Good morning. I'm Frank Mount, General Manager of Investor Relations for Chevron. I'd like to welcome those of you in the room and those joining us by webcast to Chevron's 2018 secondurity analyst meeting. Before we begin, a few important reminders. 1st, please take a moment to locate the nearest exit.
In the event of an emergency, the hotel staff will provide further instructions. And please silence all cell phones and other devices. Today's presentation will begin with a corporate overview by our Chairman and Chief Executive Officer, Mike Wirth, followed by a review of our upstream business by our Executive Vice President of Upstream, Jay Johnson. We'll end the morning with a Q and A session where Mike and Jay will be joined by Pat Yarrington, Vice President and Chief Financial Officer and Pierre Breber, Executive Vice President of Downstream and Chemicals. Before we begin, a reminder that today's presentation contains estimates, projections and other forward looking statements.
These statements are subject to certain risks, uncertainties and other factors that may cause actual results to differ materially. Please
take a
few moments to review the Safe Harbor statement that is available in your booklets and on our website. Thanks for your attention. And I'd now like to introduce our Chairman and Chief Executive Officer, Mike Wirth.
All right. Thanks, Frank, and good morning and welcome everyone, including those of you listening via webcast to Chevron's 2018 secondurity analyst meeting. This is the 14th consecutive year I've attended this session and it's great to see so many familiar faces. I look forward to catching up with those of you that I know and getting acquainted with those of you I haven't yet had the opportunity to meet. I'm excited about where Chevron's going and I'm honored to represent nearly 50,000 people at our company who are committed to driving superior results, winning in any environment and creating wealth for our shareholders.
I'd like to start with operational excellence, which is the foundation of everything we do. We're proud of our performance as we lead our integrated peers with the best days away from work and oil spill rates. On process safety, we reduced loss and containment events by 28% since 2014, keeping oil and gas in the tanks, vessels and pipelines where it belongs. On energy efficiency, we've reduced the energy consumed in our operations by 7% since 2014 despite growing production during the same period by 6%. Moving to the macro environment, I'd like to share a few thoughts on the world in which we live and the conditions we expect to find in our markets.
Over the next 25 years, the global population is expected to grow from 7,500,000,000 people to roughly 9,000,000,000. The world needs affordable, reliable and ever cleaner energy to enable human progress for everyone. The chart in the upper right reflects the IEA new policy scenario, which by most accounts is a conservative view of future energy demand. Oil and gas demand is projected to grow by more than 25% and still constitute more than 50% of the world's energy needs in 2,040. The chart in the lower right shows the need for more supply to meet that growing demand and also to offset production declines from existing fields.
Finally, we've seen technology unlock new asset classes, improve costs and recovery from existing ones and enable efficiency in everything we do. This has led to a flattening of the supply curve, which reinforces our industry's ability to meet future demand for many years to come. Against that backdrop, I'd like to talk about how we intend to compete and win in any environment. I'll start with 3 compelling strengths. 1st, we have an advantaged portfolio with key long lived low decline and highly competitive upstream positions and a high return downstream and chemical system.
2nd, we're sustainable at lower prices and lower levels of expenditure. We grew production and reserves last year and we have a large resource base to support value growth into the future. And third, we have a strong differentiated balance sheet. In the center panel are 5 things we'll do to capitalize on these strengths. Beginning in the center, we intend to continue to lower our cost structure using technology to improve efficiency because costs always matter.
We expect to grow production and expand cash margins as new high return projects come online. We'll be disciplined and returns driven in our capital allocation investing in only the very best projects. We plan to high grade our portfolio, capturing value by selling assets that are worth more to others and acquiring resources where value opportunities exist for us. And we'll get more out of the assets we have by running more reliably, debottlenecking and investing in high return brownfield projects and optimizing across the value chain. So what will investors get when we do all this?
We get superior shareholder returns. You get cash flow growth that is stronger than our peers and you'll get cash flow and earnings that we believe will enable a growing dividend. I'd like to tell you a little bit more about each element of this winning formula beginning with our portfolio. We have a highly profitable downstream and chemicals business. It provides strong returns and cash flow and complements our upstream by running equity feedstocks and providing processing and commercial expertise.
Our fuels business is focused into integrated value chains anchored by complex refineries with efficiencies of scale and selling where our brands and market share are strong. In petrochemicals, advantages come from low cost feedstock, world scale facilities and superior technologies, attributes that define our portfolio. We're a leading developer and marketer of lubricants and additives. In all downstream segments, we intend to use technology to develop new products to meet customer needs. And we'll stay focused on the fundamentals, running reliably, lowering costs and capturing margin across the value chain to continue to drive high returns.
Now let's move to our upstream portfolio. We're diverse in asset class, geography and asset maturity. For example, we have a young LNG position in Australia, early in life unconventional assets in the Permian, a more developed conventional oil and gas business in Kazakhstan and Deepwater Gulf of Mexico and a mature heavy oil asset in California with a lot of resource still remaining. Our portfolio is sustainable and long lived with a number of large assets with flat or low decline production profiles. Operating costs are low.
Cash margins are high and growing. Risk is decreasing as our capital spending becomes more weighted towards smaller, shorter cycle investments in areas with relatively less geopolitical risk. And we have opportunities to further high grade the portfolio, cycling cash back into the most attractive opportunities. Moving to the sustainability of our resource base, the chart on the left shows our reserves to production ratio is both sufficient and stable. It's not too high, too low or too volatile.
A stable ratio is indicative of a portfolio that's resilient through the price cycle and can be developed through a ratable capital program. The chart on the right shows more than 40 years of 2P resource deep and differentiated when compared to most of our competitors. Our shale and tide portfolio is a key contributor here. Jay will revise our guidance on Permian acreage, resources and production in a few minutes. Spoiler alert, it's a good story, a very good story.
We can maintain and grow production, replace reserves, increase resources and reliably deliver cash flow from this position of strength. We don't have resource anxiety. We don't need to chase lower return investments. We don't need to bid up the price in costly lease sales. Our advantaged and sustainable portfolio is underpinned by a strong balance sheet, which is a differentiator and we intend to keep it that way.
This chart shows the relative debt ratios and credit ratings of major and independent oil and gas companies. As you can see, all independents and most majors have much higher debt loads and significantly less borrowing capacity. So companies with weaker balance sheets or with less sustainable resource positions are forced to make debt reduction or resource acquisition a higher priority, restricting cash flow available for shareholder distributions. We're not one of those companies. Now let's turn to our capital program.
The chart on the left shows our 2018 budget represents the 4th consecutive year of lower capital and exploratory spending. This comes both from finishing projects under construction and continuing to realize further efficiency gains and cost reductions on projects in flight. Cash C and E for this year is budgeted at less than $13,000,000,000 and we've narrowed our guidance range for organic capital spend to $18,000,000,000 to $20,000,000,000 through the end of the decade. We'll be disciplined with capital, not only absolute levels, but allocation as well. This is one of the most important things we do.
The chart on the right provides a further breakdown of projected 2018 spend. The key takeaway is this, approximately 75% of our spending is expected to generate cash within 24 months. Our high return investment opportunities in the base business in the Permian set a high bar and challenge other opportunities to continue to improve in order to better compete for funding. The next slide shows the progress we've made on operating costs. As I said earlier, costs always matter.
On the left, we've achieved more than a 40% reduction in upstream production cost per barrel since 2014. We expect to continue this downward trend. On the right, company wide operating and administrative expenses have come down more than 20% or approximately $6,500,000,000 from 2014, leading our peers. We expect to continue to lower costs by improving work processes, negotiating better rates from contractors and vendors and becoming more efficient in all that we do. And technology offers opportunities for even more.
I think we're just beginning to understand the potential leverage of new digital technologies across the breadth of our company. We have many examples of this, one of which is our progress in the Permian, which you'll see later today at the poster sessions. Now let's talk about cash margins. The chart on the left shows how we expect our upstream cash margin to expand even at a flat $60 Brent price. Normalized for price, we saw upstream operating cash margin grow by nearly $4 per barrel between 2016 2017 and we expect further increases through the end of the decade.
