Earnings Call Transcript
CHEVRON CORP (CVX)
Earnings Call Transcript - CVX Q4 2024
Operator, Operator
Good morning. My name is Katie and I will be your conference facilitator today. Welcome to Chevron's Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session, and instructions will be given at that time. As a reminder, this conference call is being recorded. I will now turn the conference call over to the Head of Investor Relations of Chevron Corporation, Mr. Jake Spiering. Please go ahead.
Jake Spiering, Head of Investor Relations
Thank you, Katie, and welcome to Chevron's fourth quarter 2024 earnings conference call and webcast. I’m Jake Spiering, Head of Investor Relations. Our Chairman and CEO, Mike Wirth, and CFO, Eimear Bonner, are on the call with me today. We will refer to the slides and prepared remarks that are available on Chevron’s website. Before we begin, please be reminded that this presentation contains estimates, projections and other forward-looking statements. A reconciliation of non-GAAP measures can be found in the appendix to this presentation. Please review the cautionary statement and additional information presented on Slide 2. Now, I will turn it over to Mike.
Mike Wirth, CEO
Thanks, Jake, and thank you everyone for joining us today. Chevron delivered another year of strong results in 2024. We achieved record production both globally and in the United States and reached key milestones that are expected to underpin years of future cash flow. This includes outstanding performance in the Permian, exceeding expectations with production growth of nearly 18% from last year; delivering key project start-ups in the Gulf of America; fully integrating PDC Energy, expanding our position in the DJ Basin; optimizing our portfolio through asset sales and swaps that maximize long-term value; and completing WPMP and achieving first oil at the future growth project at TCO last week. We also returned a record $27 billion in cash to shareholders through dividends and buybacks. Over the past two years, we’ve repurchased $30 billion and reduced our outstanding share count by 10%. We continued to build our new energies business and complete projects to lower the carbon intensity of our operations. In 2024, we sold over 20 million barrels of bio-based diesel and advanced foundational projects in CCUS and hydrogen. We also completed projects designed to abate over 700 thousand tons of CO2 emissions annually. Now, I’ll turn it over to Eimear to go over the financials.
Eimear Bonner, CFO
Thanks, Mike. Chevron reported fourth quarter earnings of $3.2 billion, or $1.84 per share. Adjusted earnings were $3.6 billion, or $2.06 per share. Included in the quarter were special items totaling $1.1 billion related to restructuring and impairment charges. Foreign currency gains were $720 million. Full-year organic CapEx was aligned with our announced $16 billion budget. Inorganic CapEx of $530 million related mostly to lease acquisitions and new energies investments. We maintained double-digit returns with adjusted ROCE of 10.5% for the year. Compared with last quarter, adjusted earnings were $900 million lower. Adjusted upstream earnings were impacted by revisions to asset retirement obligations and timing effects, including year-end inventory valuation. Adjusted downstream earnings were lower due to softer refining and chemicals margins and timing effects. Chevron’s cash generation continued to position the company for long-term success while rewarding shareholders. In 2024, we invested capital efficiently, growing production by 7%; generated nearly $8 billion in proceeds from asset sales; sustained our long track record of dividend increases and repurchased 5% of shares outstanding; and maintained a strong balance sheet, ending the year with a net debt ratio of 10%. Chevron’s long-standing financial priorities have created value for shareholders. They have guided our actions through multiple commodity and investment cycles and will continue to govern how we allocate capital. Over the past five years, we have grown our dividend faster than the S&P 500 and nearly double the rate of our closest peer. Today, we announced a 5% increase in the dividend, marking the 38th consecutive year with an annual increase to the dividend payment per share. We’re committed to capital discipline. Only the most competitive projects in our portfolio will get funded. Where assets don’t compete for capital, we have a history of generating value commercially. The balance sheet is in excellent health, with net debt below our historical levels. We’ve repurchased shares 17 of the last 21 years and intend to maintain a buyback range of $10 to $20 billion per year depending on market conditions. Compared to our peers, we’re delivering growth with less capital and returning more cash to shareholders. In the past three years, we’ve returned $75 billion in cash to shareholders via dividends and share buybacks. Now, I’ll hand it back over to Mike to cover our near-term outlook.
