Chevron at Piper Sandler Energy Conference: Optimistic Cash Flow Outlook

On Tuesday, 18 March 2025, Chevron (NYSE: CVX) presented at the Piper Sandler 25th Annual Energy Conference, where CFO Emer Bonner outlined the company’s strategic vision. Chevron expects significant free cash flow growth, driven by key projects and efficient capital allocation. While optimistic, the company remains vigilant about maintaining its strong balance sheet and shareholder returns.

Key Takeaways

• Chevron anticipates an additional $10 billion in free cash flow by 2026 at $70 per barrel.
• Capital expenditure is projected between $14 billion and $16 billion annually, focusing on capital efficiency.
• The company is targeting $2 billion to $3 billion in structural cost reductions over the next few years.
• Chevron is exploring power deals with GE and Engine No. 1 to support data centers.
• The company plans to maintain Permian production at 1 million barrels per day through 2040.

Financial Results

• Free Cash Flow Inflection: Chevron projects $10 billion of incremental free cash flow by 2026 if oil is priced at $70 per barrel. The Tengiz project (TCO) is expected to contribute $3 billion, while the Permian Basin and Gulf of Mexico will add $2 billion each.
• Capital Expenditure: Last year, Chevron spent $16 billion on capital expenditure. The long-term guidance remains between $14 billion and $16 billion annually. The company emphasizes achieving greater capital efficiency, having grown by 7% with less than half the capital spent a decade ago.
• Shareholder Distributions: The anticipated cash flow supports Chevron’s priorities of increasing dividends and returning excess cash to shareholders.

Operational Updates

• Tengiz (TCO): The project is complete and expected to add $3 billion in free cash flow. The ramp-up is on schedule with no production interruptions.
• Permian Basin: Chevron plans to moderate growth, transforming the Permian into a cash flow generator, contributing $2 billion in incremental free cash flow.
• Gulf of Mexico: Production is set to reach 300,000 barrels per day by 2026, with projects like Anchor and Whale already online.
• Power Deal: Partnering with GE and Engine No. 1, Chevron is investing in power deals to support data centers, aiming for double-digit returns.

Future Outlook

• Permian Production Plateau: Chevron intends to maintain Permian production at 1 million barrels per day until 2040.
• M&A Strategy: The company is open to acquiring valuable assets and is interested in increasing its stake in CPChem.
• Emerging Technologies: Chevron is investing in new energy businesses focusing on emerging technologies.
• Global Assets: Exploration and development efforts are ongoing in the Eastern Mediterranean and Argentina.

Q&A Highlights

• Hess Shares Purchase: Chevron acquired around 5% of Hess shares in the open market, demonstrating confidence in shareholder value creation.
• OPEC+ Impact: Chevron has not faced production cuts due to OPEC+ actions, maintaining strong revenue contributions in Kazakhstan.
• Trump Administration: Positive dialogues continue, with no significant impacts from tariffs and awaiting implications of the IRA.

For a detailed discussion, please refer to the full transcript below.

Full transcript - Piper Sandler 25th Annual Energy Conference:

Unidentified speaker, Interviewer: Good morning, everybody. We’ll keep this going. Kicking off with the first fireside chat of this year’s Annual Energy Conference. And we’re lucky enough to have, Emer Bonner here with us, the CFO of Chevron. So thanks for being here.

Emer, this is great. I know this is I know the Vegas conference has a fun place in your heart.

Emer Bonner, CFO, Chevron: It’s a place in my heart, yes.

Unidentified speaker, Interviewer: I think we’ll kick it off with the first question that changed for us over the last twenty four hours, which is that this week at the start of the conference, you surprised the market a little bit with a relatively unusual announcement that you purchased about 5% of the shares of Hess in the open market. So can you maybe walk us through this decision?

Emer Bonner, CFO, Chevron: Yes, sure. Well, I mean, we saw this as an opportunity to create value for shareholders by purchasing the Hess shares at a significant discount to the implied price as per the exchange ratio in the merger agreement. So it was an opportunity to create value. The timing in the first quarter, we wanted to build a position 4.99% position. We wanted to do that over a course of a number of months and be able to disclose it and talk to our investors about it.

