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Chevron Corp
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Good morning, ladies and gentlemen. My name is Jonathan and 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 speakers' remarks, there will be a question-and-answer session and instructions will be given at that time. [Operator Instructions] 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 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 Borduin are on the call with me. We will 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 2.
Moving to slide 3, 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 advantaged portfolio, strong balance sheet and low breakeven, 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 anti-trust 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.
Thanks, Mike. Turning to slide 4, 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 $1 billion per quarter guidance. During the quarter, we were restricted from buying back shares in light of the Anadarko acquisition.
Turning to slide 5, 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 beginnings of 2018 are $2.3 billion and we remain on track to reach the low end of our current three year, $5 billion to $10 billion guidance range by the end of this year.
Slide 6 compares first quarter 2019 earnings with first quarter 2018. Earnings declined from year ago, largely due to lower crude prices and weaker downstream and chemicals margins. Special items increased earnings by $120 million due to the absence of first quarter 2018, asset impairment. A swing in foreign exchange impact 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 affects. The variance in the other segment was primarily the result of higher corporate charges.
Turning to slide 7, this compares results for first quarter 2019 with fourth quarter 2018. First quarter earnings were about $1 billion lower than the fourth quarter. Foreign exchange impact 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 listings were offset by lower depreciation and operating expenses.
Downstream earnings decreased by about $600 million, primarily due to unfavorable timing affects 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 to 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.
Certainly [Operator instructions] Our first question comes from the line of Devin McDermott from Morgan Stanley. Your question please.
Great, good morning.
Good morning, Devin.
So I wanted to start, so I'm sure it'll be asked if I don't, just on the Anadarko deal and the process there, appreciate the additional color in the prepared remarks. First, can you just walk through and remind is what the timeline is and key milestones and process from here, and any comments you can make on the competing off from RCU [ph] would be helpful as well. I'll leave to you, is that how you like?
Sure. So the timeline is, probably a little different today than I would have told you a couple of weeks ago because we now have Anadarko’s Board back considering a unsolicited proposal. We made -- our anti-trust filing. I mentioned that, that went in yesterday. We don't see any material, anti-trust or anti-competitive issues that arise from the combination, and so we would expect that to be handled within a pretty reasonable period of time, say 60 days. Depends if they come back for a second review with any questions. And then we have an Anadarko shareholder vote, that will be scheduled and could result in a third quarter close.
So I think we've always said second half of this year. And so that would be the -- that would be the timeline. I think we're going to wait and see what -- Anadarko Board has said they're reviewing this unsolicited offer. And so we’ll that obviously will have some bearing on the overall timeline.
Understood. Makes sense.
Thanks, Devin. Do you have a follow-up.
Yeah, one follow up. I just wanted to shift over to TCO and the co-lending. You mentioned the guidance there is unchanged, but any color you can give us on the shaping and how we should think about that playing out throughout the year.
Yeah, Devon, this is Pierre, I mean, you should view it as you know, roughly ratable and but again, it'll vary depending on prices and project spending and affiliate dividends. But if you think of it being roughly ratable during the course of the year that's appropriate at this point in time.
Thank you very much.
Thanks, Devin.
Thank you. Our next question comes from the line of Phil Gresh from JPMorgan. Your question please.
Hey, good morning. First question, in light of the competing bid that's put out there and the details behind that, I think one thing that surprised investors would be perhaps the degree of synergies that Occi talked about in their proposed transaction, even if you back out the capital reduction component. And so I think, you've been asked about the degree of conservatism already to some degree about your synergy forecast. But now that's out there, I was just wondering if maybe you'd have a comment about your numbers and where upside could come from.
Sure, Phil, so look, I'm not going to comment on the details of another offer. I'll tell you our synergies are real and we're confident, our ability to achieve the $2 billion in run rate synergies in the first year post close, and delivering significant value from the deal.
As I mentioned earlier, we've already begun joint integration meetings with Anadarko. We had full teams from both companies meeting for multiple days this week already. We're committed to delivering the synergies. We've got a strong history of successfully integrating two companies and meeting and often exceeding our synergy targets, this can go back to Gulf [ph], it can go to Texaco, it can go to Unical [ph].