Mike Wirth, CEO
Thanks, Eimear. Chevron is in a strong position today, with near-term catalysts that are expected to drive the company to even better performance in 2025 and 2026. Our objective is unchanged, to safely deliver higher returns and lower carbon. In the next two years, we plan to achieve industry-leading free cash flow growth; further strengthen our portfolio, including the expected completion of the Hess transaction in the third quarter; advance opportunities in renewable fuels, hydrogen, CCUS and power; while maintaining cost and capital discipline. It's important to note that the guidance provided today excludes tests; we continue to be very confident in assets position in arbitration. We plan to host our next Investor Day with the longer-term outlook after we close the transaction later this year. Chevron is poised for industry-leading free cash flow growth. We expect to add $10 billion of annual free cash flow in 2026, led by growth in advantaged upstream assets. With additional production from FGP and a further reduction in affiliate CapEx, we expect a sustained increase in distributions from TCO going forward. In the Gulf of America, where we produce some of the highest margin barrels in our portfolio, we'll have additional growth as Anchor and Whale continue to ramp up and we bring Balimore online. And in the Permian, we're focused on operational efficiency and free cash flow, positioning the asset as a core cash generator for the company. We're also executing plans to deliver stronger results across the entire portfolio, including cash savings from our targeted $2 billion to $3 billion reduction in structural costs and improved returns in our Downstream and Chemicals businesses. At TCO, we achieved first oil at FGP last week. This important milestone is the result of consistent, disciplined execution by the project and operations teams. Our focus remains on a safe and reliable ramp-up of the plant. FGP adds 260,000 barrels of oil production capacity to the existing plants. We expect to achieve full production rates of 1 million barrels of oil equivalent per day within the next three months. At $70 Brent, expected free cash flow to Chevron is $5 billion in 2025 and $6 billion in 2026. This includes fixed loan repayments and quarterly dividends. We are proud to bring this large, complex project online for the benefit of our shareholders and the Republic of Kazakhstan and look forward to future collaboration to maximize the long-term value of the Tengiz reservoir. In 2024, execution efficiencies led to strong well and base business performance, helping us achieve another record for Permian production. Over the last five years, we’ve delivered compound annual growth of 16% while continuing to capture efficiencies. Through optimized pad and drilling designs, and completions improvements like triple frac, we’re able to achieve these production levels with 40% fewer company-operated rigs than our plans included just a few years ago. We expect production to reach one million barrels of oil equivalent per day in 2025, and plan to moderate growth and CapEx to drive predictable and durable free cash flow generation. Our Permian portfolio delivers superior returns due to royalty advantaged acreage across all of the sub-basins, which add to both the top and bottom-line. We’re continuing to develop and deploy technologies to enhance efficiencies and recoveries. We’re leveraging our strengths in advanced chemicals and stimulation and scaling them across our shale and tight portfolio. Our world-class upstream assets provide further growth opportunities that are poised to deliver value for decades. In the Gulf of America, where we expect to grow production to 300,000 barrels of oil equivalent a day, we achieved first oil at the Anchor and Whale projects, and Ballymore is expected to come online around the middle of this year. In Western Australia, our discovered resource has the ability to keep our LNG plants full for decades. Last month, we announced an asset swap that will increase our equity in Wheatstone, which enables long-term asset development and monetization. In West Africa, we have a queue of low-cost developments that are expected to sustain production for many years. We recently extended leases in Nigeria and had a shelf discovery that will tie back to existing infrastructure. In Angola, we achieved first gas at the Sanha Lean Gas Connection project, and we plan to bring online our South N’dola development later this year. In the Eastern Mediterranean, we have a significant resource position we’re continuing to unlock. Expansion projects at Leviathan and Tamar are expected to come online through the end of the decade. Turning to our Downstream and Chemicals businesses, we’re focused on operating reliably and efficiently while executing competitive projects that extend our value chains and capture market synergies. The recently completed expansion at our Pasadena refinery enhances our integrated value chain by running more Permian crude, supplying more products to our regional marketing business, and expanding synergies with the Pascagoula refinery. Our petrochemical growth projects in the U.S. and Qatar are more than 50% complete and are expected to contribute to further cash flow growth beyond 2026. Both projects are feedstock advantaged, have competitive cost structures, and are well-positioned to serve growing demand. We have several projects in our New Energies business that are expected to achieve key milestones in the next two years. In renewable fuels, we’re in final commissioning of the Geismar renewable diesel expansion, and at our Bunge joint venture, construction continues at the new oilseed processing plant in Louisiana, increasing our exposure across the renewable fuels value chain. We’re working towards the start-up of the ACES green hydrogen project in Utah later this year, which will produce hydrogen from water and excess renewable power and store it underground for dispatchable lower carbon power generation. The project is one of the world’s largest hydrogen storage projects and will have over 200 megawatts of electrolyzer capacity. In carbon capture and storage, Bayou Bend is working towards a FEED decision for the offshore project, and we’re also developing plans to capture and store CO2 from our Pascagoula refinery. Earlier this week we announced plans to jointly develop scalable, reliable power solutions to support growing energy demand from U.S. data centers. Chevron is positioned to participate in this growth and generate competitive returns through integration with our U.S. natural gas business; experience in building and operating nearly five gigawatts of reliable, behind-the-meter power; and expertise in technologies that can help provide a pathway to reduce GHG emissions. We've secured slot reservations to purchase seven natural gas fired turbines from GE Vernova with deliveries beginning late 2026, and we’re advancing site selection and engineering work while engaging customers. We look forward to sharing more as our plans develop. I’ll hand it back to Eimear to close out our guidance for 2025 and 2026.
Eimear Bonner, CFO
Thanks, Mike. In a cyclical commodity business, capital and cost discipline always matter. Chevron’s CapEx and affiliate capex budgets reflect our commitment to capital efficiency while funding a balanced portfolio of short and long-cycle investments. Organic CapEx is expected to remain within our $14-16 billion guidance range. As spend in the Permian and Gulf of America comes down, capital will flow elsewhere within the portfolio to support continued growth. Affiliate spending is expected to trend down further as investments at TCO and CPChem come online. We’re targeting $2 billion to $3 billion in structural cost reductions by the end of 2026. Work is underway to deliver these savings through asset sales; scaling technology solutions, such as expanding the use of robotics; and changing how we work to improve efficiencies. We’re executing our plans to lower absolute costs while delivering growth. Last year, worldwide oil equivalent production was the highest in our history, benefitting from a larger position in the DJ Basin following our acquisition of PDC Energy and nearly 18% growth in the Permian. Excluding asset sales, we expect production to grow around 6% annually through 2026. In 2025, we expect growth to be weighted towards the second half of the year as key projects in Tengiz and the Gulf of America come online and ramp throughout the year. We’re excited about the year ahead. We’re focused on delivering growth across advantaged assets and value chains while reducing absolute costs; starting up profitable New Energies projects and advancing new behind-the-meter power solutions; and continuing to reward our shareholders with higher returns and a differentiated value proposition. I’ll now hand it off to Jake.