So that was the thinking around the timing on the first quarter. The action also underscores our view, our confidence in the successful arbitration outcome. So those are the things that played into the decision.

Unidentified speaker, Interviewer: Thank you. So let’s talk in my commentary at the start, I talked about free cash flow inflection, which I think the there’s an interesting position for the group right now where there’s a pretty significant free cash flow inflection across many of the companies and you are one of the leaders in that with the very significant I think you’ve talked about roughly $9,000,000,000 to $10,000,000,000 depending on the commodity price inflection and free cash flow over the next couple of years. Can you walk us through maybe the primary drivers of that free cash flow inflection, maybe your confidence in realizing that significant jump?

Emer Bonner, CFO, Chevron: Sure. So the incremental $10,000,000,000 of incremental free cash flow is at $70 a barrel and nine at $60 So that explains the range. So the key drivers, three major upstream catalysts and then kind of a collection of things. Let me talk through the three upstream catalysts maybe to begin. First is TCO.

We completed the project earlier this year finally, so we’re really pleased with that. And so we expect an incremental $3,000,000,000 of free cash flow to come from TCO. So that’s coming from increased production and less affiliate CapEx as the projects now complete. So that’s the first driver. The second one comes from Permian.

Permian has been growing at double digit levels over the last five years. As we look forward, Permian will still grow, but we will moderate that growth and Permian will become more of a free cash flow generation machine for us in the company. And so we anticipate another $2,000,000,000 of incremental free cash flow from Permian. That’s the second upstream catalyst. And then third is Gulf Of America.

We have a number of projects that have completed recently. We have Anchor online, we have Whale online, we have Ballymore starting up this year. And putting that together, we’re going to grow production to 300,000 barrels a day by the end of twenty twenty six. So we anticipate another $2,000,000,000 of incremental free cash flow from Gulf Of America plus or minus, there might be a little bit more upside there as well. So that’s 7,000,000,000 and then the balance of $2,000,000,000 to $3,000,000,000 really comes from a collection of improvements in our downstream and chemicals assets.

So they’ve got some ongoing reliability and margin enhancement improvement work underway. We have a structural cost reduction effort underway as well. We announced that last year. And then we have some cash flow that obviously left the system when we divested assets. So the combination of those three is the final $3,000,000,000 So that’s how we walk to the $10,000,000,000 of incremental free cash flow by 2026.

To your point in confidence, when we look at the catalyst, I mean, a lot of the projects have been derisked. They’re now online, TCO is online, Anchor is online, Wales online. And so our confidence is high given that a lot of the peak construction and complex work is behind us.

Unidentified speaker, Interviewer: All right, perfect. And what is this inflection in free cash flow as that grows over the next couple of years? What does that mean for I think you’ve talked about your state of priorities are growing shareholder distributions and a strong balance sheet. So what does that inflection mean for those priorities?

Emer Bonner, CFO, Chevron: Yes. The inflection just supports all of those priorities. So I mean, we are confident that we can deliver on all of the four. We can grow the dividend. We can invest in the right projects in the business, we can maintain our strong balance sheet and we can return excess cash to shareholders through the cycle.

So the inflection underpins the actions that we have today consistent with those financial priorities and what we intend to do going forward.

Unidentified speaker, Interviewer: Okay. Thanks. Let’s focus in on one of the projects that you mentioned there, which was Tengiz. Obviously, it’s been a number of years in the making, big startup, which I think has gone well over here at the early part of this year. Can you maybe give us an update on operational update?

How is the asset performing? I know that it provided the opportunity to do more of a fulfilled optimization for the entire Tengiz project. So what have you seen so far today? How is the ramp going?

Emer Bonner, CFO, Chevron: Yes. Well, the ramp is going as expected. I mean, we guided two, three months of a ramp to give us adequate time to obviously monitor all of the new equipment, do all the performance testing and get comfortable with this new significantly large complex operation. So everything’s going well with with the ramp. No surprises there.

