Earnings Call Transcript
CHEVRON CORP (CVX)
Earnings Call Transcript - CVX Q4 2022
Operator, Operator
Good morning. My name is Katie, and I will be your conference facilitator today. Welcome to Chevron's Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session and instructions will be given at that time. As a reminder, this conference is being recorded. I will now turn the conference over to the General Manager of Investor Relations of Chevron Corporation, Mr. Roderick Green. Please, go ahead.
Roderick Green, General Manager of Investor Relations
Thank you, Katie. Welcome to Chevron's fourth quarter 2022 earnings conference call and webcast. I'm Roderick Green, General Manager of Investor Relations. Our Chairman and CEO, Mike Wirth; and CFO, Pierre Breber, are on the call with me. Also listening in today is Jake Spiering, the incoming General Manager of Investor Relations, who will assume this position effective March 1. Jake and I will be transitioning together over the next couple of months. It's been my sincere pleasure working with each of you over the last two years. Thank you for your questions, feedback and investment in Chevron. 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. Please review the cautionary statement on slide two. Now, I will turn it over to Mike.
Mike Wirth, CEO
Thank you, Roderick, and thanks, everyone, for joining us today. Chevron had an outstanding year in 2022, delivering record financial performance, producing more traditional energy and advancing lower carbon businesses. Free cash flow set a record, beating our previous high in 2021 by more than $15 billion, enabling a strong dividend increase and the buyback of almost 4% of our shares. US production was also our highest ever, led by double-digit growth in the Permian. Growth matters when it's profitable. Return on capital employed over 20% shows that our focus on capital efficiency is delivering results. And we took important steps in building new energy businesses. We successfully integrated REG's people and assets into Chevron, combining the best of both companies' technical and commercial capabilities. And we acquired rights to pore space for potential carbon capture and storage projects in Texas and Australia. We had many other highlights last year, to name just a few, at TCO, project construction is largely complete, and we're starting up the fuel gas system. Focus is on commissioning and start-up of the Wellhead Pressure Management Project by the end of this year, to begin transition of the field from high to low pressure. We announced a significant new gas discovery offshore Egypt, which could build on our growing natural gas position in the Eastern Med. And our affiliate CPChem reached FID for two world-scale ethylene and derivative projects in Texas and Qatar. 2022 was a dynamic year, with unique macroeconomic and geopolitical forces disrupting economies and industries around the globe. These events remind us of the importance of affordable and reliable energy with a lower carbon intensity over time. We don't know what's ahead in 2023. I do know that Chevron's approach will be clear and consistent, focused on capital, cost and operational discipline, with the objective to safely deliver higher returns and lower carbon. With that, I'll turn it over to Pierre to discuss our financials.
Pierre Breber, CFO
Thanks, Mike. We reported fourth quarter earnings of $6.4 billion or $3.33 per share. Adjusted earnings were $7.9 billion or $4.09 per share. Included in the quarter were $1.1 billion in write-offs and impairments in our international upstream segment, and negative foreign currency effects over $400 million. A reconciliation of non-GAAP measures can be found in the appendix to this presentation. Record operating cash flows in combination with continued capital efficiency resulted in over $37 billion of free cash flow in 2022. The only other year Chevron's operating cash flow exceeded $40 billion was 2011. Free cash flow in that year was less than 40% of this year's record. In 2022, Chevron delivered outstanding results on all four of its financial priorities. Announcing earlier this week another 6% increase in our dividend per share, positioning 2023 to be the 36th consecutive year with annual dividend payout increases, investing within its organic budget despite cost inflation. Inorganic CapEx totaled $1.3 billion nearly 80% for new energy investments. Paying down debt in every quarter and ending the year with a 3% net debt ratio, returning record annual cash to shareholders through buybacks and exiting the year with an annual repurchase rate of $15 billion. Two days ago, Chevron's Board of Directors authorized a new $75 billion share repurchase program. Now is a good time to look back on our execution of the prior programs. Over the past nearly two decades, we bought back shares in more than three out of every four years, returning more than $65 billion to shareholders. And we've done it below the market average price during the whole time period. Going forward with the new program, our intent is the same, be a steady buyer of our shares across commodity cycles. With a breakeven Brent price around $50 per barrel to cover our CapEx and dividend and with excess balance sheet capacity, we're positioned to return more cash to shareholders in any reasonable oil price scenario. Turning to the quarter. Adjusted earnings were down nearly $3 billion compared with last quarter. Adjusted upstream earnings decreased primarily on lower realizations and liftings as well as higher exploration expense, partially offset by favorable timing effects. Adjusted downstream earnings decreased primarily on lower refining and chemicals margins and negative timing effects partially offset with higher sales volumes following third quarter turnarounds. The Other segment charges increased mainly due to accruals for stock-based compensation. For the full year, adjusted earnings increased more than $20 billion compared to the prior year. Adjusted upstream earnings were up primarily due to increased realizations. Other items include higher exploration expenses, higher incremental royalties and production taxes due to higher prices, partially offset by favorable tax benefits and other items. Downstream adjusted earnings increased primarily due to higher refining margins, partially offset by lower chemical earnings and higher maintenance and turnaround costs. 