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Chevron Corporation  (NYSE:CVX)
Q1 2019 Earnings Call
April 26, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and thank you for joining Chevron's First Quarter 2019 Earnings Conference Call. At this time -- Good morning, ladies and gentlemen. My name is Jonathan. I will be your conference facilitator today. Welcome to Chevron's First Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference call over to the Chairman and Chief Executive Officer of Chevron Corporation, Mr. Mike Wirth. Please go ahead.

Michael K. Wirth -- Chairman and Chief Executive Officer

All right. Thank you, Jonathan, and welcome back. We missed you. I'd like to welcome everybody to Chevron's first quarter earnings call and webcast. Our new CFO, Pierre Breber, and our Head of Investor Relations, Wayne Borduin, are on the call with me. We'll refer to the slides that are available on Chevron's website. Before we get started, please be reminded that this presentation contains estimates, projections and other forward-looking statements. Please review the cautionary statement and important information for investors and stockholders on Slide 2. Moving to Slide 3. Today, I'll make a few opening comments.

Pierre will review the first quarter results, and then we'll take your questions. As I've said before, we're well positioned to win in any environment. During our Security Analyst Meeting, we shared that our advantaged portfolio, strong balance sheet and low breakeven, capital discipline and lower execution risk position us well to deliver superior shareholder returns. With the announced acquisition of Anadarko, our story gets even better. It builds strength on strength. We submitted our antitrust filing yesterday to begin regulatory approvals, and we've begun joint integration planning. We know how to integrate 2 strong companies to create an even stronger one. We've done it well on prior transactions, and we'll do it again. We remain confident that the transaction agreed by Chevron and Anadarko will be completed.

With that, I'll turn it over to Pierre who'll take you through the financial results.

Pierre R. Breber -- Vice President and Chief Financial Officer

Thanks, Mike. Turning to Slide 4. Our disciplined, returns-focused approach to the business continues to drive solid earnings and cash flow. First quarter earnings were $2.6 billion or $1.39 per diluted share. Excluding foreign exchange losses, earnings were $2.8 billion or $1.47 per share. Cash flow from operations for the quarter was $5.1 billion. Excluding working capital changes, it was $6.3 billion. We maintained a strong balance sheet with a debt ratio less than 20% at quarter-end. During the first quarter, we increased our quarterly dividend to $1.19 per share, up 6%.

Share repurchases during the quarter were around $500 million, lower than our $1 billion per quarter guidance. During the quarter, we were restricted from buying back shares in light of the Anadarko acquisition. Turning to Slide 5. Despite lower refining and chemical margins, cash flow was solid, and the trend is in line with full year guidance. Working capital effects in the quarter consumed $1.2 billion, generally consistent with our seasonal pattern. Free cash flow, excluding working capital changes, was over $3 billion. Other cash flow items included pension contributions of about $325 million, asset sale proceeds of around $300 million and TCO co-lending of $350 million. We continue to make progress high-grading our portfolio.

Total asset sale proceeds since the beginning of 2018 are $2.3 billion, and we remain on track to reach the low end of our current 3-year $5 billion to $10 billion guidance range by the end of this year. Slide 6 compares first quarter 2019 earnings with first quarter 2018. Earnings declined from a year ago, largely due to lower crude oil prices and weaker downstream and chemicals margins. Special items increased earnings by $120 million due to the absence of a first quarter 2018 asset impairment. A swing in foreign exchange impacts decreased earnings by $266 million. Excluding special items and FX, upstream earnings were relatively flat as higher production was offset by lower realizations. Downstream earnings decreased by about $500 million, mostly due to weaker refining and chemicals margins coupled with unfavorable timing effects. The variance in the other segment was primarily the result of higher corporate charges.

Turning to Slide 7. This compares results for first quarter 2019 with fourth quarter 2018. First quarter earnings were about $1 billion lower than the fourth quarter. Foreign exchange impacts decreased earnings by $405 million between periods. This was partially offset by the absence of a project write-off. Excluding special items and FX, upstream results were flat between quarters. Lower realizations and listings were offset by lower depreciation and operating expenses. Downstream earnings decreased by about $600 million primarily due to unfavorable timing effects coupled with lower refining and marketing margins. These impacts were partly offset by lower turnaround activity this quarter. The variance in the other segment largely reflects an unfavorable swing in corporate tax items.

On Slide 8, first quarter 2019 oil-equivalent production increased 186,000 barrels a day or almost 7% from first quarter 2018. Production exceeded 3 million barrels per day for the second straight quarter. Shale and tight production increased 143,000 barrels per day. First quarter unconventional production in the Permian was 391,000 barrels per day, in line with our guidance and up 55%. Production for major capital projects increased by 128,000 barrels per day, primarily due to Wheatstone, Hebron and Big Foot. Base declines were 30,000 barrels per day, net of production from new wells notably in the Gulf of Mexico.

The effects of unplanned downtime, primarily at Gorgon, reduced production by 29,000 barrels per day. Now looking ahead, in upstream, we continue to expect 2019 production growth to be 4% to 7% excluding 2019 asset sales. We closed on the sale of our Denmark assets earlier this month and are evaluating bids on our U.K. North Sea assets. Our full year guidance for TCO co-lending is unchanged at $2 billion dependent upon price, investment profile and dividends. In downstream, we expect to close on the purchase of the Pasadena requirement refinery in the second quarter. We also expect high refinery turnaround activity, which equates to an estimated after-tax earnings impact of more than $200 million. For the second quarter, we expect restrictions on share repurchases to continue in light of the Anadarko acquisition.

