Chevron CEO issues his BIGGEST oil warning yet — Transcript

Full transcript

1. 0:01Welcome back. A blowout quarter for
2. 0:03Chevron with record earnings, record US
3. 0:06production, faster than expected
4. 0:08integration with Hess, and a new deal
5. 0:11with Microsoft to power up a data center
6. 0:14in Texas. Joining me now is the chairman
7. 0:16and CEO of Chevron, Mike Worth. Mike,
8. 0:19great to have you. Thank you so much for
9. 0:21joining us.
10. 0:23>> You're welcome, Maria. It's good to be
11. 0:24with you.
12. 0:25>> Well, it was an incredible quarter. Net
13. 0:26earnings at 12.1 billion. that was more
14. 0:30than $6 a share. The company's highest
15. 0:32quarterly profit in at least six years
16. 0:35on revenue of $70.1 billion, up 56% from
17. 0:40a year ago. Can you give us the main
18. 0:42takeaways of the quarter and what we
19. 0:44should understand best about what took
20. 0:47place in the last three months?
21. 0:50>> The story of the quarter is one of
22. 0:52consistent execution, strong production,
23. 0:55and record US refinery throughput. We
24. 0:57had assets around the world that ran at
25. 1:00or near full capacity. We set a
26. 1:03production record in the US at nearly
27. 1:052.1 million barrels of oil equivalent
28. 1:08per day. We had record refinery
29. 1:10throughput with runs greater than a
30. 1:12million barrel a day and barrels a day,
31. 1:13an all-time high here in the US and
32. 1:16several refineries set all-time records.
33. 1:19All [snorts] of that critically
34. 1:20important at a time when the world
35. 1:21energy system has been stressed and the
36. 1:24need for supplies to markets and
37. 1:26customers has never been higher. I'm
38. 1:28really proud of our people in the
39. 1:29quarter they delivered.
40. 1:30>> Yeah, congratulations. And you've been
41. 1:32investing in this period. You know, one
42. 1:35of the highlights obviously was much
43. 1:37higher oil prices. And Mike, that's
44. 1:39because of this war in Iran. And I want
45. 1:42to get your take on that because the
46. 1:44last time we spoke there was serious
47. 1:46worries about security about uh ships
48. 1:50transporting through the straight of
49. 1:51Hormuz. What can you tell us as this war
50. 1:53has escalated once again?
51. 1:57>> Well, I'll start with your your comment
52. 1:59about growth. Uh our production was up
53. 2:0220% yearonear uh 5% uh just since the
54. 2:06first quarter to the second quarter. So
55. 2:07we have been investing to grow
56. 2:09production and and bring energy to the
57. 2:11market. Uh the issues uh associated with
58. 2:15the conflict in the strait continue and
59. 2:18uh there there are new developments each
60. 2:20and every day. Uh we now see not only
61. 2:22the straight of Hormuz but the Red Sea
62. 2:24and the Black Sea have risks and
63. 2:26uncertainties. Uh so some of the uh the
64. 2:29challenges have expanded. Uh and uh the
65. 2:33risks to supply are very real.
66. 2:36uh we've seen demand in the world remain
67. 2:38pretty strong and China is perhaps the
68. 2:42uh unexpected part of the story in that
69. 2:45they've been able to reduce their crude
70. 2:47purchases which has taken a little bit
71. 2:49of the pressure off the demand side of
72. 2:51the equation as supply has had these
73. 2:53these challenges and these risks and so
74. 2:56uh inventories have been drawn down
75. 2:58around the world whether it's strategic
76. 3:00stocks or commercial stocks and the
77. 3:02situation remains somewhat fragile and
78. 3:05uncertain.
79. 3:06>> Well, has has the Iran conflict
80. 3:09permanently changed how you view uh
81. 3:12geopolitical risk and energy security at
82. 3:15this point, Mike? I mean, we're worried
83. 3:17about ships transporting and actually a
84. 3:20shutdown in in you know, shipping for
85. 3:24for these refined products.