And so this is something we've done before and we're very good at it, we're very confident that we can, that we can deliver the $2 billion. And as we know what we know, at this point, and as we get more detail, we certainly will know more.
The other thing that I'll just mention is we have great confidence that we can accelerate value realization in the Permian, which is not really reflected in the cost synergies. We've indicated that we can see increased capital spending and increased activity in the Permian. We've got a strong contiguous position that results from this transaction. We've get a royalty position that that we can accelerate value from. And we will absolutely be able to deliver strong performance out of there.
We benchmark very aggressively in the Permian on a virtually continuous basis. We benchmark well performance, well design, completion, design, execution performance, cycle time, service facilities, efficiency, OpEx unit costs, realization, all the financial metrics and do that on a regular basis. And we have a strong performing Permian business that will bring realizations and value forward that is not in that $2 billion.
And so I think you can -- you can feel very confident that we will deliver and as we see more value there, we will be talking to you about it.
Okay, fair enough. Just a follow-up question would be, obviously there's more to an acquisition than just the price offered, and I was hoping maybe you could help us think through why your lower priced offer should win from your perspective, and if Anadarko's Board is forced to go back and quantitatively decide that this is -- your offer's not good enough, is there a point at which -- that if you look at this and -- not consider raising a bid, because its return's destructive [ph] to you to do so.
Sure. Well I won't speak for the Anadarko Board, but even with the information that was made public this week our offer was viewed by Anadarko as superior. And we have a signed merger agreements approved unanimously by the Boards of both companies. We strongly believe the combination of our two companies create superior long term value for shareholders of the combined company. The industrial logic of our transaction is very compelling.
Anadarko's assets further strengthen already leading positions that we have in large and attractive shale, deep water and natural gas basins. It enables a further portfolio high grade and cost reductions and focused investments and an even stronger company. Our financial position and balance sheet strength enables us to take on the leverage and issue the additional equity and still continue to increase shareholder distributions.
Our companies simply have the best strategic fit. We can operate in the Gulf of Mexico in ways that others cannot. We're a world class operator of LNG, we've got leading performance in many different dimensions in the Permian. And that strong balance sheet mitigates risk. We won't be over levered coming out of the deal, we will be financially strong, with accretive cash flow and earnings and full and certain value.
There's no shareholder vote required to approve the transaction and there is strong upside, in what is already a very strong currency in Chevron stock. So I think there are a whole host of reasons why we have a very compelling transaction.
Thanks Phil.
Thank you. Our next question comes from the line of Paul Sankey from Mizuho. Your question please.
Hi, everyone. Good afternoon from London. Mike, when we think about the potential for you to bid higher, we look at your balance sheet, and obviously there's a tremendous amount of firepower there, but we suspect it's not how you would be looking at potentially adding to your bid. Can you talk about the metrics that you're looking at in terms of Anadarko value to Chevron? Thank you.
Yeah, and I want to close off. Phil actually asked a question that I failed to get to at the end of that last answer, which kind of ties to this? And Phil, yes, there is a -- we've been very disciplined as we've approached this, as we've looked at valuation. And I think you said, is there a point at which you're done? And of course the answer to that is yes, there is. And this isn't the time to address that specifically, but we've said we will do things that are value creating for our shareholders and we don't need to do anything. We got a very strong story without doing a transaction.
So Paul, to your question, we look at a whole host of metrics. And some of the primary ones are the accretion metrics. Does this give us accretive free cash flow after capital spending, does it give us creative earnings, do we get a strong return on this investment, and does it give us the investment queue, the investment set and opportunities over time to continue to improve return on capital, which the entire industry is working to improve, and this does. It gives us over 10 billion barrels of resource at less than $3 a barrel, which is an attractive resource acquisition cost. And so there are a whole host of metrics like that, that are the ones that we look at.
Yeah, and, Paul, I don't know if your question was getting to the mix of the equity and cash. I mean, we've talked about the 75, 25 was mutually agreed to. Anadarko shareholders wanted exposure to our stock. We have a very good stock. But clearly we have the capacity to have alternative structures. We could put more -- we could have put more cash in if that's what Anadarko wanted to do, but we agreed to where we ended up.
Yeah, I realize Mike, that you've talked about free cash flow, sort of point, [indiscernible] accretion I should say, from your point this needs to be the single metric that we should look at. We’re just wondering how to think about that.
