Chevron Corporation (CVX) Earnings

Management highlights

### Core Operational Execution & Cost Performance - Delivered strong Q2 results amid geopolitical uncertainty and market volatility, underpinned by consistent strategy, capital discipline, and high asset reliability. Achieved the $3 billion annual run-rate structural cost reduction target (originally set for 2024) six months early, with 70% of savings coming from operational efficiency gains that have largely offset inflationary pressure. 70% of savings are structured as permanent efficiency improvements, including 35% from 2025 organizational restructuring, with the remainder from technology adoption and process improvements. - Exceeded the initial synergy target for the Hess acquisition (closed one year prior to the call), capturing 50% more synergies than originally planned, with $1.5 billion in synergies realized six months ahead of schedule. Hess assets are generating roughly double the incremental dividend paid to shareholders and are accretive to per-share value. - Achieved strong capital efficiency across U.S. shale and tight assets: the company expects 2026 capex per barrel of oil equivalent to be 25% lower than 2025. Permian Basin production has held at over 1 million barrels per day for five straight quarters, with significantly improved operational reliability and cost efficiency. ### Hess Acquisition Integration Updates - The Guyana asset is confirmed as a world-class, high-margin resource that will extend oil production growth into the 2030s. - In the Bakken, integration of best practices from Chevron's existing shale operations has already delivered results: average lateral length has increased 28%, workover processes are optimized, and the same production level is maintained with one fewer rig. ### New Energy (Power) Strategy Progress - Identifies a large, structural growth opportunity from surging power demand driven by AI data centers, where grid infrastructure cannot keep up with demand and behind-the-meter generation is required. - Signed a 20-year take-or-pay power purchase agreement with Microsoft for 2.67 gigawatts of firm behind-the-meter capacity for Project Kilby in West Texas, the only multi-gigawatt behind-the-meter data center power project secured to date. The project is targeting mid-teens returns, with long-dated contracted cash flows uncorrelated to commodity price cycles, and provides a repeatable model for future expansion. Permitting and EPC activities are progressing toward a final investment decision (FID) by the end of 2026. Additional customer discussions are already in advanced stages for future projects. ### Portfolio Growth Opportunity Pipeline - Added 10 million net acres of exploration acreage across South America, the Mediterranean, and the Gulf of Mexico over the past 12 months, expanding the company's opportunity set to its largest and highest quality level in decades. Multiple exploration discoveries and successful appraisal wells have already been delivered across regions. Core growth option buckets include: 1) enhanced existing assets (shale/tight, Guyana, Eastern Mediterranean, Argentina, West Africa), 2) new exploration and business development entries (Libya, Suriname, Namibia, Gulf of Mexico), 3) special situations (Venezuela, Iraq, TCO concession extension).

Guidance

- Full-year 2026 organic capex is now expected to come in at the lower end of the prior guidance range of $18 to $19 billion, driven by better than expected capital efficiency across upstream assets. - Maintains the long-term (to 2030) financial and operational guidance set in November 2025: annual production growth of 2-3%, annual adjusted free cash flow growth averaging greater than 10%, and more than 3% annual improvement in return on capital employed, all modeled at flat commodity prices lower than current spot levels. - Confirms the long-term capital expenditure guidance range of $18 to $21 billion annually through the late 2020s, which already accounts for potential power project investment including Project Kilby. Management stated the range is sufficient to cover all current high-value growth opportunities while maintaining capital discipline. - Reaffirms annual affiliate distributions from TCO of $6 billion at $70 per barrel Brent; 2026 distributions are expected to be higher given current Brent prices are above $70.

