Chevron Corporation

Good morning. My name is Jonathan, and I will be your conference facilitator today. Welcome to Chevron's fourth quarter 2018 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's remarks, there will be a question-and-answer session, and instructions will be given at that time. If anyone should require assistance during the conference call, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I will now turn the conference call over to the Chairman and Chief Executive Officer of Chevron Corporation. Mr. Mike Worth, please go ahead.

Thank you, Jonathan. Welcome to Chevron's fourth quarter earnings conference call and webcast. On the call with me today are Pat Yerrington, Vice President and Chief Financial Officer, and Wayne Bordoon, General Manager of Investor Relations. We'll refer to the slides that are available on Chevron's website. Before we get started, please be reminded that this presentation contains estimates, projections, and other forward-looking statements. Please review the cautionary statement on slide two. Back in March, I laid out Chevron's strategy to win in any environment. I outlined our three compelling strengths, an advantage portfolio, sustainability at lower prices, and a strong balance sheet. I also indicated that the combination of these distinct advantages, together with the commitments to action highlighted in blue, would deliver growing free cash flow and shareholder returns. In 2018, we delivered. We grew oil and gas production by more than 7%, achieving our highest ever annual production. We grew cash margins in our operated upstream assets, contributing to an improvement in cash returns. We lowered our unit costs, and we sold $2 billion of assets. These outcomes yielded record free cash flow, a dividend increase, and the initiation of a share repurchase program. 2018 was a very successful year, and we intend to build on this momentum in 2019. Turning to slide four, a view of our sources and uses of cash. Excluding working capital, we generated over $31 billion in cash flow from operations, and we achieved record free cash flow of nearly $17 billion. the highest level ever achieved by Chevron in any price environment. This allowed us to deliver on all four of our financial priorities. For the 31st consecutive year, we maintained our commitment to dividend growth and paid out $8.5 billion in cash dividends to our shareholders. Earlier this week, we announced a $0.07 per share increase in our quarterly dividend to $1.19 per share, representing a 6% increase. Second, we allocated capital across a diverse portfolio and funded our highest return projects. We have confidence these investments position us for sustainable growth and free cash flow. Third, we strengthened our balance sheet and paid down debt by $4.5 billion. Finally, we began repurchasing shares in the third quarter and increased the rate in the fourth quarter, demonstrating further confidence in our future cash generation. With that, I'll turn the call over to Pat, who will take you through the financial results. Pat?

Hey, thanks, Mike. Turning to slide five, an overview of our financial performance. Fourth quarter earnings were $3.7 billion, or $1.95 per diluted share. 2018 full-year earnings were $14.8 billion, or $7.74 per diluted share, up more than 60% from 2017. In the quarter, foreign exchange gains of $268 million, were offset by a special item related to a project write-off. A detailed reconciliation of special items in foreign exchange is included in the appendix to this presentation. For the full year, earnings excluding special items in foreign exchange totaled $15.5 billion. Return on capital employed for 2018 was 8.2%, up from 5% in 2017. Our debt ratio at year-end was 18%, and our net debt ratio was approximately 14%. During the fourth quarter, we paid $2.1 billion in dividends, bringing the full year total to $8.5 billion. And we increased the rate of our share repurchases from $750 million in the third quarter to $1 billion in the fourth quarter. Turning to slide six, for the full year, cash flow from operations totaled $30.6 billion, about 50% higher than 2017. Headwinds, as we've defined them in the past, total $3.2 billion for the year, in line with my original guidance. For the quarter, cash flow from operations was $9.2 billion. It was lower than in the third quarter, primarily because of lower commodity prices, but it was well above first quarter when prices were comparable. This improvement within the year was due to the growth in production. Cash capital expenditures for the quarter were $4 billion and $13.8 billion for the year. The resulting free cash flow of almost $17 billion reduced our dividend break-even price. We are covering our cash, capex, and dividend at just under $53 Brent, without consideration of asset sale proceeds. Before moving off cash flow, a little guidance for 2019. If prices hold at current levels, we expect headwinds for 2019 to be between $2 and $3 billion. Now on to slide 7. Full-year 2018 earnings of $14.8 billion were approximately $5.6 billion higher than 2017. Special items, primarily the absence of a U.S. tax reform gain of $2 billion, lower gains on asset sales, and an increase in charges relating to project write-offs, resulted in a net $3.9 billion decrease in earnings. A swing in foreign exchange impacts benefited earnings between the periods by $1.1 billion. Upstream earnings, excluding special items in foreign exchange, increased by about $9.3 billion between periods, primarily because of higher realizations and increased liftings. Slightly offsetting were higher operating expenses, largely associated with continued ramp-up in production, along with additional taxes and other costs. Downstream results, excluding special items in foreign exchange, decreased by just over 90 million. Lower volumes reflected the sales of our Canadian and South African refining and marketing assets, while higher operating expenses were associated with planned turnaround activity in the U.S. These items were mostly offset by favorable timing effects and improved results at CP Chem. In the other segment, excluding special items in foreign exchange, Net charges for the period increased by almost $750 million, due primarily to higher interest expense and lower tax deductibility for corporate charges. Full-year net charges were $2.3 billion, in line with our guidance. Our 2019 guidance for the other segment remains about $2.4 billion in net charges. As a reminder, though, quarterly results in this segment are non-rateable. Now on slide 8. 2018 production was 2.93 million barrels a day, an increase of 202,000 barrels a day, or more than 7% from 2017. This is the highest level of production in the company's history. Excluding the impact of 2018 asset sales, production grew approximately 8%, or 1% above the top of the guidance range we provided last January. Major capital projects increased production by 227,000 barrels a day as we continued to ramp up production at multiple projects, most significantly Wheatstone and Gorgon. Shale and Tide production increased 132,000 barrels a day, primarily in the Permian, where production grew by more than 70% from 2017. Base declines, net of production from new wells, mostly in the U.S. Gulf of Mexico and Nigeria, were 19,000 barrels a day. The impact of asset sales, in particular from the U.S. mid-continent, Gulf of Mexico shelf, and the Elk Hills field in California, reduced production by 50,000 barrels per day. Entitlement effects in total reduced production by 46,000 barrels per day, 17,000 of which was due to the effect of higher prices during the year. Higher planned turnaround effects, primarily at Angola LNG and Tengiz, reduced production between years by 26,000 barrels per day. I'll now hand it back to Mike.