In a higher oil and price environment, the picture looks even better. As the chart on the right shows, we have a higher liquids mix as a percent of our overall production and a good portion of our gas is sold on oil index contracts resulting in roughly 3 quarters of our production being sold at oil linked prices. While we're not counting on it, we believe our oil price leverage is a real competitive advantage. Expanding margins and growing volumes is a powerful combination. In 2017, we grew production by 5% and as you can see here, our forecast for this year is to do it again.
Growth should then continue into 2019 as we see the full year impact of Train 2 at Wheatstone, ramp ups at Big Foot, Hebron, Clear Ridge and Stampede and further increases from our shale and tight assets. Heading into 2020 beyond, we're well positioned to sustain this momentum. We're upping our guidance on base plus shale and tight production, which we expect to grow at 2% to 3% per year between now and 2022 at a capital spend of approximately $9,000,000,000 to $10,000,000,000 per year. That's a clear bridge from today to FGPW PMP startup in 2022, which we expect to increase TCO's total capacity to around 1,000,000 barrels per day. Of course, the specific growth will also reflect the realities of things that are difficult to predict, uncertainties such as those noted on the slide.
I want to be clear, our focus is on creating value, not simply on growing volume. Production growth is an outcome of our investments and divestment decisions. I mentioned high grading our asset base. We continue to review it and evaluate our portfolio. You should expect us to be active in finding value creating opportunities to both add and to monetize.
As you can see from the Wood Mackenzie chart with their labels on the axis, our portfolio is grounded in large core assets where we can maximize value by running reliably, lowering costs and actively investing where we see good opportunities. The chart also illustrates that we have assets deeper into their lifecycle that have been positive value and cash generators in our portfolio, but at this point may be worth more to others. The criteria for divestments is straightforward. We'll sell assets that don't have a strategic fit or can't compete for capital and where we can receive good value. We're providing a new guidance range of an additional $5,000,000,000 to $10,000,000,000 in such sales through the
end of the decade.
Now I also want to address returns. The chart on the left summarizes the impact of actions we're taking to improve cash return on capital employed. The big levers are growing cash margins and production volumes, further lowering costs, selectively allocating capital by investing only in the best new projects and actively monetizing our portfolio. As a result of these actions, all of which are in our control, we're targeting to improve cash returns about 3 percentage points by 2020. The chart on the right drawn from several of your published forecasts shows we lead expected growth in free cash flow, which brings us to the subject of cash generation.
Last year at $54 Brent, we generated sufficient cash flow to cover our dividend. This was an important step on our journey, but we intend to improve further. Today we're updating our cash flow sensitivity guidance from $350,000,000 to $450,000,000 per year for each dollar change in Brent. At $60 prices that represents $2,700,000,000 more cash than last year. In 2018, we expect production and margin growth to increase cash flow by $1,000,000,000 to $2,000,000,000 and proceeds from asset sales to contribute $1,000,000,000 to $3,000,000,000 So at $60 per barrel, we expect to generate around $14,000,000,000 of cash flow after C and E well in excess of our current dividend, which takes me to shareholder distributions.
We've grown our dividends 7% per year over the last decade ahead of the peer group average and the S and P 500. Every year for 30 years, we've increased the annual dividend payout. The chart at the bottom shows we've also used excess cash to reduce shares outstanding, while a number of our peers have issued shares, diluting investor ownership. As we move into a period of likely excess cash flow assuming a $60 oil price with a disciplined short cycle more flexible and lower risk capital program we intend to increase the dividend at a very competitive rate which leads me to my final slide where I'd like to reiterate our financial priorities. These priorities are clear and they're consistent.
Our number one priority remains maintaining and growing the dividend. Our second priority remains reinvesting in the business. Our guidance range for capital spending has been narrowed. We're confident this level of spend will allow us to sustain and profitably grow our business. Our 3rd priority remains a strong balance sheet.
We anticipate a debt ratio of around 20% through 2020, an appropriate leverage position given our short cycle project queue, the benefit of low cost debt financing and an appreciation that we operate in a volatile commodity business. And our final priority remains the return of cash surplus to the needs of the first three priorities to shareholders. That said with the plans I've outlined today we expect to generate surplus cash. We'd like to see that develop to put us into a position to resume our repurchase program. We review the share buyback decision regularly and we'll update you as the year unfolds.
That concludes my prepared remarks. Now I'd like to turn the podium over to Jay Johnson. Jay?
Thank you, Mike. Good morning. It's nice to see you all again. We've made a lot of progress over the last year, and I'm looking forward to sharing it with you this morning. The photo is a picture of the Wheatstone project where we began production last October.
We look forward to the Q2 this year when we expect to have all 5 Gorgon and Wheatstone LNG trains generating cash flow. I'll start with our goal and that's to ensure our upstream business provides leading returns throughout the price cycle. To use Mike's words, to win in any environment. We have an advantaged portfolio, a legacy of past investment decisions that provides a competitive platform from which we can grow value. The WoodMac chart on the left run at their price deck shows that they agree.
And this morning, I'm going to talk about the characteristics of our upstream portfolio and I'll also update you on some of our key assets and discuss our future investment opportunities. Across the asset classes and geographies, we have attractive investments that are different stages of their life cycle. For example, our shale and tide assets are very young, allowing fast adoption of best practices as well as ratable and lower risk investment. We expect to grow this asset class significantly in the coming years. We have assets that are relatively early in their production lives, such as Gorgon and Wheatstone, that are expected to be prolific cash generators for decades to come.
And we have deepwater assets headlined by Jack St. Malo, Tahiti, Ekbami and Bigfoot that have scale and provide incremental drilling opportunities to extend production plateaus and deliver strong returns. Finally, we continue to extract value through the application of technology from mature assets like the San Joaquin Valley. One thing that's consistent across all of our assets is our focus on costs. We're using all the levers available to drive down and manage costs.
As shown in the chart on the right, we've worked with our suppliers and contractors to reduce the cost of goods and services. We've also reorganized to improve efficiency, and we've reduced activity levels and manpower. We're building integrated operation centers and consolidating support equipment such as marine vessels and aircraft. These efforts are not just improving our cost structure but are improving our operational reliability and our base business performance. The result is we're growing production, we're doing more with less, and we're working to do even better.
The chart on the left reflects the progress we've made in lowering costs and becoming more efficient. Managing costs is a mindset and an important part of our culture. Lowering costs contribute to increasing margins, and you can see the light blue area on the chart shows the percentage of barrels generating greater than $25 a barrel cash margins at a constant $60 Brent price. And we expect an increase of more than 200,000 barrels a day or 20% of the highest margin production in 2018. The improvement in cash margin is driven by many things, including growing production from projects like Gorgon and Wheatstone, reduction in Tengiz transportation costs and improvements in efficiency across the upstream.
But in addition to the margin expansion, our production volumes are also increasing, and we're getting good price support, significantly growing our cash generation capability. Now it's also important to maintain a strong resource base. Last year, we booked more than 1,500,000,000 barrels of reserves while producing just under 1,000,000,000 barrels, resulting in a reserve replacement ratio of 155 percent for 1 year and 107% for 5 years. 1,000,000,000 of these barrels came from shale and tide assets. If we shift to resources, we have a 6P resource base of 69,000,000,000 barrels.
The chart on the right shows the changes in our resources over the last 10 years. Over that time, we've added more than 24,000,000,000 barrels, produced 9,600,000,000 and divested 8,000,000,000 barrels. The net result is our 10 year resource replenishment rate of 171%, unchanged from last year. Managing our portfolio and selling a resource that's worth more to others continues to be a part of our strategy. We're in a good position, and we can be selective in acquiring new resources.
Now let's move to production. We view production growth as an outcome of our investment decisions and not a goal in itself. At the same time, a growing production profile is important to sustaining and growing cash flows. Over the next few years, we expect to see outsized growth as our major capital projects continue to ramp up and we see growth in our base and shale and tight businesses. Our base, as shown in the graph, reflects producing assets as of the beginning of the year, excluding recent major capital projects.
