Good day, ladies and gentlemen, and thank you for joining Chevron's First Quarter 2019 Earnings Conference Call. Please be prepared to give Good morning, ladies and gentlemen. My name is Jonathan. 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. As a reminder, this conference call is being recorded. I would now like to 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 Q1 earnings call and webcast. Our new CFO, Pierre Breber and our Head of Investor Relations, Wayne Bordoon, are on the call with me.
We'll refer to the slides that are available on Chevron's website. Before we get started, please be reminded that this presentation contains estimates, projections and other forward looking statements. Please review the cautionary statement 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 Q1 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 advantage 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 antitrust filing yesterday to begin regulatory approvals, and we've begun joint integration planning.
We know how to integrate 2 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.
Pierre?
Thanks, Mike. Turning to Slide 4. Our disciplined returns focused approach to the business continues to drive solid earnings and cash flow. 1st quarter earnings were $2,600,000,000 or $1.39 per diluted share. Excluding foreign exchange losses, earnings were $2,800,000,000 or $1.47 per share.
Cash flow from operations for the quarter was $5,100,000,000 Excluding working capital changes, it was $6,300,000,000 We maintained a strong balance sheet with a debt ratio less than 20% at quarterend. During the Q1, we increased our quarterly dividend to $1.19 per share, up 6%. Share repurchases during the quarter were around $500,000,000 lower than our $1,000,000,000 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 $1,200,000,000 generally consistent with our seasonal pattern. Free cash flow, excluding working capital changes, was over $3,000,000,000 Other cash flow items included pension contributions of about $325,000,000 asset sale proceeds of around 300,000,000 dollars and TCO co lending of $350,000,000 We continue to make progress high grading our portfolio. Total asset sale proceeds since the beginning of 2018 are $2,300,000,000 and we remain on track to reach the low end of our current 3 year $5,000,000,000 to $10,000,000,000 guidance range by the end of this year. Slide 6 compares Q1 2019 earnings with Q1 2018.
Earnings declined from a year ago, largely due to lower crude oil prices and weaker downstream and chemicals margins. Special items increased earnings by $120,000,000 due to the absence of a Q1 2018 asset impairment. A swing in foreign exchange impacts decreased earnings by $266,000,000 Excluding special items and FX, upstream earnings were relatively flat as higher production was offset by lower realizations. Downstream earnings decreased by about $500,000,000 mostly due to weaker refining and chemicals margins coupled with unfavorable timing effects. The variance in the other segment was primarily the result of higher corporate charges.
Turning to Slide 7. This compares results for Q1 2019 with Q4 2018. 1st quarter earnings were about $1,000,000,000 lower than the 4th quarter. Foreign exchange impacts decreased earnings by $405,000,000 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 liftings were offset by lower depreciation and operating expenses. Downstream earnings decreased by about $600,000,000 primarily due to unfavorable timing effects, 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, Q1 2019 oil equivalent production increased 186,000 barrels a day or almost 7% from Q1 2018. Production exceeded 3,000,000 barrels per day for the 2nd straight quarter. Shale and tight production increased 143,000 barrels per day. 1st quarter unconventional production in the Permian was 391,000 barrels per day, in line with our guidance and up 55%. Production from major capital projects increased by 128,000 barrels per day, primarily due to Wheatstone, Hebron and Big Foot.
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 U. K.
North Sea assets. Our full year guidance for TCO co lending is unchanged at $2,000,000,000 dependent upon price, investment profile and dividends. In downstream, we expect to close on the purchase of the Pasadena Refinery in the Q2. We also expect high refinery turnaround activity, which equates to an estimated after tax earnings impact of more than $200,000,000 For the Q2, 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 1,250,000,000 dollars per quarter.
In the Q2, we expect a pension contribution around $400,000,000 And our full year guidance for the other segment is unchanged at $2,400,000,000 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.
Our first question comes from the line of Devin McDermott from Morgan Stanley. Your question please.
Great. Good morning.
Good morning, Devin. Good morning.
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. I guess first, can you just walk through and remind us what the timeline is and key milestones in process from here and any comments you can make on the competing offer from Oxy would be helpful as well. I'll leave it to you if that's how you'd 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 unsolicited proposal. We've made our Hart Scott Rodino filing. I mentioned that that went in yesterday. We don't see any material antitrust 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 30 to 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 Q3 close. So I think we've always said second half of this year. And so that would be the timeline. I think we're going to wait and see what the 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.