So Paul, sorry, Was there another follow-up question in there?
No, I think the other aspect was that you said if you can't [indiscernible] up, which is obviously a tough thing to measure. But it does seem that you have a great fit. Could you talk a little bit about Mozambique and how you see that? I think that's one of the differentiators between potentially between you and Occi. Thanks.
Sure, as I discussed on the call a couple of weeks ago, we view Mozambique as a world class gas resource. We are pleased with the progress the product has made. It's a very cost competitive LNG project. And that matters. We do not intend to slow the project timeline down. We think that there's a good team of people working on this and that they've done a good job.
I plan to visit Mozambique soon to see the site and visit with both government leaders and people working on the project there. And we think that this fits well into our portfolio and with our strengths. And so we like the project. We think we can bring some value. We've got the balance sheet to support the project. We've got experience in things like shipping that, this will have a large shipping component. So I think there are ways we can improve and enhance execution and value and mitigate risk in execution of the project.
Thanks, Paul.
Thank you. Our next question comes from the line of Jason Gammel from Jefferies. Your question please.
Thanks very much. I guess my first question is related to your ability to operate in the Permian. And the reason I say that is, the competing bidder has talked about their ability to create the most return enhancement and their superiority as an operator. So Mike can you address where you think you benchmark relative to competition in terms of Permian development right now?
Yeah, I mentioned earlier that we benchmark a wide range of metrics and you really need to look at performance in it's -- in all the dimensions. And there are ways that we've seen in the past Permian operators that will optimize certain metrics particular things like early production. We don't -- we are very careful about choke management to deliver the best ultimate recovery. But there are other operators that run with their chokes wide open and can show very strong early production numbers you look at it year out and there's quite a different picture that you see.
So I think number one, I would say you have to be very careful about which metrics you look at and we're focused on value creation and returns. Short-term production is not the goal and we're really looking at driving ultimately long-term recoveries, capital efficient model that generates leading EURs, a low cost per barrel and high returns and you take that you put it together with an advantage royalty position and we can deliver value that is difficult for anyone else to match.
And over time a company like ours has a technology capacity that few others have and we can add even more value as we drive costs down further as we improve recoveries and we see technology do what it always does, which is unlock greater degrees of performance. And so I will simply say that we look at our metrics and performance through a value lens and not a production lens.
Appreciate that Mike. My follow-up question is at the time you announced the transaction you did raise the target on annual buybacks to 5 billion from what it had been before. I appreciate the run rates right now are affected by the transaction being in the public domain. But was the 5 billion -- was it increased to 5 billion contingent upon the deal completing or is that a run rate you would expect to have regardless.
It was an announcement we made to indicate our strong confidence in the cash flow accretive and value creation that this transaction enables and so it is tied to the transaction, and as I said we got a strong case pre-existing the transaction with increase from a run rate of 3 billion last year to run rate of 4 billion this year and so the step up to five was a signal that this deal makes us even stronger.
Yeah, if I can just clarify on again the first quarter buybacks were lower as Jason as you said we had to stop buying back shares, we thought there was prudent when we believe we could be we could find yourself in possession material nonpublic information related to transaction. So we expect these restrictions to continue in the second quarter circumstances could change and we could be able to buybacks shares in time to time but right expect low to no buybacks in the second quarter. And then post-closing, we intent to increase the rate to the $5 billion annual or $1.25 billion per quarter.
Understood. Thanks guys.
Thanks Jason.
Thank you. Our next question comes from the line of Biraj Borkhataria from RBC Capital Markets. Your question please.
Hi, thanks for taking my questions. I just have one, on your expiration strategy and this also relates to Anadarko. But we look a long by the Permian in terms of synergies but it seems that is also quite little bit upside to exploration in the that if you combine the two portfolio and follow a infrastructure lead expiration strategy.
Could you just talk a little bit about that and how you thinking about that on the basis that this transaction just closed? And then the second question is there was a couple of articles in the year around you transferring your Permian royalty interest into a new subsidiary I was wondering if there is anything to that or that just a non-news. Thank you.
