Good morning Jack. Mike, welcome. We're so glad to have you here. We're so grateful for your participation in this symposium and our event last night. And I think one thing I want to remind the audience of that I heard was that Chevron since inception has donated more than hundred million dollars to the University of Texas. That is awesome and we're so grateful. Thank you.
I will also tell you, Mike, that our symposium attendance and registration this year is about 200 more people than we had last year when Darren Woods was our keynote. Thought you'd might like to know that.
Listen, a couple of softballs to get us started. Yeah. How is it that the Standard Oil Company of California decided to move to Texas?
Well, we finally figured it out after 147 years. Good barbecue, good music, and good football. What else do you need?
Well, that's a good point.
No, it's seriously this is the energy center of the universe. And whether you look at the companies we partner with, the technology that we rely on, the universities who we partner with, recruit from, this is where it all comes together. And there's no better place for an industry like ours or a company like ours to connect with the vital partners that are essential to our success. Our roots go back to California. We made the first commercial oil discovery in the state in 1879 in Pico Canyon. And for a long time, California had a thriving energy economy, thriving oil and gas economy with many storied companies that were headquartered there. Sadly, that is not the case today, and this really is where our company should be.
Well, we're glad to have you. Thank you very much. Let's get right to it. Let's talk about the Middle East. You know, for a while it looked like oil prices were going to be able to remain reasonable as this conflict went on. It looked like producers and countries had figured out ways to work around the obstacles in the state of Hormuz, but now it looks like we've entered a stage where oil prices are over $100 a barrel and may stay that way for a while. And that apparently there seems to be no early resolution of this conflict. What do you see the impacts for the next six months being if the strait continues to be closed or as closed as it is and if this does not get resolved quickly, what's your forecast?
Well, forecasts on this have been very difficult because it's been such an evolving situation. You know, in the early days there were a lot of very kind of doomsday type scenarios. It could get bad very quickly and the market ran up very fast and you know for many years when we do scenario planning a closure of the Strait of Hormuz is one of the most severe market constraining scenarios that we looked at and so we were prepared to move pretty quickly to keep people safe. We have thousands of employees, hundreds of expatriates. We had a lot of people we evacuated out of the region, families as well as employees. Securing infrastructure and assets becomes very important. Being tightly tied to the intelligence sources in multiple countries around the world to have as much information as you have can to keep your operations reliable. You know, the world needs the energy that you produce and we have people in many many different countries in the region. We had six ships that were stuck for several months with you know a few hundred mariners on those. Thankfully they've all been able to transit out of the strait now. But the early days were marked by a lot of uncertainty and a kind of this is the worst shock we've ever seen.
What I think people missed in the beginning is we actually had some pretty good buffers in the system from a market standpoint. Commercial inventories were very high coming into the year. Most people expected soft commodity prices. Strategic stocks around the world in strategic reserves were also relatively full and often overlooked, but there was a lot of inventory floating on the water of sanctioned barrels from Russia, from Iran, from Venezuela that buyers were really reluctant to take. So there were very few buyers. So a lot of ships had been loaded that were floating around with oil with no place to go. As we went through the first few months, we saw all of those inventories drawn down. The US relaxed the sanctions on the floating inventories. Strategic reserves were released. Commercial inventories were drawn upon and that bought time. The other thing that bought a lot of time is China really shifted their behavior very quickly. They banned exports of certain products which slowed down their refining runs and therefore their refining demand. And they had been building strategic reserves at a very rapid rate. They came into this with strategic reserves that were larger than the rest of the world combined and had been buying to build even further. They slowed that and actually drew from some of their reserves for a period of time. So they took a lot of demand out of the market. And then the supply response was able to extend the period of time when we could get through. We had the OPEC which allowed a lot of oil that was stuck in the Gulf to get out. That bought more time and so the reason prices didn't go to the levels people initially thought is markets worked and all these mechanisms helped to mitigate the price and supply risk.
Those have largely now played out and we don't have nearly the buffers in the system that we did when it began and we're now seeing you know the intensity of the conflict pick back up with ships and energy infrastructure being targeted in both directions these days and not having those buffers which is why I think you've seen prices firm. I think it's going to be harder to envision a scenario where prices soften quickly as we saw earlier in this and I think it's very hard to predict where it goes. Negotiations don't seem to be yielding much progress at this point in time and both sides seem to be digging in more than they are looking for a way out and so I think the risks remain to the upside as we look over the next few months.
Well, I know you've gotten pressure, the oil companies have gotten pressure from the administration about high diesel prices, high gasoline prices. I guess the view is that that's the market. That's the market we're in right now. There's not much you can do about it. Is that fair?
