Chevron Corporation (CVX)

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Chevron Corporation (CVX)

Q3 2009 Earnings Call Transcript

October 30, 2009 11:08 am ET

Executives

Dave O'Reilly – Chairman and CEO

Pat Yarrington – VP and CFO

Analysts

Doug Terreson – ISI Group

Robert Kessler – Simmons & Company

Paul Sankey – Deutsche Bank

Evan Calio – Morgan Stanley

Arjun Murti – Goldman Sachs

Jason Gammel – Macquarie Research Equities

Paul Cheng – Barclays Capital

Mark Flannery – Credit Suisse

Mark Gilman – Benchmark

Neil McMahon – Sanford Bernstein

Pavel Molchanov – Raymond James

Presentation

Operator

Good morning. My name is Sean and I will be your conference facilitator today. Welcome to Chevron's Third Quarter 2009 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 instruction will be given at that time (Operator instructions). As a reminder, this conference call is being recorded.

I will now turn the conference over to the Chairman and Chief Executive Officer of Chevron Corporation, Mr. Dave O'Reilly. Please go ahead.

Dave O'Reilly

Thank you, Sean. Welcome to Chevron's third quarter earnings conference call and webcast. On the call with me today are Pat Yerington, our CFO and Jeanette Ourada, General Manager of Investor Relations.

Our focus today is on Chevron's financial and operating results for the third quarter of 2009 and we'll refer to the slides that are available on Chevron's website. But before we get started, please be reminded that this presentation contains estimates, projections, and other forward-looking statements, so please review the cautionary statement on slide 2.

Turning to slide 3, which provides an overview of our financial performance, let me cover a few points. The company's third quarter earnings were $3.8 billion, or $1.92 per diluted share. Our third quarter 2009 earnings were down 51% from the third quarter of 2008. Third quarter earning were 120% higher than second quarter 2009, and Pat will be discussing this shortly.

Return on capital employed for the trailing 12 months was 12.6% and the debt ratio was 10.4% at the end of the quarter. Our net cash flow position this quarter was positive by nearly $2 billion after funding our capital program, dividend commitments and $700 million in pension contributions.

This positive cash generation was underpinned by higher crude oil prices and strong cash margins from our major capital projects.

I'd like to give a brief recap of our strategic progress in recent months, so please turn to slide 4. Our industry-leading expiration program has continued to success with the recent discoveries in Angola and Australia.

In Angola, we announced the Block 0 discovery and the Greater Vanza Longui Area. The discovery well encountered over 225 feet of net pay. This discovery extends the trends of undeveloped natural gas condensate and crude oil discoveries that are currently undergoing an appraisal.

We also announced three natural gas discoveries this quarter in Carnarvon Basin offshore Western Australia. The three discovery wells Clio-2, Kentish Knock-1 and Akalase [ph] are all located in Australia's premier hydrocarbon basin, where Chevron is the leading leaseholder. All three blocks are Chevron-operated and add to our significant gas resources in Australia.

Our upstream major the capital projects continue their strong performance. Offshore Nigeria Agbami project reach nameplate capacity of 250,000 barrels a day in August 2009. This was over four months ahead of schedule.

Production efficiencies to-date has been excellent and volumes are steady these target rates. Offshore Angola, Tombua and Landana is Chevron's most recent major project for Block 40. It achieved first production in the third quarter and drilling of additional wells continues and peak product of the 100,000 barrels a day is expected to be reached in 2011.

In the United States, we recently enter feed for deepwater Big Foot project. Big foot is located in the Walker Ridge area of the Gulf of Mexico 35 miles south of Chevrons’ Tahiti field. The development facility designed as a Tension Leg platform and it would be the deepest build to date. Chevron is the operator with the 60% interest. In Australia we announced a final investment decision for Gorgon. This occurred in September and has a significant milestone for the company.

We expect Gorgon to add to our reserves and provide stable and steady production for decades to come. The project has around 40 trillion cubic feet of resources, which is equivalent to about 6.7 billion barrels of oil. Gorgon is three-train, 15 million metric ton per year and is well positioned to meet growing Asian demand for natural gas, and it will be a legacy asset for the company.

Following the final investment decision milestone, we’ve assigned long term sales and purchase agreement representing greater than 40% of our Gorgon off-take. We also held up agreement in place for a roughly another 40% of production and expect to finalize these agreement in the coming months.

Also, in Australia, we recently signed agreements with two companies to join our Wheatstone LNG project. Together the two companies will be 25% partners in the project’s first two LNG trains. Chevron will maintain our current interest in Wheatstone and Iago fields, as our partner’s natural gas supply will be coming from their own field.

This establishes Wheatstone as an LNG hub, and we anticipate that additional Chevron and third party gas will be available for a future expansion, now that foundation project is in place. For example, our recent Clio l [ph] discoveries to provide additional volumes; and this will support Chevron’s strategy to commercialized gas in Australia, and also enhance it’s project economics.

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