You know, when we look at all the pieces and the performance of the reservoir, the performance of the wells under a new pressure regime, the performance of all the systems at surface, no surprises there. So everything is working together and as expected. And the reliability of the WPMP system, which has almost been online for a year now, has been very strong. So overall, we feel good about the operation. Your point on asset optimization, as part of the FGP project, we also constructed an integrated operation center that allowed us to integrate the control of all of the assets.

So we have the KTL assets that are Soviet legacy assets. We have the SGP second generation that’s about fifteen years old and now we have the new plant. This integrated operations center took the independent plants that were controlled separately into one operation center. And that’s allowed us to optimize, keep the plant full, look at how do we remove the constraints in the plant and ensure that we maximize production. It’s also giving us analytics around how the new system is working and that’s going to be very informative as we look forward and optimize the asset for the long term.

Unidentified speaker, Interviewer: Great. Thanks. Maybe further, I would say one concern that investors have, you’ve had some headlines in the news, is on the ability to I guess the risk to Tengi’s production or Kazakh standing production from some of the headlines you’ve seen out there. So can you maybe walk through how you view risk either from CPC pipeline capacity or specifically from OPEC plus sanctions and where you think there might be risk to the production volume ramp there?

Emer Bonner, CFO, Chevron: So we haven’t observed any interruptions in light of the damage to the pump station that’s been in the news over the last month. So we are continuing with our ramp and our production is exported by the CPC line and there’s been no interruptions there. So that’s CPC. In terms of OPEC plus, I mean historically we’ve never experienced cuts. As a reminder, we have a tax and royalty contract in the country and so we are a significant contributor to revenue for the country, so high margin, high value barrels.

And so we have not had seen any interruptions in light of OPEC plus as well.

Unidentified speaker, Interviewer: Okay. So in the risk of curtailments, do you think Tengiz is the last man standing? Is that kind of the

Emer Bonner, CFO, Chevron: Well, historically, we’ve never seen those cuts. Okay.

Unidentified speaker, Interviewer: So maybe taking a step back at a high level, as we think about your sources and uses of cash, over recent years, you’ve highlighted really impressive capital efficiency across your portfolio. And you spend, I would say, well below average, little over 40% of your cash flow is allocated to capital spend, with remainder going to shareholder disputing students and balance sheet over the last five years. So a number which potentially would move even lower over the next couple of years as the free cash flow generation increases. So at a high level, how do you think about what is the right amount of capital to invest in the business? Everyone has lowered the capital budget over the next couple of years in terms of the capital budget guidance.

What’s the right number? And on the downside is, is there a risk that that number falls too low? And how do you think about balancing that?

Emer Bonner, CFO, Chevron: Yes. Well, maybe first of all, we have a very deliberate and balanced approach to capital allocation. And as I mentioned previously, it’s guided by our financial priorities. So your points on and capital efficiency are fair. When we look at our ability to sustain and grow the enterprise, we’re doing that with less capital.

An example would be ten years ago, I mean, our capital was 40,000,000,000 and last year it was 16, so less than half of that. We’re still able to grow the company by 7%. So there is a capital efficiency story there. We intend to bring capital down further in 2025. Projects are completing and we’re also seeing a lot of efficiency in our big operations.

Permian would be one of those examples and we’ll still grow by 6%. Over the long term, depending on where we are with our short cycle, long cycle projects, I mean, we anticipate guidance to say somewhere between £14,000,000,000 and £16,000,000,000 So that’s how we look at it over the long term. We don’t really have a target for reinvestment. We have to balance what projects we have, but we think that range is sufficient because it will move around a little bit. And we’ll continue to expect capital efficient investments to deliver value and we’ll do that consistent with our financial priorities.

So we don’t believe that we’re under investing. We’re able to meet all of the financial priorities and do that in a competitive way with the capital that we’re standing today.

Unidentified speaker, Interviewer: Great. Thanks. Let’s talk about one area of deployment of capital, which is a little bit new for you, which is this power deal that you announced recently. You announced a pretty interesting obviously, everybody loves to talk about AI and data centers and hyperscalers and stuff like that. But you announced an interesting deal to support the build out of data centers entering into partnership with GE and engine number one.

Can you maybe talk about what attracted you to this type of deal? What gives you confidence that you can generate an attractive rate of return and something like this? And what makes this strategy unique or advantage to you?