Thanks, Devin. Makes sense. Do you have a follow-up?
Yes. 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?
Yes, Devin, this Pierre. I mean, you should view it as roughly ratable. And but again, it will 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. Hi, Phil. First question, in light of the competing bid that was put out there and the details behind that, I think one thing that surprised investors would be perhaps the degree of synergies that Oxy 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 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 in our ability to achieve the $2,000,000,000 in run rate synergies in the 1st 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 2 companies and meeting and often exceeding our synergy targets. This can go back to Gulf, it can go to Texaco, it can go to Unical. And so this is something we've done before and we're very good at it. We're very confident that we can deliver the $2,000,000,000 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 got a royalty position 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 cost, 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 $2,000,000,000 And so I think 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 is not good enough, is there a point at which that you look at this and not consider raising a bid because this return is destructive 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 agreement approved unanimously by the boards of both companies. We strongly believe the combination of our 2 companies creates 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 deepwater and natural gas basins.
It enables further portfolio high grading cost reductions and focused investments in 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'll be financially strong with accretive cash flow and earnings and full uncertain value. There's no shareholder vote required to approve the transaction and there's 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.
Yes. 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've 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 accretive 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 10,000,000,000 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. Yes. 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 who wanted exposure to our stock. We have a very good stock.
But clearly, we have the capacity to have alternative structures. We could have put more cash in if that's what Anadarko wanted to do, but we agreed to where we ended up.
Yes. I realized, Mike, that you've talked about free cash flow sort of point, free cash accretive. I appreciate you mentioned it from your point of view. It seems to be the single biggest 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 that the other aspect was that you said you can't it's 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 potentially between you and Opsgen. 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 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 a 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. 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?
Yes. I mentioned earlier that we benchmark a wide range of metrics and you really need to look at performance in all the dimensions. And there are ways that we've seen in the past Permian operators that will optimize certain metrics, particularly things like early production. We don't we're 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 a year out and there's quite a different picture that you see. So I think number 1, 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, a capital efficient model that generates leading EURs, low cost per barrel and high returns. And you take that and 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, 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 $5,000,000,000 from what had been $4,000,000,000 And I appreciate the run rates right now are affected by the transaction being in the public domain. But was the 5,000,000,000 dollars was the increase to $5,000,000,000 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 accretion and value creation that this transaction enables. And so it is tied to the transaction. And as I said, we've got a strong case pre existing the transaction with increased from a run rate of $3,000,000,000 last year to a run rate of $4,000,000,000 this year. And so the step up to $5,000,000,000 was a signal that this deal makes us even stronger.
Yes. And if I can just clarify on, again, the Q1 buybacks were lower, Jason, as you said. We had to stop buying back shares. We felt that was prudent when we believed we could be we could find ourselves in possession of material non public information related to the transaction. So we expect these restrictions to continue in the Q2.
Circumstances could change and we could be able to buy back shares from time to time. But right now, you'd expect low to no buybacks in the Q2. And then again, post closing, we intend to increase the rate to the $5,000,000,000 annual or $1,250,000,000 per quarter.
Understood. Thanks guys.
Thanks Jason. 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 had one on your exploration strategy and this also relates to Anadarko, but we talk a lot about the Permian in terms of synergies, but it seems like there's also quite a lot of upside to exploration in the GOM if you combine the two portfolios and follow a infrastructure led exploration strategy. Could you just talk a little bit about that and how you're thinking about that on the basis that this transaction does close? And then the second question is, there was a couple of articles earlier in the year around you transferring your Permian royalty interest into a new subsidiary. I was wondering if there's anything to that or if that's just non news?
Thank you.
Okay. Yes. So the first one, exploration in the Gulf of Mexico. We've talked earlier about the fact that we would see exploration synergies as we bring the 2 companies together in our exploration portfolios. And we've talked about the fact that we would have a very powerful tiebacks,
which
were in the final phases of tiebacks, which we're in the final phases of technical qualifications to significantly extend the length of 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 support a new greenfield project, but that could be developed through drilling and tie back into existing infrastructures platforms as Ullage 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'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 strengths 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 royalty into an entity, which allows us to manage that royalty with focus and efficiency and ensure 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 the 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. 2 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 in 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.
Yes. So let me give you my best shot on that one today, Neil. Global demand continues to be strong. We're seeing demand go up by over 1,000,000 barrels per day again this year. We had a very strong GDP number for the Q1 in the U.
