Good morning. My name is Jonathan, and I will be your conference facilitator today. Welcome to Chevron's First Quarter 2014 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.
As a reminder, this conference call is being recorded. I would now like to turn the conference call over to the Vice President and Chief Financial Officer of Chevron Corporation, Ms. Pat Yarrington. Please go ahead.
Okay. Thank you, Jonathan. Welcome to Chevron's Q1 earnings conference call and webcast. On the call with me today is Jeff Gustafson, General Manager for Relations. 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. We ask that you review the cautionary statement on slide 2. Slide 3 provides an overview of our financial performance. The company's Q1 earnings were $4,500,000,000 or $2.36 per diluted share. Results are consistent with our earlier guidance where we highlighted specific negative impacts associated with foreign exchange and selected asset impairments and related charges, which totaled approximately $500,000,000 for the quarter or $0.26 per share.
Return on capital employed for the trailing 12 months was 12%. Our debt ratio at the end of March was approximately 13%. Turning to slide 4. Cash generated from operations was $8,400,000,000 during the Q1. Cash capital expenditures were 8,500,000,000 dollars On Slide 5, this week Chevron's Board of Directors declared a $1.07 per share quarterly common dividend payable in mid June.
This represents an 8% annualized payout increase. Since 2004, we have grown the dividend by a compound annual rate in excess of 10%, which leads the competitor group. In the Q1, we repurchased $1,250,000,000 of our shares. In the second quarter, to repurchase the same amount. We are committed to competitive, consistent and growing shareholder distributions.
This demonstrates the importance we place on balancing long term investor return objectives achieved through reinvestment in the business with near term return objectives achieved through distributions. It also reflects the strength of our balance sheet, our strong portfolio and our confidence in the cash generation potential of our growth projects. Turning to the next slide. We've incorporated 2 new slides into the presentation this quarter, which provide year on year comparisons consistent with our earnings press release. The first shown on slide 6 compares current quarter earnings with the same period last year.
1st quarter 2014 earnings were $4,500,000,000 approximately $1,700,000,000 lower than Q1 2013 results. Adverse foreign exchange movements accounted for $325,000,000 or 20% of the overall decline. You'll recall that foreign exchange movements for us are largely book translation effects with very little cash flow impacts. Upstream earnings were down $1,600,000,000 In addition to unfavorable foreign exchange impacts of about 225,000,000 dollars the deterioration reflected lower crude oil production and liquids realization and higher tax effects, DD and A and exploration expenses. Downstream results were essentially flat.
And the other segment reflected the impairment of a mining asset, which resulted in an approximate $265,000,000 absolute impact during the quarter and was offset to a large degree by lower corporate expenses. Turning to Slide 7. I'll now compare results for the Q1 2014 with the Q4 of 2013. 1st quarter earnings were $418,000,000 lower than 4th quarter results. Upstream earnings were down $545,000,000 with adverse foreign exchange movements accounting for 2 thirds of this decline.
The timing of liftings was a second significant contributor to Upstream's quarter on quarter deterioration. Downstream results increased by $320,000,000 with nearly equal improvements noted in the U. S. And the international segments. The current quarter had favorable impacts from lower operating expenses, stronger chemical results and positive foreign exchange movements, all of which more than offset the adverse volume effects of a heavier turnaround schedule.
The variance in the other bar largely reflects the impairment of a mining asset, partially offset by lower corporate expenses. Jeff will now take us through the comparisons by segment. Jeff?
Thanks, Pat. Turning to Slide 8. Our U. S. Upstream earnings for the Q1 were $109,000,000 higher than 4th quarter's results.
Higher realizations increased earnings by $130,000,000 dollars mainly due to the rise in U. S. Natural gas prices. Overall liquids realizations also rose in large part reflecting crude pricing strength on the West Coast. Lower production volumes primarily in the Gulf of Mexico reduced earnings by 50,000,000 dollars The other bar reflects a number of unrelated items including the absence of year end LIFO losses and lower exploration expenses, partially offset by higher DD and A.
Turning to slide 9. International Upstream earnings were $654,000,000 lower than last quarter's results. Realizations decreased earnings by 50,000,000 dollars consistent with the decline in Brent prices between quarters. The timing of liftings across multiple countries decreased earnings by 235,000,000 Year to date, we are approximately 4% underlifted, which as you know should reverse in the coming quarters. Lower exploration expenses increased earnings by $190,000,000 mainly driven by fewer exploration well write offs and overall lower geological and geophysical expenses across multiple locations.