2022 production was in line with guidance after adjusting for higher prices. As a reminder, Chevron's share of production is lower under certain international contracts when actual prices are higher than assumed in our guidance. Reserves replacement ratio was nearly 100% with the largest net additions in the Permian, Israel, Canada and the Gulf of Mexico. Higher prices lowered our share of proved reserves by over 100 million barrels of oil equivalent. 2023 production is expected to be flat to up 3% at $80 Brent. After adjusting for lower prices and portfolio changes, primarily the sale of our Eagle Ford asset and the expiration of a contract in Thailand, we expect production to grow led by the Permian and other shale and tight assets. We remain confident in exceeding our long-term production guidance. Looking ahead to 2023, I'll call out a few items. Earnings estimates from first quarter refinery turnarounds are mostly driven by El Segundo. Based on the current outlook, we expect higher natural gas costs for our California refineries. Full year guidance for all other segment losses is lower this year due to higher expected interest income and again excludes special items such as pension settlement costs. The All Other segment can vary quarter-to-quarter and year-to-year. We estimate annual affiliate dividends between $5 billion and $6 billion, depending primarily on commodity prices and margins. The difference between affiliate earnings and dividends is expected to be less than $2 billion. We do not expect a dividend from TCO in the first quarter. We updated our earnings sensitivities. About 20% of the Brent sensitivity relates to oil-linked LNG sales. Also, we expect to maintain share buybacks at the top end of our guidance range during the first quarter. Finally, as a reminder in Venezuela, we use cost affiliate accounting, which means we will only record earnings, if we receive cash. We do not record production or reserves. 2022 was a record year for Chevron in many ways. We look forward to the future, confident in our strategy with a consistent objective to safely deliver higher returns and lower carbon. We'll share more during our Investor Day next month. Back to you, Roderick.
Roderick Green, General Manager of Investor Relations
That concludes our prepared remarks. We are now ready to take your questions. Please try to limit yourself to one question and one follow-up. We'll do our best to get all your questions answered. Katie, please open the lines.
Operator, Operator
Thank you. Our first question comes from Jeanine Wai with Barclays.
Jeanine Wai, Analyst
Hi. Good morning, everyone. Thanks for taking our questions.
Mike Wirth, CEO
Good morning, Jeanine.
Jeanine Wai, Analyst
Before we get started – hi, good morning, Mike. We'd like to wish Roderick well in his new position, and we really appreciate all your time and help over the past two years. So thank you very much. Our first question, maybe just heading towards the buyback authorization topic. This week, the Board authorized the buyback authorization up to $75 billion, no expiration date, which is pretty large versus the prior authorization that had a four-year expiration date. We heard your comments on wanting to be a steady buyer of your shares across cycles and that you're positioned to return more cash to shareholders. Can you comment on the decision-making process for getting to that $75 billion and maybe the choice to leave the authorization open in timing versus the prior authorization did have an expiration date?
Mike Wirth, CEO
Yeah, Jeanine, let me start, and then I'll have Pierre add a little bit of color. We included a little information on this call looking back at our past programs. And as you saw on the slide, 15 of the last 19 years, we've bought shares back lower than the market volume-weighted average over that period of time. We look at the decision going forward in the context of the cash-generating potential of the portfolio, the outlook for the market environment, the strength of the balance sheet. And we don't want to be authorizing a program every year. So we talked to the Board about a multiyear outlook. So, the fact that there's not an end date on it is only significant if you're trying to do some sort of math and annualize this. We think our track record speaks for ourselves and the steady, consistent way that we've done this. And so, we increased the rate three times last year as we saw the situation evolve, and we're now at an all-time high with the rate of repurchases. So, the last thing you said it, but I'll repeat it, is sized to maintain our program through the commodity cycle. We aren't pro-cyclical. We're not countercyclical. We're steady through the cycle, and that is the intention. Pierre, do you want to add anything?
Pierre Breber, CFO
Yes, Jeanine. The authorization from 2019 will be utilized in the second quarter. It was also open-ended, meaning it did not have a specific timeframe. We will fully use it before the end of the quarter. Therefore, instead of receiving a new authorization in the middle of the quarter, we will complete this quarter’s buybacks under the 2019 authorization, which has an open timeframe, and then we will begin the new authorization on April 1. This process is similar to how it was done previously.
Jeanine Wai, Analyst
Thank you for the clarification. We appreciate it. For our second question, it's that time of year again regarding the reserve replacement ratio, which was 97% for 2022. This is a decrease from 112% last year and around 99% on average for the five years prior. Our question is about how you foresee this ratio changing over time, with the benchmark likely being 100%. Thank you.
Mike Wirth, CEO
Yes, it can fluctuate from year to year for several reasons, such as price changes, final investment decisions, and our strategic choices to buy or sell. The one-year figure is subject to variation, but the longer-term numbers are more significant. It's important to note that as we continue to develop our large position in the Permian, we can only project reserves five years ahead. Each year, we will extract production from our unconventional assets and add another year’s worth of reserves as we progress. If you were to analyze the Permian without that limitation, the insights would differ significantly. This year, we made reserve additions in the Permian, Israel, Canada, and the Gulf of Mexico, while the largest net reduction occurred in Kazakhstan due to contract terms and the impact of higher prices. If you were to account for that, the 100 million barrel adjustment reflects how pricing has influenced our numbers. Over the long term, we expect to maintain a reserve replacement ratio of 100% or higher. However, in any given year, you might observe some variations.