Post closing, we expect to buy back shares at a rate of $1.25 billion per quarter. In the second quarter, we expect the pension contribution around $400 million. And our full year guidance for the other segment is unchanged at $2.4 billion. That concludes our prepared remarks. We're now ready to take your questions. (Operator Instructions) Jonathan, please open the lines.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Devin McDermott from Morgan Stanley. Your question, please.

Devin McDermott -- Morgan Stanley -- Analyst

Good morning.

Michael K. Wirth -- Chairman and Chief Executive Officer

Good morning, Devin.

Devin McDermott -- Morgan Stanley -- Analyst

So I wanted to start because I'm sure it'll be asked if I don't. Just on the Anadarko deal and the process there. I appreciate the additional color in the prepared remarks. I guess first, can you just walk through, remind us what the time line is in key milestones and process from here? And any comments you could make on the competing offer from Oxy would be helpful as well. I'll leave it to you to answer that how you'd like.

Michael K. Wirth -- Chairman and Chief Executive Officer

Sure. So the time line is probably a little different today than I would've told you a couple of weeks ago because we now have Anadarko's Board back considering unsolicited proposal. We made our Hart-Scott-Rodino filing. I mentioned that, that went in yesterday. We don't see any material antitrust or anticompetitive issues that arise from the combination, and so we would expect that to be handled within a pretty reasonable period of time, say, 60 days, it depends if they come back for a second review with any questions. And then we have an Anadarko shareholder vote that will be scheduled and could result in a third quarter close. So I think we've only said second half of this year. And so that would be the time line. I think we're going to wait and see what -- the Anadarko Board has said they're reviewing this unsolicited offer, and so we'll -- that obviously will have some bearing on the overall time line.

Devin McDermott -- Morgan Stanley -- Analyst

Understood. Makes sense.

Pierre R. Breber -- Vice President and Chief Financial Officer

Thanks, Devin. Do you have a follow-up?

Devin McDermott -- Morgan Stanley -- Analyst

Yes, one follow-up. Just wanted to switch over to TCO and the co-lending. You mentioned the guidance there is unchanged. But any color you can give us just on the shaping and how we should think about that playing out throughout the year?

Pierre R. Breber -- Vice President and Chief Financial Officer

Yes, Devin. This is Pierre. I mean, you should view it as roughly ratable. And -- but again, it will vary depending on prices and project spending and affiliate dividends. But if you think of it being roughly ratable during the course of the year, that's appropriate at this point in time.

Operator

Our next question comes from the line of Phil Gresh from JP Morgan. Your question please.

Philip Mulkey Gresh -- JPMorgan -- Analyst

Hey. Good morning. First question. In light of the competing bid that's put out there and the details behind that, I think one thing that surprised investors would be perhaps the degree of synergies that Oxy talked about in their proposed transaction even if you back out the capital reduction component. And so I think you've been asked about the degree of conservatism already to some degree about your synergy forecast, but now that, that's out there, I was just wondering if maybe you'd have a comment about your numbers and where upside could come from.

Michael K. Wirth -- Chairman and Chief Executive Officer

Sure, Phil. So look, I'm not going to comment on the details of another offer. I'll tell you our synergies are real, and we're confident in our ability to achieve the $2 billion in run rate synergies in the first year post close and delivering significant value from the deal. As I mentioned earlier, we've already begun joint integration meetings with Anadarko. We have full teams from both companies meeting for multiple days this week already.

We're committed to delivering the synergies. We've got a strong history of successfully integrating 2 companies and meeting and often exceeding our synergy targets. This can go back to Gulf, it can go to Texaco, it can go to Unocal. And so this is something we've done before, and we're very good at it. We're very confident that we can deliver the $2 billion. And as we -- we know what we know at this point. And as we get more detail, we certainly will know more. The other thing that I'll just mention is we have great confidence that we can accelerate value realization in the Permian, which is not really reflected in the cost synergies. We have indicated that we can see increased capital spending and increased activity in the Permian. We've got a strong, contiguous position that results from this transaction.

We've got a royalty position that we can accelerate value from, and we will absolutely be able to deliver strong performance out of there. We benchmark very aggressively in the Permian on a virtually continuous basis. We benchmark well performance, well design, completion design, execution performance, cycle time, service facilities, efficiency, OpEx, unit cost, realization, all the financial metrics, and do that on a regular basis. And we have a strong performing Permian business that will bring realizations and value forward that is not in that $2 billion. And so I think you can feel very confident that we will deliver. And as we see more value there, we will be talking to you about it.

Philip Mulkey Gresh -- JPMorgan -- Analyst

Okay, fair enough. Just a follow-up question would be, obviously, there's more to an acquisition than just the price offered. And I was hoping maybe could help us think through why your lower-priced offer should win from your perspective? And if Anadarko's Board is forced to go back and quantitatively decide that this is -- your offer is not good enough, is there a point at which that -- you look at this and not consider raising a bid because this return is destructive to you to do so?