Jake Spiering, Head of Investor Relations
That concludes our prepared remarks. Additional guidance can be found in the appendix to this presentation and the slides and other information posted on chevron.com. We're now ready to take your questions. We ask that you limit yourself to one question. We will do our best to get all of your questions answered. Katie, please open the line.
Operator, Operator
Thank you. We'll take our first question from Biraj Borkhataria with RBC.
Biraj Borkhataria, Analyst
Hi, thanks for taking my question. Firstly, congrats on getting FGP online. I know it’s a big project. So I wanted to ask about the underlying cash flow, excluding working capital. This quarter, at least versus our model, the $5.3 billion was quite a bit below what we expected. So could you just walk me through how I should think about any one-offs in there? And help me understand what the underlying basis should be as we think about 2025? Thank you.
Eimear Bonner, CFO
Hi, Biraj, thanks for the question. You're right. Cash flow, excluding working capital, was impacted by some non-recurring and accounting items this past quarter. So let me step you through the big ones. Maybe the first is we recognized some tax charges and earnings related to our recently completed Canadian asset sale, and that was around $1.5 billion. It's important to note that these tax charges are offset in working capital. But if you exclude the working capital when you're looking at cash flow, you're still going to see that tax charge. So that's a big one. That's the main one. The second one is we also recorded some charges in the quarter that for earnings, we had identified those as special items. We disclosed them back in December and our capital release. However, we don't make the same adjustments for these items in cash flow. So you're seeing some of that flow through to the bottom line, and that's about a $500 million headwind. Beyond those two items, we did have some other impacts, the combination of affiliate distributions, some unique commercial activity, and that's another $500 million. So when you add up the three elements, that's about $2.5 billion to take into consideration for the cash flow this quarter. So if you've got any additional questions on those pieces acknowledging they're a bit unusual this quarter, I mean Jake can follow up with you after the call and show you how everything flows through. Thanks.
Operator, Operator
We’ll take our next question from Paul Cheng with Scotiabank.
Paul Cheng, Analyst
Thank you. When we're looking at your next two years, I think we have a really good outlay and I think investors are comfortable. I think the question has always been talking about longer term, say, by the turn of the decade, I mean what you're going to do if we put half of that aside. And in here, can you talk about your opportunity set you already had the, for example, I believe there's a lot of discovery you guys have made in Nigeria and Angola. But where are we in terms of bringing those that to the solution and having the project coming on stream? What do we need in order for that to become a win out there, and how big are those opportunities? Thank you.
Mike Wirth, CEO
Okay. Paul, thank you. Yeah, you're right. What we laid out today is a more detailed look ahead for the next two years. And as you rightly note, there's a lot of significant growth. We wanted to provide you more confidence and visibility on that free cash flow growth. And frankly, it continues to be derisked every day here during the month of January with the whale startup and the FGP start-up, which are two significant events that really derisk that. I will set Hess aside, but I'll just acknowledge that we look forward to closing Hess, which will make a strong hand even stronger. If you look out beyond the end of 2026, there are a number of things that are going to contribute to continued free cash flow growth. We've got two big chemicals projects that are under construction that will come online late '26, early '27 timeframe. We've got projects in the Eastern Mediterranean in the near term for both Tamar and Leviathan that will come online towards the end of this year and be ramping into '26 and beyond. And then we've got further work underway, particularly at Leviathan for yet another expansion in the Eastern Mediterranean. I would expect Argentina over the back half of this decade to begin to grow at a rate that's stronger than what we've seen thus far, contingent upon continued progress in policy and kind of government stability and macro environment stability there, but the signs there have been encouraging and positive. You mentioned West Africa. There's a number of opportunities. I talked about a discovery on the Nigeria shelf, Saudi Arabian gas, South Angola; we have a number of other very attractive prospects there. We haven't really gone below 10,000 feet to produce yet in that region. We picked up additional acreage offshore Angola, three new blocks that are undergoing seismic work right now. We haven't talked a lot about West Africa in recent years given some of the other things within our portfolio, but that has a lot of running room left ahead of us. Venezuelan Partition Zone, huge, huge resource positions. We've been moving thoughtfully for particular reasons in each of those locations, but those present long-term opportunities that are captured and can become very attractive. And we've got a really nice exploration portfolio. In West Africa, South America, the U.S. Gulf, the Eastern Mediterranean that we expect to provide further resource opportunities. We've got technology that can unlock things. And of course, a large low decline base that we can sustain with a very competitive capital investment and good underlying growth rates. So we've seen outsized growth here in recent times, right. Last year's growth 7%. We're guiding to a 6% CAGR over the next couple of years. That's probably not a growth rate that anyone would expect to continue. But there are plenty of opportunities out there in 2027 and beyond which we'll sort through and fund the best of those within a tight disciplined capital budget. Thanks, Paul.
Operator, Operator
We'll take our next question from Neil Mehta with Goldman Sachs.
Neil Mehta, Analyst
Yeah, good morning, Mike and team. Just wanted to better understand the power business and the announcement from earlier this week with GE Vernova. Mike, you've talked a lot about power being a tricky business, and Chevron has seen that firsthand over the last 30 years. But wanting to ensure that you're staying true to your core competency. So how do you think about playing in this ecosystem and ensuring that you derisk it so that you can preserve the upside?
