Environmental and societal stewardship have been trending the last couple of months across the oil and natural gas industry, but Chevron Corp.’s executive team made clear Tuesday that those concepts already are deeply ingrained throughout the 45,000-member workforce.
During the annual security analyst meeting, CEO Michael Wirth shared the business outlook for the next five years, illustrating the broad mix of U.S. onshore opportunities centered in the Permian Basin, deepwater opportunities in the Gulf of Mexico (GOM), and the bevy of overseas ventures that include two massive liquefied natural gas export projects in Australia.
A consistent theme ran through each executive’s presentation, centered around environmental, social and governance (ESG) initiatives.
“Our approach delivers greenhouse gas reductions in the short term while making investments in potential future breakthrough technologies for the long term,” Wirth said. “Chevron has the scale, capability and balance sheet strength to advance the innovations that will play a significant role in the future of energy.”
The CEO made clear to the audience that ESG is integrated throughout the global operations, “with an emphasis on the actions we’re taking to be part of the solution when it comes to climate...These priorities are deeply rooted in who we are and what we value the Chevron way. And we’re taking action.”
Chevron was the first of its Big Energy peers, he noted, to issue a report based on the Task Force on Climate-Related Financial Disclosures, or TCFD, which is developing recommendations for voluntary climate-related financial disclosures for lenders, insurers and investors.
Acknowledging investors’ growing interest in stewardship, CFO Pierre Breber said a new sustainability portal on the company website covers the ESG efforts, a “one-stop shop for all of Chevron’s stakeholders to learn more about our approach to sustainability,” as well as actions undertaken to achieve the goals of the United Nations climate accord, aka the Paris Agreement, reached by nearly 200 countries in late 2015.
“We have three focus areas to address energy transition in a simple overriding philosophy that what we do has to be good for the environment and good for our shareholders,” Breber said.
The first focus area is to lower carbon intensity using reduction metrics. The targets are based on equity ownership not operatorship.
“Across the company, we’re tackling the most cost efficient opportunities, reducing the most carbon at the lowest cost,” said the CFO.
Chevron also is increasing renewables in support of the business, which he called an important distinction.
“We’re not pursuing renewables as a separate business because we see more value in connecting renewables with our core operations,” Breber said. “So whether it’s wind power in the Permian or solar to our steam floods or biofuels in California, our renewable activities support our primary upstream and downstream businesses and do so economically.”
Chevron also is investing in future technology because addressing climate change will require technology breakthroughs, said the CFO.
Chevron has a $100 million Future Energy Fund to work on solutions. It also is part of the $1 billion joint industry Oil and Gas Climate Initiative, which among other things is working to boost large-scale commercial carbon capture, use and storage worldwide.
Executives also promised disciplined capital spending, improved cost efficiency and continued cash flow growth over the next five years.
“Chevron has a winning investment proposition,” Wirth said. “We believe our advantaged portfolio and capital efficiency enable us to grow cash flows and increase returns without relying on rising oil prices. Through continued execution of our strategy, Chevron has the potential to distribute $75-80 billion to shareholders over the next five years.”
Higher returns would be driven primarily by a $2 billion target for cost and margin improvements as well as short-cycle, capital efficient investments. The company also expects 9% compound annual growth in adjusted operating cash flow/share through 2024 while holding annual capital spending to $19-22 billion.
“We remain focused on a returns-driven approach to capital allocation, investing in lower-risk projects that should drive solid earnings and cash flow growth,” Breber said. “As a result, we expect return on capital to exceed 10% by 2024 at flat $60 Brent nominal prices, an improvement of over 300 basis points.”
Chevron increased its dividend by 8% for 2020, and it expects to buy back $5 billion of shares. “Execution of our strategy is positioning Chevron to return more cash to shareholders, today and into the future,” Wirth said. “Even with price volatility, we have the capability to deliver leading dividend growth and sustain our buyback program well into the future.”
The lower-risk capital program is centered around the legacy Permian Basin position, as well as a major expansion in Kazakhstan, and a queue of deepwater opportunities in the GOM and beyond. Compound annual production growth is forecast to exceed 3% from 2019-2024, excluding any potential asset sales.
“Our long-term production profile is strong and growing,” upstream chief Jay Johnson said. “We have a deep unconventional resource base and expect to see sustained production over 1 million b/d in the Permian through 2040 at relatively flat activity levels.
“Our experience and technology edge in the deepwater should enable continued development in the Gulf of Mexico, Brazil and West Africa, and we have long-lived, low-decline assets in Australia and Kazakhstan. On top of this foundation, we have additional organic opportunities already in our portfolio that could attract future capital and deliver upside.”