Michael K. Wirth -- Chairman and Chief Executive Officer

Sure. Well, I won't speak for the Anadarko Board. But even with the information that was made public this week, our offer was viewed by Anadarko as superior. And we have a signed merger agreements approved unanimously by the boards of both companies. We strongly believe that the combination of our 2 companies create superior long-term value for shareholders of the combined company.

The industrial logic of our transaction is very compelling. Anadarko's assets further strengthen already leading positions that we have in large and attractive shale, deepwater and natural gas basins. It enables further portfolio high-grading cost reductions and focused investment in an even stronger company. Our financial position and balance sheet strength enables us to take on the leverage and issue the additional equity and still continue to increase shareholder distributions. Our company simply have the best strategic fit. We can operate in the Gulf of Mexico in ways that others cannot.

We're a world-class operator of LNG. We've got leading performance in many different dimensions in the Permian, and that strong balance sheet mitigates risk. We won't be over-levered coming out of the deal. We'll be financially strong with accretive cash flow and earnings and full-on certain value. There's no shareholder vote required to approve the transaction, and there's strong upside on what is already a very strong currency in Chevron stock. So I think there are a whole host of reasons why we have a very compelling transaction.

Operator

Our next question comes from the line of Paul Sankey from Mizuho. Your question please.

Paul Benedict Sankey -- Mizuho Securities -- Analyst

Hi everyone. Good afternoon from London. Mike, when we think about the potential for you to bid higher, we look at your balance sheet and, obviously, there's a tremendous amount of firepower there, but we suspect it's not how you would be looking at potentially adding to your bid. Can you talk about the metrics that you're looking at in terms of Anadarko value to Chevron? Thank you.

Michael K. Wirth -- Chairman and Chief Executive Officer

Yes. And I want to close off, Phil, actually asked a question that I failed to get to at the end of that last answer which kind of ties to this. And Phil, yes, there is -- we've been very disciplined as we've approached this, as we've looked at valuation. And I think you said, is there a point at which you're done? And of course, the answer to that is yes, there is, and this isn't the time to address that specifically. But we've said we will do things that are value-creating for our shareholders, and we don't need to do anything. We've got a very strong story without doing a transaction. So Paul, to your question, we look at a whole host of metrics, and some of the primary ones are the accretion metrics.

Does this give us accretive free cash flow after capital spending? Does it give us accretive earnings? Do we get a strong return on this investment? And does it give us the investment queue, the investment set and opportunities over time to continue to improve return on capital, which the entire industry is working to improve. And this does -- it gives us over 10 billion barrels of resource at less than $3 a barrel, which is an attractive resource acquisition cost. And so there are a whole host of metrics like that, that are the ones that we look at.

Pierre R. Breber -- Vice President and Chief Financial Officer

Yes, and Paul, I don't know if your question was getting to the mix of the equity in cash. I mean, we've talked about the 75-25 was mutually agreed to. Anadarko shareholders wanted exposure to our stock. We have very good stock. But clearly, we have the capacity to have alternative structures. We could put more -- we could have put more cash in if that's what Anadarko wanted to do, but we agreed to where we ended up.

Paul Benedict Sankey -- Mizuho Securities -- Analyst

Yes, I realize, Mike, that you've talked about free cash flow at some point being cash flow-accretive. You previously mentioned, from your point of view, it seems to be that's the single metric that we should look at. We're just wondering how to think about it.

Pierre R. Breber -- Vice President and Chief Financial Officer

So Paul, sorry, was there another follow-up question in there?

No. I think that the other aspect was that you said (inaudible) is obviously a tough thing to measure, but it does seem that you have a great fit. Could you talk a little bit about Mozambique and how you see that? I think that's one of the differentiators between -- potentially between you and Oxy. Thanks.

Michael K. Wirth -- Chairman and Chief Executive Officer

Sure. As I discussed on the call a couple of weeks ago, we view Mozambique as a world-class gas resource. We are pleased with the progress the project has made. It's a very cost-competitive LNG project, and that matters. We do not intend to slow the project time line down. We think that there's a good team of people working on this, and that they've been a good job. I plan to visit Mozambique soon to see the sights and visit with both government leaders and people working on the project there, and we think this fits well into our portfolio and with our strengths, and so we like the project.

We think we can bring some value. We've got a balance sheet to support the project. We've got experience in things like shipping that this will have a large shipping component. So I think there are ways we can improve and enhance execution and value and mitigate risk in execution of the project. Thanks, Paul.

Operator

Thank you. Our next question comes from the line of Jason Gammel from Jefferies. Your question please.

Jason Gammel -- Jefferies -- Analyst

Thanks very much. I guess my first question is related to the -- your ability to operate in the Permian. And the reason I say that is the competing bidder has talked about their ability to create the most return enhancement and their superiority as an operator. So Mike, can you address where you think you benchmark relative to competition in terms of Permian development right now?

Michael K. Wirth -- Chairman and Chief Executive Officer

Yes. I mentioned earlier that we benchmark a wide range of metrics, and you really need to look at performance in its -- in all the dimensions. And there are ways that we've seen in the past, Permian operators that will optimize certain metrics, particularly things like early production. We don't -- we're very careful about choke management, to deliver the best, ultimate recovery, but there are other operators that run with their chokes wide open and can show very strong early production numbers. You look at it a year out, and there's quite a different picture that you see.