Yeah. You know, people buy gasoline and diesel fuel. You know, people in this room buy crude oil, but not the average consumer. And so product prices are really what people feel, right? And we've seen refining infrastructure also impacted at the same time as we've had this conflict in the strait. Number one, the Gulf States have export capacity. They refine more oil than they use in their economy. So they typically are exporting products. That has not been happening to any meaningful degree. And then the second thing that is a new phenomenon is Ukraine has developed the capability to hit Russian energy infrastructure regularly almost on a nightly basis. It seems they hit another refinery inside of Russia. Russia was also a product exporter to Europe primarily and Russia is no longer exporting the level of products they have. So you've seen diesel in particular, gasoline not far behind it really tighten up as well. Not because there's a lack of crude oil, but because there's a lack of refining capacity. And so those two things are going on simultaneously. Something we really haven't seen before. And I think everybody's concerned that that compounds the risks that we face right now.
So, you don't see things changing anytime soon? Fair.
I wish I could tell you that I saw some reason why things would ease, but it's difficult right now to see that happening.
All right, let's switch gears. Let's talk about Venezuela. I know everybody wants to hear your thoughts about Venezuela. I guess my first question to you is Venezuela, Chevron chose to stay in Venezuela when the industry was nationalized. Exxon left, ConocoPhillips left. What was Chevron's thinking for deciding to continue to stay in the country and to continue to try to operate there?
Yeah. Well, this is the nature of our business is it's a very long cycle business. We've been in Venezuela for essentially the last 100 years and as in other countries the politics ebb and flow over that period of time. There was a period when Venezuela was very open to investment from outside investors. You saw production grow, saw the economy grow and Venezuela in the late 90s was a wonderful place kind of the jewel of Latin America. Things changed and we saw a different political regime. We saw the rules of the game change for our industry and some companies chose to leave. We chose to stay and try to work our way through that. You never know at the time if you're making the right decision or not. And we've stayed through 20 years of civil war in Angola, the hot civil war. I could give you other examples where things have gotten difficult and you really have to decide you know do we stay or do we go and at the time I think you could have argued that the people who left were making a very good decision to reduce exposure and then seek redress through legal means and they both the companies you mentioned that left have secured arbitration awards of billions of dollars. It's been more difficult to actually collect on those but they certainly are in the queue of creditors now they're trying to continue to collect.
We stayed on the ground. We had unwisely in retrospect made some loans to the state companies. So we were owed billions of dollars ourselves and stayed on the ground to find a way try to find a way to work through it with the Venezuelan government with the US government which imposed sanctions for the last roughly decade that constrained our ability to operate and narrowed what we could do. When the Ukraine war began the administration, the Biden administration came to us and said what can we do to help improve the supply situation? And one of those was to bring more Venezuelan crude to the US, which at the time you could not do, was prohibited by US law. And we began to recover some of the debt that we're owed. We've recovered almost all of it now. And as we've seen a new hydrocarbon law passed and some other changes in Venezuela, they have now reached a point where they're welcoming investment. The investment terms are better in terms of getting a return. We can mitigate how much in exposure we have in terms of capital extended into the country at any point in time and recently announced that we intend to grow our business there by about 2x over the next five years, 7 billion dollars of investments over time but we'll manage the risks very carefully as we go forward and we will see how it turns out. We've got a good team on the ground, wonderful Venezuelan national employees who are some of the brightest people in the country and some of the brightest people in our company and they've done a fantastic job of preserving our ability to operate in a country where things have been demanding and so we're leaning back into that a little bit today and we'll see how that plays out.
Yeah. So the seven billion dollars that you announced over five years is that money that's generated by the operations in Venezuela or is that new capital coming in from your other operations?
That'll be generated by the three joint ventures. We're a minority partner in three ventures in the country and the revenue. We make all the crude sales. So we control all the revenues that they generate and we will be able to pay taxes and royalties that the ventures are legally obligated to pay, collect debt or distributions in the form of dividends that the owners are entitled to and then reinvest in the business. But we'll live within the means of those ventures ability to generate cash, not bring in cash from the outside.
What will it take? What will it take to start bringing cash from the outside into Venezuela?
Yeah, I think for our companies and I can only speak for us. I think others are looking at this, including some people in the room most likely. I think you want to see some evidence that the environment really has become a better investment environment. I think some of that likely eventually becomes elections that the world supports the outcomes on. Certainly, Secretary Rubio has spoken on multiple occasions about that as part of the plan for the US government. And so I think people are going to look for tangible signs and they'll look at companies like ours that are maybe taking more risk to see how it works out for us.
Right. Let me talk about the administration. And on August 3rd, the president in a Truth Social post responded to an interview that he had just given saying, 'The only thing he conveniently forgot to mention is that without the genius, foresight, strength, and stability of the Trump administration, the oil industry in our country itself would be dead.' As an example, they threw Mike and Chevron out of Venezuela, but now they're back, far bigger and stronger than ever before. Expecting to make a fortune. So my memory is that it was actually the Trump administration that threw you out of Venezuela. Is that or revoked your license? Is that a fair statement?