Okay, so the first one expiration in the Gulf of Mexico. We talked earlier about that we would see expiration synergies as we bring the two companies together and our expiration portfolios. And we talked about the fact that we would have a very powerful infrastructure position in the Deepwater. When you combine that with extended reach tiebacks which we're in the final phases of technical qualifications to significantly expand the tiebacks that we can do.
We can cover a lot of the Gulf of Mexico without necessarily needing new surface infrastructure and this allows us to begin to explore for accumulations that might not be economic on a standalone basis to For accumulations that might not be economic on a standalone basis to support a new Greenfield project, but that could be developed through drilling and tie back into existing infrastructures, platforms as, as All Ridge opens up.
And so it really enables a very different approach to exploration and I think a much higher return, shorter cycle, lower risk way to look at the next phase of development in the Deepwater Gulf of Mexico. Not to say we might not have some Greenfield projects, because certainly there could be circumstances where that becomes the right economic outcome.
I’d also point out that we -- we're an equity holder in a discovery that was just announced this week, the Blacktip Discovery, which Shell is the operator on encountered over 400 feet of net pay, it's about 30 miles away from Perdido and whale.
So we continue to see discoveries and we've got great strength in an area that has tremendous resource opportunity. And the challenge is to find ways to deliver it and generate better returns out of that.
Your question on the Permian royalty, what we've done is consolidated all of our royalties into an entity which allows us to manage that royalty with focus and efficiency and insure that as activity in the Permian continues to grow, and we have a strong royalty position that royalty is properly accounted for collected and managed. It certainly opens up options to do things that you've seen others do. I don't want to indicate that we would or would not do that. But it certainly positions us with an entity that could enable those kinds of alternatives if at some point we saw that as one that was desirable.
Great, thanks very much.
Thank you. Our next question comes from a line of Neil Mehta from Goldman Sachs. Your question, please.
Good morning team and Congrats, Pierre again on the new role. So the first question I had was actually on the oil macro. Two months away from the OPEC meeting. Prices have clearly been very firm here off bottom in 2019. Mike just wanted your perspective on some of the moving pieces as it relates to the oil macro. Has your view that we're an age of abundance fundamentally changed as you've had a more conservative worldview?
Or do you think price has been artificially lifted by OPEC cuts and how do you think about OPEC behavior from here, not asking you to forecast the price but your unique position to comment given the fact that you play across the value chain and you operate in some of these countries?
Yeah, so…
Let me give you my best shot on that one today, Neil. You know, global demand continues to be strong. We're seeing demand go up by, over a million barrels per day again this year, we had a very strong GDP number for the first quarter in the U.S., I think, surprisingly strong that has come out. Today. and, you know, we've consistently said that we don't see evidence of weakening around the world. We're across the value chain in many different products and many different geographies.
So, our economic growth looks solid and oil demand growth continues to march upward. You know, at the end of last year, as we saw some weakness, there were concerns about trade in China and economic activity and those have somewhat receded.
On the supply side, you've got the usual set of dynamics underway, right. We've got geopolitical issues with the Iran waivers not being extended, which creates the prospect of some tightness Venezuela continues to be very difficult, Libya is in and out of the news. And so you have some of the same things that create concerns and real tightness, in some cases on the supply side, and then you have OPEC plus the non-OPEC countries, which for the last couple of years, maybe three years or so have demonstrated the resolve to manage their supply in a way that's consistent with more stable markets.
You throw on top of that commentary from the President, which again today, I guess he's out with comments about OPEC. And I think you still have OPEC in a place where they do play a role in creating a forward expectation on the supply side. And so in some ways the dynamics while the specifics of which countries might have supply issues and how the global demand picture rich countries might have supply issues and how the global demand picture shapes up. It's a story of forward expectations on supply and demand and then the geopolitical overlay that can change that.
Fundamentally, we still believe that the world needs more of all types of energy and so we're in favor of renewable energy, we're in favor of conventional energy and economics markets and technology sorting out what the best mix is each country around the world. There is no shortage of resource to be developed. And so a cost matter and we continue to drive to be very competitive from a cost and supply standpoint. So I'm not I gave anything really brand new there, but that’s how I see it.