Segment performance

Upstream: Adjusted upstream earnings increased quarter-over-quarter due to higher commodity price realizations, higher production liftings, and favorable timing effects, partially offset by higher depreciation, depletion, amortization (DD&A) and tax expenses. Global upstream production grew over 5% quarter-over-quarter, reaching the company's second highest quarterly production ever at ~4.1 million barrels of oil equivalent per day, with U.S. upstream hitting a new record of nearly 2.1 million barrels of oil equivalent per day. International production totaled nearly 2 million barrels of oil equivalent per day, with the Tengizchevroil (TCO) asset in Kazakhstan operating at or near full capacity. The impact from the Middle East conflict remained isolated to the partition zone, representing just 1% of total Q2 production. Downstream: Adjusted downstream earnings increased quarter-over-quarter primarily driven by higher refining margins and favorable timing effects. U.S. refinery throughput hit a record of over 1 million barrels per day. Chevron Phillips Chemical (CP Chem): CP Chem, which primarily operates ethane crackers in North America, saw a significant jump in earnings in Q2, as tight global polyethylene supplies and constrained Middle Eastern production boosted margins for its low-cost North American operations. New Energy (Power): The segment secured its first major multi-gigawatt project, Project Kilby, with no material revenue contribution yet as the project remains in pre-development.

Risks & headwinds

- Geopolitical risk related to the CPC pipeline (the primary export route for TCO production in Kazakhstan) due to activity in the Black Sea tied to the Ukraine-Russia conflict. While the pipeline is currently flowing and all three single point mooring (SPM) facilities will be operational by the end of Q3 2026, intermittent disruptions have occurred. Mitigation options include alternate shipping via the Caspian Sea, rail, and storage buffers, but extended shutdown would create material operational and financial impacts. - Geopolitical risk related to ongoing Middle East conflict, which has constrained Middle Eastern petrochemical production and impacted shipping through the Strait of Hormuz, creating market volatility and supply uncertainty. While the impact on Chevron's own production has been limited to 1% of total output to date, broader market disruptions affect commodity prices and logistics. - Above-ground regulatory and political risk for international growth opportunities in Venezuela, Iraq, and Argentina. While negotiations on improved fiscal terms are progressing favorably, final agreements have not been reached, and project development depends on continued government support and stable fiscal frameworks. - Exploration risk: While the company has built a large new exploration portfolio, there is no guarantee that discovered resources will be developed into commercial, profitable production.

Analyst Q&A

• Q: On TCO debottlenecking and CPC pipeline risks: what is the capacity update for TCO and what is your mitigation for potential CPC disruptions? /

  A: Low-capital modifications at TCO's third generation plant successfully increased its nameplate capacity from 260,000 to 320,000 barrels of oil per day, bringing total TCO field processing capacity to just over 1 million barrels of oil per day, a sustainable improvement. The CPC pipeline is currently flowing, with all three SPM facilities expected online by the end of Q3 2026. Mitigation options include alternate shipping via the Caspian, rail, and existing storage buffers. Management notes widespread government commitment to keeping the pipeline open, so an extended shutdown is considered unlikely.

• Q: How does the Bakken fit into your shale portfolio strategy, and what capital efficiency gains are you seeing in U.S. shale? /

  A: The integration of all shale and tight assets under a single management has driven cross-asset learning and efficiency gains. The Bakken, acquired via Hess, already has delivered improvements including 28% longer average laterals and steady production with one fewer rig, and management likes the long-term potential of the asset, with internal evaluation of midstream arrangements ongoing. In the Permian, production has held above 1 million barrels per day for five quarters, with full-year 2026 capex expected below $3.5 billion, delivering a 25% improvement in capex per barrel efficiency versus 2025.

• Q: How does the power business fit into Chevron's long-term growth story, and how large can it get? /

  A: There is a massive, sustained structural demand gap for reliable power for AI data centers, as the grid cannot keep up with demand. Project Kilby proves the behind-the-meter model works and demonstrates Chevron's differentiated capabilities combining its large natural gas portfolio, large-scale project execution experience, and existing customer and partner relationships. Management will pursue additional disciplined opportunities (with advanced discussions already underway) prioritizing returns over growth, with no specific size target set at this stage.

• Q: What upside potential do you see in your exploration portfolio, and what regions are most exciting? /

  A: Chevron has the largest and highest quality exploration opportunity set in decades, with 10 million net acres added just in 2026. Management is most excited about underexplored deepwater West Africa (Nigeria and Angola, with a second appraisal well planned in Namibia following initial success), Eastern Mediterranean (where a working petroleum system has recently been confirmed), and Iraq, where large undeveloped structures offer meaningful upside. AI is already improving exploration cycle times and detection, and early results from the new portfolio have been positive.