An unfavorable swing in foreign currency effects decreased earnings by $355,000,000 The first quarter had a loss of about $55,000,000 compared to a gain of $300,000,000 in the Q4 of last year. The tax and other bar reflects unfavorable tax effects, many of which were non income related. This quarter's results include several non operational items, namely impairments, which negatively impacted upstream segment earnings by about 150,000,000 dollars Adjusting for these effects, our unit earnings for the quarter would have been approximately $20 per barrel. The reconciliation of non U. S.
GAAP earnings can be found in the appendix of this slide presentation. The Upstream segment was also negatively impacted by FX effects and the timing of liftings, both of which are normally transitory in nature. Slide 10 summarizes the change in Chevron's worldwide net oil equivalent production between the Q1 of 2014 and the Q4 of 2013. Production increased by 12,000 barrels per day 1,000 barrels per day between quarters. Major capital projects contributed 21,000 barrels per day related to higher volumes at Angola LNG and the ramp up associated with the Papatero field offshore Brazil.
Shale and tight resources growth contributed 12,000 barrels per day driven by production increases from the Midland and Delaware basins in the Permian as well as continued production ramp up from the Vaca Muerta shale in Argentina. The base business and other bar includes the impact of normal field declines and weather related disruptions, primarily due to extremely low temperatures in Kazakhstan, partially offset by lower production downtime related to several assets. Slide 11 is the second of 2 new slides incorporated into the presentation this quarter and compares the change in Chevron's worldwide net oil equivalent production between the Q1 2014 and the Q1 last year. Production was 57,000 barrels per day lower than the same period a year ago. Growing volumes from our shale and tight resources in the Permian and the Marcellus regions in the U.
S. And the Vaca Muerta shale in Argentina increased 1st quarter production by 37,000 barrels per day. Major capital projects contributed 23,000 barrels per day, driven primarily by production growth from Angola LNG and Pampatera in Brazil. Production was impacted by external constraints related to the very cold temperatures in Kazakhstan as well as lower demand in Thailand due to a lightning strike, which damaged the customer's gas processing plant in the Q3 of 2013. The base business and other bar includes normal field declines along with other unrelated impacts.
Our base decline rate averaged less than 3% between quarters. Turning to slide 12. U. S. Downstream results increased $157,000,000 between quarters.
Planned turnarounds at our Richmond, California and Pascagoula, Mississippi refineries lowered volumes and decreased earnings by $85,000,000 compared to last quarter. More than offsetting these volume effects were benefits from lower OpEx worth $95,000,000 and stronger chemicals results worth 80,000,000 dollars Stronger U. S. Chemicals results reflected higher margins for benzene, olefins and polyolefins from our Chevron Phillips Chemical joint venture. The other bar reflects a number of unrelated items, primarily higher gains on midstream asset sales, partially offset by modestly lower realized margins, particularly on the West Coast reflecting weak seasonal demand.
Moving to Slide 13. International downstream earnings increased $163,000,000 between quarters. Reduced volumes from turnarounds at our Thailand and South Africa refineries decreased earnings by $75,000,000 during the quarter. Stronger Asia R and M margins improved earnings by $70,000,000 Increased demand drove refining crack spreads higher, particularly for low gas and fuel oil. In addition, favorable price lag effects improved marketing margins.
Lower operating expenses increased earnings by $85,000,000 about half of which is related to fuel costs. Reduced foreign exchange losses contributed $70,000,000 to earnings. The first quarter had a loss of $28,000,000 compared to a loss of $96,000,000 in the Q4. The other bar includes a number of unrelated items including higher chemicals results partially offset by the absence of positive year end LIFO inventory effects recorded in the 4th quarter. With that, I'd now like to turn it back to Pat.
Okay, Jeff. Thanks. Turning to Slide 14. We hosted our Security Analyst Meeting in early March, where we provided a comprehensive update on the company's performance, projects and future growth prospects. At that time, full information was not available for some of the competitor comparisons.
It is available now and the segment return on capital employed updates are shown here. Our upstream return on capital employed for 2013 was just over 17%. We have led the direct peer group for 3 years. In addition, our returns in 2013 were nearly twice the average returns of the larger A and P group and 3% higher than the very best company in that group. This speaks to the strength of our portfolio and is especially impressive considering our current levels of reinvestment, which we expect will generate peer leading volume growth going forward.
Our downstream return on capital employed trended lower in 2013 consistent with the rest of the industry. We delivered a 10% return and held a number 2 rank in the peer group, our sustained position for the last 4 years. Turning to Slide 15 and updated information on 2013 upstream cash margins. During 2013, with a $38 per barrel cash margin, we were the best in the peer group by over $10 per barrel. We continue to post the highest realizations in the peer group.