That's helpful. The follow up from our side is if we were to take the Anadarko transaction out of the equation, one of the concerns, some investors have expressed over the course of the year has been the Chevron have the portfolio that will drive in 2023 to 2028. And you kind of gave us some flavor of what that looks like at the Analyst Day post the Permian Ramp and post thingies what's the next wage of growth and sort of it begs the question was the Anadarko eventual transaction and all sense this transaction where a these types of transaction. So I just want to give you an opportunity to respond to that, because I think your view here is that you do have a standalone opportunities at independent transaction but certainly something that's been brought up by investors.
Yeah, absolutely, I said it in March, and I will say it. so again we do not have resource anxiety, we've been replacing reserves. We've got nearly 70 billion barrels of resource. We've given transparency on the production outcome for five years because people have wanted to see a longer view on that. And so you see this 3% to 4% growth now steadily being delivered over five years which is been difficult for companies to do consistently over an extended period of time at the scale that our company operates.
We're very confident that we can do that. and we stopped at five years just as a matter of convention not because we think there is a problem after that. And so unconventionals don't flatten out after that.
Our Permian position has got decades of resource not a few years. We tried to highlight our other shale and type resource position which are in the very early stages of development and continue to have very strong performance metrics and economics that our converging on Permian level economics which is really the goal that we've put in front of them. I've already talked on a call a little bit about deepwater where we've got Anchored Baltimore, Whale, Blacktip now.
We've got the ability to bring tie backs into a larger system or into the existing system, your question is ex the Anadarko transaction. We've got acreage in Brazil in Mexico in West Africa. So there are positions around the world and we've got, we're still operating in Venezuela where there is an enormous amount of resource and one day that will begin to be developed again. We got production offline and the partition zone.
I'll stop there but I'll simply say that the opportunities for us to invest in and develop resource that we hold today extends well beyond 2023 and it's a function of which projects competes the best for capital investments. A lot of short cycle stuff in there that is a pretty low risk and then there are some longer cycle things that are large and I think you'll see a blend of those deliver strong economic outcomes which is what drives our decision not production targets, but I think the cupboard is full not empty.
Thanks guys.
Thanks Neil.
Thank you. Our next question comes from the line of Blake Fernandez from Simmons Energy. Your question please?
Thanks guys good morning. Pierre I'm sorry to flag the buyback, but I just want to make sure I'm 100% clear on this. Is it fair to say 2Q buyback should essentially be zero and assuming that is the case, even when you ramp up to 1.25 per quarter, obviously than on a full year basis, we're going to come in below that $4 billion number due to Anadarko deal. Is that the correct way to look at it.
Yeah, essentially and let me just restate it. So yeah, the $4 billion guidance was -- did not anticipate the transaction or an acquisition at the time. There are two sort of restrictions that we're operating under. One is when we're in possession of material non-public information we're not allowed to buy back shares. Even if and when that clears itself there are other restrictions on buybacks when there is a business combination happening and equities being issued.
So you can't buybacks during the proxy solicitation are other limitations on buybacks versus historical rates. So we're just operating under a different regime here during the transaction. Post-closing absolutely we have talked about the gross debt ratio being below 20%. Lots of capacity to increase it. So there could be some buybacks but again the guidance is low or no buybacks in the second quarter and then when we get post-closing, we will be a able to achieve the guidance and won't be encumbered by restrictions tied to the acquisition.
Very clear, thank you. The second question is really on the Permian and the more on the gas side. I know you've worked a lot to get firm take away capacity on the crude side, Wahoo pricing is been really weak. Can you talk about, I guess what alleviation avenues you have on that side as far as take away or improving your price realizations as you continue to grow there?
Yeah, I will take that Blake and then Pierre might have some perspective as well. We have got take away capacity for all our production and so whether it's oil, NGLs or gas we are moving it and taking it to market. We are not engaged in routine flaring and would not intends to flare gas to enable production. And we had little bit of dry gas.
So if you don't have liquids right now, sometimes it's better just keep that gas in the ground for a better market. Our current production in the Permian is 75% liquids and 25% gas. We're focusing on liquid rich ventures, and as we described and you alluded to we been looking at take away capacity several quarters ahead of our production the entire time here.
I think what you've seen in the market is something that you should expect to see for a number of years in the future, which is you got a lot of people out there that are developing resource, you got a lot of people, investing in the midstream infrastructure and there are going to be times when those all sync up and you see pretty normal transportation type differentials and you'll see other periods of time where the market may anticipate some tightness and you will see the differentials widen out.
