Chevron vice chair discusses oil demand, Hess, portfolio

Chevron (CVX) has announced plans to boost oil (BZ=F, CL=F) and natural gas recovery at two of the energy giant's US Gulf of Mexico facilities. Chevron Vice Chairman Mark Nelson sits down with Brad Smith on Catalysts to discuss the state of the oil market and the company's outlook.

Nelson notes that oil demand continues to be strong "across the globe," identifying two key macro factors driving the oil market at this time.

"I think you see demand coming back to traditional growth levels. So coming out of the pandemic, there was a bit of an extra boost. Everybody kind of catching up on their travel and markets coming back to normal," Nelson states. "And then you see uncertainty in the market. You see... OPEC+ to some degree controlling supply. And questions about geopolitics. That's kind of keeping us in a range, but keep us bouncing around."

Addressing Chevron's M&A activity and the arbitration delays in its closing its deals with Hess (HES), Nelson highlights Chevron's growth profile, calling it "really exciting" and emphasizing that the Hess deal was not a necessity to maintain that growth. He notes the company has "growth built in" for both the short-term and long-term: "There's a growth trajectory with or without the Hess transaction, but we believe the Hess transaction is good for both shareholders."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Angel Smith

Video Transcript

Chevron announcing plans to boost oil and natural gas recovery at two of its facilities in the US Gulf of Mexico.

Here with more.

We've got the vice chair of Chevron here with us in studio.

Great to have Mark Nelson.

Mark.

Thanks so much for taking the time here with you, with finance to be here.

Thanks for having me.

Yeah, let's dive into this.

I mean, what really prompted this decision?

Like, just give us the lay of the land of the oil and gas market right now.

The energy sector more broadly, Especially as I mean, we're speaking and we're seeing some of the new lows in Brent Crude here now.

Yeah, I think the first thing I would say is that oil demand remains strong.

So across the globe, people need this for their for their energy today, right?

It's a growing world they need.

They need energy.

Some of our recent recent announcement about the Gulf of Mexico talk about what can be done.

What's what's possible in this space and in the Gulf of Mexico is one of those areas where we have some of the lowest carbon barrels of oil available to the world, and we've made some recent announcement that would, I think, would make people excited if they understood the technology and what it unlocks for the future.

When you think of the marker that I just mentioned ago and just to, you know, put a fine point on that we're hitting for 2024 the lows of crude oil on the day.

What are some of the biggest factors driving this market right now?

Well, from a macro standpoint, I think you see two things.

I think you see demand coming back to traditional growth levels.

So coming out of the pandemic, there was a bit of an extra boost.

Everybody kind of catching up on their travel and markets coming back to normal.

Now we're seeing about that 1 to 2% oil growth demand growth that we've traditionally seen.

So I think that's happening.

And then you see uncertainty in the market you see on OPEC, plus to some degree controlling supply and questions about geopolitics.

This kind of keep us in a range but keep us bouncing around.

How much should investors in this market right now and and not you know, saying that you should put the investment strategist hat on, but investors out there trying to figure out what type of shock that could put to the system if you did, have OPEC decide to make a snap decision, one direction or the other.

Uh, and and right now it's been about more production and inserting more production into the system.

I think you would expect OPEC plus to to, and I can't speak for them.

But I would expect them to stay disciplined over time.

Now there's a boundary conditions I suspect, within which they can operate there.

But if you think of oil demand growth coming into normal ranges and you think about supply opportunities that exist across the world, the most competitive barrels will compete.

And they probably need to keep prices in the ranges that we're seeing in the last year or so.

So range bound between this low of today and maybe the seven $75 a barrel range.

A lot of people who have been tracking the ticker symbol for years of of CV X on the Yahoo finance platform.

They know about some of the acquisitions that you've you've made over the years that the board of directors and, uh, the leadership team have really discussed at length.

One of the most recent one is, of course, hes.

That's a bit delayed, it seems here until 2025.

You know, what does that mean in terms of the other growth opportunities and the leverage that you believe Chevron is still able to pull right now?

Brad, you may remember when we announced the Hess deal we talked about We don't have to do this deal.

We're doing this deal because it's so good for both both companies.

One of the reasons we didn't have to do the deal was because we had a growth profile existing in our our corporation.

In fact, we have free cash flow growth that's in the 10% range over the next three years.

It's really exciting for our investors, and that's driven by a portfolio that has growth built in.

So the deepwater Gulf of Mexico we're going to hit our million barrels a day our ting operation, another exciting, um, opportunity.

So when you think about those type of things coming there, there's a lot to be excited about in the short term for Chevron.

Long term, we also have our eastern Mediterranean.

We have an Argentina portfolio that's very strong, and we're growing our petrochemical business as well.

And so there's a There's a growth trajectory, with or without the hes transaction.

But we believe the HES transaction is good for both shareholders.

What do you think that next big and investment is, whether it be an acquisition or whether it be an investment into a region like we've seen previously be announced with India as well recently?

Where are those ripe opportunities that you're discussing at the board level?

I think what's what's nice about our portfolio today is it doesn't require the massive investment.

This is a more stable investment profile that we have for our portfolio today so we can add growth in the Gulf, the Gulf of Mexico that are in in a gross the $5 billion you know, per action type of activity.

So that's one type of scale.

We have the growth that exists in our Permian portfolio.

That's a factory, you know, where we're drilling, drilling wells and completing them on an ongoing basis.

So it de risks the investment profile over the whole the whole operation.

So you don't have to look for one big opportunity.

You can consider the big opportunities against these smaller plays that are highly economic.

Oil and gas always gets brought back into the conversation.

It seems like every election cycle as well here.

When you hear about the rhetoric and and hoping that your own company doesn't get pulled into the political stages and debates, you know, how do you ultimately position the company for navigating whatever plays out on the political landscape, both here in the US and and more broadly as well?

Well, you know, our strategy has remained abundantly clear, I think, to to all parties we we clear, believe the future of energy is lower carbon and that we want to leverage our strengths in participating in that.

So regardless of who wins, we don't participate in the presidential elections.

We try to provide information to current administrations or potential administrations in regard to how we think about the energy industry, so that policies balance, uh, economies as well as, uh, energy needs.

Is there a policy that you could see coming forward?

That helps with that, uh, furthering of clean energy transitions as well?

I could say there's a there's a an area of opportunity, regardless of who is in office, regardless of whether you need more of today's energy or want to enable tomorrow's energy and is permitting absolutely great to have you here with us in the studio.

Mark Nelson, who's the vice chairman of Chevron?

Great to have this conversation, absolutely thanks so much.