Chevron Corporation

Good day, ladies and gentlemen, and thank you for joining Chevron's first quarter 2019 earnings conference call. Please be prepared to give at this time. Good morning, ladies and gentlemen. My name is Jonathan. I will be your conference facilitator today. Welcome to Chevron's first quarter 2019 earnings conference call. At this time, all participants are in a 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 call, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference call over to the Chairman and Chief Executive Officer of Chevron Corporation. Mr. Mike Wirth, please go ahead.

All right. Thank you, Jonathan, and welcome back. We missed you. I'd like to welcome everybody to Chevron's first quarter earnings call and webcast. Our new CFO, Pierre Breber, and our Head of Investor Relations, Wayne Bordun, are on the call with me. 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 and important information for investors and stockholders on slide two. Moving to slide three, today I'll make a few opening comments. Pierre will review first-quarter results, and then we'll take your questions. As I've said before, we're well-positioned to win in any environment. During our security analyst meeting, we shared that our advantage portfolio, strong balance sheet and low break-even, capital discipline, and lower execution risk position us well to deliver superior shareholder returns. With the announced acquisition of Anadarko, our story gets even better. It builds strength on strength. We submitted our antitrust filing yesterday to begin regulatory approvals, and we've begun joint integration planning. We know how to integrate two strong companies to create an even stronger one. We've done it well on prior transactions, and we'll do it again. We remain confident that the transaction agreed by Chevron and Anadarko will be completed. With that, I'll turn it over to Pierre, who will take you through the financial results.

Pierre? Thanks, Mike. Turning to slide four, our disciplined, returns-focused approach to the business continues to drive solid earnings and cash flow. First quarter earnings were $2.6 billion. or $1.39 per diluted share. Excluding foreign exchange losses, earnings were $2.8 billion, or $1.47 per share. Cash flow from operations for the quarter was $5.1 billion. Excluding working capital changes, it was $6.3 billion. We maintained a strong balance sheet with a debt ratio less than 20% at quarter end. During the first quarter, We increased our quarterly dividend to $1.19 per share, up 6%. Share repurchases during the quarter were around $500 million, lower than our billion-dollar per quarter guidance. During the quarter, we were restricted from buying back shares in light of the Anadarko acquisition. Turning to slide five, despite lower refining and chemical margins, cash flow was solid. and the trend is in line with full-year guidance. Working capital effects in the quarter consumed $1.2 billion, generally consistent with our seasonal pattern. Free cash flow, excluding working capital changes, was over $3 billion. Other cash flow items included pension contributions of about $325 million, asset sale proceeds of around $300 million, and TCO co-lending of $350 million. We continue to make progress high-grading our portfolio. Total asset sale proceeds since the beginning of 2018 are $2.3 billion, and we remain on track to reach the low end of our current three-year $5 to $10 billion guidance range by the end of this year. Slide six compares first quarter 2019 earnings with first quarter 2018. Earnings declined from a year ago, largely due to lower crude oil prices and weaker downstream and chemicals margins. Special items increased earnings by $120 million due to the absence of a first quarter 2018 asset impairment. A swing in foreign exchange impacts decreased earnings by $266 million. Excluding special items and FX, upstream earnings were relatively flat, as higher production was offset by lower realizations. Downstream earnings decreased by about $500 million, mostly due to weaker refining and chemicals margins, coupled with unfavorable timing effects. The variance in the other segment was primarily the result of higher corporate charges. Turning to slide seven. This compares results for first quarter 2019 with fourth quarter 2018. First quarter earnings were about a billion dollars lower than the fourth quarter. Foreign exchange impacts decreased earnings by $405 million between periods. This was partially offset by the absence of a project write-off. Excluding special items and FX, upstream results were flat between quarters. Lower realizations and liftings were offset by lower depreciation and operating expenses. Downstream earnings decreased by about $600 million, primarily due to unfavorable timing effects coupled with lower refining and marketing margins. These impacts were partly offset by lower turnaround activity this quarter. The variance in the other segment largely reflects an unfavorable swing in corporate tax items. On slide 8, first quarter 2019, oil equivalent production increased 186,000 barrels a day, or almost 7% from first quarter 2018. Production exceeded 3 million barrels per day for the second straight quarter. Shale and tight production increased 143,000 barrels per day. First quarter unconventional production in the Permian was 391,000 barrels per day, in line with our guidance, and up 55%. Production for major capital projects increased by 128,000 barrels per day, primarily due to Wheatstone, Hebron, and Bigfoot. Base declines were 30,000 barrels per day, net of production from new wells, notably in the Gulf of Mexico. The effects of unplanned downtime, primarily at Gorgon, reduced production by 29,000 barrels per day. Now, looking ahead, in upstream, we continue to expect 2019 production growth to be 4% to 7%, excluding 2019 asset sales. We closed on the sale of our Denmark assets earlier this month and are evaluating bids on our UK North Sea assets. Our full year guidance for TCO co-lending is unchanged at $2 billion, dependent upon price, investment profile, and dividends In downstream, we expect a close on the purchase of the Pasadena Refinery in the second quarter. We also expect high refinery turnaround activity, which equates to an estimated after-tax earnings impact of more than $200 million. For the second quarter, we expect restrictions on share repurchases to continue in light of the Anadarko acquisition. Post-closing, we expect to buy back shares at a rate of $1.25 billion per quarter. In the second quarter, we expect a pension contribution around $400 million. And our full year guidance for the other segment is unchanged at $2.4 billion. That concludes our prepared remarks. We're now ready to take your questions. Keep in mind that we do have a full queue, so please try to limit yourself to one question and one follow-up. We'll do our best to get all of your questions answered. Jonathan, please open the lines.