We expect our base, plus our shale and tight businesses to grow at 2% to 3% per year from 2018 through 2022, averaging a spend level of around $9,000,000,000 to $10,000,000,000 a year. Most of our 2018 Upstream spend is expected to generate cash flow within 2 years. Now we have a great position in the Permian, and I've got several important updates for you today. The first is we've increased our resources by 20% to more than 11,000,000,000 barrels. We've also increased our unconventional position by 200,000 acres to 1,700,000 acres, primarily in the areas shown by the red circles on the map.
The increase in resource reflects the quality of our portfolio, our new basis of design, continuing improvements in execution efficiency and the maturation of our development plans. We also have 2 inherent advantages based on our legacy position. The first is 0 or low royalty on more than 80% of our acreage, and we have minimal drilling commitments allowing us to prioritize our development queue based on value. We have a disciplined capital efficient development strategy, and we're learning fast and applying technology. So we have scale, we're advantaged and we're creating value.
The updated value wheel shows that almost half of our Permian unconventional portfolio or 800,000 acres is premium acreage, and it is just getting better. The chart on the left compares our operated and non operated unit costs over the last 3 years, which are lower by more than 40% and competitive with others in the basin. We're also competitive on well performance. The charts on the right show cumulative production over time for wells with our new basis of design. Our wells perform at or near the top of the range when compared to competitor wells in the same area with similar completion designs normalized for lateral length.
The attributes that deliver this performance include landing our wells in the most productive intervals, minimizing interference from offset wells and utilizing a completion design tailored to each of the development areas. We've studied the performance and results of others to characterize the benches and the areas. And we've leveraged our digital and technical capabilities to further understand the subsurface and extract more value. Our new basis of design yields strong well results and our growth is ahead of expectations. So as a result, we're upgrading our guidance.
The black dotted lines on the chart show our previous guidance. We now expect Permian unconventional production to reach around 500,000 barrels a day by the end of 2020 650,000 barrels a day by the end of 2022. This is based on running 20 company operated and 9 non operated net rigs by the end of this year. We also expect to be cash flow positive in 2020 at $55 a barrel WTI. Realizations are a critical piece of our value equation and our midstream infrastructure is providing yet another advantage.
We're marketing each product stream separately and have optionality for takeaway capacity at competitive rates. We're also coring up our acreage by transacting 60,000 acres in 2017 and another 22,000 acres already this year. These transactions created a significant amount of contiguous acreage, enabling an additional 900 long lateral wells. This is real value for our company and for our shareholders. And we also have some great shale and tight assets outside of the Permian with around 6,000,000,000 barrels of resource.
And we expect this number to grow as we continue to develop and appraise our holdings. We're sharing learnings between all of our shale and tide assets, bringing down unit costs and improving well performance. As a result, economic performance from the other shale and tight assets on this slide have improved significantly and offer competitive returns. We have 330,000 gross acres in the Duvernay, where we recently announced our first development area, a 55,000 acre program where we expect to drill and complete around 250 wells. Last year in Loma Campana, we reduced our unit development cost by 25% compared to 2016.
We continue to improve our basis of design, which has doubled the expected ultimate recovery per well. In Appalachia, we're moving back into development mode targeting opportunities in both the Marcellus and Utica formations from common well pads. Realizations and economic returns are expected to further improve as pipeline infrastructure is completed. The point is each of these shale and tight plays offer competitive returns and options for future investment. Now let's turn to Australia LNG.
Our Australia LNG projects are delivering results with 4 trains running well. 2018 year to date Gorgon and Wheatstone production has been over 550,000 barrels a day on a 100% basis. Wheatstone Train 2 is scheduled to start up in the Q2 of this year. With all plants operating, we expect our net production to be approximately 400,000 barrels a day. We're also forecasting depreciation rates and operating costs to continue to decrease as we unlock additional reserves and build efficiency and reliability.
We have around 50,000,000,000,000 cubic feet of discovered equity resource offshore Western Australia. Our infrastructure position provides opportunities to increase production through facility reliability, debottlenecking and ullage in 3rd party facilities. Our resource position in Australia is extensive, and we expect to generate value for decades to come. Turning to Tengiz. Our base business continues to perform well, generating strong earnings and cash flow.
2017 was 3rd straight year of record production. When FGP commences production in 2022, the production capacity at TCO expected to grow to around 1,000,000 barrels a day. The project is progressing well. Fabrication of modules is moving forward in Kazakhstan, Korea and Italy. In Korea, we cut steel on 42 modules and anticipate shipping the first this spring.
Fabrication of the preassembled pipe racks in Kazakhstan is ongoing with 51 units under production. In Italy, all 5 gas turbine generators are in fabrication with testing to begin next quarter. The logistics and the marine equipment, port facilities and heavy haul road are essentially complete and ready to receive the first modules this spring. Site construction for the new gas processing and the gas injection facilities is underway, and there are 3 rigs currently drilling on multi well pads. Now let's turn to our deepwater portfolio where we saw first production at Stampede in January and we successfully installed the Big Foot Tension Leg Platform in February.
We expect to start drilling from the platform in the next 2 to 3 months with first production in the second half of this year. We continue to invest in brownfield opportunities. We're leveraging our existing infrastructure by developing the Tahiti Upper Sands and continuing drilling at Blind Faith and Jack St. Malo. These projects have low unit development costs, they build on existing reservoirs and infrastructure and they're shorter cycle in nature.
In the medium term, we're a participant in the Mad Dog II project with first oil expected in 2021. We're also progressing pre feed work for Anchor and Tigris, where we're working to standardize equipment and reduce development costs. Longer term, we announced 2 significant discoveries this year, and that's Ballymore and Whale. It's early days for appraisal, but both are located adjacent to existing infrastructure and therefore have opportunities for early production with options for development either as subsea tiebacks or new build facilities. In the deepwater, we're focused on maximizing our existing infrastructure and pushing the cost curve down to enable continued development of this important resource.
And we're lowering our costs in the deepwater through efficiency, technology and standardization. In the Gulf of Mexico, we improved our drilling days per 10,000 feet by 35% relative to 2014. We also reduced completion time by more than 40% over the same period. Overall, we've cut our Gulf of Mexico unit operating costs in half since 2014, while still averaging less than 2% unplanned downtime over the last 2 years. From a technology perspective, subsea boost pumps and long distance power and communication capabilities are enabling longer tiebacks, allowing us to extend our reach and further leverage existing infrastructure.
Chevron is also a participant in a joint industry effort to standardize deepwater equipment specifications with the goal of driving down cost. Our Upstream portfolio is second to none. It offers a diverse set of investments with relatively low execution risk and value upside as oil prices rise. We continue to focus on lowering our overall cost structure to improve returns and unlock additional opportunities. Our business is moving to higher margins and lower risk with many short cycle opportunities in our base and shale and tight businesses.
And we're optimizing our portfolio for the near, medium and long term value. Now I'll invite Pat and Pierre to join us on stage, and I'm going to turn it back over to Mike. Thank you very much.
All right. Thank you, Jay. And before we begin, just a few guidelines for Q and A as I call on you. Please identify yourself and your firm, so people listening in on the webcast know who is asking the question and I'd ask you to please limit yourself to one question and one follow-up. Phil?
Hey, good morning, Mike. Good morning, Phil. Thanks for the presentation. Phil Gresh from JPMorgan, by the way. I guess I just want to focus on Slide 17, the financial priorities.
You outlined pretty clearly the order the rank order here. As we look at the numbers today, you've already increased your dividend this year. You're going to stay within the capital budget range. The debt ratio is already where you're targeting. So it feels like you're pretty much at that spot where you can incremental return of capital to shareholders.
You talked about reviewing this pretty regularly, but I guess what is it that would concern you at this point? Is it just the oil price going back down? Or what would get you to kind of pull the trigger on thinking about share buybacks?