86. 3:28Our
87. 3:28>> our thinking on this is evolving. We've
88. 3:31seen uh things like that happen over
89. 3:34over the past. I've been in uh in this
90. 3:37industry for 44 years. We've seen
91. 3:38conflicts in the Middle East. We've seen
92. 3:40conflicts in other parts of the world
93. 3:42that have uh created issues for for our
94. 3:46industry. Uh the industry responds in
95. 3:48the short term with rerouting of
96. 3:50supplies and uh and I think the the
97. 3:53industry's done well in this. The United
98. 3:54States has been a big part of the story
99. 3:56because as the biggest producer in the
100. 3:58world, the biggest exporter now uh to
101. 4:00meet needs of uh uh our allies around
102. 4:03the world, the US has stepped up to be
103. 4:06part of the answer here. Longer term, I
104. 4:08think you will see some changes in the
105. 4:10system. Uh we are in discussions uh with
106. 4:13Iraq about potentially entering uh one
107. 4:16or two oil fields there. And part of
108. 4:18those discussions would include a
109. 4:20framework that uh would allow uh the
110. 4:23construction of a pipeline that would go
111. 4:25north and then move to the Mediterranean
112. 4:28Sea and create a pathway for that
113. 4:30production to get to market that would
114. 4:32not have to go through the route today
115. 4:34which is uh through the straight of
116. 4:35Hormuz. And so I think you will see
117. 4:37changes in the energy system. It's a
118. 4:39little early to say what all of them are
119. 4:42uh as we deal with uh what's still an
120. 4:44evolving set of circumstances.
121. 4:46>> Well, well, thank you for that because I
122. 4:48know now you've got the Houthis
123. 4:50involved. They've been attacking assets
124. 4:52near the Red Sea. You've got Egypt. So,
125. 4:55Mike, what can you tell us about
126. 4:57infrastructure that has been hit as a
127. 5:00result of this war? Is there any reason
128. 5:02to believe that it's going to take
129. 5:04longer and longer to get that
130. 5:06infrastructure back in place?
131. 5:10Well, it depends on the particular
132. 5:11circumstances. Uh, in some cases, the
133. 5:14hits uh are relatively easily fixed. If
134. 5:16it's piping or tanks, in other
135. 5:19instances, if it's more sophisticated uh
136. 5:22processing equipment, uh that takes uh
137. 5:25more sophisticated and specialized
138. 5:27manufacturing to replace that equipment
139. 5:29and the lead times on replacing that can
140. 5:31be months or even years in some cases.
141. 5:34And so uh I think the uh the unfortunate
142. 5:36thing is that energy assets have been
143. 5:38targeted in this conflict. And what that
144. 5:41means is it degrades the capacity of the
145. 5:43energy system to meet global demand. And
146. 5:46how quickly that comes back will be one
147. 5:48of the things that determines uh when
148. 5:50markets actually get back to some sort
149. 5:52of a new equilibrium.
150. 5:54>> But but Mike, you've said that given
151. 5:55this disruption, you would expect oil
152. 5:58prices to remain elevated for some time,
153. 6:01right?
154. 6:04We've seen supply constraint. We've seen
155. 6:06damage to infrastructure and we have new
156. 6:09risks that I think will be priced into
157. 6:11the market on shipping for instance. So
158. 6:13shipping rates, shipping insurance and
159. 6:15the willingness of ship owners to go to
160. 6:18certain ports in the world is likely to
161. 6:21uh you know remain a question for for
162. 6:24some time to come. Uh as I mentioned
163. 6:27earlier the inventories around the world
164. 6:29have been drawn down. So some of the
165. 6:31buffers that have bought us time and
166. 6:33allowed markets not to increase the way
167. 6:36some feared that they might, those
168. 6:38buffers are uh are are greatly
169. 6:40diminished and uh the risks continue to
170. 6:43present themselves. And so I think what
171. 6:44that creates is a situation where the
172. 6:48price pressure is more to the upside
173. 6:50than it is to the downside. And uh and
174. 6:53so I I do believe that we're going to
175. 6:55see circumstances uh keep that pressure
176. 6:57in place here uh for for a time to come.
177. 7:01>> Mike, let me get back to the quarter
178. 7:03which was a blowout quarter and uh your
179. 7:06company's execution. It is also the
180. 7:08one-year anniversary since uh you closed
181. 7:11the Hess transaction and you said in the
182. 7:14quarterly uh analyst uh meetings that
183. 7:17you've achieved 50% more synergies with
184. 7:20$1.5 billion in synergies. Tell me what
185. 7:23this Hess acquisition has done given the
186. 7:26importance of the uh Guyana facilities
187. 7:30and opportunity that you are in right
188. 7:32now.
