Bloomberg Audio Studios, Podcasts, Radio News Mike.
Obviously, everyone's going to be focused on the buy back and capital shareholder return as well as the hess question marks. But there were a lot of positives in the report, particularly when it comes to the Gulf of America. Can you walk me through some of them?
Sure?
Well, we had a very strong quarter, you know, our earnings were up six percent versus the prior quarter, oil prices were relatively flat, strong shareholder distributions seven billion dollars in the quarter and over the last twelve months.
About fifteen dollars a share.
And we're on track for industry leading free cash low growth by twenty twenty six, even at lower prices. And a big part of that is the Gulf of America, where we've started up three projects over just the last eight months, the Anchor Project, the Whale Project, and now bally Moore most recently. Our production there will go from two hundred thousand barrels a day last year to three hundred thousand barrels a day in.
Twenty twenty six. And the Ballymore project, which we just started is very interesting.
It's got some of the most prolific wells we've ever seen in the Gulf of America. They're expected to produce twenty five thousand barrels a day each, so three wells seventy five thousand barrels a day. Some of the highest temperature production we've ever seen, three hundred and twenty five degrees fahrenheit down in the reservoir. So a great example of engineering technology and the abundance of American energy part.
Of that, though for especially deep water offshore, it's longer lead time, so more capital investment. Do those decisions get skewed when you have this kind of volatility.
And oil prices? Yell.
We look at long term views on supply and demand to arrive at our long term oil price forecasts, and we look at a range of prices. So a project that would take several years to develop, like a deep water Gulf of America project, and then would be online for multiple decades, our decision making is really not informed by the price of the day. It's informed by our view prices out over the life of that project, which
can be multiple decades. And so the impact of the near term price is really more around short term decisions on cash management, the balance sheet, etc. But not long term investment decisions, they're really made out a different set of parameters.
Help me understand this one. RBC Capital Marc has had a note doubt that talked about how oil prices need ninety five dollars a barrel for you guys to break even after capex, dividends and buybacks, and that's really high. What would you say to that kind of number.
Yeah, haven't seen that report. We're growing production, as I said, we're growing cash flow.
As we move into.
Next year, our break even to cover the capital budget and the dividend will be down in the low fifties. We get beyond that, it'll move into the forties. And so if you pick any given quarter and do some of this math, you might reach a certain conclusion. As we look forward into the next few years, our break even will be low and going lower.
Let's talk about the next few years, and a big part of that will be the purchase of Hess. Finally, you get a date arbitration hearing for the end of May. You've had a chance to look at each other's cases. How has your confidence changed?
Well, it really is unchanged, Alex.
The contract is very clear in the language of the contract that will be applied in the arbitration, and we've you know, steadily believed that the HESS side of this argument is the is the proper side of it. And so as we move closer to the date of the arbitration hearing and then a decision three months after that.
Our view really is unchanged.
We feel very very confident that HESS will prevail here.
Obviously, Guyana is a huge asset and would be so great for Chevron, So how quickly could that be a creative to you guys, like what would that integrate and look like?
Well, we've had plenty of time to prepare for reaction and and so the teams have been working closely and we're ready to move very quickly to integrate the two businesses. So once we get a decision that that can happen in you know, a matter of days and weeks, not months or years.
Part of that also was you buying five percent of HESH shares on the open market. Two thoughts, and there are two very different thoughts. One is it just shows how much confidence you do have in the deal. The other thought is that it won't go through and you still want to seat at the table if the deal fails. Help me understand which side.
Well, the shares we're trading at a discount to you know, the value that we would exchange our shares for in the transaction, and so it made it economic just on the on the surface, we do have confidence as I just as I just expressed, and and so that's really what what sits behind that it's a good company has his performance has been exceeding expectations every quarter really since we announced this transaction. The business is being run well,
their stock has. We viewed it as a good investment back then, we viewed as a good investment.
Today, Let's move to another field that has the potential to be a huge growth driver in the future, and that's ten Gee's. Obviously that had a lot of startup issues, but you're finally running at the same time that Saudi Arabia is trying to enforce quotas for Opek Plus, which is in Kazakhstan, which is where Tengi's operates. Have you had any talks with the government about having to pair back any production.