Mike Wirth, CEO
Yeah. So Neil, I would tell you, you should think of this as being aligned with what we've said we were looking to do, which is leverage our strengths to advance lower carbon energy solutions to meet demand growth in the world. We operate nearly 5 gigawatts of reliable and at-scale power today at Gorgon, at TCO and refineries. We know how to build and operate large-scale power generation and integrate it to a core customer. We know how to operate these assets very, very well. We've got technical capabilities that are required to do this. In the U.S., we've got a very large natural gas position. And we've been diversifying some of our gas markets with some LNG offtake. This allows us to backstop power investments for premium customers. We have said we didn't envision ourselves as a merchant power player, and we still don't. Building power to sell into the grid and just generating merchant power is probably not going to deliver returns competitive with our portfolio, but a highly reliable at-scale offering that's delivered rapidly is something that's in high demand from customers right now. You can see PPAs that have been done for things like recommissioning nuclear facilities that give you some sense of the value that these have for customers. We've been engaged in discussions with the hyperscalers for a year or more to understand what they're looking for and understand whether or not that's something that we can deliver on. We think that it really does make good sense for us. We've got seven of GE Vernova’s largest turbines with reservation slots for delivery beginning in late '26 and then into '27, and would expect to be on the front end of what will be a real surge in power demand in this country. Importantly, the last thing I'll say is I think most of the people on the call are familiar with the challenges that the grid in this country faces right now and ensuring we keep the supply of electricity reliable into the economy as it stands today. Doing this off the grid and behind the meter doesn't further tax an already taxed distribution infrastructure, and it doesn't put this investment cost into the rate base and drive up costs for consumers as well. So we think this is something that's good for America. American energy abundance can help ensure AI leadership. It's good for the public; it will create jobs and it will help to keep rates from rising and it's good for big customers. They're looking for reliable and fast solutions to deliver this power and eventually lower carbon options to reduce carbon intensity. Thanks, Neil.
Operator, Operator
We'll take our next question from Doug Leggate with Wolfe Research.
Doug Leggate, Analyst
Good morning, everyone. Thank you for the chance to ask a question, Mike. I mentioned to Jake that I might have a Part A and a Part B, so it's technically one question, but I hope he has approved it. The additional information regarding the path to 2027 is very useful. However, I was wondering if you could compare it to what you provided in February 2023 under similar conditions. Specifically, what does the additional 10, including the debt repayment, look like in 2027 compared to what you shared previously? For Part B, Tengiz is the major focus here. Recently, I heard that the Kazakh government is discussing contract extensions, which could be positive for you, potentially with better terms. I was curious if you could provide any insights on that.
Mike Wirth, CEO
Yeah. So Eimear, why don't you talk about free cash flow for 2027, and then I'll take the concession.
Eimear Bonner, CFO
Yeah. Thanks, Doug. The short answer is it's aligned with the previous guidance. So we're really reaffirming that guidance. Obviously, since then, there's been some puts and takes. On the portfolio side, we've exited PDC since our last guidance. We've divested some assets as well, primarily Canada. There's been some price assumptions changed. But we do have growth laid out today out to 2026, and we see growth beyond that. We’ve got the CP-10 projects that will be online around that time. We'll have some Eastern Med brine feed projects in Tamar and Leviathan that will come after 2026. Mike talked earlier about the Argentina potential there and the power potential. In addition to that, we've got the $2 billion to $3 billion of structural cost reductions that are underway. So the short answer is it's aligned, but many of the projects that we talked about a few years ago have also been derisked since then. So we'd expect to provide the 2027 outlook later on the year.
Mike Wirth, CEO
Okay. Yeah, on the concession, Doug, we're still focused on ramping up safely and reliably. This is a really important milestone, and it signals moving to the next phase in the life of that field. We're absolutely laser-focused on getting that right. Early performance has been very stable and very encouraging. As we get through the ramp-up to see the plant and reservoir performance, we'll then be able to really turn our focus to the future. This is a world-class asset. We've got a long proud history in Kazakhstan and with the TCO partnership and we certainly would like to extend the concession, but it has to work for everyone. It has to work for the Republic. It has to work for our company and our shareholders and it has to be competitive. These things take time; these are complex contracts, complex negotiations. We'll keep you posted as that evolves over time. Okay. And that was a clever way to get two completely unrelated questions in, Doug. If Jake’s blessed that, I better talk to Jake about the ground rules in the future. Let's go to the next question.
Operator, Operator
We'll go next to Devin McDermott with Morgan Stanley.
Devin McDermott, Analyst
Hey, good morning. Thanks for taking my question about a detailed update today. Mike, I wanted to ask you about policy. There's been in the U.S. now a series of energy-related executive orders over the past week. I was wondering if you could talk through how this might impact some of your oil and gas operations, especially given the large presence you have in the Gulf and then new energy opportunities, and we think through the flurry of news flow over the last year. There's also been some headlines in your Venezuela license, if you could address that as part of the response. I'd appreciate it. I know a lot to unpack there, but I would love your thoughts. Thanks.