Our oil weighted portfolio is providing us with a lasting relative advantage. We're also competitive on operating costs and have made sound investment decisions, both of which support our strong cash margin position. Over the past 4 years, the movement in our cash margin relative to the competition has been remarkable as shown on the chart on the left. While we've gained $15 per barrel in cash margins, our peers have gained only $8 on average. Importantly, we expect to maintain or even increase our cash margins going forward.
At our analyst meeting, we used the Brent price of $110 per barrel as the basis for our forward cash flow and production projections. We have received a number of questions around the selection of the $110 per barrel price. And I want to be clear that this is not an internal price forecast, but it's simply the actual average Brent price over the 20 11 to 2013 time period. Using prior year's actual pricing is the same methodology we have applied several years now in our analyst presentations. At this historical 3 year average Brent price of $110 per barrel, our cash margin is expected to increase to over $40 per barrel later this decade.
This is a critical part of our value proposition as the combination of strong volume growth and an accretive cash margin is expected to drive significant growth in our cash from operations over the next several years. Turning to slide 16. I'd like to provide a brief progress update on some of our major capital projects and other growth opportunities. These are laid out across 3 growth themes: deepwater, primarily in the U. S.
Gulf of Mexico LNG, in particular our 2 large Australian projects and shale and tight resource areas, most notably the Permian Basin in the U. S. And the Vaca Muerta Shale in Argentina. Starting with the deepwater, as noted last month, the Jack St. Malo platform was moored in its final location earlier this year.
We continued installation and commissioning activities, including final testing of flow lines and export lines. The project is on budget and is on track for late start up in the Q4 of this year. For Tubular Bells, which is operated by Hess, hookup and commissioning is nearly 40% complete and startup is expected before year end. We also made significant progress at Big Foot during March. The oil export pipeline has been installed and we are preparing to lift the drilling module to the topsides later this month.
We expect start up to occur mid-twenty 15. Moving on to our LNG projects. We continue to make excellent progress at Gorgon, which is now through April 80% complete. The final 2 gas turbine generators have been installed and additional progress has been made on the LNG tank, jetty and other related infrastructure on the island. All major 2014 milestones are on track and we expect plant start up and first gas in mid-twenty 15.
For Wheatstone, we are now at 33% complete. Progress continues to be made at the plant site, on the Wheatstone platform and with the offshore development drilling campaign. Wheatstone remains on track to start up in late 2016. Morgan and Wheatstone are critical contributors to our future growth plans and we are pleased with the steady progress being made on both of these projects. As in prior quarters, we have posted updated go to the both projects on our investor website.
I encourage you to take a look. We also continue to make progress on our shale and tight resource developments, which nicely complement our large major capital projects. We have an active drilling and development program in the Permian Basin and we have drilled over 120 wells so far this year. We continue to focus on capital and execution efficiency as well as the identification of sweet spots throughout our extensive acreage position in both the Midland and Delaware subbasins. We are also making steady progress in the Vaca Muerta shale in Argentina, progressing this year's development program.
And we recently signed additional agreements for incremental exploration acreage in the play. On Slide 17, I'd also like to touch on additional progress made elsewhere. We reached final investment decision and received approval from the U. K. Government to proceed with the development of the Alder field in the Central North Sea.
We achieved first projections in the Shearag oil project in Azerbaijan and acquired new exploration acreage in Myanmar. In the downstream, we achieved mechanical completion of our new base oil facility at our Pascagoula Mississippi refinery. Once fully ramped up, this increases our capacity in premium base oils by over 70%, making Chevron the largest premium base oil producer in the world. In addition, Chevron Phillips Chemical's 1 Hexene project as well as Oronite's Singapore expansion project recently achieved mechanical completion. Lastly, CPChem started construction on its new Gulf Coast petrochemicals project, which capitalizes on advanced feedstocks sourced from shale gas in North America.
This project is expected to start up in 2017. Now that concludes our prepared remarks. I appreciate you listening in this morning and your interest in the company. We're now ready to take some questions. Please keep in mind that we do have a full queue, so try to limit yourself to one question and to one follow-up if necessary.
We'll do our best to get all of your questions answered. Jonathan, I'd ask that you open up the lines for questions.
Thank
Our first question comes from the line of Evan Kallo from Morgan Stanley. Your question please.
Hey, good morning.
Hi, Adam.
Hi. Pat, thanks for the comments on the impairment as it clearly affects a clean comparison of your quarterly upstream profitability. Maybe I missed it. I know your interim update identified $400,000,000 to $500,000,000 of upstream impairments in your reconciliation. I see $150,000,000 And I thought I heard you mentioned $265,000,000 Can you just talk me through those numbers once again please?
