The Chevron-YPF joint venture in Argentina's Vaca Muerta shale play
is producing about 16,000 b/d of oil and that is expected to continue to rise
in the coming months and years, Chevron Chairman and CEO John Watson said
"I think you'll start to see [production grow] from here," Watson said in
a quarterly earnings conference call with analysts. "There's lots of oil
infrastructure there now; YPF is doing a nice job and we're sending in
technical and other people to support them." Chevron is partnering with
Argentinian state-owned YPF to develop part of the shale play, which is
believed to be one of the world's largest.
Watson said the joint venture is running 15 rigs in the play and that
four more rigs will be added over time.
"We're optimistic we'll see continued growth," he said. "It's very early
days at this point. There's probably more to come, but you should see benefits
in production before too long."
Watson also said that unlike other large integrated oil and gas companies
that have spun off their refining segment in recent years to become pure
upstream oil companies, Chevron plans to stay in refining. It "makes ...
sense" to remain integrated at a time of when there are important "linkages"
to upstream that create economic opportunities and relatively wide disparities
in US crude prices persist, he said.
Globally, he said Chevron has done "quite a bit of pruning" of downstream
assets and in the last six to seven years has saved about $8 billion.
"I don't think splitting off the [downstream] business makes you an
independent," he said, in reference to spinoffs of refining segments
by former integrated companies Marathon and ConocoPhillips, which now focus
solely on upstream operations. "There are linkages [between downstream and
upstream] that are very important."
For instance, Chevron operates the 290,000 b/d El Segundo,
California, refinery which runs heavy crude produced in the San Joaquin
Valley. Watson said the company has "just augmented" some facilities at El
Segundo to take more San Joaquin crude. It is spending that he described as "a
good synergistic type of investment."
Also, over the years the company has put in specific facilities to
capture value out of high-mercury Asian crude, he said.
"We think our downstream portfolio is in pretty good shape," he said.
In North America, "a few years ago I might have said inland small
refineries would be tough, but frankly those are the some of the most
profitable with Salt Lake City and Burnaby, British Columbia" in Canada. Both
are Chevron refineries of 45,000 b/d and 55,000 b/d capacities, respectively.
"When you look at the middle of the [US] today, it makes all the sense in
the world to be an integrated company," said Watson. "You've had tremendous
volatility in crude prices and you either capture it in refining or upstream.
I think the integration story for us is pretty straightforward."
Just as some downstream assets have been sold in recent years, the
company is now making "some sales" on the midstream side, he said, while
declining to get into specific because of "commercial" concerns.
although he declined to speak about specific assets "for commercial reasons."
Watson said he was "not fond" of master limited partnerships as a vehicle
to spin off, sell or park midstream assets. "But we can sell into MLPs
and get that value," he said.
He said the company has been selling pipelines and will continue to look
to chances to monetize merchant-type assets that are not critical to Chevron's
upstream or downstream businesses. Likewise, some upstream asset sales are
"possible," he said.
"I would say you will see more asset sale activity in the upstream in the
next two or three years than you've seen over the last few years," he said.
Compared with its peers, Chevron's upstream sales will be "modest, but we will
have a little more in the area of asset sales going forward."
Chevron said it earned $4.9 billion ($2.57/share) in Q4, down 32% from
$7.2 billion ($3.70/share) in the comparable year-before period on both lower
upstream and refining earnings.
--Starr Spencer, firstname.lastname@example.org
--Edited by Jeff Barber, email@example.com