Mike Wirth, CEO
Yes, that is a lot, Devin. But they're all related for you. So let me start at the highest level. For years now, I've been calling for a more balanced discussion about energy. We're finally beginning to see it. We're seeing economic prosperity, energy security, and environmental protection, all being brought together. In the past, the dialogue skewed toward environmental protection and much less toward the others. I think it's a welcome change to see this reflected. It's a conversation that now recognizes oil and gas are a vital part of the energy mix in this country and in the world, which is a reality that we all need to acknowledge. It's good to see an administration that is intent on leveraging and encouraging American energy abundance for the benefit of our economy, security, and allies and intends to do that in a way that also provides environmental protection. I think it's a more balanced approach. I think it's a welcome approach. The specifics still remain to play out. Many of these executive orders direct agencies to review things and look at actions that can be taken. So actual actions, I think, for the most part, still remain ahead of us, but I would expect them to encourage more access, for instance, more regular lease sales. There is building bipartisan support for permit reform, which is necessary, not just for our industry but for many other industries where it's become so difficult to build things here in the United States. I think it's a welcome reset and one that our country will benefit from. I can't say much more about anything. Venezuela is an issue that has been around for quite some time during the first Trump administration, during the Biden administration, and now again in the second Trump term. Sanctions exist on Venezuela. We're the only U.S. company on the ground there. We're focused on keeping our people safe, ensuring that assets operate in a way that protects the environment and complying with all the laws. We don't set policy. We comply with laws and engage with the government to help inform them of the potential impacts of policy choices, and we'll continue to do so. Thanks for the question, Devin.
Operator, Operator
We'll take our next question from Stephen Richardson with Evercore ISI.
Stephen Richardson, Analyst
Hi, good morning. Mike, could you discuss the role of the Permian in the portfolio? You have a target of 1 million barrels a day that it looks like you will achieve soon, if you haven't already. I recall there was a higher target mentioned during the last Analyst Day. Can you elaborate on the appropriate level of unconventionals in the portfolio? Should we consider the Permian and the DJ in relation to total production or decline curves? How do you assess the right amount of unconventionals for the corporation's size over the next couple of years?
Mike Wirth, CEO
Yeah. So let me start. I'm really pleased with our team in the Permian and the performance again in the fourth quarter. We delivered 992,000 barrels a day in the fourth quarter. We were over 1 million barrels a day in December. For the full year, we saw a growth of 18% and really, really strong performance across all aspects of the Permian. We expect to continue to grow even as we've now passed our peak investments, and we've started to bring capital investment down. We still expect to see a 9% or 10% production growth in 2025. Something a little bit less than that, probably in 2026. At some point, you can't grow a position like this infinitely. That was the criticism of the industry last decade: companies focused solely on growth without generating free cash flow and returning to shareholders. That's always been our plan to do just that. So we'll have an asset that will produce something over 1 million barrels a day for many years into the future. As we can maintain that with a lower rate of capital investment than we've required to get to this point, that really opens up the free cash flow off of that asset. We are very pleased with that. We've got 400,000 barrels a day, give or take now in the DJ Basin, which is kind of in that plateau phase where we can draw free cash flow off of that. We closed Hess; there's another couple of hundred thousand barrels a day in the Bakken. You bring Argentina in, and now you're talking about 1.7 million barrels a day or so. This year, we produced 3.3 in change. It's approaching 50% of the portfolio. The nice thing about that is the very modest CapEx can hold that production flat for quite some time and use that as a big cash generator. That's how we think about it. I can't give you a magic formula or a percentage, but it's approaching 50% of our overall production, which is a significant piece. Thanks, Steve.
Operator, Operator
We'll take our next question from Jason Gabelman with TD Cowen.
Jason Gabelman, Analyst
Thank you for taking my question. I wanted to inquire about the TCO distribution, and I appreciate the clarification between the first and second halves of this year. Regarding the $5 billion and $6 billion forecasts for '25 and '26, is that in line with the previously mentioned $4 billion and $5 billion, just with a higher price assumption? Additionally, it seems that TCO's operating expenses have increased by about $5 per barrel from 2022 to 2023, according to their filings. I'm not sure if that increase is due to the Russian war or reasons, but I would like to know if this rise in operating expenses is considered in your free cash flow guidance for TCO or if you expect it to decrease in the future. Thank you.
Eimear Bonner, CFO
Yes, I can address that. The free cash flow change is already happening now that the asset has commenced operations. As noted in the presentation, we project $5 billion for 2025 and $6 billion for 2026. The main contributors to this are increased production and a significant decrease in affiliate capital expenditures as the project wraps up. This has led to an increase in free cash flow. We also expect that as the plant continues to scale up and the safe startup phase is completed, there will be an emphasis on operational expenditures and optimization, especially with a new base production of 1 million barrels a day. While there may be some fluctuations throughout the year, we generally expect a decrease in operational expenses as well. These factors, along with the production increase, will contribute to our free cash flow.
Operator, Operator
We'll take our next question from Alastair Syme with Citi.
Alastair Syme, Analyst
Thanks, Mike. I just wanted to ask about Bolivia. If you've got a good sense of why first exploration well failed and whether you've seen enough to make you want to go again in a different location? Thank you.
Mike Wirth, CEO
The first well was the initial exploration in the area. In exploration, especially in a relatively new basin, it's important to gather a lot of information. Every well, while aimed at finding hydrocarbons, serves primarily as a learning opportunity. Not learning from a well would constitute a failure. In the oil and gas sector, such failures occur frequently. We hold a significant position in two different blocks in the Orange and Walvis basins. Other companies have made some encouraging discoveries in their blocks, indicating the presence of a functioning petroleum system. We're pleased with the insights we've gained, which will inform our future activities and enhance our understanding of the geological history of that region. This understanding is crucial for comprehending how the depositional structures and geology have developed. We're still interested in pursuing this. The well was drilled quickly and at a much lower cost compared to others in the area. The drilling environment there suits our execution capabilities well, allowing us to keep future exploration wells cost-effective. We'll provide more updates as we assess the next steps in both basins and continue to refine our program.