So I think, number one, I would say you have to be very careful about which metrics you look at. And we're focused on value creation and returns. Short-term production is not the goal, and we're really looking at driving ultimately long-term recoveries, a capital-efficient model that generates leading EURs, low cost per barrel and high returns. And you take that and you put it together with an advantaged royalty position, and we can deliver value that is difficult for anyone else to match.

And over time, a company like ours has a technology capacity that few others have, and we can add even more value as we drive cost down further as we improve recoveries and we see technology do what it always does, which is unlock greater degrees of performance. And so I will simply say that we look at our metrics and performance through a value lens, not a production lens.

Jason Gammel -- Jefferies -- Analyst

Appreciate that, Mike. My follow-up question is at the time you announced the transaction, you did raise the target on annual buybacks to $5 billion from what have been $4 billion. Now I appreciate the run rates right now are affected by the transaction being in the public domain. But was the $5 billion -- was the increase to $5 billion contingent upon the deal completing? Or is that a run rate you would expect to have regardless?

Michael K. Wirth -- Chairman and Chief Executive Officer

It was an announcement we made to indicate our strong confidence in the cash flow accretion and value creation that this transaction enables. And so it is tied to the transaction. And as I said, we've got a strong case of pre-existing the transaction. We had increased from a run rate of $3 billion last year to a run rate of $4 billion this year. And so the step up to $5 billion was a signal that this deal makes us even stronger.

Jason Gammel -- Jefferies -- Analyst

Yes. And if I can just clarify on -- again, the first quarter buybacks were lower, Jason, as you said. We had to stop buying back shares. We thought that was prudent when we believe we could be -- we could find ourselves in possession of material nonpublic information related to the transaction. So we expect these restrictions to continue in the second quarter. Circumstances could change, and we could be able to buy back shares from time to time. But right now, expect low to no buybacks in the second quarter. And then again, post closing, we intend to increase the rate to the $5 billion annual or $1.25 billion per quarter.

Operator

Our next question comes from the line of Biraj Borkhataria from RBC Capital Markets. Your question please.

Biraj Borkhataria -- RBC Capital Markets -- Analyst

Hi. Thanks for taking my questions. I just had one on your exploration strategy and this also relates to Anadarko. But we talk a lot about the Permian in terms of synergies, but it seems like there's also quite a lot of upside to exploration in the [Gulf] if you combine in the 2 portfolios and follow a infrastructure-led exploration strategy. Could you just talk a little bit about that and how you're thinking about that on the basis that this transaction does close? And then the second question is there was a couple of articles earlier in the year around you transferring your Permian royalty interest into a new subsidiary. I was wondering if there's anything to that, or if that's just a non-news? Thank you.

Michael K. Wirth -- Chairman and Chief Executive Officer

Okay. Yes, so the first one, exploration in the Gulf of Mexico. We've talked earlier about the fact that we would see exploration synergies as we bring the 2 companies together and our exploration portfolios, and we've talked about the fact that we would have a very powerful infrastructure position in the deepwater.

When you combine that with extended reach tiebacks, which were in the final phases of technical qualifications to significantly extend the length of tiebacks that we can do, we can cover a lot of the Gulf of Mexico without necessarily needing new surface infrastructure. And this allows us to begin to explore for accumulations that might not be economic on a stand-alone basis to support a new greenfield project, but that could be developed through drilling and tieback into existing infrastructures platforms as ullage opens up.

And so it really enables a very different approach to exploration, and I think a much higher-return, shorter-cycle, lower-risk way to look at the next phase of development in the deepwater Gulf of Mexico. Not to say we might not have some greenfield projects, because certainly, there could be circumstances where that becomes the right economic outcome. I'd also point out that we're an equity holder in a discovery that was just announced this week, the Blacktip discovery, which Shell is the operator on, encountered over 400 feet of net pay.

It's about 30 miles away from Perdido and Whale, so we continue to see discoveries and we've got great strengths in an area that has a tremendous resource opportunity, and the challenge is to find ways to deliver it and generate better returns out of that. Your question on the Permian royalty, what we've done is consolidated all of our royalty into an entity, which allows us to manage that royalty with focus and efficiency, and ensure that as activity in the Permian continues to grow and we have a strong royalty position, that, that royalty is properly accounted for, collected and managed. It certainly opens up options to do things that you've seen others do.

I don't want to indicate that we would or would not do that, but it certainly positions us with an entity that could enable those kinds of alternatives if at some point we saw that as one that was desirable.

Operator

Our next question comes from the line of Neil Mehta from Goldman Sachs. Your question please.

Neil Mehta -- Goldman Sachs -- Analyst

Good morning team and congrats Pierre again on the new role. So the first question I had was actually in the oil macro, two months away from the OPEC meeting, prices have clearly been very firm here off bottom in 2019. Mike, just want to your perspective on some of the moving pieces as it relates to macro. Has your view that we're in an age of abundance fundamentally changed as we had a more conservative worldview? Or do you think price has been artificially lifted by OPEC cuts? And how do you think about OPEC behavior from here? Not asking you to forecast the price, but your unique position to comment given the fact that you play across the value chain and you operate in some of these countries?

Michael K. Wirth -- Chairman and Chief Executive Officer

Yes. So let me give you my best shot on that one today Neil. Global demand continues to be strong. We're seeing demand go up by over one million barrels per day again this year. We had a very strong GDP number for the first quarter in the U.S. I think surprisingly strong that has come out today and we've consistently said that we don't see evidence of weakening around the world. We're across the value chain in many different products and many different geographies. So economic growth looks solid and demand growth continues to march upward. At the end of last year, as we saw some weakness there were concerns about trade in China and economic activity and those have somewhat receded.

