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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amerie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business App.
Mike Worth, the CEO of Chevron, joins us now for an exclusive interview. I am so glad that we're going to speak with you, Mike.
Thank you so much for being here with us. You're welcome, WESA.
So let's start about that one ninety nine a gallon. It might be great for a lot of people in terms of filling.
Up their guest tanks.
A real question around drill, baby, drill, and how much you're incentivized to increase production given the lower cost of oil.
Well, you know, we make our investment plans on a long term basis. We look at supply and demand well out into the future, and so the price of oil today can affect short term financial performance of the company, but it really doesn't play as much into some of the longer term investment plans as we look down the road, not really out the window as we decide what the capital program looks like.
But how do you reconcile the too sure doing a lot of exploration internationally, and to Lisa's point, prices are low and potentially are going to even go lower.
Well, exploration is a long cycle business. We just brought a project online in the Gulf of America last year where the discovery was made twenty years prior, and so the timeline between when you actually make a discovery, when you appraise that and you ultimately develop and bring it to market can be years or even decades, and so we really have to take that long view on the business.
And in the short term we'll keep cost tight. We've guided to industry leading free cash over the next few years as we'ringing cost down, capital spending down, increase the synergies on the hes transaction. So we're going to deliver strong financial performance through the cycle.
Based on what the IA has said, recalibrated where they see oil demand growing. It was twenty thirty, now it's twenty fifty. Ope says they had a rendezvous with reality, seeing that the world needs a lot more of this, a lot more fossil fuels. If outlook is so strong, should Chevron, should.
All of these big oil companies?
So do they increasing more of that investment.
Well, on the IEA, even a blow broken clock is right twice a day. So they have finally acknowledged what we've long known, which is that the world will continue using oil and gas for many decades into the future. We are in that long cycle business and the capital spending amory has become more efficient in our industry. A decade ago, we were spending money on big projects. There's a lot of growth going on in shale at a
relatively high cost. Structure in the entire history has found ways to standardize designs, simplify projects, and actually get more for every capital dollar that we spend, so the size of our capital spending doesn't necessarily correlate to the growth the way that it would have in years gone by.
When it comes to expansion.
The US government is backing this plan of Rock has to transfer Louke Oil stakes to an American company, So it's really only your x on how are those negotiations going.
Well, I can't comment on commercial negotiations. What I will say is we've got a well established reputation as a good partner, as a world class operator in international locations. We're sought out as a partner in countries around the world. We got long history working in the Middle East, and we put a real premium on partnership and that goes to every country we work with and every company we work with.
Can you talk about those assets though, do you think those would be good assets the Chevron portfolio?
Well, we always look to strengthen our portfolio. Iraq is a country that's blessed with very substantial petroleum resources and some of the largest fields in the world, and so those are the kinds of things that we always look at.
If you're talking about the capital profile and investments, and how it's become a lot more efficient to make the same kinds of investments and frankly the same kind of output. Where is this sufficiency coming from. Is it coming from artificial intelligence? Is is it coming from just better technology and getting oil and gas out of the ground.
Yeah, So in shale, for instance, which is something the US has been a world leader. In a decade ago, break evens were seventy or eighty dollars a barrel. Today they're not even half of that, as we found ways to drill longer laterals, to optimize the spacing of wells, to complete wells at lower cost with greater production coming
out of them. So it's a series of things. In the deep water, we've simplified and standardized designs, and what used to take thirty dollars a barrel or more in terms of cost of capital to go into a project now has been cut in half. And so it's not driven by AI yet. I do think over time we're going to see technologies like that continue this path that we're on.
We're going to get to that in just a second.
If that's the case, if you can get more even at a break even cost, it's a lot lower.
Why has the rig count gone down so much?
Why aren't there more rigs coming online given the capacity here in the United States?
Because we can drill more feet per day with a rig today than we could in the past, and so rig count is not nearly as interesting a metric as how many feet a day you can drill how many wells you can complete in a period of time, and so we're getting more work done out of fewer pieces of equipment.
Today, you talk about how AI isn't delivering those efficiencies yet, the indication being that maybe down the road it might be the case.
Where specifically are you thinking.
And I'm saying at a time when Chevron's cutting staff so or other people, is this a headcount issue?
Is this something else? How are you seeing it being deployed?
Well, we're in I think we're still the very early days of applying AI at scale in our industry. One of the things that's undeniable about AI is it needs lots of data. A company like ours has as much data as just about any company in the world, and so we've got decades and decades of geologic data, seismic data, operating data, all of which can be used to feed these models, to optimize operations, to improve our exploration success,
to squeeze more production out of existing assets. And so we see huge opportunities to run our business with smarter technology, get better decisions made faster, and so there's certainly a cost dimension to this, but I think the real opportunity is going to be about the productivity of our assets and our business.