I know Wahoo has been pretty ugly here lately. Kinder Morgan's got some pipes that come online this year and next year, which would probably start to change that equation, you know, the Mexico market has been a little slow to come than people expected. And we got some Wahoo exposure in our portfolio, but it's not anything that is material in the scope of our company and I think we're, like I said we are well positioned on the take away capacity across all the commodities quarter production in the future.
Thank you.
Thank you. Our next question comes from the line of Jon Rigby from UBS. Your question please.
Thanks for taking my question. It's around the CapEx side and the capital side of the transaction actually. The first is something I don’t think has got enough attention is the high grading process that will that you intend to indulge in after the deal closes. I just wanted to explore that because as we think about -- as we start to look at the future combination, we need to think about what it is you might be doing around that.
So I just wanted to confirm whether you see that as part of the value proposition, there's actually value to be delivered through that disposal process of the portfolio management that you can do.
Second is whether that processes is already underway? And thirdly, whether you can maybe lift the curtain a little and give us some idea about not necessarily assets but the kind of thought that you have around the type of portfolio you'd like to merge with, the things that you will be, the criteria which will be using.
And then the second question if I would just add somewhat lengthy. The billion dollars of CapEx efficiencies that you identified as part of the transaction, can you confirm that those are about doing the same thing for less, rather than just ramping down activities so we just can't compare like-for-like. Thanks.
Okay, well, there is a lot in there, Jon. That was well done. So let me start with the portfolio and try to frame that up for you. And then I'll come to the capital.
You asked about the process, we've got an ongoing process where we look at and high grading our portfolio. You know, we've had $2 billion to $3 billion in assets sales kind of on average, over a long period of time. We're continuing, always looking to high grade that portfolio from a strategic alignment standpoint, the ability to compete for capital, what the assets are, that will allow us to compete and deliver strong returns into the future. And oftentimes those may not be the same ones that satisfied that criteria in the past.
As I thought last week, I mentioned to people if you go back about 15 years, when you think about our upstream portfolio, Tengiz was our real flagship asset. It was in the process of an expansion with SGI SGP that took 100% production from 350 to 650 or 7,000 barrels a day, our share of that was half. So we were on the way to the asset that we have today. And the Permian was kind of out of sight out of mind for most people.
Our Australia LNG projects had not been sanctioned, none of our LNG products have been sanctioned. And we were just beginning to move on off the shelf into the deepwater Gulf of Mexico. If you think about it today, in Australia, we're producing 400,000 barrels of equivalent at nice cash margins. Tengiz is on its way to a million barrels a day on 100% basis, our share half of that, so 500,000 a day.
The Permian we outlined is on its way to 900,000 barrels a day, our share and it doesn't stop when we get to that number. The Deepwater is with the combination the two companies is pushing close to 400,000 a day. So we now have four positions that have scale, that have resource depth and length, that have strong economics, that have lots of running room. And we have the ability to drive costs down and returns up through the way we manage and invest in those resources over time.
So it's a very different portfolio than when we would have had. Just one smaller asset and a lot of other ones that we’re required to have the scale to compete. So we need to take a look at the rest of our portfolio and determine those assets that really can’t still compete for capital and offer the low cost, high return characteristics, the resource length, and will compete for capital over time.
I hope you're still with us, Jon, it sounds like you might be back…
Yes, sorry. It's the classic timing of the annual -- the weekly test, apologies for that.
All right, I'll be quick so you can comply. So we got a different portfolio and we will look to make some decisions on those assets that really will compete for capital that offer the resource potential and the value for our shareholders over time, what those are we will disclose as we get into transactions.
The capital that we've indicated -- you should think of it as both reductions in spend between the two companies and efficiency in that spent. So we'll look at contracts and the ability to execute and drive capital efficiency into the system and also drive overall spend down, while at the same time investing more in the Permian, which is what we indicated our intention is to do. So we will squeeze capital out of the combined system, we will squeeze efficiency into the combined system. And we will find ways to accelerate activity in the Permian which will bring value forward.
And just to add, and we maintained a 3% to 4% guidance on production through 2023 as a combined company.
Right, cool. Thank you and I'm perfectly safe. Thank you.
Okay. I'm glad to hear that, Jon.