Yes, you're right. We did outline those priorities. And I think the first three you can feel pretty good about. I certainly feel very good about where we sit on those. The reality is we saw 3 plus years of a pretty tough macro environment and we're about 3 plus months into one that's a little bit better.
We've got good strong production growth coming and we have every expectation that we are going to deliver the cash flow as outlined today. And our history is when we've been in that position, we have repurchased shares. Pat can correct me, but I think it's 10 out of the last 14 years, We've actually repurchased shares $45,000,000,000 of share buybacks when we've been in that position. And the message today is we would intend to do that again. We do want to see the cash flow.
We do want to see the cash flow materialize. And so stay tuned. We will update you on that, but that's been our past and that would be our expectation going forward. Did you have a follow-up?
Yes. Follow-up is for Pat. Just if you look at Slide 15 and the cash flow improvement for 2018, just wondering how you think about that on a go forward basis in terms of the sliver there for operating activity improvement. If you look beyond 2018, how should we think about that cash flow improvement potential? And I'm kind of thinking about the fact that you still have some of these transitory factors that are out there as well in 2018.
I think TCO is a pretty big part of that in terms of the spending there, but just in general, how you think about cash flow improvement going forward? Thanks.
So can I clarify, are you speaking about headwinds? I mean, is that specifically where you're at? Or are you really just thinking about margin expansion beyond 2018?
It's more of the margin expansion, the cash flow improvement beyond 2018, which would layer in both of those ideas, the headwinds, but also the underlying production growth and other. Okay.
Right. So I think you saw production growth continues to be evident past 2018. In fact, we showed a chart with some of the fuzzy bars on it that takes you out and then we have TCO coming in, in 2022. So we see production momentum really continuing out through the next several years. We also see margin expansion opportunities as well with that, not at the same rate necessarily that we've seen, but with continued effort on cost management, cost reduction and unit cost decreases, then you should have margin expansion as well.
In terms of the headwinds, I think the headwinds are still going to be with us to an extent particularly as they relate to TCO and by headwinds really thinking from a cash flow statement standpoint, these are the elements deferred tax and where our equity distributions are less than our equity earnings. So particularly from a TCO standpoint, that will be the case probably to the tune of $2,000,000,000 or so for 2018 and probably will still be a reasonably sized differential as you move out until you get the new project online because operating cash flow and TCO is being used to fund that investment as opposed to returning dividends to us.
Doug?
Thanks, Mike. Doug Leggate from Bank of America. Two questions. One is a follow-up, I guess, for Pat. Just a quick one, Pat.
You've given you've just given us a number for Tengiz. Can you give us the can you quantify the deferred tax impact also just as an overall scale because I think there was a lot of focus on your cash flow in the Q4. And I think both of those issues were perhaps missed. That's my first question. But Mike, for you, my you kind of slipped in your comments asset sales and acquisitions.
So I wonder if I could ask you to talk about the net, how you see that playing out, because obviously one of the other focuses is reducing costs. And it seems to me that one of the easiest ways to do that is excellent operators acquiring bad operators. We haven't seen any of that in this cycle. Where do you stand on that as you take the reins of Chevron? Thanks.
Yes. So I guess we'll take the second one first and then we'll go to the first one second. I did mention high grading our portfolio. And what I really mean by that Doug is I want to see us focus our energy, our attention, our capital and our people on the assets that allow us to win today and win tomorrow. And so that means some of the ones that have been important to us in the past maybe less a part of that picture as we go forward.
And as we've seen with some of the things we've sold over the last couple of years, things that may not meet the capital investment criteria within our portfolio today might be attractive to others. And so we can get good value for those assets and then we can redeploy that into things that help us grow. Jay talked about increased acreage in the Permian and some of the transactions that we've done there. I would expect us to look for opportunities to continue to build to strength. We talked about Deepwater Gulf of Mexico and some of the good news there.
And so we would expect to do some of both. And exactly when and where that occurs, obviously, we'll disclose that when we get to the point where it's appropriate to. But we're in a good position where we love our portfolio today and we can look for opportunities to strengthen it through both acquisition and investment and that would certainly be the intent. And I just can't be any more specific about exactly what that looks like. I did give you $5,000,000,000 to $10,000,000,000 in sales over the next 3 years.
And we'll talk to you about acquisitions as we're at that point. Pat, do you want to take the question on deferred taxes, your favorite subject?
Yes. So in the aggregate, we think of headwinds for 2018 being somewhere around $2,500,000,000 to $3,500,000,000 As I said, the single largest component of that really relates to TCO and the dividend versus earnings component there. The other $500,000,000 to $1,000,000,000 would be essentially on the deferred tax side. That's the estimate we have at this point.
Neil?
Thanks very much for the presentation. Neil Mehta from Goldman Sachs. The first question was just around the downstream business and maybe Pierre you can comment on this. But just your thoughts, 1, on the potential for chemical cracker and FID there and just the health of the downstream business? And then I have a follow-up.
Okay, sure. Look, thanks Neil for the question. Look, on the health in the downstream business, we've got a nice downstream business. Mike talked about it. We're very competitive.
We're leading in earnings per barrel and very tight focused and advantaged where we operate. 4th quarter was a little weak. I think that's kind of inherent in your question. The West Coast, we're overweight to the West Coast. The West Coast was impacted really by unusually high utilization.
So 5% higher than the 5 year high for the last 6 weeks of the year. So no unplanned or planned downtime. So inventories ran up some and margins weakened, but we're seeing that turnaround. Margins have come back some, inventories are still high, but they're working their way down. So I feel good in terms about, the demand, the supply, constructive on West Coast actually PADD V last 3 years fastest growing pad in the country.
So there's nothing structural cyclical. It was sort of an unusual period of time and I expect that to not recur and expect it to have a good year. On the another chemicals investment, well, first of all, we're focused on the first investment we have. And so we have the derivatives plant is up and running, started up last fall. We've got the ethane cracker, which startup is imminent.
We said to get the full production next quarter and that's what we're focused on. We want to ramp it up, keep it up, debottleneck, find efficiencies. At the same time, we're looking at a second or CPChem is looking at a second investment. We're constructive on the fundamentals on chemicals. We've got low cost ethane.
You've heard Jay and Mike talk about the Permian. That gives us more confidence in terms of ethane supply. The Gulf Coast is center of the petrochemical industry. So you've got salt caverns, pipelines, all of that infrastructure to make it very effective. The industry has shown that they can build crackers.
So all the ingredients are there. That said, you've heard Mike talk about we need to be capital efficient, we need to be resilient, we need to find a project and we're in pre feed, so still evaluating sites. We need to find a project that's on the left side of the cost stack that earns acceptable returns when the cycle does turn and can do really well when the cycle is good. So that's how we're thinking about it right now.
Can we make the deals Mike's side? Go ahead.
That's great. Thanks. The follow-up is Mike, one of the key tenants I think of your leadership in transition here has been this focus on capital discipline. I thought it was good even though in the planning assumptions, you took the price up from $50 to $60 a barrel, not to say that's your view. But in this Analyst Day, you kept the capital in that $18,000,000 to $20,000,000,000 range.
I guess the flip side of the question is, how are you comfortable that Chevron is under investing in the portfolio as we think about next decade, once you have the benefit of some of these big projects that are coming on that give you the glide path over the next 5 years, is there a risk of underinvestment on the other side of the portfolio? So finding that Pareto optimal level, if you could just talk to
that. Yes. So it's a good question. And your first point, I'll just reinforce that we do intend to be very disciplined in the allocation of capital. We will have more opportunities that we could fund than I expect we will choose to fund.
If you look at the $18,000,000 to $20,000,000 range, we actually bought the top end down $2,000,000,000 from where we've been and it intends to stay within that range. If I look at this year's budget, dollars 9,000,000,000 to $10,000,000,000 on shale and tight, a couple of 1,000,000,000 in downstream, dollars 4,000,000,000 at TCO, it's another $2,000,000,000 then for exploration and some other projects. We get Wheatstone still spending some money there as we're finishing that up. We've got Bigfoot still going. So we've got a number of projects.