Sure. The interim update did talk about a total of $400,000,000 to $500,000,000 in additional negative charges and that included foreign exchange and impairments, but we did reference strongly in that total the mining component. That mining component is $265,000,000
Okay.
And then in the appendix slide that you'll see there's also 150 $1,000,000 worth of upstream related impairments in the international segment.
I see. I got you. I got you the total. Thanks. And I guess my second question, just net debt increased to $3,200,000,000 in the quarter, small working capital increase.
I mean, I know you intend to bridge to 2015 and beyond when productive capital begins to drop and cash flow from new projects commences. Yet where do you see the debt limit? Is it at AA level at the high 20 mid-20s? And then what type of commodity price cushion do you forecast in crossing that bridge and maintaining current shareholder distributions? Thanks.
Okay. Evan, I think you referenced several questions there and you had a couple of really important words in there. 1, you talked about bridging. That is an important concept for us. Our free cash flow was essentially neutral in this particular quarter.
And you're right, so net debt did increase and that referenced or that related to distributions to shareholders. We're very comfortable with that pattern. It's a pattern that we've had for the last few quarters. It's a pattern that we could see continuing on here in 20 14. And then when we get into 2015 and you begin to see these volumes pick up and the cash flows pick up, then we get into a different state.
We do want to maintain the AA credit rating. We have a lot of room between where our debt level is today at 13% and what would be necessary to even call that into jeopardy. And by a lot, I mean several $1,000,000,000 worth of additional borrowing capacity. We do test our own plan against a low price environment. And I can tell you that against the low price environment, even continuing on with the capital program that we have, we are very comfortable with the distributions that we're making even in the low price environment and maintaining the AA.
Can you tell us share what low price means?
No, we don't want to go that far. We don't want to go that far. So we do look at the overall capital position and financial position of the firm. We tested against low prices and we feel comfortable, Evan, with where we are. The other thing I would mention is that we do have, you'll recall from the March presentation, we are anticipating asset sale proceeds of $10,000,000,000 over the next three years.
That's right, right, right. I appreciate it. Thanks for taking my question.
Thank you. Our next question comes from the line of Ed Westlake from Credit Suisse. Your question please.
Yes. Good morning. And thanks for the extra disclosures in the presentation. Just a question on cash flow. I mean, I think after working capital you said €8,000,000,000 It's been running higher than that.
Volume is flattish and the macro environment and you've shouted out underlifts and some extra tax. But were there any other things that may have contributed to a slightly lower cash flow this quarter?
Nothing of any substantial nature. It was not I mean with the under lifting circumstance, it was not a particularly strong U. S. Downstream quarter. So I think there are some operational factors that really lead to the $8,000,000,000 of cash generation.
Good.
Good. Thanks very much. And then, Gorgon, you've said 80% complete. You've obviously just had the Analyst Day and said mid-twenty 15. Other people and perhaps even partners are saying perhaps more later in the year sort of 2016.
I don't want to get into a debate he said, she said, but what's the critical path that you think in terms of getting Gorgon up mid-twenty 15? What are the risks that you're now worried about as you get further into the final stages here?
I think we have 20 of the 21 critical process modules for Train 1 and the infrastructure, the common facilities infrastructure on the island. The remaining train is due shortly, will arrive shortly. So it really becomes the process of the hookup and commissioning. And I think that is we've just come through kind of a weather period. So we're moving into good weather.
And so I think weather continues to be a risk and I think labor productivity continues to be a risk. But both of those, I mean, those are aspects of this project that we have been managing now for 4.5 years, 5 years. And so those are clearly on everybody's mind, Ed, in terms of managing through this. And I want to reiterate that the project is on track. We're aiming for and targeting that mid-twenty 15 startup.
Thanks very much. Thank you. Our next question comes from the line of Paul Sankey from Wolfe Research. Your question please.
Hi. Good morning, Jeff and Pat. If I could kind of a big one and a small one. The big one is you have an interesting number Pat, which is unproductive capital. Could you update us on that number and talk a little bit about how you calculate the number so that we can perhaps use it to compare with other companies?
And the follow-up is on Zaca Muerta and I'll ask you that in due course. Thanks.
Okay. Well, basically we just look at it really is just assets under construction. I mean, definitionally, it's assets in our work in progress account as a percentage of our total capital employed. And what the information that we as well as the couple of Gulf of Mexico deepwater projects. And we indicated that we saw that stepping down significantly over the next 3 year period of time.