S, I think surprisingly strong that has come out today. And 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, economic growth looks solid and oil demand growth continues to march upward. 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 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 3 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 shapes up, it's a story of forward expectations on supply and demand and then the geopolitical overlay 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 in each country around the world.
There is no shortage of resource to be developed. And so costs matter and we continue to drive to be very competitive from a cost of supply standpoint. So I'm not sure I gave anything really brand new there, but that's how I see it.
That's helpful. And just 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, does Chevron have the portfolio that will to thrive 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 Tinghe's. What's that next wedge of growth? And it's sort of it begs the question was the Anadarko eventual transaction an off census transaction or a defensive transaction.
So I just want give you an opportunity to respond to that because I think your view here is that you do have a standalone opportunity set independent of that transaction, but it's certainly something that's been brought up by investors.
Yes, absolutely. I mean, I said it in March and I'll say it again, we do not have resource anxiety. We've been replacing reserves. We've got nearly 70,000,000,000 barrels of resource. We've given transparency on the production outcome for 5 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 5 years, which has 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 stop at 5 years just as a matter of convention, not because we think there's 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 tight resource positions, which are in their very early stages of development and continue to have very strong performance metrics and economics that are converging on Permian level economics, which is really the goal that we've put in front of them.
I've already talked on the call a little bit about Deepwater, where we've got Anchor Ballymore Whale, Blacktip now. We've got the ability to bring tiebacks 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.
We've got we're still operating in Venezuela where there's an enormous amount of resource. And one day, that will begin to be developed again. We've got production offline in the partition zone. I'll stop there, but I'll simply say that the opportunities for us to invest in and develop a resource that we hold today extends well beyond 2023. And it's a function of which projects compete the best for capital investments.
A lot of short cycle stuff in there that is pretty low risk and then there are some longer cycle things that are larger and I think you'll see a blend of those deliver strong economic outcomes, which is what drives our decisions, 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 flog the buybacks, but I just want to make sure I'm 100% clear on this. Is it fair to say 2Q buybacks should essentially be 0? And assuming that is the case, even when you ramp up to 1.25 per quarter, obviously, on a full year basis, we're going to come in below that 4,000,000,000 dollars number due to Anadarko deal.
Is that the correct way to look at it?
Yes, essentially. And let me just restate it. So yes, the $4,000,000,000 guidance did not anticipate a transaction or an acquisition at the time. There are 2 sort of restrictions that we're operating under. 1 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 up, there are other restrictions on buybacks when there's a business combination happening and equities being issued. So you can't buy back during the proxy solicitation, 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 I 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'll be 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 more on the gas side. I know you've worked a lot to get firm takeaway capacity on the crude side. Waha pricing has been really weak.
Can you talk about, I guess, what alleviation avenues you have on that side as far as takeaway or improving your price realizations as you continue to grow there?
Yes, I'll take that Blake and then Pierre might have some perspective as well. We've got takeaway capacity for all our production. And so whether it's oil NGLs or gas, we're moving it and taking it to market. We are not engaged in routine flaring and would not intend to flare gas to enable production. And we have shut in a 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 benches. And as we've described and you alluded to, we've been looking at takeaway capacity several quarters ahead of our production the entire time here. And so I think what you're seeing in the market is something that you should expect to see for a number of years in the future, which is you get a lot of people out there that are developing resource, a lot of people investing in 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'll see the differentials widen out.
I know Waha has been pretty ugly here lately. Kinder Morgan's got some pipes that come online this year and next year, which probably start to change that equation. The Mexico market has been a little slower to come than people expected. And we've got some 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're well positioned on takeaway capacity across all the commodities to support our production into the future.
Our next question comes from the line of Jon Rigby from UBS. Your question please.
Yes. 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. And 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 just wanted to confirm whether you see that as part of the sort of value proposition, that is actually a value to be delivered through that disposal process and the sort of portfolio management that you can do. 2nd is, is whether that process is already underway. And thirdly, whether you can maybe lift the curtain a little and give us some idea about not necessarily the assets, but the kind of thoughts that you have around the type of portfolio you'd like to emerge with and the things that you will be the criteria which you'll be using? And then the second question, if I just add, it's somewhat linked, is the $1,000,000,000 of CapEx efficiencies that you identified as part of the transaction, can you just confirm that those are about doing the same thing for less rather than just ramping down activity, so you just can compare like for like? Thanks.
Okay.
