WHEN: Today, Tuesday, January 7, 2020
WHERE: CNBC's "Squawk on the Street" – Live from Goldman Sachs' annual energy conference in Miami Beach, FL
The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Chevron CEO Michael Wirth and CNBC's Brian Sullivan on CNBC's "Squawk on the Street" (M-F 9AM – 11AM) today, Tuesday, January 7th. The following is a link to a video on CNBC.com: https://www.cnbc.com/video/2020/01/07/watch-cnbcs-full-interview-with-chevron-ceo-michael-wirth.html.
All references must be sourced by CNBC.
CARL QUINTANILLA: Oil prices pulling back, obviously. Dow is down almost 100. For a closer look at the sector and how companies are starting to respond to this heightened geopolitical risk, let's get to Brian Sullivan who is live at the Goldman Energy Conference with the Chairman and CEO of Chevron. Hi, Brian.
BRIAN SULLIVAN: Hey Carl. Good morning. Thank you very much. I'm joined by Michael Wirth here of Chevron. Michael, thank you very much for taking some time.
MICHAEL WIRTH: Pleasure.
BRIAN SULLIVAN: First response is you have American contractors in Iraq. They have removed from that country after the air strike. Do you anticipate they will go back? And how much, if at all, have your operations in Iraq been impacted?
MICHAEL WIRTH: Well, we don't have a big operation in Iraq. We're up north in the Kurdish region. And we take security measures on an ongoing basis, as we see risks evolve around the world. So, this is a relatively normal move for us to move some people to do their work from a different location. We have good people on the ground still in Iraq, Iraqis. And at some point as the situation, you know, clarifies itself and we view the security position as proper, we'll see people return.
BRIAN SULLIVAN: But you're still operating, you're still producing in Iraq? Just the Americans have pulled out?
MICHAEL WIRTH: Yes, we're actually developing a discovery so it's not in production yet. So, it's early phase development work.
BRIAN SULLIVAN: Okay. Are you surprised the price of oil did not jump more than it did?
MICHAEL WIRTH: Not really. You know, we saw the attack last year on critical infrastructure in Saudi Arabia. And pretty quickly, the market reverted to areas -- a price range where it had been before. We continue to be in a pretty well supplied market. And this event, while certainly is newsworthy, didn't fundamentally strike energy infrastructure or change the supply and demand dynamics in the market. So, I think certainly a reminder of the risk that exists in our business. But fundamentally hasn't shifted supply and command which is really where price gets set up.
BRIAN SULLIVAN: Are you adjusting your internal estimates on the price of Brent or WTI Crude going forward, based on, not only what happened on Friday, but on the OPEC move and the recent firming up of the market, a little bit, over the last couple of weeks? Have you changed your estimates?
MICHAEL WIRTH: No, we haven't. I mean, those are the kinds of things we see in this business, and we look at a long-term view really on supply and demand. And we don't overlay these shorter-term phenomena into our thinking about price and the things that drive investment.
BRIAN SULLIVAN: I know we have Jim and David and Carl back at the New York Stock Exchange. Jim, why don't you come on in here?
JIM CRAMER: Sure, Mike. You're really probably the great visionary of the large oils, and I know you must be thinking about the day when you do have no growth. Perhaps it's because of reduction in demand for fuel, perhaps because of EV. And I know it's not that close but you're a forward thinker. What does chevron do when big oil has no growth?
MICHAEL WIRTH: Well, look, the world consumes 100 million barrels of oil today. We've got 6.5 billion people on the planet, 20 years from now there will be 9 billion people on the planet. And so, even -- and the world will need 30% more energy 20 years from now than it does today and that includes all forms, right? Wind, solar, oil, gas, everything. And if you see a day when we see demand begin to plateau, there's still underlying decline. It's a depletion business, as you develop the resource you need to invest to replace that and you've got to have a price signal that incensed the replacement. So, there is a long future in a growth environment, and there's a long future even in an environment that begins to plateau for good economic investment to continue to provide the affordable, reliable and ever cleaner energy that the world will need.
JIM CRAMER: Are you surprised at all that the forward curve has not really budged despite the turmoil in the Middle East?
