Chevron Corporation

Good morning. My name is Jonathan, and I will be your conference facilitator today. Welcome to Chevron's first quarter 2020 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. To ask a question during the session, you'll need to press star one on your telephone. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference is being recorded. I would now turn the call over to your host for today's program, the general manager of investor relations of Chevron Corporation, Mr. Wayne Burdune. Please go ahead.

Thank you, Jonathan. Welcome to Chevron's first quarter earnings conference call and webcast. Our chairman and CEO, Mike Wirth, and CFO, Pierre Brever, 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 on slide two. Now, I'll turn it over to Mike. All right. Thanks, Wayne.

Before we get started, I hope you and your loved ones are safe and healthy. Our thoughts are with all the families affected by COVID-19, and especially with the healthcare workers on the front lines battling every day to contain the outbreak. I'm also incredibly grateful to our employees who show up for work every day, particularly those out in the field, operating critical facilities to provide the energy that supports the pandemic response and keeps essential goods and services flowing in support of the economy. They, too, are heroes. During our security analyst meeting in March, we discussed Chevron's resilience, and now it's time for us to demonstrate it. No one foresaw these specific market conditions, but we were prepared for them. We know what to do and we're doing it as we execute this five-point action plan. First and foremost, we're focused on the safety of our employees and our operations. Next, we're exercising the flexibility in our capital program. Today, we're further lowering our full-year guidance. In addition to capital, costs always matter in a commodity business. We initiated a major company restructuring last year. and we expect to drive additional savings this year and next. Capital structure also matters. We came into this crisis with an industry-leading balance sheet, and we're taking actions intended to maintain financial strength. Lastly, while addressing current market conditions, we're preserving long-term value for shareholders, employees, and other stakeholders. I'll speak to each element of this action plan in the following slides. beginning with safe and reliable operations on slide four. We've had fewer than 50 confirmed cases of employees with the virus, and nearly all cases appear to have been contracted outside the workplace. Most of our office-based employees are able to work from home. For those who continue working at facilities or in the field, we've implemented multi-layer screening, distancing, hygiene, and PPE protocols. Our COVID-19 testing capability is ramping up. Finally, we're helping our communities with donations of money, PPE, and other things we can manufacture, like sanitizers in our plants and 3D printed face shields. In downstream, our refineries are running well below capacity to meet significantly lower product demand. Where possible, we're prioritizing equity crudes into our refining system and re-optimizing our plans for turnarounds. In upstream, The rig count will be down by about 60% by the end of this quarter. In May, we expect to curtail between 200,000 and 300,000 barrels of oil-equivalent production, and we expect curtailments to continue in June. LNG contract sales have been unaffected. Despite some logistics challenges, our supply chains have been functioning with no major disruptions. We're closely monitoring financial risks to our suppliers and working with them on win-win solutions. Now I'll give an update on our major project underway in Kazakhstan. Despite the early COVID outbreak in Korea, module fabrication and shipments out of the fabrication yard remain on schedule. In fact, only seven modules remain in the yard and all are scheduled to depart this quarter. Restacking of the modules in Tengiz is progressing well and was ahead of schedule at the end of April. That said, the pandemic is presenting challenges. Restrictions on the movement of people and goods and positive COVID cases in six of the more than 100 residential camps in Tengees have triggered changes. While critical path construction activities proceed, we're temporarily demobilizing non-critical path personnel. As a result, we anticipate some degree of impact to project cost and schedule but it's too early to quantify this in any meaningful way. Our forecast of 2020 capital expenditures for the project has been reduced by about $1 billion, our share, due to deferred activity, cost mitigations, and expected currency benefits. Turning to our overall capital outlook, we're further lowering our full year 2020 organic capital guidance to as low as $14 billion. down from $16 billion announced in March. Second half CapEx could be as low as $6 billion, or a run rate up to 40% lower than our original budget. The incremental reductions since our March press release are primarily focused on TCO and short cycle investments. Turning to slide seven, In response to current market conditions, we expect to reduce operating costs by about $1 billion this year relative to 2019 due to reduced activity levels, lower fuel costs, and curtailment of other discretionary expenditures. Beyond the current year, our initiative outlined at the Security Analyst Meeting to lower OPEX by another $1 billion next year is progressing well. A portion of these savings will come from restructuring. where we expect design to be finalized this quarter with the streamlined organization in place by year end. Costs often lag during market corrections. We were already working on further cost reductions before these conditions began and intend to keep pace with today's realities. Turning to the next slide, the chart on the left shows our estimated sources and uses of cash under a two-year stress test with sustained prices of $30 Brent. Our decision to suspend the repurchase program, lower costs, and flex capital down will reduce the pull on our balance sheet. The chart on the right shows we have the debt capacity to weather this stress test better than our peers. All our actions are consistent with our longstanding financial priorities, and number one is to protect the dividend, which we know is vital to our shareholders. Turning to slide nine and the fifth element of our action plan, preserving long-term value. While we have the flexibility to take capital even lower, we're focused on the right spending to ensure that existing assets are safe and reliable, projects already under construction are efficiently completed, operational and technical capabilities are maintained, investment options are preserved for the future, and we maintain our commitment to ESG priorities. During a market downturn, the playbook in our industry isn't a secret. The key is how you execute it. The winners are the ones that make the right choices, best balancing short-term cash flow and long-term value. We made the right choices coming into this crisis, and we intend to exit in the best position among our peers. With that, I'll turn it over to Pierre.