Chevron Corporation (NYSE:CVX) Q4 2014 Earnings Conference Call - Final Transcript

Jan 30, 2015 • 11:00 am ET

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Chevron Corporation (NYSE:CVX) Q4 2014 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

Certainly. Thank you. [Operator Instructions] Our first question comes from the line of Jason Gammel from Jefferies. Your question please.

Analyst
Jason Gammel

Thanks very much. John, I just want to ask about taking FID in the current price environment. You spoke about how you were seeing -- beginning to see cost savings from your providers? And is that something where you would probably just try to delay making an FID to see how that type of negotiation goes with suppliers? Or do you expect that you will actually have some fairly -- significant FIDs this year? And I am really thinking Tengiz's expansion as much as anything else here?

Executive
John Watson

Yeah. And that's -- I think that's the key one to focus on. If you look -- we have many projects that are in concept development and front end engineering and design. And so the overall economics of some of them are impacted by the current price environment. But the project at Tengiz is a good project and that project will ultimately go forward. And we've made significant progress and have good line up with our partners on that. But we're taking the opportunity in the current price environment to take a look at contracts, take a look at spend and see if we can bring costs down further. Now we have in the plan and expectation that we will take final investment decision later in the year in 2015. Other than that, I can't think of too many significant projects where we're likely to take FID this year.

Analyst
Jason Gammel

And then just as a follow-up, John. Do you have any deflation built into the capital budget for 2015? Or is it all reduced activity levels?

Executive
John Watson

Well, it's a little bit of both Jason. We do have -- I think for example we've dropped over 20 rigs. So which is about 15% of our worldwide rig count. So as I said, we're screening projects based on the current level of prices, if the return is near hand. So if you have short cycle based business or shale investments and they don't meet investment hurdles at current prices, which is the revenue you're likely to realize. We're pulling them from the program and we've cut rigs all over the world. Now many things continue to pass the hurdle and so we're continuing with our development. For example, our work in the Permian passes the hurdles. And so we're continuing that and have had good success.

But we're also taking on costs in a fairly big way, if you look around the world. Rigs get a lot of attention, but that's actually not the biggest category of spend. EPC cost, well construction services, transportation, the fab yards are going to empty out here and rigs. We're taking on all of these things. And we have a centralized procurement organization as well as a lot of people in our unit that are taking advantage of the opportunity in spare capacity and the supply chain. It varies considerably depending