So as those projects come down, as TCO goes through its peak this year and next year, it actually opens up a fair amount of headroom for us to take on some other significant projects. In addition to that, don't forget the key point that Jay made, which is our base plus shale is going to grow 2% to 3% at $9,000,000,000 to $10,000,000,000 in investment. So it's not that we're under investing at all. We're investing in things that are growing production, they're going to deliver value. And I think one of the things on the shale and tight to think about is people tend to look at one well type curves and you see a peak and then you see this long asymptotic tail.
Well, by the time you stack up 100 and 100 and then thousands of those tails, you have a pretty long flat wedge with no capital going into it, with production coming out of it that's already paid for itself. And so it looks a lot like another one of our long flat production profiles. And then you can choose how much more you want to keep putting in on the end on the front end and how much you want to pull back and really just harvest the cash out of that. So we've got plenty of headroom to invest and we've got plenty of good opportunities to invest in and we're maturing those. Jay talked about getting more competitive in the deepwater for instance.
We've got to get economics on those projects so they compete in our portfolio versus the other uses of capital. So I appreciate your question, but we're very confident that we can sustain and profitably grow our business and still maintain capital discipline well out into the future. Okay, Jason, and then Doug, I'll come to you.
Thanks very much. It's Jason Gammel with Jefferies. I just kind of want to follow-up on this point because 2%, 3% CAGR out through 2022 gives you more visibility than probably most of your peers. And then you have Tengiz expansion kick in at that point. I guess really the underlying asset though Permian, how do you think about how quickly you want to ramp that up?
And obviously this is tremendous growth rate, but probably could be accelerated if you chose to. Is it getting it to cash flow positive? Is that one of the priorities? And then I guess with the scale of the Permian being what it is, and sorry, I'll just ask a 2 part question here. You're obviously showing tremendous production growth, but barely scratching the surface of the overall resource.
So when you think about how to best optimize the NPV of the asset, do you still consider things like potentially selling the acreage at some point? Or do you want to have a better understanding of the full value asset before you would consider something like that?
Yes. So let me give you a quick answer on that and then I'm going to let Jay expand on it. On the PACE question, Jason, it has been and always will be about a capital efficient program. And so the program we're talking about this year is the same program we talked about last year, which is the same program we talked about the year before that and we have laid out a very methodical disciplined way to ramp up activity so that we're optimizing land ahead of these rigs, we're optimizing infrastructure, we're optimizing people and crews. And as we're getting better, we are becoming more efficient and we're building a strong position that is not over invested, but we are really focused on capital efficiency and that has been the governor.
It has not been a production target. Jay said production is an outcome not a target. It has not been cash flow breakeven. These are high return investments each one of them and we can choose to make more or fewer of them at any point in time, but it's really about building capital efficiency into that asset over time and we're absolutely committed to that. And that's really what governs our thinking on pace.
On value, we'll look at ways to accelerate value. We've optimized a lot of land and have bought value for Jay talked about 900 new long laterals that have been enabled. These are nearly 2,000,000 barrels of EUR per well. So it's almost 2,000,000,000 barrels of production on those 900 laterals that have been optimized. And so we continue to look at ways to bring value forward there and to understand it better.
Jay announced some news on better understanding and I think that will probably continue as we engage in more activity. So Jay, why don't you build out on both of those?
I'd just add 2 things. We're looking at the whole value chain and that starts with getting the land sorted out. If we can't drill long laterals, we're giving up a ton of value right at the beginning. So when you talk about 20 rigs, and by the way, those 20 rigs are drilling a lot more linear feet today than they were even a few years ago. So rigs aren't really necessarily the best proxy to use anymore.
It's more like how many lateral feet are you going to drill in a given year. But we're looking at everything from getting those land positions sorted out in front of the drilling program, making sure we have good well designs, we know the right development areas, right through the drilling and completions capabilities and then into the takeaway capability, making sure we've got all the infrastructure in place and ready to go on the backside so that the overall return is optimized. And that's really what we're focused on. When we get to 20 operated rigs and keep in mind that's the operated side of it, we still have 9 net non operated rigs currently running. That is a pretty big factory just to make sure that all the pieces, all the moving parts are running at peak efficiency.
We have the option then to decide to go bigger. But we'll look at the external environment. We'll look at the competitive environment that we're in. Can you get additional good crews? Or are they all being used up?
There's a point in time when you just start seeing the returns start to fall off because the area is overheated. And that's when some of these other areas in particular can play a key role for us because they're becoming very, very competitive and we can move money into some of the other shale and tight and just run the Permian at the level that it needs to be. In terms of bringing value forward, we've got active teams now that are dedicated to looking at how to maximize the value of that Permian position. So there's blocks of land that we won't get to or they're not in our prime focus areas or we don't have enough contiguous acreage to make it worthwhile, we're looking to exit those. We often retain a royalty though when we do exit them, so we've got that benefit.
We have the option to joint venture with other companies to build contiguous acreage and then talk about who's the best operator for that given area. We have the opportunity to simply trade acreage where it makes sense and we've done a couple of those recently. So we've got all these different levers to pull, but we're actively managing that portfolio as opposed to just letting an inventory sit there with very little activity.
Okay, Doug, and then I'll come across to Paul.
Doug Terres, Evercore ISI. Mike, today's spending guidance indicates that Chevron's spending for distributions are going to decline by more than any of your supermajor peers through 2020, which is important because this usually leads to higher returns and valuation. And so while this is a really positive framework for investors, the risks have historically been one, management's ability to stay committed when the oil and gas price rises if they do and 2, to manage the transition internally, which is usually a challenge too. So my question is, what are you doing to mitigate these risks and why are you confident that Chevron is going to be able to manage this pledge successfully over the next several years for shareholders? Yes.
So I'll
tell you, I've grown up in businesses where returns were always the focus. And you always believe that the market tomorrow is going to be tougher than the market you face today and self help is the one thing you can control and the one thing you can do to get better. And growth in volume is not necessarily the objective. You can grow a lot of empty barrels that don't bring any value. So you really have to think about growth in earnings and growth in returns.
And if you have that mindset, you begin to set up your definition of success. Along those lines. You set up the metrics by which people are evaluated and compensated along those lines and you drive that down through the organization and everybody understands their piece of that. And so I think that's really the challenge is for us not to be seduced by the price cycle. The prices will be higher and prices will be lower in the future.
And we can't build our business around a view on price. We need to build our business around view on efficiency, competitiveness, how do we benchmark in every single area that we operate versus the best operators be that downstream or upstream and how do you win in any environment. And so that's what I fundamentally believe is the right way for us to run our business. It's the way we're organizing ourselves and measuring ourselves. And Jay's made some big changes in upstream in terms of strategy and how his organization is driving priorities and making choices.
Maybe Jay, you can talk a little bit about some of the changes you've made in the Upstream.
A lot of the changes were really going back to where we were. Many of us in the Upstream started out with a heavy cost focus and an efficiency and reliability focus. And it was difficult to maintain that when the prices went high for a long period of time, but we've really gone back to those basics. And throughout the organization, the focus on returns, capital efficiency, not just net present value. There is no one metric that is the perfect metric to base every time.
It's a balance of looking at different things as we look at our business plan. But then as we roll that out through the organization, we're asking people to be very focused on the returns, the capital efficiency and just getting to a lower cost structure. Regardless of your view of that future supply cost curve, we want to be at the bottom end of it so that our products are going to be earning the maximum margins.
Okay. Right here and then I'll go back a couple of rows.
Mike, thanks. Paul, thank you. A follow-up really. If oil was to go up to $80 a barrel on a sustained basis, how would you respond? Because it feels as if the Permian might be at sort of terminal acceleration point.
And furthermore, I guess what I'm driving at is a question of whether or not this $20,000,000,000 is a hard ceiling for CapEx or allowing for cost inflation or whether there would be some additional action you would take if we were in a higher price on a sustained basis environment?