189. 7:34The headline on Hess is what looked like
190. 7:36a good transaction at the time we did it
191. 7:38looks even better today. The integration
192. 7:41has strengthened our portfolio. We
193. 7:43accelerated financial delivery with 50%
194. 7:45more synergies 6 months earlier than we
195. 7:48expected. So a billion and a half
196. 7:50dollars rather than a billion and
197. 7:52midyear 2026 rather than end of year
198. 7:552026. We're seeing strong free cash flow
199. 7:58roughly double uh what the incremental
200. 8:00dividend cost is. So we we use shares to
201. 8:04transact for the company. The dividend
202. 8:06that we're paying on that share is only
203. 8:08those shares is only half of what the
204. 8:10free cash flow generation has been. So
205. 8:12the transaction is accretive on a per
206. 8:14share basis on free cash flow. We've got
207. 8:17a bigger stronger portfolio. Uh it
208. 8:19enhances and extends our growth uh into
209. 8:21the 2030s. And perhaps most importantly,
210. 8:23we've added a tremendous uh talent to
211. 8:27our workforce. The people that have
212. 8:28joined us from Hess are already making a
213. 8:31significant contribution. They've
214. 8:32strengthened our workforce and uh and
215. 8:34this is a tremendous combination.
216. 8:37>> That is wonderful. Mike, what can you
217. 8:39tell us about the future and how
218. 8:41sustainable these very strong numbers
219. 8:43are? What are you expecting second half
220. 8:45of the year? Also about production.
221. 8:48Analysts want to know if you're going to
222. 8:49be able to keep up this very strong
223. 8:52production second half of the year.
224. 8:55We've guided to 7 to 10% production
225. 8:58growth for uh the full year of 2026.
226. 9:02That guidance remains intact. We are
227. 9:04seeing strong underlying performance in
228. 9:07businesses around the world and have
229. 9:09every reason to believe that we will
230. 9:11deliver that. That's on top of growth
231. 9:14last year and the year before. So, uh we
232. 9:16feel very good about that. And the
233. 9:18reason is the quarter was not a function
234. 9:20of some unique set of circumstances in
235. 9:22the quarter. We've been building a
236. 9:24stronger portfolio for the last decade.
237. 9:27Uh a decade ago, a little bit more than
238. 9:29that, our production in the Perian Basin
239. 9:30was 100,000 barrels a day. Today, our
240. 9:33production in the Perian is greater than
241. 9:35a million barrels a day. A few years ago
242. 9:37in the Gulf of America, it was less than
243. 9:39200,000 barrels a day. Today, it's well
244. 9:41over 300,000 barrels a day. We've added
245. 9:44a couple hundred thousand barrels a day
246. 9:45in the Bakan, 400,000 barrels a day in
247. 9:48the in Colorado in the the DJ Basin. Uh
248. 9:50so we've steadily built a portfolio
249. 9:53particularly in the United States of
250. 9:54America that is much stronger than it
251. 9:56was today that's producing at a much
252. 9:58higher level and will continue to do so
253. 10:01long into the future. We've guided to a
254. 10:0310% annual free cash flow growth uh over
255. 10:07uh the years 2026 through 2030. So
256. 10:09through the end of the decade uh we've
257. 10:11got underlying uh business uh
258. 10:13improvement activities and production
259. 10:16growth that will deliver value for
260. 10:18shareholders and most importantly more
261. 10:20energy for markets and consumers. Yeah,
262. 10:23I'm glad you mentioned the Perian
263. 10:24because I was with you at the Perian
264. 10:26Basin and I saw Chevron's operations
265. 10:28there uh in Texas and it was incredibly
266. 10:32impressive to see that you are
267. 10:34continuing to tap into what has been
268. 10:36incredibly rich content in the Peran
269. 10:39Basin.
270. 10:41>> The Peran story just keeps getting
271. 10:43better every year. This year we expect
272. 10:45to take the capital investment per
273. 10:48barrel of oil and gas produced down by
274. 10:5025% from last year. And again this comes
275. 10:53on top of several years of performance
276. 10:56improvements. So the the the story in
277. 10:58the Peran Basin is strong and getting
278. 11:00stronger.
279. 11:00>> [snorts]
280. 11:01>> You know, another part of this story
281. 11:03that I just loved looking at with regard
282. 11:06to the Chevron overall uh outlook is
283. 11:09what you're doing with AI because this
284. 11:12quarter with your announcement of an
285. 11:14agreement with Microsoft tells us that
286. 11:17Chevron is not just selling oil and gas,
287. 11:19you're actually building AI
288. 11:21infrastructure. Tell us about this
289. 11:2320-year deal that you're announcing with
290. 11:25Microsoft.
291. 11:27I'm really excited about the uh the deal
292. 11:30that we've announced with Microsoft.