You announced this project, the first of it's kind, to provide natural gas fired power.
For data centers.
Do you expect to do more of these projects and what's the update on this one in West Texas well.
Certainly, the demand for power has been talked about now for the last year or so, as the constraint in the growth of AI data centers and the ambition for data centers at a scale we've never seen before has become a commonplace. The reality is we need large scale power. What we're working on is off the grid power because it's also becoming an issue with electricity prices, and we're
seeing this show up in consumer sentiment and elections. Our approach is to develop gigawatt scale power generation, not through the grid, but dedicated to data centers. We've got a project in a couple of sites actually we're working on in West Texas where we've got a lot of natural gas. We've got large gas turbines, the largest in the world being delivered starting next year, and we're deep into discussions with multiple customers that would like to cite data centers to use this power.
You're at the center of a lot of politically very important conversations, not just when it comes to AI Sluke oil assets, also Venezuela the only American company left.
Can you give us an update.
On either conversation with the administration your team on the ground.
What is the future of Chevron in this country?
Is the president's sense maybe he's going to send troops there?
Yeah, I don't know what the presence intentions are. We've been in Venezuela for the last one hundred years. Our presence there, we believe is important for the local economy, the regional economy, the people of Venezuela. The Venezuelan oil is sought after by US refiners, and we operate there in full compliance with all US law and sanctions. We're in discussions with the administration to ensure that we stay in compliance, that they understand the value that our presence brings to America.
And so you know that's and you plan on being there for the long term.
Venezuela actually has more oil and gas resource than Saudi Arabia. It's right here in our hemisphere, very close to the Gulf Coast refining complex. We been there through ups and downs, and like many places in the world, we have to take a long view on our presence in countries like this.
You talked about succession yesterday at this conference. How are you thinking about that as you talk to the board? Is there something you want to get done before you hand over the reins?
Well, succession discussions begin on day one. I think for most CEOs it's part of a board's responsibility to be thinking about the next generational leadership. I have a long list of things, some of which have been accomplished. I mentioned the Hest transaction, which was a big one for US earlier this year. We have laid out a plan for the next several years to investors last month that grows free cash flow, that drives a significant return to cash to shareholders. All of those are things that I
want to make progress on. But when the time is right for someone to follow me in this job, the board will make that determination and I will happily hand over.
Will you go right for landman?
Just three seconds left?
Do you think that in ten years gas or oil is going to be more valuable?
Well, on an energy content basis, you know, oil's got about six times more energy content per unit of volume than gas does, and so you know they trade in sympathy with one another because energy is somewhat fungible. I think both of those commodities are going to be essential to the global economy. I think demand for both of
those will be much higher than it is today. And I think you're going to see good companies in our industry still producing more of that and doing it in a way that keeps costs very affordable for the economy.
Stay with us, multiple impex divanance coming up off to.
This, Julian Emmanuel of Evercore staying bullets into twenty twenty six, writing earning strength, fiscal and monetary stimulus and a capital market cycle moving into higher gear are laying the groundwork for seven seven fifty at year end twenty twenty six.
Julian, I am so glad to say is here. Julian, thank you for being here.
Good morning.
So what do you make of the yields rising this morning?
Look, the first thing is we have to step back and understand something that bond market cycles are very long legged things. And the forty year bond bull market ended at the pandemic lows in twenty twenty and when you think of an Anne Marie. You just detailed all of the reasons that yields are going higher, and the answer is yes to every single one of them. You put
it together in our mind. If you think about it, it's almost remarkable that the confluence of the US being the debt premier destination for capital has actually caused spreads against global bond markets to compress. You know, if you had said to me Japanese ten year yields were going to be close to two percent, I would have told you at the beginning of the year, the US ten year yields would be close to five percent. And we're
not there. But all of these pressures are building in our mind towards hire yields.
If we do get a hawkish FED today, is that going to diminish some of the optimism that you have heading into twenty twenty six or support it given the fact that the FED is looking at a rosier economic backdrop.
So that is the question that is really fascinating in our mind, and we're a little bit uncomfortable by this incredibly staunch consensus that we are going to get precisely a hawkish cut that is going to be bullet for stocks in the near term. We actually think long term it is bullet for stocks because simply it shows that the FED is cognizant of the inflation problem as well. But the other issue there, Lisa, is the labor market is about as clear as mud. I think whatever, It's
not even mud, it's just it's unknowable right now. And that's really the aspect of the flying blind that is probably going to weigh on markets.
Jillan want to nerves you about the hawkish cut consensus. Is it the hawkish part or is the fact that people think that is going to be bullish for stocks.