Operator, Operator
We'll take our next question from Betty Jiang with Barclays.
Betty Jiang, Analyst
Good morning. Thanks for taking my question. I want to go back to the power venture. I want to ask about how you think about the capital commitment for Chevron related to that venture. It is impressive that you were able to secure these high-demand turbine spots. Have all the deposits for them been made? And just how much equity capital would you be willing to put into it? Thanks.
Mike Wirth, CEO
Yeah. Thank you, Betty. It's still early days, and we're not providing public details on some of the specifics of the joint developments as we move into the next phase of site selection and engineering and the like. We have secured the slot reservations with payments. Those are terms that are confidential. We won't have 100% of this. It will be funded through partners and other investors. We'll provide more detail at the appropriate time. The one thing that I do just want to call out is we haven't changed our CapEx guidance. This will be done within the CapEx guidance that we've issued. We intend to develop opportunities that are competitive with other things in our portfolio. Here, you've got the benefit of scale. We’ve got an early position in the queue. Gas turbine generators are seeing upward price pressure. It's better to be early in the queue than later. We’ll be focused on capital efficiency here and developing a project that delivers value for customers and shareholders. So stay tuned for more details as things evolve later this year.
Operator, Operator
We'll take our next question from Ryan Todd with Piper Sandler.
Ryan Todd, Analyst
Thanks. Maybe if I could ask one on the Gulf of Mexico, or Gulf of America, or whatever we're calling it now. You've now got two of the three projects online for the 2025 and 2026 time period with Ballymore coming soon. I mean, what have you seen in terms of reservoir performance so far? What have you learned from these developments, both on the, I guess, on the subsurface and on the facility side? How does it inform future potential for you in the basin?
Mike Wirth, CEO
Yeah. Thanks, Ryan. The short story is that the wells are performing very well. We've got two wells online at Anchor. We've got a third well that we expect to come online in the second quarter. The fourth and fifth wells have top holes drilled, and we had remaining drilling and completion work ahead of us, a fifth well in early 2026. We are able to drill and complete in this pressure and temperature regime, which is new for the industry. Reservoir performance is at or above expectations, so we're quite encouraged. For Whale, I would refer you to the operator for specifics and let them update you on that. Ballymore is expected to come online here midyear, and we will update you as we see performance out of that. There’s a lot of running room out there. We’re a large lease holder. The acreage is prospective for tiebacks and greenfield developments. We’ve brought costs down significantly and advanced technology to operate in different pressure regimes. I think this is going to be an important producing basin for our country for many, many years to come.
Operator, Operator
We'll take our next question from John Royall with JPMorgan.
John Royall, Analyst
Hi, good morning. Thanks for taking my question. So I was wondering if you can just talk about your operations in the Eastern Med today, and just an update there. Obviously, seen a significant improvement in the political situation in that part of the world, and there are no guarantees that's forever. But as Mike mentioned, you do have some project growth that you're working through there. So maybe just an operational update on how you're feeling about your position there and the risk as you see it today?
Mike Wirth, CEO
Yeah. So first of all, we're really pleased to see tensions diminishing in the region and hopefully a lasting peace for the people there. The headline is there's no real change to our plans. We expect projects that are in execution at both Tamar and Leviathan to come online by the end of the year or early 2026. There was a pipelay vessel that was demobilized during the height of the conflict. That vessel will be remobilized here during the first half of this year to complete the work that it had underway. So the next leg of growth after those two projects would be a Leviathan expansion. We're currently in FEED for that. It would significantly increase production for Leviathan. Still work to be done but that project would come online towards the end of this decade and continue to step up the production on that asset significantly. Despite all the activity we've seen in that region, we'll see production up by 25% over the next two years and something closer to 50% by 2030.
Operator, Operator
Thank you. We'll take our next question from Jean Ann Salisbury with Bank of America.
Jean Ann Salisbury, Analyst
The ramp is basically tracking to your expectations or even exceeding them, and when you might have any more to share about potential debottlenecking potential?
Mike Wirth, CEO
Jean, I noticed you came off mute partway through your question. I heard you mention ramp and debottlenecking. Were you inquiring about FGP?
Jean Ann Salisbury, Analyst
Yes, yes.
Mike Wirth, CEO
Okay. Good. Yeah. So look, we're a little bit more than a week into this at this point. It's very early days. But I will tell you the operations have been very stable. This is a big, complex process operation with crude stabilization, some fractionation, high-pressure sour gas injection, and temperatures and pressures that are significant. Seeing stable operations is very encouraging. We have seen production step up. The well deliverability has been very strong, and we completed all that work last year; the field performance has met or exceeded expectations. We feel good about what we see to this point in terms of stable and reliable operations. We'll step things up gradually to be sure that we maintain that stability and reliability. We still have very significant exclusion zones in place, for instance, to minimize the number of people in a plant that is just beginning to operate with the H2S concentrations that we see there. It will be methodical and very deliberate in raising the production levels up to full capacity. Early indications, I would say, are all positive. Any things we've encountered are well within the range of what would be normal start-up things that you see in a plant like this. More to follow. Debottlenecking is probably a question for the future. We're focused on getting the most we can out of this plant right now. So we'll update you on that. On the next quarter call, we will have a lot to say about performance at FGP.
