LNG News Editor:
Chevron Corp. expects 2022 it be better than last year with improving Permian Basin activities and steady flows of cargoes from the US major’s two operated liquefied natural gas plants in Western Australia as the company also addressed LNG futures trading and other issues.
Chevron executives spoke to analysts in a conference call after the San Ramon, California-based company posted earnings of $5.1 billion for the fourth quarter compared with a loss of $665M in the same three months of 2020.
Included in the quarterly results were asset sale gains of $520M and losses on the early retirement of debt of $260M.
‘Better company’
Chevron reported full-year 2021 earnings of $15.6Bln compared with a loss of $5.5Bln in 2020.
“Chevron is an even better company today than we were just a few years ago,” said Mike Wirth, Chairman and Chief Executive on the conference call.
“We're showing it through our actions and our performance, which we expect to drive higher returns and lower carbon,” added Wirth.
Wirth stated that he expected 2022 will be even better for cash returns to shareholders.
“We're optimistic about the future, focused on continuing to reward our shareholders while investing to grow our businesses and maintaining a strong balance sheet,” he explained.
Challenges faced
“We made the most of this challenging period, transforming Chevron through a well-timed acquisition (Noble Energy) and an enterprise-wide restructuring into a leaner and more productive company,” added the CEO.
Wirth noted that in just two years, capital expenditure was reduced by almost half from Chevron and Noble's pre-Covid 19 totals.
The CEO said he was looking forward to improved performances from Permian Basin assets and Australian LNG.
“Broadly speaking, the Permian is healthy and getting better,” stated Wirth.
“I think 2022 Permian production will be a little bit better than we showed at our Investor Day last March. And roughly speaking, up around maybe 10 percent compared to the full-year average in 2021,” said the CEO.
“And that is the largest piece of what we would anticipate in terms of production growth next year,” stated Wirth.
The CEO also added that the company expects “some more uptime” at the Gorgon LNG plant on Barrow Island in Australia, one of three operated by the company, along with Wheatstone LNG and Angola LNG in southwest Africa.
Cargo timings
Pierre Breber, Chief Financial Officer, also addressed LNG issues on the conference call, such as the timing effects of cargoes and the current and recent volatility of LNG futures, the Dutch Title Transfer Facility and the Japan-Korea Marker.
“About half of the effects in the quarter were due to a negative inventory charge,” said Breber.
“So we had two cargoes on the water at year-end. They get valued into inventory at average annual prices, which were well below the purchase price because this was a rising price environment and prices rose in the end of the quarter. So that will reverse itself next year,” added the CFO.
“The balance of the timing effects are in paper mark-to-market effects,” he explained.
“The paper, which is tied to physical cargoes, gets marked to market, whereas the physical cargoes are not,” said Breber.
“And so that creates a timing effect, which unwinds when the physical cargoes are delivered. We ended the year with a positive mark to market, but not as positive as what we had at the end of the third quarter. We added some JKM shorts during the quarter to balance our portfolio,” added the CFO.
Hedging
“We're still net long JKM so any effects going forward will depend on the direction of future prices. And all this activity is really just geared toward managing our overall price exposure between our sales agreements and our supplies, which are a mix of both Brent and JKM prices,” stated Breber.
Breber said that when you have natural gas and LNG price movements that have gone from $10 to $20 to $30 per thousand-feet (Mcf), it's causing larger timing effects than you would normally see.
Chevron also received its Angola LNG return of capital. “It actually exceeded our guidance,” said Breber.
“But again, it shows up in cash from investing and not cash from ops because it's a return of capital,” he explained.
“If you look beyond that, we do have, and as I referred to in our prepared remarks, we have certain contracts internationally that have additional taxes and royalties that kick in essentially when oil and LNG prices are higher. And we don't share specifics on our contracts,” the CFO concluded.