On the supply side, you've got the usual set of dynamics under way, right? We've got geopolitical issues with the Iran waivers not being extended which creates the prospect of some tightness. Venezuela continues to be very difficult. Libya is in and out of the news and so you have some of the same things that create concerns and real tightness in some cases on the supply side, and then you have OPEC plus the non-OPEC countries which for the last couple of years maybe three years or so have demonstrated the resolve to manage their supply in a way that's consistent with more stable markets.

You throw on top of that commentary from the President which again today, I guess he's out with comments about OPEC. And I think you still have OPEC in a place where they do play a role in creating a forward expectation on the supply side and so in some ways the dynamics while the specifics of which countries might have supply issues and how the global demand picture shapes up, it's a story of forward expectations on supply and demand and then the geopolitical overlay that can change that.

Fundamentally, we still believe that the world needs more of all types of energy and so we're in favor of renewable energy. We're in favor of conventional energy and economics markets and technologies sorting out what the best mix is in each country around the world. There is no shortage of resource to be developed and so costs matter and we continue to drive to be very competitive from a cost and supply standpoint. So I'm not sure, I gave you anything really brand-new there, but that's how I see it.

Neil Mehta -- Goldman Sachs -- Analyst

Got it. That's helpful. And just as a follow-up from our side is, if we were to take the Anadarko transaction out of the equation, one of the concerns, some investors have expressed over the course of the year has been, does Chevron have the portfolio that to thrive in 2023 to 2028? And you kind of gave us some flavor of what that looks like at the Analyst Day post the Permian ramp and post Tengiz. What's that next wedge of growth? And it sort of it begs the question was the Anadarko potential transaction, an offensive transaction or a defensive transaction? So I just want to think of an opportunity to respond to that because I think your view here is that you do have a stand-alone opportunity set independent of the transaction, but it's certainly something that's been brought up by investors.

Michael K. Wirth -- Chairman and Chief Executive Officer

Yes. Absolutely. I said it in March, and I'll say it again. We do not have resource anxiety. We've been replacing reserves. We've got nearly 70 billion barrels of resource. We've given transparency on the production outcome for 5 years because people have wanted to see a longer view on that. And so you see this 3% to 4% growth now steadily being delivered over 5 years, which has been difficult for companies to do consistently over an extended period of time at the scale that our company operates.

We're very confident that we can do that. And we stopped at 5 years just as a matter of convention, not because we think there's a problem after that. And so unconventionals don't flatten out after that. Our Permian position has got decades of resource, not a few years. We tried to highlight our other shale and tight resource positions, which are in the very early stages of development and continue to have very strong performance metrics and economics that are converging on Permian level economics, which is really the goal that we've put in front of them.

I've already talked on the call a little bit about deepwater, where we've got Anchor more -- Anchor Ballymore, Whale, Blacktip now. We've got the ability to bring tiebacks into a larger system or into the existing system. Your question is ex the Anadarko transaction. We've got acreage in Brazil, in Mexico, in West Africa. So there are positions around the world. We've got -- we're still operating in Venezuela where there's an enormous amount of resource. And one day, that will begin to be developed again. We've got production offline in the Partitioned Zone.

I'll stop there, but I'll simply say that the opportunities for us to invest in and develop a resource that we hold today extends well beyond 2023, and it's a function of which projects compete the best for capital investment. A lot of short-cycle stuff in there that is pretty low risk, and then there's some longer-cycle things that are larger, and I think you'll see a blend of those deliver strong economic outcomes, which is what drives our decisions, not production targets. But I think the cupboard is -- the cupboard is full, not empty.

Neil Mehta -- Goldman Sachs -- Analyst

Thanks guys.

Michael K. Wirth -- Chairman and Chief Executive Officer

Thanks Neil.

Operator

Thank you. Our next question comes from the line of Blake Fernandez from Simmons Energy. Your question, please.

Blake Fernandez -- Simmons Energy -- Analyst

Thanks guys. Good morning. Pierre I'm sorry to flood the buybacks, but I just want to make sure I'm 100% clear on this. Is it fair to say 2Q buybacks should essentially be zero? And assuming that is the case even when you ramp up to $1.25 billion per quarter, obviously on a full year basis we're going to come in below that $4 billion number due to the Anadarko deal? Is that the correct way to look at it?

Pierre R. Breber -- Vice President and Chief Financial Officer

Yes, essentially. And let me just restate it. So yes, the $4 billion guidance was -- did not anticipate a transaction or an acquisition at the time. There are 2 sort of restrictions that we're operating under. One is when we're in possession of material nonpublic information, we're not allowed to buy back shares. Even if and when that clears itself up, there are other restrictions on buybacks when there's a business combination happening and equities being issued. So you can't buy back during the proxy solicitation, other limitations on buybacks versus historical rates. So we're just operating under a different regime here during the transaction. Post closing, absolutely, we have talked about the gross debt ratio being below 20%, lots of capacity to increase it. So there could be some buybacks, but again, the guidance is low or no buybacks in the second quarter. And then when we get post closing, we'll be able to give -- achieve the guidance and won't be encumbered by restrictions tied to the acquisition.

