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Chevron resumes buybacks, looks to output and asset sales to boost financials

Notching record upstream production volumes in the second quarter, Chevron Corp. intends to expand output even further and dispose of a large chunk of assets over the next few years to improve cash flow and earnings, as it continues to return value to shareholders, executives said during the company's second-quarter earnings conference call.

Trying to maintain a more disciplined spending approach than competitor Exxon Mobil Corp., Chevron is aiming to boost production by a 3% to 4% compound annual growth rate through 2023. That improvement is expected to be largely driven by stronger unconventional output from the U.S. Permian Basin, where output is anticipated to reach 900,000 boe/d by 2023. Chevron's second-quarter Permian production was 421,000 boe/d, up about 55% from the same quarter a year earlier. Its total worldwide production hit a record 3.08 million boe/d, up 9% on the year, driven by continued growth in the Permian Basin and a strong performance from its Wheatstone natural gas and LNG project in Western Australia.

While building out its upstream reserve base, Chevron still plans to maintain strict capital spending between $18 billion and $20 billion in 2020 and between $19 billion and $22 billion annually from 2021 to 2023. In the first six months of this year, Chevron's capex was $10 billion.

In terms of bulking up its balance sheet, in the second quarter, Chevron made progress toward its three-year target goal of disposing of $5 billion to $10 billion in assets, striking a deal to sell its U.K. North Sea upstream assets.

With a $1-billion merger termination fee from its failed effort to buy U.S. Permian Basin producer Anadarko Petroleum Corp., Chevron's cash flow from operations in the first half of the year was $13.8 billion, increasing from $11.9 billion in the corresponding 2018 period. Excluding working capital effects, cash flow from operations year to date was $14.1 billion, compared with $14.2 billion a year earlier.

At $60 per barrel of Brent crude oil, California-based Chevron is anticipating cash generation of $30 billion this year that will be used to fund a 6% annual dividend increase, a ratable and high-return capital program, and continued share repurchases. While in merger discussions with Anadarko earlier this year, Chevron suspended stock buybacks but resumed repurchases in May, scooping up $1 billion in shares in the second quarter. Chevron expects to reach a repurchase rate of $5 billion per year in the third quarter.

Refusing to speculate on the company's specific M&A plans going forward, CFO Pierre Breber said during the Aug. 2 call that Chevron will not rule out doing any future deals should any present themselves.

"We have leading upstream cash flow margins, leading earnings margins, and we're improving cash return by more than 3%. So, we clearly do not need to do a deal. That said, we have been opportunistic in the past if we see a good strategic fit at a good price [and] at a good value," Breber said.

Chevron reported GAAP net income for the second quarter of $4.31 billion, or $2.27 per diluted share, up from $3.41 billion, or $1.78 per share, a year ago and well above the S&P Global Market Intelligence GAAP consensus estimate of $1.83 per share.

At 2:00 p.m. ET, Chevron's stock price on the New York Stock Exchange was down 0.3% to $120.42 per share.