Emer Bonner, CFO, Chevron: Yes. Well, I think in this one, we think of this as aligned with what we said that we would do when we stood up our Chevron new energy business and we had a number of focus areas and one of the focus areas was emerging technologies, emerging businesses and so this opportunity came about through our work on that. When you think about the partnership, we’re all bringing strength to the partnership. It is unique. We’re bringing technical expertise around designing, operating reliably, you know, power plants or power facilities because we have to provide power in our remote locations around the world and we’ve got four gigawatts of power operating every day.

So, you know, we bring that. Obviously, engine number one brought the turbines. They had reserved turbines. They were early in the queue. And then GE, their expertise on fabricating the equipment.

So when you bring that together, we’re able in a unique way to provide this behind the meter 20 fourseven reliable power for data centers and there’s great demand for that from customers. So it was, you know, a business that demands what we do and that’s what attracted us to it. In terms of the returns, look, we have a few things to work through before we take a final investment decision on, you know, this project or a set of projects. We’ll be expecting long term contracts with customers, so PPAs, to underpin, you know, the economics and our investment. And so we look to see that.

We’ll secure those. We’re working with urgency today on securing those. And we would expect the project to generate double digit returns and compete within our portfolio with everything else, all the other choices that we have. So this has to fit. It doesn’t get a free path.

So that’s what the team is working on and moving forward with location choices and customers so that we can advance an FID decision. So stay tuned.

Unidentified speaker, Interviewer: That’s great. And is this something where there is a potential opportunity for additional developments down the line? Or is this more of a one off that was kind of a unique situation? Yes.

Emer Bonner, CFO, Chevron: I think we’re optimistic about what it could potentially grow to, but we’ll take each one at a time.

Unidentified speaker, Interviewer: Great. Let’s talk a little bit about the Permian. Your Permian operations have been performing very well of late. Can you maybe talk about what you see as some of the drivers of capital efficiency going forward, either in terms of well productivity or drilling and fracking efficiencies? And then maybe with that in mind, Permian CapEx is a little bit lower in 2025 versus 2024.

How do you think about the potential for that CapEx to fall further over the next couple of years?

Emer Bonner, CFO, Chevron: Yes. The story in the Permian is kind of an incredible story of innovation and efficiency across the entire factory. So if we break it down into drilling, completion and production, we’ve seen efficiencies over the last few years in all of those areas. For example, when we look back at our plan five years ago and the rig count that we had in our plan, the end of support million barrels a day business, we’re delivering that today with 40% less rigs than we thought five years ago. So the drilling efficiency has been significant.

And then we move to completion of the wells from a completion perspective. We’ve been able to use different technology to frac well simultaneously. We can’t apply these solutions across all the development areas, but where we can apply, simul frac and triple frac, we’ve applied those. So frac in parallel has also enabled us to deliver significant efficiencies on the completion side. And then from production, we’ve been working on moving more oil out of the rock in the subsurface through proprietary technology and pilots and innovation over the last couple of years and we’re seeing early good results there, but we’ve also been using secondary recovery technology, enhanced gas lift will be an example to get the most production out of the wells too.

So when you put all of that together in a factory, we’re able to grow Permian with less capital and get more and more efficient and that’s why we feel confident that with the growth plans that we have with Permian going forward, which is moderated relative to the last few years, that we can do that with reduced capital. And that’s why you see our capital is going down this year and we intend to reduce that further into 2026.

Unidentified speaker, Interviewer: Great. Thanks. And I guess as you we often get questions about I know you’re kind of at or quickly approaching this million barrel a day production plateau. Why is that the right number? Can you I mean, how long do you think you can hold that plateau?

And how do you think about kind of shale and tight production within the entire portfolio as you think across your businesses now?

Emer Bonner, CFO, Chevron: Yes, sure. Well, our plan was always to get to 1,000,000 barrels a day and hold for a long period of time and position Permian to be a core asset within the portfolio that generated cash. And so we’re there and we guided to that several years ago. In fact, we had higher guidance. We had guided to 1.2 plus.