The Trump administration did impose sanctions which made it more difficult for us to operate.
And have you had an opportunity to thank the president for what he's done for your company?
I haven't spoken to the president since that Truth Social post. But I do speak to the president from time to time and many others in the administration more frequently and look, you know he uses Truth Social to express his views and I follow Truth Social but the basic point he made is one that I actually did acknowledge towards you know probably a little bit later into the interview and that is this administration has been a real supporter of this industry. From day one they've made energy a priority. They created an energy dominance council which brings two critical departments interior and energy together to talk about energy policy. They took swift action to address consumer choice which was being very constrained by actions of the prior administration on things like vehicles. There were mandates that were going to constrict people's ability to have gas fired appliances in their homes or in their businesses. So they quickly moved on that. They reversed LNG export bans or permitting constraints on LNG exports. They opened up access to resources in this country. They passed tax reform that encourages investment. They've been very supportive of permitting reform and have taken a lot of actions to improve the permitting environment. And so the administration has been a big big supporter of this industry and the actions they've taken I think encourage markets and investments competition and they're all things that we feel are good for our economy. They're good for our security and so I think you need to be sure that they understand that we appreciate that and that's maybe the point of the Truth post. And so next time I see the president I'll make sure to reiterate some of those points.
That's great. So you've got a business at Chevron called your new energies, Chevron New Energies. A lot of the one thing the administration has done is and the Congress have rescinded a lot of the benefits or subsidies for solar wind the kind of new energies that I know Chevron and Exxon and the other companies are trying to grow. Has that impacted your new energies business? The fact that a lot of the tax benefits for solar and wind and other renewables have been rescinded.
It hasn't really affected our strategy. As we were looking to build out some lower carbon business lines, the first thing you look at are technologies. Are the technologies feasible? Do they actually work? You then need to see if they are going to be economic and scalable and then you need to find the capital to start to scale these businesses. It's very dangerous to build a business and invest a lot of capital based on markets that are created by government fiat and government incentives because they can come and they can go. Some remain durable. Some of the biofuels incentives in the US that actually passed under President Bush, George W. Bush have been very durable. Now, they fused agriculture policy and energy policy together, and so they kind of cut across geographic and political lines in a way that's a little bit unusual, and they've proven to be pretty durable. Some of these other things that passed under the so-called Inflation Reduction Act didn't prove to be as durable. But we never really put billions of dollars of capital into play on a belief that those businesses would sustain and that those incentives would sustain. So we made more modest bets in a number of different technologies.
We're about ready to start up one of the world's largest green hydrogen projects. In fact the largest green hydrogen storage I believe anywhere in the world will have more energy storage capacity at one site in Utah than all the grid connected batteries in the entire United States owned by every utility in the country and we're in the process of starting that facility up right now with a good contract to sell the green hydrogen to a power producer that will then move it into California as part of California's energy supply. We'll get a good rate of return on the project given the nature of the customer and so we've made investments in carbon capture and storage. We continue to work on geothermal. We're working on hydrogen. We're drilling exploration wells for lithium in East Texas and into Arkansas in the Smackover. Trying to explore a business to extract lithium salts from the water resources in that area to feed the lithium battery sector. So we continue to make investments in new energy technologies that we think will be economic on an unsubsidized basis. And so the change in policy here really didn't affect our strategy because we never banked on those in the first place.
I think in 2021 Chevron announced in connection with your new energies business a plan to achieve net zero in scope one and scope two emissions by 2050. And I think Chevron has recently said they're not on track to meet those goals today. Is it just that the timeline has moved?
Yeah. So we only committed to net zero scope one and two for our upstream business, not our entire business because we saw a path within the upstream to mitigate those emissions and believe we can get them to net zero by 2050. Now net zero doesn't mean zero emissions. It means net of offsets and credits and other things which are a growing part of the lower carbon market are nature-based offsets and other mechanisms that generate credits. Some of those are not growing as fast as it looked like they would a few years ago. And so the challenges still remain. We've made significant reductions in our own scope one and two emissions in our operations. We're on track to meet the goals that we've laid out publicly to almost the end of this decade and we don't have specific targets after that but it remains a part of our commitment. We're reviewing our business plans for next year and it's a key part of the planning and capital allocation process our emission reductions projects and these things you know the interest in climate will move with public sentiment and other events. A few years ago, it was at a very high level. Today, affordability and reliability and supply, even in places like Europe that were in the lead on this, have become very essential again. And we've always advocated for a balanced approach to affordable, reliable, and lower emissions energy and continue to believe that's the right approach from a policy standpoint. And that's how we run our company.