Well, there's a lot in there, John. That was well done. So let me start at 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 high grading our portfolio.
We've had $2,000,000,000 to $3,000,000,000 in asset sales kind of on average over a long period of time. We're continuing always looking to high grade the 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 was out last week, I mentioned to people, if you go back about 15 years and 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 percent production from 350,000 to 650,000 or 700,000 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 Australian LNG projects had not been sanctioned. None of our LNG projects had 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 1,000,000 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 that doesn't stop when we get to that number. The Deepwater is with the combination of 2 companies is pushing close to 400,000 a day.
So we now have 4 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 then that were 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 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, John.
It sounds like you might be evacuating.
Yes. Sorry, it's classic timing the annual those are the weekly tests. 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'll 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 spend.
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'll squeeze capital out of the combined system, we'll 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 maintain the 3% to 4% guidance on production through 2023 as a combined company.
Right. Cool. Thank you. And I'm perfectly safe. Thank you as well.
Okay. I'm glad to hear that, John. Thanks, John.
Thank you. Our next question comes from the line of Roger Read from Wells Fargo. Your question, please.
Yes, 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 led those integrations. And so people have their eye on the ball and are focused on moving forward with things. And so I'll just a reminder, 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 forward, this kind of global mix maybe some dry gas remain shut in in the Permian for a while?
Yes. I mean, I do think what you saw was primarily some downtime at one of the trains in Australia at Gorgon. And because that's a bigger part of our portfolio now and we've got a train down for some work, you'll see that. The dry gas isn't a big number And so I wouldn't worry about that too much. There was also some weather in Australia that created an impact.
There was 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 planned downtime between Gorgon and Wheatstone we should consider as we look at the rest of the year?
Yes. 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 1 on Gorgon later this year. The upstream in aggregate from a turnaround standpoint, the turnaround season begins really in the Q2.
You can think about the Q3 as probably the heaviest quarter because we'll have one of the KTL lines at TCO in turnaround there. And then as we go 3rd into 4th quarter, you'll see 1 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. Thanks, Roger.
Thank you. Our next question comes from the line of Doug Leggate from Bank of America Merrill Lynch. Your question please.
Thank you. Good morning everyone. Thanks for getting me on the call. Mike, as you know, we're 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 that Anadarko already had a bid in hand from Oxy 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 discussions that maybe led to that point. Obviously, it's a little bit sensitive, but it's something that some shareholders are raising some concern about.
Yes, Doug, there are numerous aspects of our negotiation and the deal that will be explained in the S-four filing. It's 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 S-four when it's filed.
Okay. And you're obviously going to be a tough one to answer, so I appreciate you trying. My more specific question to Chevron is obviously post deal, there's 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 buyback plans, dividend growth trajectory, 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 where you did not decide to move forward in that event, I realize it's unlikely, but the bulk of your future growth due to 2023 is largely looks like a lot of it is coming from Permian gas.
So I'm just curious how absent this deal would you be able sustain the buybacks and commit to a strong growth trajectory for dividends and I'll leave it there. Thanks.
Yes. I'm not going to speculate on what Anadarko's Board may do and how that plays out. I'll just tell you that 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, Doug. Thanks.
Thank you. Our next question comes from the line of Sam Margolin from Wolfe Research. Your question, please.
Sam?
I should be muted. Mute button.
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. If TCO keeps taking up the co lending program theoretically 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?
Yes. Thanks, Ann. 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, then 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, then that gives them more flexibility to either decrease the lending or the borrowings or increase the dividends, which 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 that affect CapEx.
Okay. Yes, 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.
Yes, right. 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.
Yes. 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 wanted to actually ask about what's going on in California right now, just given you guys 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 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. Yes, so California has pretty aggressive ideas on regulating our industry and what you referred to is AB345, which is in the assembly right now, wouldn't impact downstream at all. It's really, you can think of it as 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've got a much more densely populated urban and suburban land use matrix and concerns about the proximity of drilling activities to residential schools, commercial, etcetera is really I think what's behind this. So we are working closely with the state government to ensure they understand the impacts. Others in the industry and trade associations are as well. And so it's prospective legislation that's being considered here. It really impacts permitting for new wells, doesn't impact things that are already on production.
We got a big producing business that's online today. And then I think our portfolio is in a 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 at the top of the hour here and I know everybody is busy on a Friday.
So I 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.
Thank you. Ladies and gentlemen, this concludes Chevron's Q1 2019 earnings conference