293. 11:32We're helping power AI growth by
294. 11:34delivering abundant, affordable, and
295. 11:37reliable energy needed to scale AI. This
296. 11:40is a 20-year power purchase agreement
297. 11:42with Microsoft, one of the strongest
298. 11:44companies in the world, uh for 2.7
299. 11:46gawatts of uh capacity in West Texas. Uh
300. 11:51this is a behind the meter project. So
301. 11:53what that means is we're not moving
302. 11:55power through the grid and adding to the
303. 11:58strains on the grid that are raising
304. 12:00costs for rateayers and creating
305. 12:03reliability concerns. This is power that
306. 12:05will be built off the grid will be there
307. 12:08to supply the Microsoft data center
308. 12:10complex and ultimately at full capacity
309. 12:13we'll have the ability to provide power
310. 12:15into the grid to help alleviate concerns
311. 12:18for rateayers. It takes advantage of the
312. 12:20abundant perian gas resource we were
313. 12:22just talking about and it's really
314. 12:24differentiated from other announcements
315. 12:26you see and the quality of the players
316. 12:29involved in this the scale. It's the
317. 12:31largest most advanced project of its
318. 12:33kind and it leverages Chevron's unique
319. 12:35strengths. Our project execution
320. 12:37capabilities our strong balance sheet
321. 12:40our strong gas position our
322. 12:42long-standing relationships with people
323. 12:43like GE Vernova and Microsoft. And
324. 12:46importantly, uh, we've already
325. 12:48identified additional locations where we
326. 12:50could do this again, and we're in
327. 12:52conversations with potential customers
328. 12:54about similar projects elsewhere.
329. 12:56>> Wow, that's incredible. So, does a
330. 12:5820-year deal on AI infrastructure mean
331. 13:02that Chevron's earnings are less
332. 13:04dependent on the price of oil from dayto
333. 13:06day?
334. 13:08>> It's a very important attribute of this.
335. 13:11uh these will be a steady stream of uh
336. 13:14payments for the capacity that are
337. 13:16uncorrelated to oil and gas prices.
338. 13:19We're in a volatile industry. Uh right
339. 13:21now we're seeing very strong prices. Six
340. 13:23years ago, we saw negative prices and
341. 13:25prices in this industry cycle. They go
342. 13:28up and they go down and our cash flows
343. 13:29reflect this.
344. 13:30>> [snorts]
345. 13:31>> This is a a project that will create a
346. 13:33very steady stream of cash flows that
347. 13:35will offset some of that volatility that
348. 13:37will uh hedge away some of that risk for
349. 13:39our shareholders and uh and it's an
350. 13:42interesting uh new model that we think
351. 13:44has the potential to become a bigger
352. 13:46part of our business.
353. 13:47>> Well, it's incredible. Over the last
354. 13:49week, I've been interviewing lots of
355. 13:51officials and executives on AI uh and uh
356. 13:55leaders from OpenAI and Anthropic have
357. 13:57all told me that the bottleneck for AI
358. 14:00is no longer chips, it's power. And that
359. 14:04puts a company like Chevron in the
360. 14:06catbird seat uh as we see this
361. 14:08revolution underway. So, is this going
362. 14:11to be as important as perhaps any oil
363. 14:14discovery that you could make um over
364. 14:17the years? Could this be that important?
365. 14:21>> Well, I think it's important. Um our our
366. 14:24core business remains oil and gas and
367. 14:25the world consumes over a 100 million
368. 14:27barrels of oil every single day. And so,
369. 14:30we want to be sure that we keep our eye
370. 14:32on uh what sits at our core. But this is
371. 14:35an important uh new opportunity. If you
372. 14:38think about AI, you really have the
373. 14:40input is energy and the output is
374. 14:42intelligence. And in between, we've got
375. 14:45data centers, we've got chips, we've got
376. 14:47models, but the constraint on the system
377. 14:49today is the power. We're helping to
378. 14:52solve that uh that constraint. The other
379. 14:55thing that's interesting is you look at
380. 14:57this and you look at past booms in
381. 15:00telecommunications, in rail, in other
382. 15:03infrastructure buildouts in [snorts] the
383. 15:05country. uh the technology in the middle
384. 15:08sometimes uh cycles. There are uh early
385. 15:11leaders, there are later companies that
386. 15:13succeed, but the infrastructure is built
387. 15:16and it's enduring and it's where there's
388. 15:18a lot of a lot of important value
389. 15:20created. In this case, we're building 20
390. 15:23and 30-year assets that [snorts] will
391. 15:25endure through whatever happens with
392. 15:28chips which have a shorter life continue
393. 15:30to evolve with the companies which
394. 15:31likely will u you know have their own
395. 15:34competitive dynamic that unfolds over
396. 15:36this time but a constant will be the
397. 15:38need for that power and that's the part
398. 15:39of the chain that we're investing in.
