David Westin, Permian Basin, Bloomberg discussed on Bloomberg Best
And Ed. Bloomberg's Alix steel and David Westin spoke with Chevron CEO, Michael worth about the strategy and its potential impact on the global oil market. We've got the largest position in the Permian basin with two point two million acres about one point seven or that in the Midland in Delaware basins. So really we have a tremendous starting point with land. We've held this land for decades. So we don't have a big cost basis in it. And it doesn't have a royalty override on most of it. And so we actually keep all of the revenue that we generate as opposed to paying a royalty owner we've operated in factory drilling type operations for decades in the San Joaquin valley in Thailand, and Indonesia and so doing. Running operation where you drill the same types of wells, many many times with a large fleet of rigs is something we've done for a long time and something we're very good at two things that wind up coming out with the independent producers one is that take takeaway capacity has been issue pretty much across the board in the Permian and two were there you go with the oil price when they're cash crunches. They have to shutdown operation. How does that change the conversation for you as a major well as a company with a very large and transparent production profile are? Shipping is something transportation is something that many of the midstream providers compete for. So they would like to see us underwrite new pipeline capacity. We've got a strong balance sheet, and we'll get a clear commitment to growing our production. So we actually don't invest in mature infrastructure ourselves that we find that. Those were building pipelines are willing to offer us attractive shipping rates and terms. So we really haven't been impacted by the takeaway capacity on your second question as an integrated oil come with a large downstream business. Petrochemicals business were somewhat hedged against some of the quantity price cycles in oil that can hit somebody who's only an upstream furnace or particularly someone who's only one basin from out are you less vulnerable to price shocks and the downside because your balance sheet can sustain you. And because you have these other businesses to offset purchasing independent that's going to have to send him production. We get like thirty. Well, that's a very good point yesterday. At our investor day. We talked about the fact that we have the strongest balance sheet. Amongst our major competitors. The lowest net debt ratio. And we've got the lowest break-even so price downturn. We're actually able to cover our capital spending in our dividend at a lower price than our competitors. And because we've got the strongest balance sheet, we also conservative and a longer creative low oil prices than than many of our competitors. What about the short medium long term? I mean to what extent are you taking the money? That's readily available off the table next three or five years and not investing as much as maybe some others are in the longer term opportunities for the nice thing about the shale is it cycles so fast. And so you put cash into it. But within two years that caches flying right back. So seventy percent of our investments today is in short cycle projects that return cash within just two years. So we've got plenty of cash flow coming. In fact, last year was the strongest free cash flow in the history of our company that play of cash to invest in the longer term projects and return to our shareholders. We've got a global portfolio of what I would call medium and longer term projects that are underdeveloped. And what's happened with shale is all of those projects have to get more economically competitive because we've got such an attractive option to invest in the shale deep water projects, for instance, in the Gulf of Mexico several years ago took a very high oil price to deliver the kinds of returns that would warrant investments are engineers have found ways to approach design equipment standardization and execution in different ways. Now, which brought the break even costs down in the economics are much stronger on those projects today as you say you get to pay back in jail faster, but you have to keep putting money in also does that really entail an on going commitment to further capital investment? Well, any individual shell? Well has a production profile where it will pick quickly. And then it has a kind of a long tail as you grow hundreds. And then thousands of those wells those long tails accumulate and become quite a large wedge of production. That actually throws off good cash flow at little or no investments for a long time. The other thing that is is really different about the. Shale is the stacked pays or the stack layers in which you can drill and produced from in the Permian are there many more of them than we see in other shale plays. It's one of the reasons why there's a lot of drilling to be done is because there's a lot of resource there. And so this will last for very long time. Today, David point. I mean, if you wind up having say a longer cycle project you've done a lot of money off the bat, but then over time, you just have your outback's snits. Nice free cash flow cow, right? But for sale you may have a good sort of initial production rate. But that decline rate is also really steep. So the constant cash burn isn't that you have to wonder if contending with very different. I think for for a small company where that's all they have that becomes a very real issue. And particularly some who have just ramped up and ramped up. We've come to a point where we got twenty rigs working more holding flat at those twenty rigs are production with twenty rigs. We'll go from three hundred thousand barrels a day last year to six hundred thousand barrels a day in two thousand twenty two nine hundred thousand barrels a day in twenty twenty three at basically, the same capital spin. So you can see this growing production at a level is capital. Spend which really allows the cash flow to begin.