Operator, Operator
We'll take our next question from Devin McDermott with Morgan Stanley.
Devin McDermott, Analyst
Hey good morning. Thanks for taking my question. First of all, Roderick, I wanted to echo Jeanine’s congrats on the new role and thank you for all the help over the years and great working with you. So I wanted to focus in on upstream. And it's good to see the continued progress on TCO and exciting to be getting close to the finish line on the expansion project there. You noted that WPMP is on track for commissioning and start-up later this year. I just wanted to first confirm that the second part of that expansion, FGP is still on track for '24. And then just stepping back, could you just walk us through your latest expectations to the impacts on both TCO production, CapEx and then also affiliate dividends as these projects come online. Trying to get a sense of the changes in '24 versus '23? And then also, how you think about the run rate on both volumes and spending for that affiliate post FGP.
Mike Wirth, CEO
Yes. Devin, I'll talk to the project and let Pierre talk a little bit to the financials. First of all, no change to cost or schedule guidance. WPMP is trending toward a beginning start-up by the end of this year. We've got a lot of work done. We've got a new power grid up and running and this was a power grid built back in the Soviet days. The control room is up and running, where everything comes into one central control room. All the production on gas injection wells are done, the gas injection facility is now in early commissioning. In just the next few days, we'll tie in the fuel gas system to the first gas turbine generator, which is really an important milestone to test the first of the three GTGs, begin the process of powering up electrical generation capacity and commissioning boilers, steam and other utilities. So, that all happens sequentially here over the next period of time, which leads to commissioning the pressure boost compressors in the third quarter and then converting the field from beginning the conversion from high to low pressure by the end of the year. A couple of things that will bear on production. We've got two planned turnarounds of the old processing trains. They're called the KTL. There's five of them. We had two turnarounds this year that are planned in the third quarter. So those will be down for a period of time. And then as those come back up, production may not fully recover on those two as some of the wells won't resume flowing until we get to the low-pressure system. So, back half of the year, you'll see a little bit of that impact. And then as we move into '24, we've got more of these high pressure to low-pressure conversions in the field and we've got FGP start-up first half of '24. So you don't see the full effect of FGP roll through, you get a partial effect in ramping in '24, and then the full effect will show in '25. Cash will kind of follow that pattern. So Pierre, maybe you can talk about the pattern on CapEx and dividends.
Pierre Breber, CFO
For 2023, the TCO dividends are included in our guidance of $5 billion to $6 billion, which is an increase from the total dividends we received last year. We noted that TCO held a bit of excess cash last year due to ongoing uncertainties. The CapEx was detailed in our December release, and it accounts for nearly half of the $3 billion in affiliate CapEx, which is $1.5 billion. You can expect this trend to continue into next year. During our Investor Day, we mentioned that with $60 Brent pricing and a full year of FGP production after startup, TCO’s free cash flow on a 100% basis would reach $10 billion, based on $60 Brent. We will provide further updates as we usually do on Investor Day. The key point is that we have been investing in this project for over six years, even through COVID and various challenges. Once it starts up, it is expected to generate substantial free cash flow, which will be reflected in dividends and in the repayment of some loans related to TCO.
Mike Wirth, CEO
Devin, just to kind of put a final punctuation on that. In our Investor Day last year, we showed in 2026, so once we get fully on the other side of all this stuff I just described, a 5x expansion in free cash flow out of TCO versus 2021. So it's meaningful.
Devin McDermott, Analyst
Okay. Great. Thank you very much for the helpful answer there. And thinking about this year, 2023 in more detail. You talked about 0% to 3% total production growth for the year, led by sale in the Permian. And last year, you had another strong one for the Permian unit volumes were up 16%. I was wondering if you could just talk through your expectations for that asset in 2023, whether or not you're adding rigs there, overall activity trends? And then more broadly within that 2% to 3% range, what are some of the drivers that can move to the upper or lower end as we move through the year.
Mike Wirth, CEO
Yes. I'll start by addressing the second question about overall production, and the first was about Permian. Our outlook for 2023 at $80 is flat to up 3%, which places us between 3 million and 3.1 million barrels a day. There is a slight adjustment from our Investor Day guidance due to a few factors. Some projects like Mad Dog 2, which we anticipated would start in 2022, are now looking at a 2023 startup. We also have some planned downtime that has shifted from 2022 to 2023. Additionally, our Permian growth is expected to be a bit lower in 2023. In 2022, we benefitted from many previously completed wells coming online, which boosted early production, and we are now re-optimizing our development plans based on what we've learned regarding the interactions between wells and benches, spacing of laterals, and whether to pursue single or multi-bench development. Our updated plan will include some deeper targets, more rig movements, and additional single bench developments, all of which will slightly reduce the pace. So that's the overview of what's influencing the production numbers. We can discuss this in more detail when we meet next month. I'll stop there since I addressed the Permian as well. Thanks, Devin. Katie, let's move on to the next question.
Operator, Operator
We'll take our next question from Neil Mehta with Goldman Sachs.
Neil Mehta, Analyst
Yes. Good morning team and congrats here on a good year. Hey, Mike, I guess the first question I have for you is around global gas. And maybe you can talk about how you're seeing the market. There's obviously been a tremendous amount of volatility and remind us again how you're positioned from a contracted versus spot position? And then I have a follow-up on gas as well in the Eastern Med.