And I also said verbally that we saw a pretty important stair step going from 2013 to 2014 then again to 2015 and 2016. We didn't give actual numbers. I don't really want to do that. But that pattern that was on our slide back in March is still one that we hold to. So as you see these projects come online, they move out of that WIP account, that work in progress account into a producing asset account.
My recollection was that there was an actual number of unproductive capital. And I guess you could update us on capital employed or at least the last available number?
Well, year end capital employed was about 171,000,000,000 dollars And what we right. So the information that we gave in the slide was a 3 year average there.
Okay. And what was the unproductive number?
So Paul, the 3 year average 11% to 13% was in the low 40% range moving down to the mid-thirty percent for 14% to 16%. But that's the average 14% through 16. It's as Pat said, it steps down each of those in each of those years. Our historic average here is maybe the high 20s.
Yes, that's right. So it was percentages, wasn't it? I recall now.
It was percentages. And we use the averages and you should I think it's fair to say that 2011 was the lowest of the 3 years, 2012 was the middle of the 3 years and 2013 was the highest of the 3 years, but the 3 year average there was at low 40s. And then what we're saying is 2014, 2015 2016 will reverse that pattern.
Yes. Understood. Okay. That's helpful on that calculation. And then, the Black and White, can you do a little bit more to strip out Argentina?
You've kind of bundled it with Permian and the extent to which that's sort of acquisition growth as opposed to organic growth?
You. Yes. Well, so I think that in terms of the Vaca Muerta play itself, we're continuing to make progress there. Our plan is to drill about 140 wells this year. We've got about 17, 18 or 19 rigs drilling at this particular point in time in production there.
On a gross basis, it's about 17,000 barrels a day. We're encouraged by the well results both on cost and productivity. But there's still it's early
in terms of volumes year over year. It's just I was saying that on the variance you bundled Wacker with Permian.
So I see. I misunderstood the question.
No, no. Thanks for the answer. Absolutely, Ode. That was just the follow-up, Roni.
So year over year, Paul, we hadn't booked production in the Q1 of last year. We just we started booking production in the Q4. So there is a contribution Q4 to Q1, but over quarters, it is acquisition related. But if you want to talk more specifically about it, just talk to me offline.
Sure. Thanks Jeff. Okay. Thank you.
Thank you. Our next question comes from the line of Doug Leggate from Bank of America Merrill Lynch. Your question please.
Thanks. Good morning, Jeff and Pat. I've got the one big and one small one if that's okay. On the impairments part, is that the reason for the high DD and A number? And if so, can you give us idea what the run rate should be?
It certainly is a contributor to the high DD and A rates. Absolutely, that's a factor. And in terms of general DD and A, I think that it's fair to say that overall corporate DD and A is going to go forward move up. Our expectation would be that it would move up in 2014 relative to 2013. And we see upstream DD and A per barrel rising for the next couple of years, but then flattening out over time.
The pattern on both the absolute and the per barrel is something that you would absolutely expect because of recent investments and our future investments that obviously is also impacted by reserve add timing and the mix of our projects etcetera. Our PPC, our pre productive capital as we talked about is going to come down. But I think the thing you've got to keep in mind here too is that for this investment that is evidencing itself and will evidence itself in our DD and A rate, we are giving the investment audience to the largest growth rate of the peer group, a 20% growth rate in volumes between now and 2017. So significant investment, but generating significant volume growth.
Thanks, Pat. I'll take the specifics on DD and A offline with Jeff, if that's okay. But I my follow-up is really your last point because I think the growth in the cash margin trajectory is fairly well understood. What certainly we've observed over the years is that that really gets repaid by the market when it's accompanied by strong debt adjusted growth if you like. So the balance sheet is not expanding at the same time.
So I'm just kind of curious when you look at your you say you're delivering the best 20% growth. How do you think about the trade off that's a $10,000,000,000 annual burn rate on the balance sheet? And I'll leave it there. Thanks.
So I mean, I guess, I think that if you've got the Project Q, a strong Project Q and you've got a balance sheet that allows you to invest for that and we do have a balance sheet. In fact, you could really argue that for years we were under levered relative to what might be optimal. So if you've got the strong projects to you and if you've got the balance sheet to support it and the projects are value accreting for the organization for the firm, then I think that's exactly the kind of investment profile you ought to be undertaking.
All right. I appreciate your answers. Thanks, Scott.
Thanks.
Thank you. Our next question comes from the line of Chang from Barclays. Your question please.
Hey guys. Good morning.
Hey Paul.