Operator, Operator
We'll take our next question from Lucas Hermann with BNP Paribas.
Lucas Hermann, Analyst
Thanks, Mike, for the opportunity. I just need a clarification regarding the transaction related to Wheatstone and Woodside. You mentioned being better positioned to monetize. When you refer to monetization, are you talking about monetizing the resource you have, or does it also include monetizing the facility, potentially extracting capital in some way with a possible insurance pension fund? Additionally, when discussing returns on the power business, are you considering returns that are volatility adjusted or just raw returns? Thanks very much.
Mike Wirth, CEO
Yeah. Thanks, Lucas. Look, on Wheatstone, we're really talking about monetizing resources over time. We're going to acquire not only Woodside's interest in the Wheatstone project, but also in Julimar-Brunello. We’ll hand over to them our interest in Northwest shelf and some other smaller related things. We've got high expectations for the Carnarvon Basin for many decades to come. We’ve had a strong exploration track record out there. We have a tremendous amount of resource; optimizing that resource through both Wheatstone and Gorgon in a way that's economic that keeps the plants full, that's good for Australia and customers, is important. This gives us more control over that and a bigger stake in that. That's really the primary driver. We're not contemplating bringing in a pension fund or anything like that to sell down our position. The second question or the second part of your question was about returns in power. You look, we have volatility in our oil and gas business, a volatile refining and marketing business. We would look to have put in place PPAs that work for customers and work for us. As a large natural gas producer, we obviously have natural gas supply. We've got natural gas commercial capability across the value chain. We can use that to help manage exposure and volatility for our investment potentially for customers if that's what they're looking for. It's very similar to how we encounter volatility in other aspects of our business. We'll look at it in a way consistent with how we look at other things that have associated volatility. Thanks, Lucas.
Operator, Operator
We'll take our next question from Josh Silverstein with UBS.
Josh Silverstein, Analyst
Hi, good morning, guys. Maybe switching to the refining and chems business. We're clearly in a weak price environment and margin environment right now. Other than improving the product slate and doing some cost reductions, are there things that you guys do characteristically to improve your leverage to the recovery? Maybe bring forward some projects or turnaround to fire some other assets that might be initially challenged? Anything like that? Thanks.
Mike Wirth, CEO
Yeah. Having spent a good part of my career in that business, margin pressure is a familiar friend, I guess I would say. It does spark innovation, and there's nothing like feeling the sharp end of the stick to make people continue to find ways to find a little more flexibility in your feedstocks, improve your operating reliability, your cost structure. Make sure you've got all the right handles for product optimization into the market via different products via different channels to go to market and customer relationships and the like. I think we'll be looking to do all of those things, but we should look to do all those things when margins are good. We certainly are looking to do them when margins are difficult. I would point to the fact that we've now increased capacity to run light oil at our Pasadena refinery. This is a good example of that. We can integrate some of our upstream production that we may get a better netback on versus exports, for instance. We'll produce products that can move out into our marketing channels where we might otherwise be reliant on others to supply some of our market needs. We can integrate intermediates with the Pascagoula refinery. We can optimize during turnarounds and storms and other market conditions by thinking of those two as a system. We'll continue to look for opportunities like that, which are capital-efficient ways to increase flexibility and ability to control your own margin outcomes in the downstream.
Operator, Operator
We'll take our next question from Paul Sankey with Sankey Research.
Paul Sankey, Analyst
Hi, Mike, thanks everyone.
Mike Wirth, CEO
Nice to hear you back on the call, Paul.
Paul Sankey, Analyst
It's great to be back, Mike. I have a quick question regarding potential corporate actions. I was looking at your CapEx in the 14% to 16% range and wondering about the likelihood of reaching the lower end. It seems to me that lowering CapEx could help you stand out in the coming years. Additionally, do you see the possibility of reducing upstream CapEx after tests are completed? How would that play out? Also, concerning the variability of your results, you underinvested in refining; do you believe that has been a concern? Another consideration is the potential for major deals, as opposed to the approach taken during Trump’s administration; could it be more beneficial to aim for significant growth rather than focusing on downsizing? Lastly, regarding your AI gas-fired power initiative, what areas are you scaling back CapEx on that may now seem less favorable based on current guidance?
Mike Wirth, CEO
You have certainly managed to get the most questions in one go. To address your inquiries quickly, we expect our range to be between 14 to 16. Last year, we were at the top end, while this year we're positioned in the middle. We could potentially be at the lower end, but that decision will depend on the opportunities available, their competitiveness, and our market outlook. The main takeaway is that we will remain disciplined and are getting more value for every dollar spent. As I mentioned earlier, the Permian is growing with significantly fewer rigs than we had anticipated a few years ago. We experienced a growth rate of 7% last year and are guiding towards a 6% compound annual growth rate over the next couple of years. Previous capital expenditures did not yield similar growth, so we are improving our capital efficiency and continuously seeking ways to provide energy with lower capital investments. While we tend to focus more on upstream, we do consider opportunities in downstream and chemicals if they meet our criteria. It's crucial to not overpay in those segments to mitigate risk. Such opportunities must involve assets with scale, flexibility, operational efficiency, and strong market integration. I won't speculate on large deals. Regarding AI investments, they will complement our portfolio and are manageable in terms of capital expenditures, which are distributed over time and not solely reliant on our equity. We need to ensure they generate competitive returns and assess how they might affect other priorities. We have a variety of investment opportunities to manage continuously, and we should focus on funding only the best ones.