Mike Wirth, CEO
Well, we've experienced a very unusual and volatile year in 2022, which has calmed down as we moved into winter, mainly due to a milder winter in the northern hemisphere than usual. In Europe, successful inventory buildup this year and reduced industrial demand have led to a more optimistic outlook for the European economies than what we might have anticipated a few months back. The market reflects these changes. Additionally, China's economy has been slow throughout the year, but it seems to be improving. It's positive that markets have stabilized, as the high prices were causing significant stress which was undesirable. I hope we can maintain prices in a more moderate range as we enter 2023. Our strategy remains consistent; we are primarily contracted on oil index pricing, with a major portion coming from Australia. We achieved a record number of cargoes in Australia last year, and there were some spot cargoes from Australia and West Africa. We also have some spot exposure in Angola and Equatorial Guinea. Overall, think of us as primarily oil-linked, and we have provided some sensitivities in our guidance that should assist you in modeling based on your assumptions regarding gas prices.
Neil Mehta, Analyst
Thanks, Mike. And that's the follow-up. You have a large gas position in the Eastern Mediterranean, following the noble acquisition with Leviathan and Tamar and some discoveries out there as well. So how do you think about prosecuting that asset? Where does it fall in terms of prioritization? And how big can it be?
Mike Wirth, CEO
Yes, it's a high priority. We made a final investment decision at the end of last year to expand Tamar from 1.1 to 1.6 billion cubic feet per day on a 100% basis. The first gas from that project is expected to come online in early 2025. We are also exploring development options for Leviathan, which are still in progress, and we hope to refine those concepts later this year and make decisions on how to proceed. Regarding the Nargis discovery, we currently have one well that revealed a significant section of high-quality gas-bearing sandstone, making it very appealing. We are discussing appraisal and development concepts with our partner there. Additionally, we have several more exploration blocks to the west in the Mediterranean where we haven't drilled yet, but we've gathered seismic data and are preparing our exploration plans, which we will share more about in the future. This area is very important; there is a demand for gas not just in the Middle East, but also for options to supply that gas to Europe. The noble acquisition significantly enhances our position, and we are optimistic about the potential of these additional exploration blocks.
Neil Mehta, Analyst
Very well. Stay tuned. Thanks, Mike.
Mike Wirth, CEO
Okay. Thank you, Neil.
Operator, Operator
We'll take our next question from Doug Leggate with Bank of America.
Doug Leggate, Analyst
Well, thanks, everyone. Roderick, I'd like to also pass on my thanks. You've transformed Chevron does Investor Relations. Thank you for all your help. Guys, I wonder if I could go back to the buyback. I just want to try and understand a little bit about the comment around really just how you think about the purpose of the buyback. Is this really about dividend management at this point? Because it seems to us that, if you take your Brent sensitivity into account, the run rate at the high end of the range puts you about a $90 breakeven on your oil price. And I'm just wondering if this is about value or about managing confidence in future dividend growth.
Mike Wirth, CEO
Let me clarify this, Doug. We don't conduct buybacks to manage dividends. The overall dividend payout is a result, not a reason for buybacks. Our dividend growth reflects our confidence in our ability to increase free cash flow at mid-cycle prices, and it is a long-term decision. We haven't reduced the dividend since the Great Depression, and as Pierre noted, we have increased it for 36 consecutive years. Buybacks, on the other hand, indicate our confidence in generating excess free cash flow and utilizing our significant available balance sheet capacity in the current commodity cycle. As we meet our dividend commitments and pursue our reinvestment plans to grow free cash flows and maintain a strong balance sheet, we are in a position to repurchase shares throughout the cycle. While buybacks may lead to a lower absolute dividend, they are not the main reason for doing them. There should be no confusion on this front. We remain confident in our dividend increases, regardless of share repurchases, and we wouldn't raise the dividend without that assurance. Thus, the two are not connected in that way.
Doug Leggate, Analyst
That's very clear. Thanks, Mike. My follow-up is a bit unfair, given your Analyst Day is a month away, but I'm going to give this a go anyway. You've mentioned that your balance sheet is in great shape and that you have a lot of capacity. If I refer back to the $90 breakeven, I'm taking that $15 billion run rate, which translates to $400 million a year, and adding it to the $50 breakeven to reach $90. What does this indicate about your outlook for increasing growth capital? It seems to suggest that the growth capital of $17 billion for the CapEx number is what we should anticipate moving forward. Is that the correct way to interpret it, or should we wait until the end of February?
Mike Wirth, CEO
Yes, we will discuss it further in February. I'm not entirely clear on your calculations, but we are experiencing growth. We achieved a 3% compound annual growth rate with a CapEx of $15 billion to $17 billion in a market with slower growth. Our growth rate surpasses the overall demand for both oil and gas, with gas growing at a faster pace than oil. We are increasing production, but our main focus is on enhancing returns and cash flow. If we can successfully grow our returns and cash flow, then our strategy will be effective. We look forward to elaborating on this when we meet at the end of the month or next month. We can indeed grow cash flow and improve returns at our current spending rate. Therefore, I'm unsure why there would be any doubts about our capacity to achieve these goals and the resulting production figures. That's not our priority.