Pat, don't know whether you want to answer that. I think a lot of people is asking that for CPC, your joint venture, strategically, is there any particular reason you need to own it, so that you can have synergy with your other operation? If not, if you look at it as a financial investment, does it make sense for you to own a minority interest and put it up as a publicly traded entity together with your partner Phillips 66 and put you into the market so that you can recognize a much higher value given why now they're trading at higher multiple than say both your partner and yourself?
Yes. So I understand the question there. And I'll just start back with when we put the 2 companies together, we had 2 I guess I would say sort of middling performing chemical companies who put them together and it's been a wonderful marriage. The partners are very much aligned on how to run this business, where to extract value from this business. And so it's a joint venture that has worked very well and has been very successful.
So we're very pleased. So there's no catalyst that's out there necessarily to say that we need to be doing something different. It is a part of the portfolio that has growth opportunities available to it. And we appreciate that with this change in the U. S.
Gas production and advantage feedstock opportunities here. I think CPChem calls on the technical expertise of both of its parent companies and we're able to and happy to assist them in that capacity. We think it fits nicely in our portfolio. It has the chemical business is highly, highly cyclical, more so than our portfolio. And so it's we're able to withstand the adjustments that are there that we think that's an advantage as well.
So we don't really see that there's huge that there's a huge catalyst for us to do something different. And it's not always clear that the PE multiples in these petrochemical commodity companies are always trading at multiples better than ours. So we like the joint venture. We think it's well run. We're happy to assist in its growth projects and providing expertise and technical capability where we We're very satisfied with it.
And I dare say that our joint venture partner would be feeling much the same.
Okay. Very good. Second question, can you give us a quick update whether Angola LNG right now is running at 50% capacity? And also in the Permian with the 25 rigs, do you have a number that how many of them is currently running in the conventional? And that they are in the pet drilling already?
Thank you.
Okay. Let me start with Angola and then we might need to maybe help me again on the second question. So on Angola, we did have recently a piping failure, which did result in an unplanned interruption to production. There was no fire. There were no injuries.
It was a pretty localized damage. It was associated with the flare system. We are doing a root cause investigation. And in fact that root cause analysis should be completed within a few days here is my understanding. So the plant is currently shut down and we'll need to take a look at that root cause analysis to understand what the go forward operating plan looks like.
That failure occurred sort of mid April, early April and it therefore was not an impact in the Q1 results.
Permian, the 25 rigs, how many of them is in unconventional drilling and of which how many of them is in the pad drilling already?
Okay. So all of the 25 rigs in the Permian right now are in the unconventional. We have only 1 rig drilling in the conventional. And I think you're asking about pad drilling?
That's correct.
I don't have information on that specific at this point, Paul.
Thank you.
Thank you. Our next question comes from the line of Ian Read from Bank of Montreal. Your question please.
Yes. Hi guys. Thanks very much. Sorry about this, but can I get back to the impairments and asset divestments you put in the reconciliation at the back, because I didn't understand some of the stuff you were talking about earlier? You've got 150,000,000 euros of E and P impairments, it looks like in the Q1 and also a 100,000,000 gain on dispositions.
And then you've also got this mining write down as well. Can you just put those together for me again?
Sure. So let's start with the biggest element, which is the mining element. We have a molybdenum mine in New Mexico. And the impairment charges that we talked about there and other related charges that I talked to at the very beginning, the $265,000,000 relates to that. That asset from a segmented reporting basis is in our other segment.
In Upstream, we noted $150,000,000 of impairments. It's in the international sector for us. So these are assets where we feel better opportunity in other portfolios basically. And then the 3rd element that was noted there was a asset sale gain. This is in our midstream midstream sector.
It's really pipeline related and that showed up in the downstream external segment.
Okay. Thanks very much. And the second thing was, is it possible to update us on when we're likely to see the Tengiz Futuregrowth FID?
Our target for this year our target is to have that towards the end of the year. I don't really have any additional information at this point. We were successful in getting the MOU signed back in the latter part of last year, which really is the stage setting document to get all the partners aligned on the go forward process. And so we're in the process now of going through and working the cost estimates etcetera, etcetera. So all I can say is towards the end of this year.
And we should expect the kind of overall CapEx for this gross CapEx for this project along the line of some of your major things you're doing in Australia. Is that correct? Or is that kind of ballpark the right sort of number?
Well, I'm sorry. So TCO I'm sorry. TCO is Kazakhstan, right? I guess one last thing there on TCO. The FID is not kind of critical path.
What was the question on Australia? I didn't quite understand.