Well, we've got a long history in Kazakhstan and as you say, the project we just completed has been under way for about a decade. It's taken that field's production capacity up to essentially a million barrels a day. We've had it running at those levels or close to those levels here during the first quarter of the year. So I've had a chance speak to the President of the
country about that. We don't get involved in OPEC plus discussions, and so I don't know what is going on there, but I can tell you that our long history in the country has been good for the Republic. It's been good for the investors in the ten Geese field, and those barrels are very high value barrels to the Republic in terms of the revenue that they generate, and historically they have not been subject to any cutbacks when we're in circumstances where OPEC plus might be looking to make
some of those decisions. And so I'm not aware of anything that would result in us being asked to produce less there.
Okay, so the ask has not been asked, if I'm just bearing that down right, Mike, That's correct.
We haven't had any conversations about that.
All right, let's broad out. You make long term capital decisions like you were talking about with Gulf of America for decades to come, right, So the oil price today means less than the oil price in the future. What is your future demand outlook? As tariffs seem to rewrite the global economy.
Well, the population of the planet continues to grow. The number of people that live a developed world lifestyle is growing, but is still relatively less than those who don't yet have the quality of life that those of us in developed countries can take for granted. And so demand for energy will go up. Demand for all forms of energy will go up over the coming decades, and oil and gas will continue to be a vital part of the global energy system, even as we see other.
Types of energy grow as well.
The thing in oil and gas that's always important to bear in mind is oil fields decline over time, so production decreases every year from existing fields, and it requires investments to maintain production even at steady levels, let alone
to meet any incremental growth. And so the opportunities for companies that are capital efficient, that are very disciplined in how do they run their business to continue to supply the energy the world needs and create returns for shareholders will exist long long into the future.
And as we've seen, it's more a rig cutting issue with say smaller companies rather than larger companies like yourself. Something that I keep hearing though a lot about Mike is what happens to NGLs, So overall liquids in particular when it comes to global trade, and as the wells and the Permian or in US shale get gass eer are we looking at a potential glut of NGLs in the world.
In the US, so, the US has become a very large producer of natural gas liquids. Propane is a big export commodity now. The US exports ethane as well to markets around the world where these tend to be used as feedstocks for petrochemical production. They can also be used in heating and other applications, and so as trade rules change and trade flows change, that can affect where those flows go. It can affect the netbacks that producers and
sellers of these commodities realize. China is certainly a purture of both purchaser of both of those commodities, and so reductions in flows to China would need to be met.
By supply from elsewhere in the world.
Often the Middle East and US exports may go into the markets that the Middle East exports are currently going into so you'd see some reorientation of flows. And if you have a non tariff market that's the most efficient distribution of those, you have a slightly less efficient market at work, and that could affect at the margin the realizations that producers see for their exports.
Had some good context, Mike, just to end sort of on the question that you know you're going to hate, is excluding has your looking at nine billion dollars an annual free cash flow growth at sixty brent and that's for twenty twenty six. Give me perspective as to how long would WTI need to remain below sixty for you to start revamping your outlook in a material way.
Well, it's it's kind of a hypothetical alex because it would not only take a long period of time, but then it would also depend upon our view for how things play out as there's some sort of a recovery. And look, we've got a very strong balance sheet right now. We're below our historic average at a fourteen percent in that debt. We've got a double A credit rating, We've got costs and capital discipline. We've brought capex down coming
into this year. We're taking costs structurally out of our business two to three billion dollars in costs, and we're going to grow free cash flow nine billion dollars at a sixty dollars rent price, so we've got staying power well into the future. If the future is dramatically changed, we could look at adjustments, but we don't see anything right now that suggests that that's the case.
And same for debt. You feel confident in not having to increase any debt if we get those oil prices more sustained below sixty.
Well, we've guided the market to a twenty to twenty five percent net debt level through the cycle as something we're very comfortable with for an efficient capital structure.
We're at fourteen.
Percent today, so we've always maintained that we will gradually increase our debt levels to get back into or close to that twenty to twenty five percent range. And I think you can expect that to happen, but that's not
anything that anyone should be overly concerned about. We've indicated that that's what we would expect to do in really any kind of a price environment and through the cycle, so it's very consistent with the guidance We've given the market how we think about our business and look been through cycles before. I've been in the room in two thousand and eight, twenty fourteen, twenty twenty with Covid and again.
Now we know what to do.