Yes. Like I said, that is our that's our view for the next 3 years is that will be an adequate capital budget all for us to drive profitable growth into our business in a lower price environment or in a higher price environment. And so that's what we really would intend to stick to. If we see inflationary pressures, we're going to have to find ways to offset those. And one of the things I'm really encouraged by is the creativity that I'm seeing across our business right now in finding different ways to do things.
And there was a mindset that get a project to a certain point and then we're off to the races. What I see now is how do we make a good project even better. And we've got a lot of not to be driving at the best projects and not just saying, well, it looks like $80 is the new normal and therefore let's push everything up. So we'll get outside of that 3 year period of time. We continually reassess these things.
It's an ongoing process, but I'm very confident that we can live within that budget and make good choices and continue to drive growth in cash flow and value. Can we make sure that we're getting follow-up questions, so let's not turn the microphones off until we move to. Thanks.
Thanks. My follow-up is, can you remind us maybe, Pat, the timing of typically of your dividend announcement for an increase? And what how you're thinking about that in terms of firstly, could you talk more about you said it would be competitive, the dividend increase, I think, if you could just expand on that? And secondly, are you thinking about it in terms of a percentage of cash flow? Or is there some sort of metric which allows you to be comfortable with what you're paying out?
Thank you.
So the first answer would be, we used to have a pattern of 2nd quarter generally being the period of showing the increase. But in the last 3 years or so that is we've been off track with that. We did just increase the dividend here in the Q1. So I don't know that we have a normal pattern at this point. In terms of are we driven by cash flow coverage of the dividend or what are the particular metrics that we look at?
I would say, 1st and foremost, it's a view about sustainability of the dividend. I mean, we are we have been for the last several years kind of exceeding what would be our normal payout as a percentage of cash from operations. We currently are now. But looking over the long term, what really drives us is, do we feel that this dividend rate, any sort of increase can be sustained over the long term sort of come hell or high water?
Paul?
Thank you, Mike. Paul Chan, Barclays. Two questions. First, I think is for Mike or maybe for Pat. Historically, not just Sherfin, but all the big oils looking at buyback as a 5 wheel.
When you have excess cash, you do it. But given the volatility in the oil market, it's probably not going to get reduced. Should we look at buyback actually 2 components? 1 is, as you increase your dividend, in theory, do you want to reduce your share count so that your absolute level of dividend is not really growing that much because otherwise that at some point, it's not sustainable at the bottom of the cycle. And the second component of the buyback should yet really be view as another form of acquisition just buying the asset that you know the best.
And so all your other organic investment or inorganic will compete against that. They will only be go forward if they can compete on a return basis, if return is the focus. The second question is on the LNG, maybe it's for Pierre and Jay. Pierre, that if you're looking at from the marketing standpoint, do you see given that LNG spot has been quite strong, I think supplies everyone, comparing to a year ago, Do you see the balance is really returning or that is just temporary due to some one off issue? And for Jay, how much is your development cost need to be reduced in order for LNG additional investment will be competitive in your portfolio?
Thank you.
All right. Paul got 2 follow ups into his first question. Pat, why don't you start on flywheel and share reduction and then we'll go to Pierre on
Okay. So you're absolutely right. We do consider the share buybacks to be the flywheel. We don't we have not mitigator for other dividend increases to keep the absolute rate of dividend payments going out of the firm flat. It does it is of course a mitigator for that, but we fundamentally walk through the financial priorities and if there is surplus cash that is when we determine that a share buyback program is an appropriate element.
It is one of the benefits I think of a share buyback program is that it does in fact lower your future dividend requirement. In terms of buybacks, looking at this as another kind of investment, yes, that's absolutely a reasonable way to look at it. In fact, one of the criticisms that I'm sure many of you in the audience here say this as well. One of the criticisms of a buyback period is typically you're doing it when prices are high, your cash flow is good and therefore you're perhaps buying at a high price. We've always looked at that and said that's a true element and the way to mitigate that is to be able to have a share repurchase program that works over the pace of time so that you have the dollar averaging effect working in your favor.
Okay. Pierre, LNG pricing.
Sure. Paul, yes, we've been a little surprised on LNG pricing or spot pricing. We have to remind, we're not really exposed in a big way to spot pricing. I mean, Jay's volumes are largely contracted oil linked. But as you know, China's demand has increased significantly.
They've had a very active program to move off of coal in heating, industrial applications and that's pulled on LNG. All that said, there's still a lot of LNG coming on. We've got another train coming on. There's others in Australia. There's U.
S. Projects still coming on. So we still see a market that has a lot of supply coming up, demand is strong. But all that said, we're really not that exposed to it or really oil linked on our natural or on LNG revenues.
Okay. And then development costs?
Yes. So I think before we even start talking about development costs, our main objective now is to get Gorgon and Wheatstone first the reliability as high as we can get it and then we start looking at things like advanced process control and debottlenecking so that we're getting the maximum throughput through the investment we've already made. When we turn to greenfield, our view is that any new greenfield has to be able to compete with delivered costs to Asia with the U. S. Gulf Coast, and we're using that as our bogey for development costs.
Okay. Ryan, middle row 4.
Thanks. Ryan Todd of Deutsche Bank. So by all accounts, if you look at the chart, you could you can sustain growth in basin Permian, probably even well beyond 2022, given the depth of the resource you have there. So how do you think about the timing and phasing in of additional major capital projects? Is it somewhat dependent on the size of the overall capital budget?
So CapEx rolling off at the Tanguis expansion? Is it you mentioned earlier kind of deepwater projects becoming competitive? How do you think about rolling those in versus just allocating and sustaining growth in the Permian and the base?
Yes, I mean it's a nice place to be because we do have choices and Jay highlighted that not only do we find really attractive economics in the Permian, but because we've shared lessons and have seen dramatic improvements in Canada, in Argentina, in the Marcellus, we've got other good unconventional options within our portfolio. Right now, we're spending a little bit more on those this year. And I think as we roll into the future, the attractiveness of those maybe another call for some of that marginal capital. And as Jay discussed, we've got great discoveries in the Gulf of Mexico. So we've got a number of different options where we could put that and really sequencing the work in a way where we can execute it well.
I think we've learned a lot of lessons about taking on maybe too much work at one time and stripping our capacity or the capacity of those people that we work with to execute projects really, really well is important. So that's a governor is just the capacity to execute and a belief that we can execute and we'll mature these projects. And so we think they are the very best project they can be and not just good enough to move forward. And that goes across the entire portfolio. So we had a question about another cracker.
We really like petrochemical fundamentals, Middle class demand growth around the world is driving really attractive opportunities. We talked about feedstock scale and technology. CPChem's got all of that. And so cracker number 2 could be a very attractive project, but it will have to compete against other things in our portfolio and we'll take on projects as we think they fit into a profile that continues to sustain that cash generation that we can execute and that has us within a moderate range of capital spending. And so we're not opportunity starved, we're opportunity rich and we'll continue to high grade those and invest the best in the best projects and make choices as we go along the way with a real eye on cash flow.
Jay? I'd just add one
of the changes Mike alluded to earlier is we now look at all of the upstream. When we do our business planning and capital allocation, we're not optimizing capital around any one business unit or operating company. We actually look at the full breadth of the upstream portfolio and we're planning many, many years out into the future. So we're looking at not only the short term nature of some of these assets, but also we're keeping a stream of capital available for some of these longer term projects to continue to renew that base through major capital projects. And we're able to really look at that balance.
And the program that Mike's outlined allows for that balance to take place so we can continue to renew the portfolio for long term sustainability.
Did you have a follow-up?
Yes, I do. So in the Permian, we've certainly seen cost inflation start to creep back in over the past 6 to 12 months. So how do you think I mean, what are you seeing within your portfolio and cost inflation there? And the industry has had a long track record at times, whether it was oil sands or Australian LNG and different places, things got attractive, a lot of capital flooded in, costs went out of whack. What's unique about the Permian or what are you doing within your operations to try to mitigate against cost inflation in the coming years?