Sorry, I just want to get an overall ballpark idea of what the overall cost estimate We
don't
have an updated we
don't have a cost estimate. We won't We don't have an updated we don't have a cost estimate. We won't have a cost estimate until we go to FID. So that will be later and attached to the FID timing.
All right. Thanks, Matt.
Thank you. Our next question comes from the line of Fazil Khan from Citigroup. Your question please.
Thanks. Good morning. First question on Jack St. Malo, you said there was more on location. I just want to understand a little bit, how much sort of wiggle room do you guys have from now until the start up to get that project going?
I mean, if there's an active hurricane season, have you built in that sort of weather into the start up at the end of the year for that project?
Well, it's my understanding that when we're putting these facilities out in the Gulf of Mexico, we do as much weatherproofing as we possibly can, step. And so our expectation is that we would be able to handle any weather complications that might arise.
Okay, fair enough.
And I'd just add Faisal that there are if there are hurricanes, you get demobilized the folks that are working on it that could slow things down a little bit, but we don't it's hard to estimate what's going to happen there.
I guess I'm just trying to understand if you guys have incorporated that into your guidance of the start up?
In a general sense from a planning standpoint, we always do factor in Gulf of Mexico weather activities to a degree, right? But each year is a different degree if you know what I
mean. Sure.
So there's obviously a base load that we include in our plans, yes.
Okay. That's fair. I understand. And then just on the underlift, you guys talked about the sequential quarter over quarter change of $235,000,000 Is that also fair to say that that's the absolute number too?
So the I'll give you the absolute for the quarter is about $100,000,000 about half of that. So the rest of that is swing between the two quarters Faisal.
Okay. All right, Jeff. Thanks. I appreciate the detail.
Thank you. Our next question comes from the line of Pavel Molchanov from Raymond James. Your question please.
Thanks for taking the question. You're obviously talking a lot more proactively about the Permian. Presumably, you'd like to get more value for that asset. Have you considered any kind of financial engineering solution that might unlock that value more so than simply as one piece of your U. S.
Portfolio?
Well, we think we actually, Faisal is sitting at a kind of in the catbird seat in terms of the acreage position that we've got, the long standing acreage position we've got, the royalty advantage that we have there. We have done joint ventures of a kind with, for example, Cimarex, where we have partnered with similarly situated partners. And those kinds of things you could see us continuing to do on a go forward basis. If you get commonality of infrastructure and location and you can get efficiencies of drilling where your fracking can really go from our to their property. So we will continue to look for those opportunities for synergies.
We've got a very active program scheduled for this year, over 500 wells and 25 rigs. We've done 100 and 20 drilling so far. So the activity level is at or perhaps even a little bit better than planned at this point. So we'll continue to look for opportunities like that, but we're proceeding ahead on our own as well.
Okay. And just quickly, can I get an update on the exploration program in Liberia? I haven't heard about that in a while.
Yes. We're not in a position to say anything more at this point.
Okay. Fair enough. Thanks.
Thank
you. Our next question comes from the line of Guy Baber from Simmons and Company. Your question please.
Thank you all for taking my question. My first one was on the 2014 production guidance, but understanding it's still very early in the year, just wanted to get a sense of how confident you guys are in the guidance right just considering some of the weather influences you've dialed 1Q, the unplanned downtime at Angola LNG and then 2Q and 3Q typically being heavier maintenance close. Just wanted to better understand how you guys are feeling about that internally and any cushion you might have built into the guidance?
Okay. That's a good question. I guess I would just start by saying the year is young. We've only had 4 months or 3 months in here. There have been some positives.
Jeff mentioned the figure about base business decline being at the 3% or a little bit less than 3% level. So that's a very good positive. One thing we haven't mentioned that's of a positive nature is at Frage. We now have 10 producing wells on and we continue to make progress to bring on additional wells there. We've talked about the Permian ramp ups and the Vaca Muerta ramp ups that are occurring.
So those are all working in our favor. Clearly, weather has been a negative for us in the Q1. On an absolute basis, we'd estimate that that was worth 20,000 barrels a day or so, absolutely negative in the quarter. I mentioned the AL and G operational issues that we have there. So you put those all together, you got pluses, you got some minuses.
And the back end of the year, we've got Tubular Bells and Jack St. Mello, both of which are scheduled to come online. So our production ramp ups are kind of back end loaded. And both of those projects are on track. So the best I can say is and I'll go back and say, we build in weather contingencies in our Gulf of Mexico plan in particular for a baseload amount.
I'll just go back and say, the year is young. We've got positives and negatives out there. We feel that the guidance that we gave at $26,100,000 is the best guidance that we have at this particular point in time. And as we do every year on the Q2, we'll update you with how things look at that point in time.