Thank you. Our next question comes from the line of Roger Read from Wells Fargo. Your question, please.
Yeah. Good morning. Hopefully, you can hear me and I don't believe there are any problems in the background right now. I guess, Mike kind of an unusual situation here in terms of the bidding and typically you put your teams together, you expect them to be very focused going forward. I was wondering in an environment like this, do you end up having to divert people's attention to dealing with what may be an ongoing process here in terms of the Anadarko bid. And then how do you think about managing your way through that, kind of keeping everybody doing the things they need to do, plus the team that's focused here on the merger and integration and all that stuff?
Look, I mentioned that we've put together joint integration teams already and that they met this week. And this isn't just a small group of people. This was a sizable group of people that spent multiple days together. And we've got a playbook for doing this. We did Unical a decade ago, Texaco a few years before that. We have some of the same people involved that lead those integrations. And and so, people have their eye on the ball and are focused on moving forward with things.
So just to remind everybody, we've got a signed deal that's been approved by both boards. And we're moving forward with integration planning so we can deliver value.
Okay, well, good luck on that. Maybe to flip back and actually think about the operations here. In the quarter. We saw a little lighter on the gas side globally, stronger on the crude side. Just curious how much of that is we had some unplanned downtime I believe in Australia with the LNG. As you look going for this kind of global mix between oil and gas and taking into account maybe some dry gas remain shut into the Permian for a while.
Yeah, I mean, I do think what you saw was primarily some downtime at one of the trends in Australia Gorgon. And because that's a bigger part of our portfolio now and we've got a train down for some work we will see that. The dry gas isn't a big number and so I wouldn't worry about that too much. There's also some weather in Australia that they create an impact. There's a cyclone that came through and we had to take some slowdowns at both Wheatstone and Gorgon, as we rode through that. So but those are really the things that are hitting the gas production.
Just real quick, if I could follow up on that, is there any plan downtime between Gorgon and Wheatstone we should consider as we look at the rest of the year?
Yeah, we're moving into normal turnaround mode now for both of those. The plan at Gorgon would be to only have one train down in any given year. And so our plan right now would be to execute train one on Gorgon later this year. The upstream in aggregate from a turnaround standpoint, the turnaround season begins really in the second quarter. You can think about the third quarter as probably the heaviest quarter because we'll have one of the KTL lines at TCO in turnaround there. And then as we go third into fourth quarter, you'll see one train at Gorgon down for a turnaround. But it's we're into the normal operations and turnaround cycle with LNG plants.
And Roger, this is Pierre. I mean, we generally will provide guidance if there's heavy upstream turnaround activity in the earnings call.
Appreciate that. Thank you guys.
Thanks, Roger.
Thank you. Our next question comes from the line of Doug Leggate from Bank of America Merrill Lynch. Your question, please.
Yeah, thank you. Good morning, everyone. Thanks for getting on the call. Mike. As you know, we are big fans of what you guys have done here, but I want to ask a little bit of a sensitive question, if I may. There's been some speculation, I guess, some fact checking in the press that given the Anadarko already had a bid in hands from Occi, as per their letter, they then went ahead and increased their change of control for their senior management. I wonder if you could speak to your opinion on that. And how what perspective you would offer in terms of perhaps the history of your, your discussions that may be led to that point. Obviously it's a little bit sensitive, but it's something that some shareholders are raising some concern about.
Yeah, Doug, there are numerous aspects of our negotiation in the deal that will be explained in the S4 filing, it is premature and inappropriate for me to comment on any of the aspects of how this all came together. I'd encourage you just to read the S4 when it's filed.
Okay, I knew it was going to be a tough one to answer. So I appreciate you trying. My more specific question to Gorgon [ph]. Obviously post deal, those are going to be a very significant tailwind from synergies and all the things that you've laid out. One assumes that if you did match the higher bid, does that change anything by way of your buy plans, that would then go through that to any of those kind of issues. And what I'm really getting at is that if for some reason you did hit a high bar or you did not decide to move forward and not event I realize it's unlikely, but the bulk of your future growth due to '2023 is largely it looks like a lot of it is coming from Permian gas.
So I'm just curious how absent this deal, would you be able to sustain the buybacks and commit to a strong growth trajectory for dividends? And I'll leave it there. Thanks.