Doug Leggate, Analyst
Appreciate the answers. Really glad. See you soon. Thank you.
Operator, Operator
We'll take our next question from John Royall with JPMorgan.
John Royall, Analyst
Hi, guys.
Mike Wirth, CEO
Good morning, John.
John Royall, Analyst
Good morning, and thanks for taking my question. So maybe just kind of a spin on Doug's question. So with the balance sheet at 3%, is there a point where you think of yourself as actually underlevered and I realize that's a good problem to have. But if you ever got to that point with the mechanism be to get leverage higher by increasing the buyback, or how do you think about that generally is the 3% where you want to be?
Pierre Breber, CFO
This is Pierre. I'll take that. Our guidance is for the net debt ratio to be between 20% and 25% in mid-cycle conditions. And as you said, we're at 3%, so we're much stronger than that. And that's what happens in the short term. So Mike has talked about our financial priorities. They're simple. We've been consistent with them for a very long time. And three of the four are pegged. We just increased our dividend 6%. We have a 2023 CapEx budget of $14 billion. We've given guidance that keeps that CapEx flat over the next several years. And we have the buybacks at the top end of the guidance range of $15 billion. So swings in cash flow in the short term will go to the balance sheet. And that's because commodity prices and margins, we just were talking about natural gas prices and refining margins and things are moving up and down. But over the long term, those cash flows will be returned to shareholders. And so we want to do it in a way that is steady across the cycle. As Mike said, we don't want to be pro-cyclical. And by the way, we haven't, right? Our track record shows that over the past nearly two decades that we've been able to buy actually below what the market average price has been. So the intent is to, yeah, we'll be a little strong balance sheet depending on commodity prices and margins and how strong our operations have been. But then over time, the cycle will correct and then we'll continue buying back shares. We've said we could have a higher buyback rate right now. We're sizing it at a level to maintain it for multiple years across the cycle. That means there'll be a time period where we'll be buying back shares off the balance sheet, and we'll lever back up closer to that 20% to 25% guidance. Thanks, John.
John Royall, Analyst
Very clear. Thank you, Pierre. And just a follow-up on the TCO project. I was hoping you could give an update on the CPC terminal operationally and where that stands. And then what type of discounts are you seeing at that terminal right now? I think you called out a few quarters ago or maybe two quarters ago that it was $6 or $7 per barrel. I imagine that's come in a bit. So where is that discount today? And how is that terminal operating?
Mike Wirth, CEO
Yeah. So last year, there was probably more news than there was impact on a variety of issues relative to the pipeline and the terminal. There was work going on in the late third and into the fourth quarter on the two of the three single-point moorings. All that work is done. All three SPMs are operational today. There are no constraints on loading. There are no constraints on throughput on the pipe. Despite a lot of the things that people heard and worried about last year, the pipeline was very reliable. Our production was impacted less than 10,000 barrels a day over the course of the year. It was all a few weeks in March and April. And so everything there is running very smoothly now, and we don't see any constraints. Discounts have come in a little bit on CPC. In the immediate aftermath of some of the sanctions and changes related to Ukraine. We saw a trading range that was like $4 to $10 below dated Brent. And before the conflict began, it was plus or minus $1. We're seeing kind of $1 to $3 discounts now. So maybe not quite at pre-invasion levels, but not as deep as they were immediately afterward. And given the overall flat price environment and the way it has strengthened the impact to CCO is relatively muted.
Operator, Operator
We'll take our next question from Roger Read with Wells Fargo.
Roger Read, Analyst
Yeah. Thank you. Good morning.
Mike Wirth, CEO
Good morning, Roger.
Roger Read, Analyst
Hey, good morning, guys. Just looking at, let's call it, refined product demand. You talked about gas demand earlier. I'm just curious, as you look around the world, we've got positives moving away from COVID on a year-over-year comparison and then everybody's got high expectations for the China reopening. I was just curious, as you look across your operating base, what you're seeing there?
Mike Wirth, CEO
Yeah. Overall, Roger, gasoline demand, I'll start there. Still just a touch below pre-pandemic levels, fourth quarter of 2022 maybe 2% or 3% below fourth quarter of 2019. If you look at diesel, demand is pretty flat versus pre-pandemic. Jet recovering, but still below and so at the highest level, we're kind of still flattish to recovering from pre-COVID. I think that's why there is concern that as China's economy really does come through and return to a more normal level, that we could see increased demand start to pull on these markets again. You've seen announcements out of China about their intention. We see international flights and air travel now being scheduled at much higher levels than we've seen before long. And if you see the kind of rebound spending and activity in that economy that we've seen in other economies around the world, that's one of the things that could buoy the global economy and firm up demand for products. So, there's still some variables in the equation. We're not past the risk of recession and clearly, central banks are still tightening to slow things in certain parts of the world. So there's some puts and takes. But net-net, this continues to trend in a recovering direction with the two biggest questions probably related to the two biggest economies, China and the US.
Roger Read, Analyst
Always the big guys, right? A follow-up question to come back to the Permian, and I recognize the Investor Day coming. But Pierre, when we were at the sell-side dinner end of November, there was a lot of discussion over kind of the changing in the range and how that was really just a function of messaging more so than – overall change in the way you're developing the Permian, kind of following from that to the comments about things a little different in the bench and the DUC comparisons year-over-year. You look at it as any different from the messaging at the end of November, or is this – is there something else here with.