But since the earlier guidance, we also have the DJ that produces another 400,000 barrels a day. So two pretty significant U. S. Shale assets. And so we feel that that level of production is sufficient given the other assets that we have in the portfolio and that we’ve got a significant amount of our production coming from shale and tight assets.

So that gives us the opportunity to use that cash to invest in other asset classes. So that’s why we feel comfortable with the total production coming from our shale and tight assets in The U. S. And how

Unidentified speaker, Interviewer: long do you think you can hold the Permian at around 7,000,000 barrels a day?

Emer Bonner, CFO, Chevron: Yes. We guided and shared our inventory outlook and so we intend to hold that flat right through to 02/1940.

Unidentified speaker, Interviewer: Great. And as maybe if we shift gears a little bit to M and A remains highly topical within the sector. You’ve been an active participant in both directions, both the acquisitions and divestitures in recent years. In the past, you’ve expressed interest in consolidating your position in CPChem, as I think your partner has probably said the same thing. There’s obviously increased pressure on your partner to potentially do something there.

Can you talk to maybe how you think about the potential to increase your stake there? Is that attractive? And then maybe even more broadly about how do you think about your role as a potential consolidator in the industry?

Emer Bonner, CFO, Chevron: Okay. There’s a lot there. Maybe first of all, from an M and A perspective, look, we’re always looking to add good resources or assets at good value. It’s an evergreen activity that we have in the company. To your point on chemicals, we have two big projects in execution currently, one in Qatar and one in The Gulf Coast.

CpCAM cracker projects are about 50% constructed. And so we would be interested at the right price in more chemicals, but at the right price is always the question there. We do have a constructive view of chemicals and we do believe margins will improve back end of the decade and there’s growth in the business underpinned by GDP growth in Asia in particular. And so it is something that we would be interested in, but it has to be at the right price. The assets have to then complete for capital within our portfolio.

So that’s how we’re thinking about chemicals these days. I mean, we have a history of disciplined M and A, so we’re picky. We’ve brought things into the portfolio that have made sense that were assets where we could deliver synergies, create value for shareholders, but we’ve also walked away when things haven’t been at the right price. So we’ll continue to be very disciplined with M and A. And right now, we’re focused on obviously our big transaction and closing Hess and bringing both of those companies together.

Unidentified speaker, Interviewer: Great. Maybe let’s talk about structural cost reductions. You mentioned earlier in kind of your free cash flow waterfall bridge that you were talking about. You’ve guided at $2,000,000,000 to $3,000,000,000 of structural cost reductions. You’ve announced some pretty significant headcount reductions that have been out there in the news.

Can you maybe talk about what are the primary buckets or drivers of that $2,000,000,000 to $3,000,000,000 and how what’s the timeline and how we can think about how the market can think about relative confidence in achieving those cost reductions?

Emer Bonner, CFO, Chevron: Sure. Well, the $2,000,000,000 to $3,000,000,000 cost reductions that we announced in the third quarter call is the next program aligned with our focus on always being disciplined when it comes to capital and costs. So the $2,000,000,000 to $3,000,000,000 these are structural cost reductions over the next few years, while we significantly grow. And there’s three main focus areas that we’re targeting. The first relates to divestments or assets that we sell to ensure that those costs leave the system quickly.

And so the billion of the billion to billion is associated with that. And those costs will leave the system this year. So in terms of our confidence, we believe we’d be able to deliver at least that this year. The second focus area is really around technology, where we can deploy technology solutions to do work faster, to do work safer and less with lower cost. We’ve got a number of examples across the company where we scale technology solutions to do things that typically would have involved large teams.

An example, there would be the use of digital twins to plan turnarounds and the upfront work for an event versus having to deploy a lot of teams on the ground to do that. So second focus area, there’s about GBP 1,000,000,000 of opportunity in technology related applications. And then the third billion is associated with the restructuring of the organization. And this looks to the work that we do to support the business and where the work gets done and whether we can do the work differently. And so the reorganization and rewiring of the company brings like assets together and then to support those assets, we will put in place more standardized and more centralized teams that work on standardized workflows to support that business and that will give us efficiency.

And so some of the reductions that we shared are associated with the consequences of making those structural changes and changes to the high support is provided to the business.