Blake Fernandez -- Simmons Energy -- Analyst

Very clear. The second question is really on the Permian and more on the gas side. I know you've worked a lot to get firm takeaway capacity on the crude side. Waha pricing has been really weak. Can you talk about, I guess, what alleviation avenues you have on that side as far as takeaway or improving your price realizations as you continue to grow there?

Michael K. Wirth -- Chairman and Chief Executive Officer

Yes. I'll take that Blake, and then Pierre might have some perspective as well. We've got takeaway capacity for all our production. And so whether it's oil, NGLs or gas, we're moving it and taking it to market. We are not engaged in routine flaring and would not intend to flare gas to enable production. And we have shed in a little bit of dry gas. So if you don't have liquids right now, sometimes, it's better to just keep that gas in the ground for a better market.

Our current production in the Permian is 75% liquids and 25% gas. We're focusing on liquid-rich benches. And as we've described and you alluded to, we've been looking at takeaway capacity several quarters ahead of our production the entire time here. And so I think what you're seeing in the market is something that you should expect to see for a number of years in the future, which is we've got a lot of people out there that are developing resource.

We've got a lot of people investing in midstream infrastructure. And there are going to be times when those all sync up and you see pretty normal transportation-type differentials. And you'll see other periods of time where the market may anticipate some tightness, and you'll see the differentials widen out. I know Waha's been pretty ugly here lately. Kinder Morgan's got some pipes that come online this year and next year, which probably start to change that equation. The Mexico market has been a little slower to come than people expected. And we've got some Waha exposure in our portfolio, but it's not anything that is material in the scope of our company. And I think we're, like I said, we're well-positioned on takeaway capacity across all the commodities to support our production into the future.

Blake Fernandez -- Simmons Energy -- Analyst

Thank you.

Operator

Thank you. Our next question comes the line of Jon Rigby from UBS. Your question please.

Jon Rigby -- UBS -- Analyst

Yeah thanks for taking the question. It's around the CapEx side and the capital side of the transaction, actually. The first is something I don't think has got enough attention is the high-grading process that will -- that you intend to indulge in after the deal closes. I just wanted to explore that because as we think about -- as we start to look at the future combination, we need to think about what it is you might be doing around that.

So I just wanted to confirm whether you see that as part of the sort of value proposition, there's actually a value to be delivered through that disposal process, and the sort of portfolio management that you can do. Secondly is whether that process is already under way. And thirdly, whether you can maybe lift the curtain a little and give us some idea about not necessarily the assets, but the kind of thoughts that you have around the type of portfolio you'd like to merge with and the things that you will be -- the criteria which you will be using.

And then the second question, if I'll just add it because somewhat linked, is the $1 billion of CapEx efficiencies that you identify as part of the transaction, can you just confirm that those are about doing the same thing for less rather than just ramping down activity so just compare like-for-like?

Michael K. Wirth -- Chairman and Chief Executive Officer

Okay. Well, there's a lot in there, Jon. That was well done. So let me start with the portfolio and try to frame that up for you, and then I'll come to the capital. You asked about the process. We've got an ongoing process where we look at high-grading our portfolio. We've had $2 billion to $3 billion in asset sales kind of on average over a long period of time. We're continuing -- always looking to high-grade the portfolio from a strategic alignment standpoint, the ability to compete for capital, what the assets are that will allow us to compete and deliver strong returns into the future.

And oftentimes, those may not be the same ones that satisfied that criteria in the past. As I was out last week, I mentioned to people, if you go back about 15 years and you think about our upstream portfolio, Tengiz was our real flagship asset. It was in the process of an expansion with SGI/SGP that took 100% production from 350- to 650-or-something-thousand barrels a day. Our share of that was half. So we were on the way to the asset that we have today. And the Permian was kind of out of sight, out of mind for most people. Our Australian LNG projects have not been sanctioned. None of our LNG products have been sanctioned. And we were just beginning to move off the shelf into the deepwater Gulf of Mexico.

If you think about it today, in Australia, we're producing 400,000 barrels of equivalent and nice cash margins. Tengiz is on its way to 1 million barrels a day on 100% basis. Our share, half of that, so 500,000 a day. The Permian we outlined is on its way to 900,000 barrels a day, our share, and that doesn't stop when you get to that number. The deepwater is, with the combination of 2 companies, is pushing close to 400,000 a day.

So we now have 4 positions that have scale, that have resource depth and length, that have strong economics, that have lots of running room. And we have the ability to drive costs down and returns up through the way we manage and invest in those resources over time. So it's a very different portfolio than when we would have had just one smaller asset and a lot of other ones then that were required to have the scale to compete. So we need to take a look at the rest of our portfolio and determine those assets that really can still compete for capital and offer the low-cost, high-return characteristics, the resource length, and we'll compete for capital over time. I hope you're still with us, Jon. It sounds like you might be evacuating.

Jon Rigby -- UBS -- Analyst

Yes, sorry. No, it's classic timing of the annual -- sort of the weekly test. Apologies for that.

Michael K. Wirth -- Chairman and Chief Executive Officer

All right. I'll be quick so you can comply. We've got a new portfolio, and we will look to make some decisions on those assets that really will compete for capital that offer the resource potential and the value for our shareholders over time, what those are, we'll disclose as we get into transactions. The capital that we've indicated -- you should think of it as both reductions and spend between the 2 companies and efficiency in that spend. So we'll look at contracts and the ability to execute and drive capital efficiency into the system and also drive overall spend down, while at the same time, investing more in the Permian, which is what we indicated our intention is to do. So we'll squeeze capital out of the combined system. We'll squeeze efficiency into the combined system. And we will find ways to accelerate activity in the Permian which will bring value forward.