Pierre Breber, CFO
No, nothing different. We'll show that at our Investor Day. Again, we were in the middle of the range. You can see the fourth quarter number was 738. So that was strong. We had some learns, as Mike said, in 2022, and we've adjusted our plans to go to deeper targets and more single bench developments and that results in a little longer drilling times and a few more rig moves and we'll update all that. And all that is obviously included in our production guidance. So we'll continue to learn and adapt in the Permian. It's a large royalty advantage position. It's an asset that delivers higher returns and lower carbon. It's a big source of free cash flow. Our free cash flow growth over the next five years is really driven by Permian, the Gulf of Mexico, a few other assets. And it's remarkable to have an asset that can grow at that rate and do it free cash flow positive the whole time and free cash flow growing the whole time. So, it will ebb and flow a little bit as we learn more, but what you'll see at our Investor Day, something very consistent with what we're saying today and what we said in the past.
Mike Wirth, CEO
And Roger, just to emphasize the point I made earlier in response to another question, we remain focused on returns and value, not on production. That's what drives all of this. Thanks.
Operator, Operator
We'll take our next question from Irene Himona with Societe General.
Irene Himona, Analyst
Thank you very much for taking my questions which are both related. So, I will ask both at the same time. So, firstly, thinking about balance sheet strength, of course, the other use it can be put to is M&A. You've been very disciplined with your M&A timings, both with Noble and Regi. How do you see the current market in these two, let's say, legacy oil and gas versus low carbon? And then secondly, has the IRA Act perhaps changed your appetite for faster expansion in low carbon businesses, please? Thank you.
Mike Wirth, CEO
Thank you, Irene. So, we do have the capacity to do M&A. We don't need to do M&A. And so, we'll only do deals that are value-creating deals. You interestingly contrast the traditional oil and gas market with the new energies market. What I would observe is given commodity price strength in oil and gas, we've seen companies that previously might have been languishing from a value standpoint, strengthen. And I think there's some optimism in the eyes of other companies about the future. And so, the bid/ask spread on oil and gas companies is maybe a little wider right now given the strength versus when we did our deal a couple of years ago. In lower carbon, with interest rates rising and SPACs kind of receiving and the like. A little bit of the kind of froth may have come out of that market, but they're still some optimism in valuations there as well. And so, we'll be very thoughtful and careful as we evaluate those. And there are a lot of companies out there that have got business models in this space. So, we watch them all. We will be back to talk to you if we have anything that's interesting. Let me touch on IRA and then ask Pierre to add a little more color. The IRA will probably accelerate some activity in the US. There's no doubt. Hopefully, what that does is it allows technologies to be de-risked. The cost of technologies to be reduced and the attractiveness of these investments to improve. A bill like that with kind of a grab bag of different policy incentives doesn't necessarily change our long-term view on how we want to build businesses. It does perhaps change the trajectory at which some of those businesses become more economically viable. And if that's the case, that could feed through into our similar investment decision. But it's kind of a second-order effect rather than a first-order effect.
Pierre Breber, CFO
And just to add some of the other important effects, permitting really critical for traditional energy, super critical for new energy, new technology developments, you've seen us make some investments on technology to reduce the cost of capture of CO2 and then scale, getting cost down. So it's helpful, but it's just one element, as Mike said.
Mike Wirth, CEO
Thanks, Irene.
Operator, Operator
We'll take our next question from Ryan Todd with Piper Sandler.
Ryan Todd, Analyst
Thanks. Maybe if I could ask a couple on the downstream side. First, there's been a lot of noise earlier this year about refinery maintenance activity looking to be well above average in the US, particularly in the first half of the year, especially amongst independent refiners. Your first quarter guidance seems to suggest turnaround activity in Q1 that's reasonably light or at least not terribly heavy. Any thoughts on whether 2023 outlook as a whole for Chevron looks normal or heavy in terms of refining and maintenance. And then maybe more broadly, how you see general tightness in global refining markets this year over the course of 2023?
Mike Wirth, CEO
I would say it's a typical year for turnaround activity. We have the FCC at El Segundo in the first quarter, as mentioned by Pierre. There isn't anything unusual in our turnaround plan for this year. What we are observing across the US and in some other markets are remnants of COVID. One is that capacity is being removed from the system, and two is that maintenance that was postponed during COVID has had to be rescheduled and replanned. As a result, there may still be some ongoing activity that is necessary for safety, reliability, and regulatory compliance. This could be contributing to some speculation. I can't comment on the plans of other companies; I will leave that for you to discuss with them.
Ryan Todd, Analyst
Okay. And then maybe on the other side of your downstream business on the chemical side, it's clearly been weaker for the last little while. Looking forward from here, is the combination of lower natural gas prices and the reopening of China having any impact on how you see margins moving throughout 2023, or do you anticipate that oversupply keeps things weaker throughout the year?
Mike Wirth, CEO
These cycles tend to be long, Ryan. Overall, I believe that economic growth and development in China is a positive factor. However, it’s not easy to transition quickly into the lower part of the cycle, and exiting it isn't swift either. These trends tend to unfold over an extended period. I get the impression that we are currently hovering near the bottom, but I don’t expect a rapid recovery; instead, it seems more likely to be a gradual improvement over time.