Unidentified speaker, Interviewer: Great. Thanks. A couple more. The first couple of months of the Trump administration has certainly generated a lot of headlines, decent amount of volatility. Other than adopting the Gulf Of America, which I noticed that you’ve done.

Can you maybe talk about what you think are some of the potential impacts to your business, positive or negative, whether it’s tariffs, credits as part of the IRA, improved permitting, etcetera, what any thoughts on where we’re going from here and what the impact could be?

Emer Bonner, CFO, Chevron: Yes. Let me start with the last point on permits. I mean, we’re quite encouraged by the conversations and actions that are being taken to understand where the permitting bottlenecks are. And so we’re encouraged, we’re encouraged there by the efforts on permitting and we’re expect some change will follow. On tariffs, we don’t see material impacts from tariffs.

So if we look at our feedstock for refineries, there’s less than 10% that comes from Canada or Mexico and we have alternatives. So we don’t think that we’re particularly exposed there. On the supply chain side, when we look at our U. S. Assets, our two big operations, a lot of the tubulars that we use for our drilling and completion operations are sourced in The U.

S. So we’re not materially impacted there. So from kind of the base business, traditional business, we’re not very exposed. The IRA is maybe kind of a different scenario. We are waiting to understand the implications of that.

I mean, your colleague talked about that just in his opening comments. So we’re just looking to see what that means for renewable fuels. We’ve got an expansion underway for hydrogen. We’ve got a green hydrogen project that’s starting up this year. So fortunately, we haven’t deployed a lot of capital in these projects.

We haven’t invested in projects that rely a lot on the credit. And so for that one, it’s more we’ll continue to be disciplined in light of the uncertainty there.

Unidentified speaker, Interviewer: Has the dialogue changed? I know under the last administration, sometimes there was less dialogue between companies such as yourselves? And have you noticed any change in the dialogue out of Washington over the last few months?

Emer Bonner, CFO, Chevron: Well, I think we’ve had a lot of opportunities. Sarah Week last week was one of them to engage with some of the new members of the administration that work on our business and enabling our business. So the dialogue there has been really positive so far.

Unidentified speaker, Interviewer: Sure. Thanks. Maybe one last one. If we do if we touch quickly on a few of your global assets, I mean, assets maybe we may not talk quite as much about in your portfolio. If we look around Eastern Med, Gulf Of America, Argentina, Venezuela, any updates on what’s interesting or exciting as we think about the next year or two?

Emer Bonner, CFO, Chevron: Yes. Well, I mentioned in previous comments about our chemical projects. So I think those are exciting and those will complete end 2026, ’20 ’20 ’7, Our power project, that’s also exciting. But on the upstream side, we’ve really got three areas that I would point to. First is Eastern Med.

We have some ongoing brownfield projects ongoing in both Tamar and Leviathan. Right now that will increase production by 20%. But we also have an expansion opportunity with the Leviathan platform and we’re looking at different concepts. We anticipate an FID decision later this year there. So there’s growth in Eastern Med.

And then on top of that, we’ve recently announced the agreement that we’ve aligned with the Cypriot Egyptian government around how to develop Aphrodite, which is also in that region and we’ve got ongoing exploration in Egypt. So I think the growth in that area is interesting and something that we’ve been positive about. The second one is Argentina. We’ve got peace developments there, both NOJV operated developments in Guacamurta and we are encouraged by the recent reduction in inflation, the reduction and relaxation of some of the capital controls and have participated in an export pipeline as well in the country. So I think Argentina is an area that we’re encouraged by the recent developments and there’s a lot of potential in the subsurface there so that could feature more in our future.

And then on the exploration side, we have significant efforts underway to reload the portfolio to build acreage and to drill not only exploration wells within tieback distance to existing facilities. Those opportunities would be low cost tieback development, but we also have 20% of our portfolio looking at frontier exploration prospects too. So those would be the three things in upstream as we looked to growth beyond 2026 that we’re excited about.

Unidentified speaker, Interviewer: Okay. Perfect. I think that’s all the time we have. We really appreciate you being here today, EMI. Thanks.

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