399. 15:41Well, that's right. And that's what I'm
400. 15:43wondering if the Wall Street community
401. 15:45understands that in terms of the
402. 15:48sustainability, the strength, and the
403. 15:51power of this deal. And you just
404. 15:53suggested you're going to have more
405. 15:55deals. Are more deals in the work with
406. 15:57works with hyperscalers to power up data
407. 16:00centers, Mike? And do you think
408. 16:01investors are valuing this properly
409. 16:05given the potential for growth?
410. 16:08>> There are conversations underway. We've
411. 16:11identified a number of additional
412. 16:12locations. We've actually secured some
413. 16:14of those locations and have begun early
414. 16:17works on those. We're in conversations
415. 16:19with a number of different large
416. 16:21customers, the largest companies in the
417. 16:23world. And I expect that you will see
418. 16:26you will see more deals. I think
419. 16:28investors are just beginning to
420. 16:29understand what that might mean for our
421. 16:31company. I think they are interested to
422. 16:34learn more about this and to see what
423. 16:36other deals we can put together. Uh but
424. 16:38I think they're just now beginning to
425. 16:40understand what it could mean.
426. 16:43>> Yeah, it's uh very powerful. Mike, did I
427. 16:45miss anything that you'd like to add in
428. 16:47terms of where Chevron sits today uh
429. 16:49after this very strong quarter you've
430. 16:51reported?
431. 16:54>> You know, I think the uh the one thing
432. 16:55that I would u mention is uh we've seen
433. 16:59uh the administration take some actions
434. 17:01that have been very helpful to markets.
435. 17:03Uh the strategic petroleum reserve
436. 17:05release has helped create supply. Uh the
437. 17:08waiver of the Jones Act has allowed us
438. 17:10to move crude oil and products around
439. 17:12the United States to markets where it's
440. 17:14needed. Uh there have been some
441. 17:15specification relaxations which creates
442. 17:17more supply. And so the policy actions
443. 17:20that have been taken are the right ones.
444. 17:22They're the ones that allow the market
445. 17:24to work better and allow uh industry to
446. 17:27move products to where they're needed.
447. 17:30And uh and I think the um there have
448. 17:32been voices that have suggested other
449. 17:34actions which have not been taken, some
450. 17:36of which I think would not be helpful.
451. 17:38And so uh we're we're we continue to
452. 17:40work with governments around the world
453. 17:42to meet the moment and uh and we're
454. 17:45committed to uh doing everything we can
455. 17:47to get energy supplies to a market that
456. 17:49desperately needs them.
457. 17:50>> All right. Well, President Trump has
458. 17:52been walking this balance to try to end
459. 17:54this war in Iran and get oil prices
460. 17:57lower before the midterm elections while
461. 17:59also encouraging Congress to codify some
462. 18:02of those executive orders. With regard
463. 18:04to permitting, Mike, is there anything
464. 18:06you think the administration or the
465. 18:08Congress should be doing differently in
466. 18:10terms of codifying those so that things
467. 18:12don't change every four years with a new
468. 18:13president?
469. 18:15>> I think the biggest thing that Congress
470. 18:17could do is pass permitting reform. This
471. 18:19has been talked about for a long time.
472. 18:22Uh and there's something in it for
473. 18:23everyone. There's something if you like
474. 18:25wind and solar, permitting reform is
475. 18:27helpful for more uh renewables
476. 18:29development. If you believe the grid is
477. 18:31a problem, permitting reform is
478. 18:33necessary for us to modernize the grid.
479. 18:35If you believe oil and gas and pipelines
480. 18:37are also part of the solution,
481. 18:39permitting reform is essential there
482. 18:41because the current system has been
483. 18:42weaponized to stop development of our
484. 18:45industry. I think the administration has
485. 18:47been a champion of uh unshackling free
486. 18:50markets and allowing investments to flow
487. 18:53into our economy and we need to get a
488. 18:55permitting system in place that enables
489. 18:57that and so I think that's a single
490. 18:58biggest thing that could be done.
491. 19:00>> Understood. Congratulations on the great
492. 19:03performance and execution Mike and
493. 19:04thanks so much for being here.
494. 19:07>> Always good to be with you Maria.
495. 19:08>> Good to see you. Mike Worth chairman and
496. 19:10CEO at Chevron. We'll be right back.
497. 19:12You're watching Mornings with Maria live
498. 19:14on Fox Business. Stay [music] with us.