So I'll talk about cost inflation broadly, Ryan, and then I'll let Jay talk about the Permian specifically. We are not seeing cost inflation around the world. In fact, if anything, we are still finding opportunities to negotiate even better rates on certain commodities, materials, services. And so we're still finding globally that we can hold or even further reduce costs across all the different lines of procurement activity that we have. Permian does have activity stepping up and there are certain areas where we're seeing a little pressure.
So Jay, why don't you build out
on that? So our goal in the Permian is to remain competitive on our cost. And the reason I say that, if we're paying below market for goods and services, oftentimes we'll find that we can't attract the quality of people and performance that we need. So we want to be competitive on cost. We use our supply chain organization and our global heft to really help mitigate some of the regional pressures.
So many of our contracts are global in nature and the costs that are going on in the Permian don't apply. We also use indexed pricing in some of our contracts that we remain competitive. But we have our contracts in place for this year. And so largely the mitigation is going to be pretty effective in the near term, but over longer periods of time then we may see that cost move up. The other thing that we're looking at is trying to make sure that we are always thinking ahead in terms of that factory I talked about earlier, so that we're putting contracts in place equipment and the services that we're going to need so that we don't have a gap in that total factory performance.
The last piece is on the supply and trading side is working very closely with us so that we're always getting those contracts in place for the offtake at competitive rates. And it's easier to do before you need it than it is when all of a sudden you find that you're behind that curve. So for us, I think the cost pressure is going to be somewhat modest in the near term and then we're going to have to see how the whole industry performs as we move forward.
Yes. John?
Yes. Thank you. John, Hurland, SocGen. This is for Jay. For the $9,000,000,000 to $10,000,000,000 base shale and tight gas budget, Could you split it out?
What's base? We're not going
to break it out in more detail than that. Base basically, the way we define that is it's all of our existing production today as it exists at this point in time, but it doesn't include the new major capital projects. So the Gorgon and Wheatstone, for example, are not yet in the base. Jack St. Malo is in the base.
So the number changes over time as our base changes over time. But what we're saying is to take what is currently producing today, plus our shale and tight investments over that sweep of time, we expect to see about $9,000,000,000 to $10,000,000,000 a year average in that group of assets. And it delivers that 2% to 3% growth.
That's fine. My next question is on Asian oil production. It's been coming down pretty hard. You do have another project in Indonesia on the books. Is Asia is critical on the oil side in terms of production?
Well, I think for us, profitable volume is critical. You're talking about Asia within our portfolio broadly. Yes. Yes. So Jay, maybe you can talk a little bit about Indonesia.
Yes. So we've got some projects that are on the books. A couple of those require extensions of contracts before they'd be economic for us to undertake. So there's commercial factors as well as technical. As Mike said earlier, by putting an $18,000,000,000 to $20,000,000,000 cap, we can be very I think we can sustain and grow like we've talked about, but it's also pretty healthy to have that cap in there and really force projects to improve their returns to compete for that capital.
It's applying to individual projects, it's implying to countries that have to compete for that capital for the industry. And I think that's creating a pretty healthy environment. We may see movement as we look forward in those economics improving.
Okay. I'm going to hand in the next to the last row in the center section back here.
Thank you. It's Brendan Maughan from BMO Capital Markets. I guess my first question is for you, Mike. Just obviously cover European peers and they talk a lot about new energies, power renewables. Just can you talk about your thinking?
And I can I appreciate it's not so much for the 2018 Security Analyst Day for Chevron, but your mix or look at the mix going forward in terms of energy and capital allocation?
And
I'll have a
follow-up question as well. Thanks.
Yes. So we all have choices that we're making and we look at those. We've been in the power business. We've been in renewables. I personally started up a joint venture with Weyerhaeuser to try to find a way to build cellulosic biofuels business.
We looked at 100 different feedstocks, 50 different technologies. Some of this stuff is really hard. There are certain renewals that have become more competitive on an unsubsidized basis, things like wind and solar. We have those both in our portfolio primarily kind of own use applications. And you have to ask yourself, do I have a distinctive competency that allows me to compete in some of these segments?
And I would say that in wind and solar, I'm not sure that we do. In biofuels manufacturing, Pierre has got projects underway at his refineries to begin feeding soy or canola or used oils from cooking to create biofuels in the refinery. So we've got some distinctive competencies there. So you can always go out and buy things and perhaps add those competencies. Those have not been strategies we've chosen to pursue at this point, but we continually review that.
So it's a part of the discussion. We do a lot of work through our technology ventures arm, which is a venture capital company we have that goes out and spends a lot of time with small companies with new and interesting ideas. We make some investments in those companies and learn. So we'll continue to evaluate how we're exposed to the range of these different alternatives. And over time, if the market changes, I talked about winning in any environment, security analyst meeting in another year in the future where the environment is one where that's a much more kind of current and pressing competitive issue, we would certainly talk about that.
So it's a part of normal business, but our exposure right now is more on the research and early learning phase. But frankly, that's where most of these technologies continue to be.
Thank you. And my follow-up question, probably more for you, Jay, is just looking at the Duvernay, and I appreciate it's early days and it's a number of wells, but can you benchmark the Duvernay for us against the Permian using similar metrics, what you see from that region? I know my Canadian peers would appreciate it.
I think the best way I can characterize it, we rather than benchmarking individual performance metrics, again, it's the total value return that we get. And what makes the Duvernay particularly good for us is that we're in the condensate window. The condensate commands a premium as it goes into as a diluent for the oil sands in Canada, and we sit between the source of that diluent and the consumers. So we're actually well positioned. When you put all that together, we've seen the same kind of improvements in the unit development costs coming down.
We've seen the we ought to see continued improvements in our unit operating cost as scale builds. We've largely been in an appraisal and land retention strategy up until this year, we're now moving into the 1st development strategy. So I would expect to see those unit development costs continue to come down fairly significantly as we move into full development mode.
Hey, Brendan, the thing I might add and Jay is talking about unit development costs and overall economics. Each one of our unconventional plays, they benchmark all the same metrics and so while the plays can be different in terms of depth and rock and lateral length and how mature the supply chain is in a given area. They're benchmarking all the same things. They're sharing all the same lessons and the performance vectors are all moving in the same direction. They may not be apples to apples comparisons in every case because of some of the geologic differences, But the fundamental approach to developing and getting better is very applicable across all of these and it's moving very rapidly across all these different basins within our system.
Okay. We had a couple of questions upfront here and then Roger, I'll come to you.
Yes. Hi, good morning. Thipan Jofflingham from Exane BNP. I just wanted to come back to cash and a couple of questions. I think from last year's Analyst Day, you provided more of an explicit framework for 2020.
And we talked about the headwinds for 2018. But I just wanted to clarify, were there any are there any changes in terms of the cash framework to 2020 vis a vis 12 months ago, please? And then just on the follow-up question, I'll put it out there as well. Mike, many some of your super major peers have put out more explicit targets on cash return. And today, I think you've very much said there's a return of surplus cash.
Can you I mean, is it right to think that the priority really is with that excess cash that the large majority is going to come back through a buyback for the next 2, 3 years. I'm just trying to understand why you've left sort of more a vacuum for the market to understand what the exact cash return is on the buyback. Thank you.
So I'll let Pat start on the framework.
Yes. I don't think there's really substantially been a change in the framework. There has been we did acknowledge that our sensitivity per dollar of Brent has now expanded to $4.50 per dollar of Brent per year. And that's really a function of the fact that we have stronger margins and stronger production and that's really what's widening out that sensitivity. I think, if you're talking about a $60 price level as opposed to this year as opposed to say $50 or in prior years even lower than that, in those earlier years we were generating taxable losses in certain of our jurisdictions around the globe.
When you get into the $60 range that gets alleviated to some degree or another. And obviously, if prices are higher than that, then that becomes even more alleviated. So that factors into what we have talked about as being deferred tax headwinds. So going forward, our deferred tax headwinds, I think are going to be much less substantial than they were in the more recent years. So that would be the other factor I would call your attention to.