Okay, great. Thanks for that. That was very helpful. And then my follow-up was on one of your 3 primary growth themes, the deepwater. And I'm more focused on your next generation of projects looking beyond the near term startups that you have lined up as we start thinking about potential reserve additions and then longer term growth potential.
But you all have a number of potential FIDs this year that you have an interest in, thanks Stampede and then your Indonesia development at Bonga, and then you're also reevaluating you I was just hoping you could provide some more commentary on just how conducive the overall environment right now is to pushing forward deepwater FIDs just in light of your view of the cost environment and the evolution of project economics and what you might see as opportunity for cost savings just given what's generally appears to be a more disciplined approach to screening these projects for you all and with some of your peers?
Okay. Well, I think I would say if I step back and look at Deepwater, I think for Chevron and portfolio, you mentioned a number of projects, but I think the most strategic basin continues to be the U. S. Gulf of Mexico. And we've got a number of wells drilling now and we'll have additional wells drilling over the next 12 to 18 months, a significant number of them, 6 wells in the next 12 to 18 months.
So that continues to be an area of strategic focus. And we think we're competitive there on facility structure as well as drilling costs completion costs. So that's important area for us. If I look at IDD, IDD is a complex project, it's multiple fields. And right now, we're in a position of waiting for government approval.
And then on Rosebank, we did really with the operator kind of put that as the operator put that into a recycle mode, because the costs that had come through were really didn't make it compete for capital within our portfolio. So that's somewhat in a recycle mode. So I think the overall impression that you have about the industry stepping back and taking a look at the cost run up in some of these for some of these resource plays relative to the value capture, I think some of that is being reassessed as you indicate. Rosebank is a good example of that.
Okay. Thank you.
Thank you. Our next question comes from the line of Roger Read from Wells Fargo.
Yes. Good morning.
Good morning, Roger. I guess to come back to the Permian a little bit. If I understood correctly, you are not or have not to this point drilled any horizontal wells in the Midland Basin. Was that accurate?
We are looking to spread the first one later on this year.
Okay. So thinking about how production from the horizontal wells has typically been a little more, let's just say higher IP rates and leave it at that. We should think about the shale and tight production accelerating, I don't know, call it Q4 certainly into 2015. Would that be consistent with how you're looking at things?
So I think it would be fair to say that if you go forward and you look at quarter after quarter after quarter improvement, we would be looking to see improvements kind of quarter after quarter. Our real focus has been on getting capital efficiency maximized and getting a strong execution efficiency as well. So it's really been on optimizing the value creation. And so we've been spending time to understand where the best areas are and what the most efficient rig pad and overall development plan is. Frankly, a lot of the other producers there have been allowing us to derisk this play by the work that they have done and that's in a sense advantageous to us.
And we think we can get over time the same kind of synergies and efficiencies that the smaller operators have. And I one of the slides that we have put out in the security analyst meeting gave a good indication of what
we see
as year on year net production increases in the Permian Basin. It's a pretty significant growth rate. We also talked to essentially a doubling of our rig count over the next several years from where it
is currently. Right. Well, it's the I guess we now have a couple of quarters here where you're breaking out shale and tight from everything So we can start to get a feel for what that quarter over quarter year over year performance is.
Exactly.
Just want to make sure I was understanding the way it should progress here.
Right. And we're hopeful for quarter on quarter improvement going forward.
Good. I guess my follow-up question. The Angola LNG, obviously, going to be offline in terms of a volume contribution in the Q2 for some significant period of time. But if you think about and I know sometimes you don't get too granular, but the impact on it from a cash flow standpoint, I mean, was this operation given the troubles it's had so far actually contributing much? Or should we think about it as mostly a production impact, but not a problem for cash flows as we look in the next couple of quarters?
Yes. I think it's I think you will see it. It will be more noticeable clearly in the production side than the cash flow side clearly. And I don't have as I mentioned, we need to have the root cause analysis done before we have an indication of when what that repair and maintenance repair activity will look like and how long that will take and then when we might get back to producing mode.
Okay. I'll leave it at that. Thank you.
Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Pat Yerington for any further remarks.
All right. Thank you, Jonathan. I guess we got through everybody's questions. So I appreciate your time and interest today. I especially want to thank all the analysts who on behalf of all the participants for the questions they asked in this morning's session.
So Jonathan, I'll turn it back to you and thank everybody. Have a good day.
Thank you. And thank you, ladies and gentlemen. This does conclude Chevron's Q1 2014 earnings conference call. You may now disconnect. Good day.