Operator, Operator
Thank you. We'll take our next question from Nitin Kumar with Mizuho.
Nitin Kumar, Analyst
Good morning, everyone. And thanks, Mike, for taking my question. Congrats on starting TCO. I just want to touch on the structural cost reductions you've talked about. Could you break that $2 billion to $3 billion between your upstream and downstream a little bit? You were talking earlier about the margin pressure in downstream. As I look at Slide 10 and the trajectory of those savings, it seems like you're a little bit weighted towards 2025. Are they more related to asset sales? Or are there other things in the remaining businesses that are helping?
Eimear Bonner, CFO
Yeah. Nitin, I'll take this one. The $2 billion to $3 billion structural cost reductions will see them across all segments. Let me break down the focus areas for you a little bit. The first focus area is around asset sales. You're right; we'd expect to see some reductions this year given the asset sales last year in Canada, for example. We will see some of those portfolio impacts in 2025. The second focus area looks at changing how we work. We’re looking at standardizing work that we do and thinking differently about where we do that work. This will impact the downstream segment and the upstream segment. An example there would be how we design work at Whale for certain asset classes. Is there a way to do that more in a more standardized and centralized fashion? The last one, which I'm excited about, is the technology focus area. This is where we're using technology to do work completely differently. We mentioned in the presentation the robotics example, but there's a long list of examples we’re deploying today, whether that's drones to inspect our facilities, digital twins to plan our turnarounds, and AI to look at reducing cycle times for exploration subsurface work. The technology focus area will also deliver savings. In terms of the profile, 2025, between $1.5 billion to $2 billion, and then in '26, you should see the $2 billion to $3 billion come off then. So in total, $2 billion to $3 billion structural costs from the 2024 base.
Operator, Operator
We'll take our next question from Bob Brackett with Bernstein Research.
Bob Brackett, Analyst
Good morning, guys. Question about the Permian. Clearly, you've laid out a disciplined model there to release cash flow, but you're uniquely positioned in that you have JV partners plus the royalty interest. You probably have the best view of the landscape. What are you seeing there in terms of discipline from the other operators? Is it a trend that's going to continue?
Mike Wirth, CEO
Yeah, Bob. It's interesting. Because of our large mineral rights position, we not only get the financial advantage that accrues through that, but we also get the information advantage. We have a position in one out of every five wells in the Permian. We see a lot from our non-JV partners, and most of that activity is really through five good companies. You’ve got visibility into what they're doing via what they say and from seeing AFEs for funding. I'd say people are sticking with their plans. Everyone has seen the kinds of things we are, which are productivity and efficiency gains and continuing to look for innovation. I don't see anyone that is heading back to what the industry was doing a decade ago, which is throwing all the cash right back into growth and stepping away from the balanced return-oriented strategy. I can't speak for others, but at least what I see would be a continuation of what we've been seeing.
Operator, Operator
We'll take our next question from Neal Dingmann with Truist.
Neal Dingmann, Analyst
Hi, Mike. Thanks for letting me in. My question is about the downstream segment. It seemed a bit weak last quarter compared to both the previous quarter and year-over-year. I'm curious if this was mainly due to the reduced turnarounds, since you mentioned having about 25% fewer this year, or if there are ongoing macro pressures affecting the segment.
Mike Wirth, CEO
It was a weak fourth quarter. There's no doubt about it. Margins were off; there were some turnaround effects. We also had some significant inventory accounting effects that rolled through the downstream segment and some of the impairments that we took charges for hit downstream on a proportional basis. I'm not going to call it the perfect storm, but it was a quarter where there were a lot of things that went in a negative direction. Can't affect margins, but we can affect turnarounds; you've already seen that next year is a lighter turnaround schedule. The impairments or one-off charges and the inventory accounting are complex equations. I wouldn't assume there's anything structurally in that business that says it's deteriorating.
Operator, Operator
We will take our last question from Geoff Jay with Daniel Energy Partners.
Geoff Jay, Analyst
Hi, Mike. I was just kind of curious about Argentina. I mean, clearly, with Malayan office, it seems like a much friendlier place to do business. You mentioned it earlier. How do you see the politics and the opportunity set changing down there?
Mike Wirth, CEO
Yeah. Thanks for asking. It's an area that I am encouraged by. We've got a strong position in the Vaca Muerta, both in Loma Campana in the South and El Trapial in the North. The geology works very well; we’re pleased with what we see, and we’ve had moderate activity there. We're very pleased to see the situation in the country improving. We've seen inflation come down significantly; the banking system has stabilized. There’s progress towards reducing and removing capital controls. President Milei is a reformer, and he's got a serious agenda that would make the country more investable for foreign investors. We're encouraged by his actions thus far. I think there’s more to come. He's made great progress. We will see an environment that increases our confidence in putting more capital to work there. We're engaged on the ground, and right now, we're taking a look at a midstream opportunity on a pipeline that could help us with exports to a good deepwater export terminal. We'll continue to update you on developments there. We've seen encouraging signs in Argentina in years gone by, but things moved the other direction. We'll be watching to see if this seems to be a more durable set of reforms, and that's certainly an important signpost for us. Thanks for the question, Geoff.
Jake Spiering, Head of Investor Relations
I would like to thank everyone for your time today. We appreciate your interest in Chevron and your participation in today's call. Please stay safe and healthy. Katie, back to you.
Operator, Operator
This concludes Chevron's fourth quarter 2024 earnings conference call. You may now disconnect.