Yeah, I'm not going to speculate on what Anadarko’s Board may do and how that plays out. I'll just tell you in our base case, we produce 75% liquids in the Permian. So it's not primarily gas. We've indicated that we expect to see our industry leading cash margins sustained as the production grows.
And that we've initiated a buyback program that we intend to stick with through any reasonable commodity price environment. And so there are not risks to the cash that would support shareholder distributions here in the vein of what you're talking about. So we're very confident in the plan we've laid out and our ability to deliver.
Thanks, Doug.
Good luck. Thanks.
Thank you. Our next question comes from the line of Sam Margolin from Wolfe Research. Your question please.
Sam. Might be muted.
Can you hear me now.
Yes, we can.
Just muted. Sorry about that. I just have a quick question. We've been through a lot on the Anadarko topic already. I've got a question for Pierre, a follow up to the TCO topic earlier. You know, if TCO keeps taking up the co-lending program, theoretically, it's to preserve dividends. But if that's happening at the same time that commodity prices are broadly higher than what was planned for, does that flow into the Chevron Capital program as sort of like a net cash surprise or is the authorization part of your sort of free cash flow outlook and it's not dynamic what TCO decides to do?
And then just as a follow-up, like if it's the former, does Chevron then have headroom to rotate cash at the Chevron level into other things like Permian, incremental Permian, for example.
Yeah, thanks. No, the financing doesn't impact capital, how we characterize capital. So the capital is going to be what is invested in the project. Again, that's affiliate capital. So non cash capital. What can vary is where I thought you were going is if prices are higher than there's clearly more cash generation within TCO and therefore their ability to balance making investments and paying dividends is easier. And you might pull less on the loan. So again, we're giving guidance on the financing but it is subject to prices -- level of investments that are happening and the level of dividends. All of those are in interplay.
But if prices stay higher, longer than that gives them more flexibility to either decrease the lending or the borrowings or increase the dividends. In either case, that's more cash to the company, it shows up in different parts of the cash flow statement. But in either case, does not affect CapEx.
Okay, yeah, that's why I was asking because it sounded like there was a potential outcome where TCO is self-funding and inclusive of the dividend, but they still uptake the co-lending, in which case, you've got like surplus cash, but I guess it's not, it wouldn't affect anything else. So okay. All right, thank you very much.
Thanks, Sam.
Thank you. And our final question for today comes from the line of Jason Gabelman from Cowen. Your question, please.
Yeah, thanks for taking my question. I'm not going to ask about the Anadarko, deal, because it seems like it's been covered on the call. I want to actually ask about what's going on in California right now, just given you guys are -- have a pretty big footprint in the state Congress is in the process of reviewing a bill to kind of institute a change in how oil production goes on there, kind of the setback rule similar to what Colorado tried to put forth. I'm wondering, what do you see as potential risks, if any, to your portfolio in the state, both on the refining side, and the production side, relative to that regulation? Thanks.
Okay. Jason. Yeah. So California has pretty aggressive ideas on regulating our industry and what you referred to is AB 345 which is in the assembly right now, wouldn’t impact downstream at all. It's really -- you think of it is analogous to what has been going on in Colorado and the primary concern is setbacks for activity. Our portfolio in California is primarily in the San Joaquin Valley and it tends to be an area where it's not populated the same way the LA basin is, which is where historically there was a lot of the roots of our company and a lot of the industry trace their way back into the LA basin.
And so there you got a much more densely populated urban and suburban land-use metrics and concerns about the proximity of drilling activities to residential schools commercial et cetera is really what's behind this.
So we're working closely with state government to ensure they understand the impacts, others in industry and trade associations are as well. And so it's prospective legislation that is being considered here. It really impact permitting for new wells doesn't impact things that are already in production and we get a big producing business that's online today and then I think our portfolio is in part of the state that would likely be less impacted than if our production were more heavily concentrated into the LA basin.
Okay, thank you very much. Jason I think we are right about the top of the hour here and I know everybody's busy on a Friday. So want to thank everyone for your time today. Appreciate your interest in Chevron and your participation on the call today.
Jonathan back over to you.
Ladies and gentlemen, this concludes Chevron's first quarter 2019 earnings conference call. You may now disconnect.