost of rigs, that has a big impact.
As we move forward, we expect to see our rig cost go down as well as the rates of drilling progress go up.
We're also looking at the facilities and getting them rightsized.
What I mean by that is rather than chasing for peak production, for example, we may go with smaller facilities, have a longer plateau of production, higher capital efficiencies.
So as we look at driving the cost per barrel, the development cost down, I think that's what's going to be required for new projects to be competitive with other opportunities in our portfolio.
Once these projects are on, they have relatively low operating cost.
We get good margins out of them.
It's just the time between the initial exploration program and development wells and ultimately the production that burdens these projects from an overall financial return standpoint.
In terms of the Tiber that you asked about, this project is still under assessment.
I really don't want to comment too much further, but we're evaluating it.
There may be some additional appraisal work to do, and then we'll be putting that against some of the other opportunities that we have.
We do think the deepwater represents a good resource base, and it is important for meeting global demand in the future.
So we think production from this area will continue.
But, as I said, our focus is on driving those development costs down so that these projects are competitive with other opportunities in the portfolio.
Yes, <UNK>.
I think one of the primary drivers in moving from the 2016 circumstance to 2017 and beyond is the trailing off of these projects under construction.
Just the LNG projects, Gorgon and Wheatstone, for example, is a significant reason behind the drop-off in the capital spending between the years.
But also going forward, as we've talked about the portfolio shift that we have, where we have a lot more of our future investment coming forward in the shorter-cycle, Permian-based activity as opposed to the long-cycle and large-duration major capital projects, that's really what drives the change in the absolute level of spending.
We've made a commitment as well.
There is an affordability component here.
We've made a commitment as well to get cash balanced in 2017.
And because of the opportunity that we've got both in the brownfield extensions as well as in the Permian unconventional-like activity, we believe we've got a very competitive capital program at a $17 billion range.
So I think of it as being a sustainable capital level under prices that we have today.
Yes, building on what <UNK> said, I think there's a lot of things that drive capital spending.
It can be everything from our current price environment to foreign exchange rates.
But what we've really focused on in the near term have been two things.
One is driving down the pricing from our vendors and contractors; that's probably more transitory.
But we've also been very focused on building efficiency in how we conduct our operations.
And we've talked about that in previous calls and at the SAM meeting.
That work continues across the business.
And as we drive more and more efficiency into our spend, we own that.
We'll be able to retain that going forward.
I think the other big area for us is improving the execution of projects.
It's partly doing things better internally, and I've talked about what those things are.
They are on that slide.
But it's also taking advantage of market conditions like we're in now, where we can get the best yards working on our projects.
We're not competing for yard resources and contractor capabilities.
We can get the A-team on these projects, and that really helps us execute better.
And that's sustainable through this period.
Yes, I mean there were multiple assets involved, but the largest single contributor here was Papa Terra in Brazil.
Yes.
Papa Terra is one where we've been disappointed in the performance of this asset.
We have gone ahead and seconded a number of our Chevron people into the operator's team.
We're working with the operator to determine not only what is happening with the reservoir but also where we go from here.
So we'll give you more update at some point in the future, but at this point in time, it's largely around Papa Terra and the performance.
Okay.
I think that wraps us up for the conference call here for the second quarter.
I appreciate everybody's interest in Chevron and appreciate your questions in particular.
Thanks very much.
