Our overall capital allocation into the basin is largely a function of where our portfolio lies. About 25% is in the Midland Basin. 25% is in the Delaware, New Mexico portion of the basin and then the balance about 50% is in Delaware, Texas. It’s been that way here, this past year and going forward, that’s a pretty good way to approximate it.
Operator: We’ll go next to John Royall with JPMorgan.
John Royall: Hi, good morning, and thanks and congratulations to Pierre. I’m going to give you guys a break on TCO and the Permian. I’m going to ask a question on the DJ. So just looking at this growth of 125 KBD for ’24, how should we think about that growth off of a pro forma ’23 basin? Just trying to understand what’s kind of the underlying, real growth rate in the DJ and then if you could just update us, with a couple quarters behind you now post PDC [ph] on your broader plans for development, the DJ.
Mike Wirth: Yeah, so we’ve now got a fourth quarter is the first full quarter with PDC. The third quarter we had two months out of the three with PDC in there. And you can see we came in in the fourth quarter a little bit over 400,000 barrels a day, which is our plans are to hold the DJ around 400,000 barrels a day going forward in a highly efficient factory and fourth quarter was maybe even a little stronger than we might have expected. There wasn’t as much weather related downtime in November and December and then there were some accounting adjustments that were booked into the fourth quarter that were not really related to operations. So the above 400 is there’s a few things contributing to that that probably are not repeating or going to pull back a little bit.
But we’re confident we can hold around 400,000 barrels a day. We’re still executing the well design and well spacing that was in the PDC basis of design, which is a little bit different than ours. A little few more wells and tighter spacing and driven more to drive volume. Our basis of design is more focused on return on invested capital and so it’s wider spacing. It’s bigger fracks, but it’s less capital overall and higher return and so as we transition to a standardized, more standardized basis of design across the basin, you’ll see that roll into the numbers. We got four rigs that are going. We got permits out for multiple years, nearly to the end of the decade and so we’re very, very pleased and we’re learning things. I got to tell you, you know, there’s some stuff that we’ve learned from PDC that will apply not only in the rest of the DJ, but it’s going to apply in the Permian as well.
It’s going to help us. So, going forward, these are high cash margin, low break even barrels. We plan to hold it at a plateau around 400 and we’ve — synergies are on track there. We’ve got virtually all the CapEx synergies are essentially in the bag. We’re already down to $1 billion there. OpEx is very close to the $100 million we got into. We’re now seeing some procurement synergies, which we hadn’t originally envisioned. So everything about it is at or better than what we had guided to.
Operator: We’ll go next to Lucas Herman [ph] with BNP Paribas.
Unidentified Analyst: Yeah, thanks very much and Pierre, I’ll add my comments to the host already, but thank you for all the insights always been worth listening to. When I look at the growth that you’re likely to see in oil in particular over the next two to three years, it feels as though you’re going to be adding towards 0.5 million barrels, maybe slightly more barrels of pretty high margin black oil and I guess the question is about whiplash and it’s the increased sensitivity that the business is going to have to movement in, of all this high-efficiency. And what, you feel Pierre, Mike, that implies the balance sheet and the way you think about balance sheet and managing things. And just if I could add on, just give me an idea of what the loan repayment schedule looks like at TCO and I presume that loan repayments, will go through the net in the net outline on the CapEx side or the investment side of the equation. Or, do they play elsewhere? Thank you.
Pierre Breber: Right. No, thanks, Lucas. I’ll take it. We’ve been overweight upstream and overweight oil liquids for a long time and you’re right. Recent acquisitions and Hess certainly adds to that and we like that exposure. In terms of how we manage the balance sheet, the first thing is we start with our break even. So what it takes, the oil price it takes to cover our CapEx and dividend, that was in the low 50s last year and so we see mostly upside and that’s why we had record share buybacks last year, almost $15 billion, 5% of our shares outstanding, because we’re built for a price well below where we currently are. We’ve also done it while maintaining a strong balance sheet. Our net debt ratio of 7%. We’ve said as we keep our share, we purchase this steady across the cycle that we’re okay re-levering back up towards the low end of our guidance range, which is 20% to 25%.
So that guidance that’s a kind of through the cycle net debt ratio guidance, that still holds and if we had a significant change in the portfolio, of course we would look at that going forward, but I think the actions that we’re taking are consistent with that guidance and again, adding that exposure when you’re built at the break even, when we think about our balance sheet, you take into account lots of things, your portfolio, the commodity price outlook, but your breakeven is really key and Mike was talking about capital and cost discipline, our ability to fund our reinvestment program in both traditional and new energies and grow the company and pay a growing dividend, right? More than twice our nearest peer, greater than S&P 500. We just increased at 8%.
So all those numbers are before the latest increase. We can do all that at a low price, return surplus cash. That’s how we’re going to think about it. So again, you’d expect our net debt to increase over time depending on commodity prices and how we return cash to shareholders. We’re not having more exposure to high margin barrels, as you say. That’s a good thing. We’re built for it and as long as we keep our break even low and below where prices are trading, we’re in a really good spot.
Unidentified Analyst: And how TC loan payments flow through?
Pierre Breber: Oh, yeah. So TC loan payments, sorry about that, yeah, because I alluded to that. That will not be in cash from ops. That shows up in our investing cash. So Jake and the team will take you all through that, but yeah, what I was saying about that affiliate line flipping, that’s separate from this in a different line. We will see cash being returned and it’s a billion our share next year, again two billion in ’26, and then in ’28 or ’30. So all that’s disclosing our 10-K. Jake can take you through that. but yeah, that’s only additional and again, we shouldn’t be surprised. We’ve been investing for eight years in this project. That cash is going to come back once the project starts up.
Unidentified Analyst: Okay. Pierre, thanks. And if you’re in London and fancy a game of tennis, give us a buzz. That’s what I’ll be doing. Sounds good, Lucas.
Operator: We’ll take our next question from Irene Himona with Société Générale.
Irene Himona: Thank you very much and Pierre, all the best for the next chapter. My question is on Henry Hub. In the new sensitivities you published today, you saw a very material 30% increase in your Henry Hub sensitivity. Is this purely because of PDC and related to that on a macro level, if you can perhaps share your views on the 2024 outlook for Henry Hub, please. Thank you.
Pierre Breber: So I’ll start, Irene, and then Mike can take the macro. Yeah, it’s a function of PDC, certainly, and then just continued the associated gas that comes along with the Permian. So as we’re growing that, it obviously comes along with natural gas.
Mike Wirth: Yeah. And Irene, the macro, I was pulling up the slide on the Henry Hub sensitivity. So broadly speaking, oil markets are pretty balanced right now. I think the geopolitics are the thing that are harder to call and could drive movements one way or another. It could be OpEx plus decisions. It can be this conflict in the Middle East. Economic growth in the world continues to be decent, and our outlook on demand growth for all this year is maybe not quite as strong as last year, but still growing. Gas is a little bit different. The inventories are high in the U.S. Inventories are high in Europe. We’re kind of mostly through the wintertime, certainly through the riskiest period of the wintertime and now, there’s these questions that are not going to really weigh in the market.