Pierre R. Breber -- Vice President and Chief Financial Officer

And just to add, and we maintain the 3% to 4% guidance on production through 2023 as a combined company.

Operator

Our next question comes from the line of Roger Read from Wells Fargo. Your question please.

Roger Read -- Wells Fargo Securities -- Analyst

Yeah, good morning. Hopefully, you can hear me, and I don't believe there are any problems in the background right now. I guess my kind of unusual situation here in terms of the bidding and, typically, you put your teams together, you expect them to be very focused going forward. I was wondering, in an environment like this, do you end up having to divert people's attention to dealing with what may be an ongoing process here in terms of the Anadarko bid? And then how do you think about managing your way through that, kind of keeping everybody doing the things they need to do, plus the team that's focused here on the merger integration and all that stuff.

Michael K. Wirth -- Chairman and Chief Executive Officer

Look, I mentioned that we've put together joint integration teams already and that they met this week. And this isn't just a small group of people, this was a sizable group of people that spent multiple days together. And we've got a playbook for doing this. We did Unocal a decade ago, Texaco a few years before that. We have some of the same people involved that led those integrations. And so people have their eye on the ball and are focused on moving forward with things. And so I'll just remind everyone, we've got a signed deal that's been approved by both boards, and we're moving forward with integration planning so we can deliver value.

Roger Read -- Wells Fargo Securities -- Analyst

Okay. Well, good luck on that. Maybe to flip back and actually think about the operations here. In the quarter, we saw a little lighter on the gas side globally, stronger on the crude side. Just curious how much of that is -- we had some unplanned downtime, I believe, in Australia with the LNG. As you look going forward, this kind of global mix between oil and gas and taking into account maybe some dry gas remaining shut into the Permian for a while.

Michael K. Wirth -- Chairman and Chief Executive Officer

Yes, I mean I do think what you saw was primarily some downtime at one of the trains in Australia at Gorgon. And because that's a bigger part of our portfolio now, we've got the train down for some work. You'll see that. The dry gas isn't a big number, and so I wouldn't worry about that so much. There's also some weather in Australia that create an impact. There's a cyclone that came through, and we had to take some slowdowns at both Wheatstone and Gorgon as we rode through that. So -- but those are really the things that are hitting the gas production.

Roger Read -- Wells Fargo Securities -- Analyst

Just real quick, if I could follow-up on that. Is there any planned downtime between Gorgon and Wheatstone we should consider in the rest of the year?

Michael K. Wirth -- Chairman and Chief Executive Officer

Yes, we're moving in the normal turnaround mode now for both of those. The plan at Gorgon would be to only have one train down in any given year. And so our plan right now would be to execute Train 1 at Gorgon later this year. The upstream, in aggregate, from a turnaround standpoint, the turnaround season begins really in the second quarter. You can think about the third quarter as probably the heaviest quarter because we'll have one of the KTL lines at TCO and turn around there. And then as we go third into fourth quarter, you'll see one train at Gorgon down for a turnaround. But it's -- we're into the normal operations and turnaround cycle with the LNG plants.

Pierre R. Breber -- Vice President and Chief Financial Officer

And Roger, this is Pierre. I mean, we generally will provide guidance if there's heavy upstream turnaround activity in the earnings call.

Operator

Our next question comes from the line of Doug Leggate from Bank of America Merrill Lynch. Your question, please.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Mike, as you know, we're big fans of what you guys have done here, but I want to ask a little bit of a sensitive question, if I may. There's been some speculation, I guess, some fact-checking in the press that given that Anadarko already had a bid in hand from Oxy for their letter, they then went ahead and increased their change of control for their senior management. I wonder if you could speak to your opinion on that and how -- what perspective you would offer in terms of perhaps the history of your discussions that maybe led to that point. Obviously, it's a little bit sensitive, but it's something that some shareholders are raising some concerns about.

Michael K. Wirth -- Chairman and Chief Executive Officer

Yes, Doug, there are numerous aspects of our negotiation in the deal that will be explained in the S-4 filing. It's premature and inappropriate for me to comment on any of the aspects of how this all came together. I'd encourage you just to read the S-4 when it's filed.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Okay. I know it was going to be a tough one to answer, so I appreciate you trying. My more specific question to Chevron is, obviously, post deal, there's going to be a very significant tailwind from synergies and all the things that you've laid out. One assumes that if you did match the higher bid, does that change anything by way of your buyback plans, dividend growth trajectory, any of those kind of visions. And what I'm really getting at is that if for some reason, you did hit a high bar where you did not decide to move forward in that event -- I realize it's unlikely, but the bulk of your future growth to 2023 is largely -- it looks like a lot of it is coming from Permian gas. So I'm just curious how absent this deal, would you be able to sustain the buybacks and commit to a strong growth trajectory for dividends, and I'll leave it there.