No, it's actually the deep consensus. So what we've seen this year, and our survey team has really been front foot on this, particularly during the government data blackout, is that anytime we've had really really deep consensus, whether it was going back to that week in April where our clients eighty one percent of them thought we were either in a recession or was going to start in the second half, or going back to the end of October when a record seventy five percent of our clients responded
in our polling that the next ten percent in the S and P five hundred was up and then you immediately had that five percent pullback. That's what bothers us and just the consensus around the fact that this is likely to be bullish, And frankly, if this was any other month than December, it probably would not be as sharp a consensus. But December tends to be a good month for stocks. We think there is a potential for surprise here.
Like what what's the surprise?
Well, look, if you look at last year, you had a hawkish cut at the December FOMC last year and the market pulled back. It didn't derailable market in any way, shape or form, but it made December an unexpectedly volid a month. And you add in the fact that you're going to get data, employment data on the sixteenth. Who the heck ever heard of the FED talking and then getting the data.
It's just it's ridiculous. You're speaking Emory's language.
She's saying, come on, move the meeting so we can actually get that data. It's not just the employment data, it's also a question around the big tax space and exactly what they are doing. I think about John Stoltzfiz. He comes in every day singing, is how you do the things you do? And it's sort of this question around Oracle, which reports earnings after the bill, how much are they, yes pluting for.
Expansion, going to beat expectations, but.
Continue building their debt pile in a way that seems not unsustainable but potentially a little more precarious when it comes to capital markets.
Yeah. No, And actually, from our point of view, the concern around the debt loads of these companies, this one in particular, is quite rational if you think back to this whole talk about an AI bubble, which we don't believe we're anywhere near the endgame yet at all in AI, But if you think back to the late nineteen nineties, the concern was just just a random throwing money at
everything everywhere without revenues. And in that respect, having a little bit of capital markets discipline to around a company that is assuming a bigger debt load is very, very measured, and it shows that people are not losing their heads. But our question is is that when those earnings are announced this afternoon, is it more the sense that the
AI bubble is going to pop? We think it might actually be more of the sense that the fear bubble, as reflected by the credit the fault swap market may pop.
In other words, the idea that people are pricing in the highest chance of some sort of default or demanding the highest amount of compensation for default from the likes of Oracle going back to two thousand and nine, that might have to diminish.
I do want of the Fed's role.
Putting these two stories together, what is the Fed's role in lifting the AI bubble? This idea that if the FED is overly easy and I say overly based on the economic conditions what they might warrant, does that lead to an inflation of some of these valuations and frankly the debt profiles of some of these companies that raises your concern.
It certainly could, and we have said for the last several months that given this sort of extraordinary time that we're in, where earnings are going to be good, the economies humming along, even with the questions around labor. But the point is both the monetary and fiscal stimulus really
do have the potential. We've said there's a thirty percent chance that you get a full on bubble next year, which we defined as nine thousand in the S and P. Five hundred, which I think is also why on balance, the FED is trying to remind everyone of the dual mandate in general. But again, the questions around the labor market are very very intense.
Especially given Joel Statia came out yesterday and just added to this confusion, given the fact that the headliness number came in pretty well, and then you saw the quits number coming at the lowest pace going back to May of twenty twenty, So choose your own adventure. Is gold telling us something? Because I was looking at the move since the last FED meeting and what stands out to me ten year yields, thirty year yields and gold up seven percent in that.
Period of time.
Are we getting a signal there about the path of travel right now in terms of the US's role in terms of fiscal doleance, when it comes to the US dollar, and when it comes to just going forward.
What people think about this policy?
Well, gold has really the last couple of years been a portfolio diversifier. And then from our perspective, you know, you saw what we believe is a reasonably significant dollar top in the first quarter of twenty twenty five, So gold it tends to trade better on that I would say Frankly, you know, gold has actually lagged the last month or two as silver has has shot the moon. That to us says that there's probably a pause in the precious metals frenzy coming, you know into twenty twenty six.
Stay with us. Multiple impex of viands coming up. Off to this, turning.
Back to the federers or President Trump reportedly planning to start his final round of interviews for the FED shair in the coming days. The front runner believed to be National Economic Council Director Kevin Hassett, who said there's quote plenty of room to cut. Joining us now as someone who disagrees with that statement, Lindsay Pie of Stifhel lindsay, you've been really vocal on the fact that you do think that inflation is very much a preeminent concern and
is being underplayed by this particular FED. How much do you expect that to come to bite the FED when it comes to BILLI yields, which is what we're seeing this morning.
