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00:00Where are we in this cycle. Well we've seen a cycle that frankly is different than past cycles. In the depths of the pandemic demand collapse at a rate we'd never seen before. And activity contracted because it had to. And there was no demand for for incremental production. We were looking for ways to store production that the world really didn't need. And now we've seen the reverse of that in a dramatic increase in demand economies that have largely reopened but not completely. No sign of demand destruction yet. Based on where we've been. Quite the opposite. We're still seeing real strength in demand. We're seeing you know international air travel is the strongest since before the pandemic. China still has a ways to go. So a lot of signs that demand continues to be very strong in demand. Typically in our industry moves faster than supply in both directions. And we saw that in 2020. We're seeing that today. So in terms of supply you are working hard in the Permian. Your production is looking be 17 percent or 15 percent increase. Right. If I said to you today pump more literally could you couldn't pump more today. The incentives today are to pump as much as you can. And in the decisions that lead to today's activity were made two years ago. And there are lead times in all of these things. It's land work. It's permitting it's roads it's infrastructure it's drilling rigs completion crews. There's a lot that goes into planning and executing production growth. Last year was the highest year of production in the history of our company. First quarter this year we were up 10 percent versus first quarter a year ago. So we're doing our part to meet this growing demand but it's not instantaneous. It requires longer lead time even in the short shorter cycle portion of our activity. It doesn't happen quickly. So if we pretend that maybe it could. Where's the biggest bottlenecks. Is it sand. Is it levers. It wages. Is it transportation. Like where's the problem in the U.S.. In particular Permian Basin where where there's no security. It's all of the above. You know during the pandemic operators shut activity down. The companies that support our work had to do the same. Workers left and went to other parts of the country. Rigs were stacked up. Those that were still in the field when they had maintenance issues you took parts off of rigs that were in the yard. So all of those things now need to be reversed. And and so there are very real constraints. I mentioned earlier we plan our work and then work our plan. So our plans to continue to grow we're laid in place even back during the depths of the pandemic. But to incrementally change that right now there is a lot of work that has to happen in a lot of constraints that have to be solved. It wouldn't matter how many times a stock hit a 52 week high or it wouldn't matter like what the oil price was is what you're basically saying. Yeah the price of the day doesn't influence our our capital decisions. And in our activity we have a long term deal on supply demand markets technology policy. And that's what sets our capital spending. We've been very disciplined with our capital spending. We've laid out a plan to our shareholders that says within a pretty narrow range of capital activity we can grow our cash flow we can improve returns and our production will also grow. And so we're on that path and we've stayed on that path in executing that with discipline is is really important for companies like ours. And so to deviate from that because the price today is higher the price two years ago was low. He's really not how we run our business. We see our way through cycles. It's always been a cyclical business. And so we continue to take a longer view on how we said activity. We'll get to the policy part in just a second. But on cost. I know you've sort of looked at costs and how they're going to increase this year. What's your visibility into next year. Do you have an idea of what your cost inflation profile is going to play. You know we're working on that now Alex. We're pretty well covered this year because again the contracts and all the things that go into our activity were really established quarters back. As we look to next year we're working with suppliers. We're looking with you know the people to supply goods services inputs to us. And there is you know the inflationary pressures that the economy sees or certainly present. We have strategic relationships with a lot of the people that we work with. We didn't bring our activity to zero during the depths of the pandemic. We kept work underway. We have a longer term contractual relationship. So. So we have some ways to manage those costs. But clearly the pressures are off across the entire economy and our industries is no different. Double digits do know. Yet. It's early to say where we're right in our planning process right now. So it could be high single digits could be low double digits. It varies around the world certainly in places like the Permian where there's a lot of interest and activity. You can feel more pressure than you would in other parts of the world and other types of activity in our business. Well let's say here in the US for just a second. So obviously it doesn't matter how much oil you. Can really pump because the real crisis is in the product market and that's really refining issue. They're just not as many refiners running as there were 10 years ago to create the product. So on that point I spoke to Secretary of Commerce Gina Raimondo yesterday and I said have you been talking to his