Key takeaways from call. 1) CVX further accelerating buybacks, expects to repurchase ~$15Bn annually vs. prior its guidance of ~$10Bn, rate of buybacks increases by 50% in 3Q 22 ($3.75Bn) vs. 2Q 22 ($2.5Bn); 2) Although it had heavy upstream turnaround, CVX generated $10.6Bn in FCF in 2Q 22; 3) Despite paying for BG JV and REGI, net debt continued to decline (net debt to cap at 8.3%, below mid-cycle guidance of 20%-25%); 4) 2Q 22 production down 7% vs. 2Q 21, driven by contract expiration in both Indonesia and Thailand, the sale of Eagle Ford asset, and CPC curtailments impacting TCO during April; 5) TCO expansion on track and on budget, WPMP startup in 2H 23 (finish construction in 2022) and FGP still on track for 1H 24 startup; 6) TCO is 93% complete, all 40 production wells are already now produced and completed and actually producing into the plant. This helps transition from the high pressure to the low pressure phase. Management confirmed, they are at full capacity at both TCO and CPC pipeline and storm effects that impacted 2Q 22 have passed (positive); 7) Targeting 15% volume growth in Permian, added 2 rigs in July, now running 10 rigs and plan to drill 200 wells in 2022; 8) Spending ~$3Bn in Permian in 2022 (up $1Bn vs. 2021) and will likely ramp to $4Bn by 2024 (relatively flat after that); 9) In Permian, multi-year contracts allow CVX to mitigate some of the inflationary pressure; while others are having to invest in infrastructure during this high-inflationary period, CVX is largely using infrastructure that was built over the past five years; 10) CVX expects to GOM grow volumes by +100kboe/d in GOM by 2026 to get to +300kboe/d in next 5 years. 11) Does not expect significant dividends from TCO or Angola LNG until 4Q 22; 12) Gasoline demand saw price response in 2Q, but recovering.
▪ Revising estimates. We are revising CVX 2022 operating EPS estimate to $18.18 from $16.66, to account for higher commodity prices and stronger refining earnings.
▪ Stock thoughts. This was a heavy turnaround quarter for CVX; yet results exceeded expectations. We expect stronger upstream operational results in 3Q 22. CVX’s 2Q 22 results show CVX's strong portfolio of assets (both upstream and downstream) and its commitment to shareholder returns. With increase in buybacks the total shareholder return yield is now ~8.2% vs. peer XOM at ~7.3%. Risk. Lower crude prices, weaker refining.
Outperform, TP $202