Well, I think the FED is well aware of the fact that inflation remains a very sizable problem. As we see the majority of FED officials have come out and spoken against or at least question the need for further rate cuts. So there's a very clear divide among Fed officials right now, some focused on the employment component, but still, as I mentioned, a majority concern that we did not do enough the first time around to reinstate price stability.
And now it becomes even more of a challenge for the Fed to get us back to two percent, having left price as well above that target level for so many years.
Now, where's the inflationary pressure coming from? Given the fact that people have seen prices actually come down not just disinflation but outright deflation.
A couple of rent metrics, and.
We are seeing pretty contained price increases, certainly during the holiday season, even on consumer goods.
So what's going to drive this? So there still is some improvement.
We have seen some improvement as you mentioned, in these pockets, but when we look at the cost of services, this is still going up consistently over three tenths on an average monthly basis, So that's continuing to fuel these overall
annual inflation numbers up near three percent. Remember, it was never about getting us down from eight to six to four close to two percent, but back to two percent on a sustained level, and the Fed failed, as I mentioned, to really bring us to that sufficiently restrictive level the first time around, stopping short at five and a half, and so now the FED continues to contend with above trend price pressures.
Does this get worse when the President gets his pick for the FED chair?
I think the FED is going to have more of a lean to the dubbish side. There may be more of an inclination to air on the side of additional rate huts as opposed to holding steady, moving to the sideline waiting for the data, depending on who takes the lead at the FED. But remember all of these members are pro growth, pro market economists that they're looking to
support the economy. They're looking to meet the Fed's dual mandate, and they will base policy appropriately to achieve that legally mandated a great goal.
When you look at potentially inflation next year, where is that coming from? Is that coming from like almost a self induced crisis in Washington because the one big beautiful bill and maybe these two thousand dollars dividend check.
Well, so this is one of the biggest concerns right now. We're looking at inflation and we're saying, okay, there's not necessarily a tremendous amount of upside momentum that we're concerned about. But as we turn the calendar page, if we see a stronger growth profile than expected. Right now, according to the Atlanta Fed, we could see Q three GDP up over three and a half percent, much stronger than what
the FED had anticipated. We're still seeing a very spendy, solid consumer as we go into this holiday shopping season. And my biggest concern is businesses drawing down inventories, eating into profit margins. If they begin to pass through more of these teriff related or other policy related costs onto the end consumer, any one or a combination of those
factors is going to drive inflation higher. So we can't get ourselves in a position where the FED eases dramatically and then quickly we have to reverse course because inflation is taking off up near four percent or beyond.
I just feel this, but but coming in all these people who are listening to this saying, but that GDP number was really driven by data center investment, and what we're seeing right now potentially next year is greater efficiency, greater productivity that could fuel both growth but also a disinflation.
There is this inflation on the AI side, absolutely increasing productivity, increasing efficiencies as you mentioned, but there's also an inflationary component too, driving demand higher for these AI services, as well as this sizeable energy component driving higher demand for data centers. So it's not necessarily a clear cut argument that AI is going to or other technologies are going
to drive inflation down. There still are a lot of question marks, and if we factor in tariffs, if you factor in consumer and growth prospects, I think the risk still remains of the upside.
Where's the political risk here in the case that you just made you talk about how it can be inflationary and then you think, okay, energy costs and we are going to be speaking with the Chevron CEO Mike Worth later on. It should be a great moment for energy costs, at least from the producer side, because you should see them going up because of how much energy is into make well.
We have seen energy go up over forty percent in just the last five years, but we haven't seen.
Oil prices go up.
And this is sort of the question of at what point can you factor in government interference in trying to skew prices to the downside because of some of the political concerns, leaving a sort of subdued inflation, even if the supply demand dynamic might otherwise signify something else.
So there will be pressure on the administration to step in. As we know, the fastest way to derail the American consumer is sustained heightened energy prices, and that will show up in the polls via the mid or other and so there will be a lot of pressure on the administration to step in, not necessarily with a long term solution, but certainly with some short term reprief Well.
That's with electricity.
Is it balanced out with the fact that the President last night was talking about gasoleen and dollar ninety nine. So then I looked and actually, there is a gas station in Oklahoma that has a gallon for dollar ninety nine.
In Colorado for dollars sixty nine.
The gas buddy has everyone mapped.
Out, and I said, wow, they really are that low, below two dollars a gallon.
But the issue people have at home is electricity price, right, and so they negate each other.
For the household balance sheet, the average consumer will look at where they're allocating those funds, be that to the gasoline tank or be that to the household energy bill, and so if one is improving and the other isn't, we're still going to feel that pressure as normal consumers, normal spendors.
This is the Bloomberg Sevendents podcast, bringing you the best in markets, economics, anngient politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business out mm hmm