MICHAEL WIRTH: Not really, Jim. You know, fundamentally, supply and demand remain where they were before these incidents. We haven't seen anything that has actually changed that. Last year we did see something that impacted supply for a period of time, which was attack on infrastructure in Saudi Arabia. Credit to Aramco for a strong recovery and repair of that. But fundamentally, markets while they see the geopolitical risk, I think we've been in a well-supplied market for some period of time here and that's generally what the view continues to be at this point.
BRIAN SULLIVAN: If oil prices, Mike, stayed where they are, I mean that's a big if. 63 bucks, they were at 55. So, they're up $7 or $8. Every dollar of incremental gain in the price of oil, as I understand it, benefits you to the tune of $450 million a year in additional cash flow. Is that correct?
MICHAEL WIRTH: That's roughly correct, yes.
BRIAN SULLIVAN: $1 increment, 450. So, you are going to be sitting on a lot more free cash flow if oil prices stay this way for a significant period of time. Your capital spending budget hasn't budged, it's been the same for three years. Would you look to increase it next fiscal year if oil prices stay at 63 on WTI?
MICHAEL WIRTH: Probably not. It's a long-term business. We sent our capital spending plans for a long-term value proposition for our shareholders. Our dividend is the most important thing to the people that own our stock. We've increased our annual dividend payout for 32 consecutive years. Our board will make a decision on that here later this month, in terms of 2020. But I would expect that streak to continue.
BRIAN SULLIVAN: So, what happens -- I know David is going to jump in with a question, as well. What happens to the extra cash flow, though? What do you do with it?
MICHAEL WIRTH: It can strengthen the balance sheet. We're buying back shares at the rate of 5 billion a year. We've got places we can put -- we have a very disciplined financial set of priorities and we'll stay consistent with those priorities.
BRIAN SULLIVAN: David.
DAVID FABER: Thanks, Brian. Mr. Wirth, last year, ESG investing I think came into its own in a way that perhaps it hadn't up until then. But it's not going anywhere now. More and more assets going into these broader ESG strategies, which often don't include a company like yours. What are you doing to try to face down the impediments that investors may face in terms of investing in a Chevron? I know for example that in Australia, you started up a CO2 injection project in early August. Great country to do it in, given the fires right now that are taking place there, perhaps as a result of, in part, climate change. But just address for me what chevron can do when faced with so many investors who simply say that's no go territory, that stock.
MICHAEL WIRTH: Look, I spend—I am at the Goldman Sachs Conference today, meeting with investors. And we talk about ESG issues. They care about the S and the G, where I could hold our company up against any. E is the one, really, you are asking about. And within e, it's climate--it's not water or air quality--that is getting a lot of attention today. Three primary approaches that we're taking on climate: number one is to reduce the carbon intensity of our operations. And so, we've got a strong commitment in place, and metrics that affect my pay and the pay of every employee in the company that hold us accountability to reduce the carbon footprint of our operations. Second strategy is to integrate renewables into our business in a greater way. This includes solar and wind to power some of our operations. I've talked to Jim a little bit about some of our things on renewable natural gas where we're working with dairy farmers to take the by-products of dairy farming and captured natural gas for consumption. And then, the third is to invest in break-through technologies, which is really where companies that have the scale and the technical capability should be focused, is: how do we find solutions that can work at scale, that can be competitive and economic, with the alternatives today? And there is work to be done there. So, we're focused on all three of those, as we have discussions with serious investors that want to see our company and those in our industry be part of the solution. I think they understand the things that we're working on.
BRIAN SULLIVAN: Just quickly, are you going to stay in California? Your corporate headquarters is in San Ramon, across the Bay from San Francisco.
MICHAEL WIRTH: We've been in California –
BRIAN SULLIVAN: Are you -- I know, 140 years – are you going to stay there?
MICHAEL WIRTH: -- for 140 years. It's the birthplace of our company. We were the standard oil company of California. Look, we've got big assets in California, California, we've got big refineries, a big oil field there. We have people in Texas, we have people all around the world. But it's been our home for 140 years. And that hasn't changed.
BRIAN SULLIVAN: Okay. Michael Wirth, CEO of Chevron, thank you for joining us. Guys, I'll send it back to you at the New York Stock Exchange. Carl.
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