Michael K. Wirth -- Chairman and Chief Executive Officer

Yes, I'm not going to speculate on what Anadarko's Board may do and how that plays out. I'll just tell you that in our base case, we produce 75% liquids in the Permian, so it's not primarily gas. We've indicated that we expect to see our industry-leading cash margins sustained as the production grows, and that we've initiated a buyback program that we intend to stick with through any reasonable commodity price environment. And so there are not risks to be cashed that would support shareholder distributions here in the vein of what you're talking about. So we're very confident in the plan we've laid out and our ability to deliver.

Operator

Our next question comes from the line of Sam Margolin from Wolfe Research. Your question, please.

Michael K. Wirth -- Chairman and Chief Executive Officer

Sam? He might be muted.

Operator

Please check your mute button.

Sam Margolin -- Wolfe Research -- Analyst

Can you hear me now?

Michael K. Wirth -- Chairman and Chief Executive Officer

Yes, we can.

Sam Margolin -- Wolfe Research -- Analyst

Muted. Sorry about that. I just have a quick question. We've been through a lot on the Anadarko topic already. I've got a question for Pierre, a follow-up to the TCO topic earlier. If TCO keeps taking up the co-lending program, theoretically, to preserve dividends. But if that's happening at the same time that commodity prices are broadly higher than what was planned for, does that flow into the Chevron capital program as sort of like a net cash surprise? Or is the authorization part of your sort of free cash flow outlook and it's not dynamic what TCO decides to do? And then just as a follow-up, like if it's the former, does Chevron then have headroom to rotate cash at the Chevron level into other things like Permian, incremental Permian, for example?

Pierre R. Breber -- Vice President and Chief Financial Officer

Yes. Thanks, Sam. No, the financing doesn't impact capital, how we characterize capital. So the capital is going to be what is invested in the project. Again, that's affiliate capital, so noncash capital. What can vary is -- where I thought you were going is if prices are higher, then there's clearly more cash generation within TCO, and therefore, their ability to balance making investment and paying dividends is easier and might pull less on the loans. So again, we're giving guidance on the financing, but it is subject to prices, level of investments that are happening and the level of dividends. All of those are in interplay. But if prices stay higher longer, then that gives them more flexibility to either decrease the lending or the borrowings or increase the dividends, which in either case, that's more cash to the company. It shows up in different parts of the cash flow statement, but in neither case does that affect CapEx.

Sam Margolin -- Wolfe Research -- Analyst

Okay. Yes, that's why I was asking, because it sounded like there was a potential outcome where TCO is self-funding and inclusive of the dividend, but they still uptick the co-lending, in which case, you've got like surplus cash, but I guess it's not. It wouldn't affect anything else, so OK. All right.

Operator

Our final question for today comes from the line of Jason Gabelman from Cowen. Your question, please.

Jason Gammel -- Jefferies -- Analyst

I'm not going to ask about the Anadarko deal because it seems like it's been covered on the call. I want to actually ask about what's going on in California right now just given you guys are -- have a pretty big footprint in the state. Commerce is in the process of reviewing a bill to kind of institute a change in how oil production goes on there, kind of the setback rules similar to what Colorado tried to put forth. I'm wondering what you see as potential risks, if any, to your portfolio in the state both on the refining side and the production side relative to that regulation.

Michael K. Wirth -- Chairman and Chief Executive Officer

Okay, Jason. Yes. So California has pretty aggressive ideas on regulating our industry. And what you referred to is AB-345, which is in the assembly right now. Wouldn't impact downstream at all. It's really -- you can think of it as analogous to what has been going on in Colorado. And the primary concern is setbacks for activity. Our portfolio in California is primarily in the San Joaquin Valley, and it tends to be an area where it's not populated the same way the L.A. basin is, which is where historically, there was a lot of -- the roots of our company and a lot of the industry trace their way back into the L.A. basin.

And so there, you've got a much more densely populated urban and suburban land use matrix and concerns about the proximity of drilling activities to residential, schools, commercial, et cetera, is really I think what's behind this. So we are working closely with the state government to ensure they understand the impacts. Others in the industry and trade associations are as well. And so it's prospective legislation that's being considered here. It really impacts permitting for new wells. It doesn't impact things that are already on production. We've got a big producing business that's online today. And then I think our portfolio is in a part of the state that would likely be less impacted than if our production were more heavily concentrated into the L.A. basin. Okay. Thank you very much. Jason, I think we are right about at the top of the hour here. And I know everybody's busy on a Friday, so I want to thank everyone for your time today. Appreciate your interest in Chevron and your participation on the call today. Jonathan, back over to you.

Operator

Thank you. Ladies and gentlemen, this concludes Chevron's First Quarter 2019 Earnings Conference Call. You may now disconnect.

Duration: 61 minutes

Call participants:

Michael K. Wirth -- Chairman and Chief Executive Officer

Pierre R. Breber -- Vice President and Chief Financial Officer

Devin McDermott -- Morgan Stanley -- Analyst

Philip Mulkey Gresh -- JPMorgan -- Analyst

Paul Benedict Sankey -- Mizuho Securities -- Analyst

Jason Gammel -- Jefferies -- Analyst

Biraj Borkhataria -- RBC Capital Markets -- Analyst

Neil Mehta -- Goldman Sachs -- Analyst

Blake Fernandez -- Simmons Energy -- Analyst

Jon Rigby -- UBS -- Analyst

Roger Read -- Wells Fargo Securities -- Analyst

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Sam Margolin -- Wolfe Research -- Analyst

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