Operator, Operator
Thank you. We'll take our next question from Jason Gabelman with Cowen.
Jason Gabelman, Analyst
Good morning. Thanks for taking my questions. I wanted to first follow up on the affiliate distribution guidance because it is taking a step higher year-over-year, and it sounds like that was due to TCO having excess cash. Is that kind of $5 billion to $6 billion, something you can maintain assuming oil price stays stable until the project actually starts up until TCO FGP starts up or would you expect that to fall off after this year? And then my second question is on a different topic, Venezuela. I believe you have now boots on the ground there again. Can you just discuss what you're seeing in terms of the health of the infrastructure there, the ability to ramp production and the desire from Chevron's standpoint to participate in that? Thanks.
Pierre Breber, CFO
On affiliate dividends, there are two main reasons why this year's guidance is higher than last year's. One reason relates to TCO, where we didn't hold excess cash last year. The second reason involves Angola LNG; many of their cash distributions were actually returns on capital. This is an accounting issue related to whether we have positive book equity or not, and now they are in that position. Therefore, we anticipate that most or all of the cash from Angola LNG in 2023 will be classified as dividends. It's essentially the same cash, but one appears in cash from operations while the other is listed differently in the cash flow statement, which is the second factor. Regarding the general outlook, this guidance is based on the current futures curve around $80, so it will depend on commodity prices and margins. There are some downstream affiliates, including chemicals, to consider. As for TCO, it is improving. With capital expenditures decreasing and production increasing, we expect higher dividends from TCO in the future. Additionally, we anticipate TCO will repay the loan over the coming years.
Mike Wirth, CEO
Yes, Jason, on Venezuela, we always did have boots on the ground. We just were very limited in where those boots could go and what they could do. The shift in the sanctions policy has opened up a little more room. It's allowed us to work with PDVSA to put some of our people into different roles in these mixed companies there. So we do have a little more ability to have influence and involvement in some of the decision making. Your question about the state of the infrastructure, there's been a lack of investments there for a number of years in the infrastructure reflects that, and it will take time for things to turn around. We have seen some positive production response already in the entities that we're involved in. They're producing about 90,000 barrels a day now, which is up about 40,000 barrels a day since we saw the change in these license terms. So that's been a good short-term effect. I'm not going to say you can extrapolate that, but it's where we are today. We are continuing to work on the ground to expand production, but it's too early to guide to anything. We're also lifting oil and bringing it to the US. We've got a couple of cargoes coming into our Pascagoula Refinery. We're going to be delivering cargoes to other customers on the Gulf Coast. And then the revenues go into a series of structured channels to pay expenses and other obligations. On the accounting standpoint, we're using cost affiliate accounting. So we'll record earnings only if we receive cash. And at this point, I would say the cash flows are expected to be modest. So this is a step-wise change in the environment there. We're going to go into it thoughtfully. It's a six-month license, and it's a dynamic environment. So we'll continue to advise you as we learn more and as things evolve.
Jason Gabelman, Analyst
Great. Thanks a lot for the detail.
Mike Wirth, CEO
You bet.
Operator, Operator
We’ll take our next question from Sam Margolin with Wolfe Research.
Sam Margolin, Analyst
Hey, good morning. Thank you.
Mike Wirth, CEO
Good morning, Sam.
Sam Margolin, Analyst
I'll ask about the Rockies. The Rockies is an interesting place where you could maybe add a little bit of activity to face your aggregate Lower 48 activity levels, but without some of the inflationary pressures and just infrastructure tightness in the Permian and inventory depth there is good. Is the Rockies a place where there may be a little bit of extra focus? And I ask that in the context of sort of the broader theme around your overall resource depth and production and all these topics that are sort of flowing into the broader conversation today.
Mike Wirth, CEO
Yes, absolutely, Sam. We got over 320,000 net acres there. Last year, we started out with one rig and one frac crew. We ended the year with three rigs and two frac crews working and the plan for this year is activity at that level. So it's been a positive movement in terms of activity and production expectations there. It's a really nice resource. It's a low carbon resource. A lot of this is powered off the grid. There's been some permitting questions about this in the past. There have been large areas done under development plans, and we've got permits well out into the future and continue to work that closely with the authorities there. So it's one we can talk about a little bit more at Investor Day. It's a really positive part of addition to our portfolio out of Noble and the Eastern Med gets a lot of attention, but we're very excited about the DJ.
Sam Margolin, Analyst
Okay. Just to follow up, it's clear that the reserve numbers are drawing attention with regards to overall activity and long-term production trends. We'll cover this in more detail at Analyst Day, but can you currently provide an estimate of the Gulf of Mexico, other shale and tight resources, and Eastern Med gas? It would be helpful to see how this total resource estimate compares to your current portfolio regarding tail resources and to discuss your organic portfolio and its expansion.
Mike Wirth, CEO
Yes. I might have Roderick work with you. So we're clear on the question when we get to the Investor Day on how to compare and size things relative to the portfolio. But we said today in our press release that we're very confident we're going to exceed our 3% compound annual growth rate over the next five years. You can't do that unless you get depth in the portfolio, which we have. And you got quality projects that are moving along at a good pace. And so I'll assure you that that is the case. We will talk about this more at Investor Day, and you'll have a chance to go deeper into it with our folks.