actives. What's that conversation like in terms of creating more products. This is what she had to say. We can including working with the private sector to increase supply of energy sources. Have you talked with administration recently. I've not spoken the administration recently. I I expect that I will I'll be in Washington next week. I hope to meet with people there. I've spoken to administration over the past several months. But you're right about these these bottlenecks in refining. We've seen refineries closed. When I began my career there were more than 250 refiners in the U.S. Today there's half that number. And we've seen refineries closed around the world. We've seen China stop exporting products. Obviously Russia exports have diminished as well. And so many of the sources of product that normally flow into markets have been have been constrained. And we're seeing very strong demand as I mentioned earlier and that's resulting in a lot of upward pressure on prices. So if you go and talk to President Biden or the White House next week what would you want to tell them. Because in essence no matter what price signals you're getting from the market the world is moving to phase out the products those refiners would use. That places you in a tough spot. It puts the industry in a difficult spot because building a refinery is a multi-billion dollar investment. It may take a decade. We haven't had a refinery built the United States since the 1970s. My personal view is there will never be another refinery built in the United States. But you're you're looking at committing capital 10 years out. That will need decades in which to offer a return to our shareholders in a policy environment where governments around the world are saying we don't want these products to be used in the future. And so there really is a dilemma. We received mixed signals in these policy discussions and my message would be we need to sit down and have an honest conversation a pragmatic and balanced conversation about the relationship between energy and economic prosperity national security and environmental protection. We need to recognize that all of those matter and we can't over index on just one you've run from for decades. You were a refining guy. Did you ever think that we'd ever see global refining margins like this and possibly sustainable. I've not seen margins this strong during my time in our refining business. I a unique set of circumstances. We're coming out of a once in a century pandemic of very strong economic growth. As I mentioned some things that have constrained product supply into markets and it's it's a set of circumstances that we really haven't seen before. These things never last forever. And markets work. Sometimes it takes time. You know there's an old adage the cure for high prices is high prices. And the reasons for these things are around is because they're actually true. The price signal suggests producers should produce more. Consumers should consume less. And eventually that dynamic does bring prices back into a lower range. Do you think we'll ever be in a world where we're going to have to ration gasoline. There was reports about potentially that happening on the East Coast like literally. Could that actually happen this day in age from where you see it. Markets are very efficient today. And as long as the infrastructure exists and the ability to supply markets is not constrained by interventions I think that really diminishes the likelihood that we're going to have outages. Now you can have a hurricane as we've saw with Hurricane Rita Katrina back you know 15 plus years ago. They can cause localized outages. You can have things like that. But I think if we allow markets to function markets will get supply to to where it's needed. But interventions in markets that are sometimes well intended can create unintended consequences. And that's where outages the likelihood could go up. Mike over the past few years you guys have really crushed it when it comes to money like he's pulled out of deals at the right time. You bought at the right time Noble Energy really by buying at the bottom of the recent cycle. What do you see for many right now. Like do is Chevron interested in anything. What are valuations like. Give me the mike perspective. Well we're about ready to close a deal. I'm really excited about the acquisition of Renewable Energy Group which is one of the leading renewable fuels producers in the world. And we have a growing real will fuels business. They have great expertise in the feedstock arena particularly but also in the product arena. We have assets and value chains that we can connect. And so this is a deal we hope to close this month and very excited about that as part of our commitment to new energies to lower carbon energies. If you look at the noble transaction that that's worked out very nicely for us we continue to scan the environment. Typically deals done in a high price environment have been difficult. It's difficult to find motivation sometimes it's difficult to find economics and value. But we're always looking and we'll be selective in when we act. But it's been part of how we've grown the company over the years. And I would expect us to continue to over time.

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Chevron CEO on Oil Demand, Costs, Refinery Closures

Chevron Chairman and CEO Mike Wirth discusses his firm's efforts to meet rising oil demand, costs management, and the impact of refinery closures on inflation. He speaks on "Bloomberg Markets." (Source: Bloomberg)

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