Okay. And so the comment on buybacks, some of our peers have been more explicit, but I would also just observe that it's kind of we will do it if price is this, if my balance sheet gets to here, if my asset sales get to there, we could have put a whole bunch of qualifiers on there and I could give you a number that might not mean much because it's so qualified that it gives me enough wiggle room to just say, well, this didn't happen or that didn't happen. What I intended to do is say, this is what we will do. We intend to do this. Our over a long over a long period of time.
So we're not just buying at a certain point in the share price cycle, but we begin a program that we can continue to prosecute diligently over an extended period of time and that certainly is our intent. So rather than give you a kind of a construct that says we subject to, we're going to give you a construct that says when we begin, we'll tell you we're starting and this is exactly what we're doing. Okay, Roger, and then I'll come back here.
Thanks. Roger Read, Wells Fargo. Kind of coming back to the cost thing, probably a question mostly for you, Jay. But if you kind of break it into 3 broad categories, kind of uncontrollable costs, thinking like oil price fell, diesel prices fell controllable. So your things internally where you're just looking at true kind of spending costs.
And then the third part, if you think about it as kind of the digital age coming forward, if you broke it in like a pie chart, kind of where has that been in terms of the 14 to where we are today? And then as you look forward to say 2020 since that's the forecast, would there be any change in those three components? And if so, kind of what do you think biggest driver that would be?
Yes, it's hard to split it up. We don't think about it maybe in those same terms. Even if the whole market is coming down, our contractors and vendors don't volunteer to give us money back. So you've got to go out and you've got to go get it. So to a certain extent, it's all controllable.
I think about it more in terms of what are the costs that we're getting from our suppliers and contractors? What are our activity levels? We definitely control those. And then what's our efficiency in that spend? And so we've really focused on all three of those.
But I would say going forward, it's much more about the efficiency than it will be about first line costs out of goods and services and contractors and suppliers. I do think the digital opportunities are untapped for the most part. There is huge opportunity, a, to get more out of our facilities with digital, but also to get a lot lower cost structure as we really look to capture some of the capabilities. And you're going to hear some of that later on today in the poster sessions. But this is just the beginning.
I think the digital transformation is going to give us some opportunities to continue to bring that cost structure down pretty significantly.
Okay. And then did you have a follow-up, Roger?
If I could. On the Gulf of Mexico, the 2 big discoveries you mentioned either tiebacks or potentially standalone. I recognize appraisal drilling still needs to happen. But within your sort of $18,000,000,000 to $20,000,000,000 of CapEx is we think about 2020 that's potentially has a home already designated or is that something that has to push something else out? Just curious on how you're thinking about it.
Everything has to push something else out, Roger. I mean, as we open up headroom there, we've got lots of different choices. And I said earlier, we intend to fund the best things. And they all have their attributes and there's questions about sequencing and timing. The one thing I would say, the Gulf of Mexico, we really have seen costs come down.
And Jay talked about a number of the things that are enabling a different approach to development there. Rig rates are off dramatically, but not only are rig rates off, we're drilling a lot more we get through 10,000 feet of hole a lot faster today than we were just 3 years ago. Different approaches to facility design and standardizing topsides, standardizing other components and then the long tiebacks. So extended reach subsurface pumping is giving us the ability to think about filling all edge and optimizing the infrastructure there in ways that we really couldn't think about or didn't think about not too long ago. So we'll look to develop these things in the most capital efficient and economic way and we'll look at how they fit in versus all of our other alternatives.
And so it's nice to have things like that coming in and we'll get them to be the best they can be and then we'll form the best of those right here in the middle. And I think we're down to this is probably about our final question.
Okay. Well, thank you for letting me ask the final one. Rob West from Redburn. I'm going to make it 2 if I can. The first one is on the priority between dividends and buybacks, I noticed you put the progressive dividend further up the list.
And I appreciate there's a balance between growing the dividend and paying a buyback. Really, this is just a slightly cheeky attempt to get you to tell us what the progressive rate of dividend growth might be. I mean we know it's a 7% history. We know it's sort of 3% to 4% last year. Should we assume that you'd look to continue at that sort of pace before doing a buyback?
So that's the first one. And I appreciate anything you could say on it. And then I'll come back to the second
one. Okay. So my slightly less cheeky response is we look at sustainability and we want to be sure that as we increase it that it works not only in the current context, but it works out into perpetuity. And so we don't raise the dividend lightly. It is not a simple exercise.
Pat and her team do extensive analysis. We have good vigorous discussions and a dividend increase is viewed as a commitment into perpetuity. And so that's what drives our thinking, not any historic rate or anything else. We want to be very competitive, but we also want to be sustainable. And that so I can't give you a formula for that.
Okay. It was a cheeky question, as I said. What about a different one on the CapEx? So you talked about that $9,000,000,000 to $10,000,000,000 range on the base in the shale business. How set in stone is that?
So some of the E and P peers you have, I guess, we could expect that with volatile oil prices, they'll dial it up and dial it down much more. But do you see that as something you'll pretty much maintain within a reasonable oil price range?
Well, we laid it out over the next 3 years, okay. So there was a time when we only did capital spending every 12 months at a time and we've now seen the light in terms of value to you giving you a little bit longer view of those things. So we laid out for 3 years that's our intention over that period of time. We didn't break out base or shale and tight, but base is non trivial. We've got a large base business and Jay mentioned as projects like Gorgon move into the base, over time we'll need to add some more wells at Gorgon to keep the plant full, okay.
So that would be base spending because even though those are prolific wells, over time individual wells will deplete and need to be replaced. So we've got significant spending in there that is not shale and tight and then we've got the shale and tight spending and as we've said a couple of times, our plan there is the same today as it was a year ago and same as it was 2 years ago is to build a highly capital efficient approach to development. And we believe that that budget will allow us to do that and maintain those efficiencies.
But just to be clear, the base we're talking about, the $9,000,000,000 to $10,000,000,000 is on today's base without all these new capital projects added into it. So as those come in, that base capital spend will have to increase over time. But we're telling you what it looks like using that today's base. Okay.
Thank you.
Okay. That wraps up the Q and A portion of the session. Before we close down the webcast, I'd actually like to cover 2 quick closing slides. First on this slide, I want to address an important aspect of our culture and the expectation that we conduct our business responsibly. This is an expectation I hear from employees, I hear it from investors and I hear it from other stakeholders and it's one we take seriously.
The United Nations' sustainable development goals are shown on the left. We're contributing to each of these goals as we enable human progress around the world. On the right side you see our report Climate Change Resilience, A Framework for Decision Making which we published last week. This is our 2nd release and it builds on the first with more detail. In this report we address governance, risk management, strategy, actions and metrics and the questions we often get from investors and other stakeholders.
We're committed to ongoing engagement on climate and on other issues. And finally, I'd like to reiterate today's key headlines. First, we've issued new guidance through the end of the decade. Organic capital spend between $18,000,000,000 $20,000,000,000 per year. Asset sales between $5,000,000,000 $10,000,000,000 dollars upstream cash margins grow between $1 $2 per barrel and our sensitivity to oil price increases to $450,000,000 of annual cash per dollar of Brent price.
2nd, we're committed to competitively growing our dividend and we expect to generate surplus cash and be in a position to resume our repurchase program. 3rd, we've increased our shale and tight resource base to 17,500,000,000 barrels. We've increased our Permian unconventional acres to 1,700,000 acres and the production outlook for year end 2022 to 650,000 barrels per day. And finally, we expect a 2% to 3% production growth rate in our base plus shale and tight portfolio and $9,000,000,000 to $10,000,000,000 in annual capital spending. I believe all of this supports Chevron's compelling investment and value proposition.
As we deliver, I'm confident many of you will come to that same conclusion. I appreciate your time today and your interest in Chevron. That concludes our live webcast and we'll now head to a break here in the room. Thank