Operator, Operator
We'll take our next question from Paul Sankey with Sankey Research.
Paul Sankey, Analyst
Hi, good morning, everyone, and congratulations, Roderick. Mike, I was surprised by the major buyback announcement. The $75 billion figure is quite noticeable. However, it appears your guidance remains in the $5 billion to $15 billion per year range as indicated in the Q1 guidance. Are you planning to increase that amount, or is this a five-year authorization? Also, were you aware that this might provoke considerable political backlash? Thank you.
Mike Wirth, CEO
Yes. Pierre addressed the question earlier; this is not a five-year authorization but an open-ended one. We intend to maintain it throughout the cycle. I want to emphasize that it aligns with both our upside and downside scenarios from the 2022 Investor Day and reflects our history of consistently buying at $2 below the market for nearly twenty years. We can increase our guidance range, but we need to be confident in sustaining that higher rate for several years across the cycle. You should see this as a sign of confidence, and we will provide more updates. We raised our buyback rate three times last year, so we are open to doing so again. I think the reaction has been somewhat exaggerated since this is an open-ended program; we could have opted for a smaller one and prepared for another sooner. Pierre mentioned that we are wrapping one up. We considered a plan that would span several years, not to create a spectacle but to demonstrate our confidence in our cash generation.
Paul Sankey, Analyst
Understood. And offset to that, Mike, you're spending more on exploration. Could you just talk about the highlights that you see coming up in 2023. Obviously, we're aware of East Med, but there's other stuff out there and the spending has stepped up quite a lot, hasn't it?
Mike Wirth, CEO
Yes, I wouldn't say that spending has increased significantly. We have a solid portfolio that we are pleased with. Regarding Eastern Mediterranean, we still possess many blocks in the deepwater Gulf of Mexico. We have blocks in Suriname that we're actively developing, which are in line with ongoing trends in that area. Additionally, we have acquired land in Namibia that aligns with exploration activities in that region. We also have projects in Brazil and previously acquired assets in Mexico. Overall, we have an appealing range of opportunities that we are continuing to pursue. We won't drill wells until we are adequately prepared, but our projects span several basins with robust oil and gas systems. The recent Nargis discovery illustrates the benefits of concentrating our efforts in these areas, and I am optimistic that we will see more successes like this in the future.
Paul Sankey, Analyst
Thanks a lot.
Operator, Operator
Our last question comes from Biraj Borkhataria with RBC.
Biraj Borkhataria, Analyst
Hey, guys. Thanks for taking my questions. So the first one is on the share count. Just going back to early 2022 of the period where you're stepping up the buyback program, but the dilution from the employee options are offsetting that rule. So I'm just trying to understand, I know you took a charge today in the corporate line. Do you expect 2023 dilution to be a similar level to 2022, or should it be lower? Just any sense on that would be helpful.
Pierre Breber, CFO
We expect fewer employee and retiree exercises of stock options. That was extraordinarily unusual in the first quarter. And it's a zero-sum game. In other words, if employees and retirees do it early, there's fewer to do going forward. But that will be up to them and the stock price performance. And the share buybacks, I mean, you just divide it, depends on what our stock price is. We give guidance quarterly, and I think you can do the math. It is confusing the difference between average annual share count and where we end, right? So we are clearly taking our share count down. But when you look at average annuals, that's exactly what it implies. It's an annual each day, but the trend is going down. Our buybacks exceed the issuances, and we expect that to continue.
Biraj Borkhataria, Analyst
That's very clear. And then second question is just thinking about asset sales. Looking at your guidance, 2023 plans are fairly muted. And I appreciate that you're basically at close to zero debt, so you don't actually need to do anything. But in a high commodity price environment, maybe counter-cyclically, you might want to accelerate something. So is this a function of just the limited cleanup needed in the portfolio or a view on bid-ask spread or anything else, just to get your view on the asset sale market at the moment? Thank you.
Mike Wirth, CEO
We are currently a bit below our usual guidance levels in terms of activity. Over the past ten years, we've raised around $35 billion through asset sales, which is approximately 3.5%. Some necessary portfolio adjustments are happening, and we've achieved good value from those sales. We continually assess our portfolio, looking to identify any parts that may no longer fit our strategy. If we encounter potential buyers for assets that may be better suited for them, we are open to transactions. For now, the guidance we have shared reflects our current plans and initiatives, and we will inform you of any updates if things change.
Pierre Breber, CFO
And the only add, Biraj, we don't do asset sales to raise cash or to manage the balance sheet. We do it based on what Mike just said, high grading of the portfolio where we can get the best returns for capital projects that can compete for capital. Some of the impairments that we took in the fourth quarter are a result and outcome of projects that are good projects. They're just not good enough to clear the bar. So it does ebb and flow a little bit as Mike has said, but I just want to be clear, we do it as part of our capital discipline and have driving higher returns and lower carbon. It's an outcome of that. It ebbs and flows. It's a little low this year. We set it to go back higher in future years.
Roderick Green, General Manager of Investor Relations
Thanks, Biraj. I would like to thank everyone for your time today. We appreciate your interest in Chevron and everyone's participation on today's call. Please stay safe and healthy. Katie, back to you.
Operator, Operator
Thank you. This concludes Chevron's fourth quarter 2022 earnings conference call. You may now disconnect.