Occidental Petroleum Corporation — 2023 Q2

Well, we intend to keep our capital plan as we had it or at least the activity plan as we had it. I can tell you, Doug, I'm incredibly impressed with what our teams have done. I've been in this industry for a very long time, and I've seen a lot of extensive work done to model conventional reservoirs over the years. And when we started our shale development, some thought it was more of a statistical play where you just go drill a 100 wells and maybe 25% of them would be really good, and 75% would be okay. But we took the time in 2014 to step back and say that we were going to put together a team that could do the kind of work that needs to be done in shale. It's much more complex than conventional. So we really focused on trying to make sure that we put together a team that could do the most sophisticated work on the subsurface possible, and they've done incredibly well.

Yes. The legacy Anadarko assets in the Texas, Delaware are really, really top tier. We had -- when we were working to do the acquisition, we knew that they were really good. We thought they would come in and be almost equal to our Southeast New Mexico, and I'm going to get myself in trouble here. I think they were, I thought, for a while better than Southeast New Mexico. I think I happen to say that in the hallway one day, and the Southeast New Mexico team decided they would prove me wrong on that. So I would say that Southeast New Mexico and Texas Delaware are both incredibly important to us. They are very high quality, and they're both a part of our program going forward. Richard, you had something to add?

Yes. Maybe just to help add on to that when we talk about assets in the portfolio and even legacy Anadarko. I think the Rockies trajectory, while very strong in the first half of the year, I think what's impressive, we talked about knowing we would decline kind of through the first half of the year and then grow. And I think if you see our guide for 3Q and then implied guide for 4Q, that not only was the first half better, but the second half was better as well. And while the new wells are certainly core, how do we think about deploying capital and creating the efficiency, I'd like to also recognize all the team that works on our base production.

No doubt, it's the Permian and the Rockies and the Rockies actually applying artificial intelligence to their pumps up there, which has been very, very impressive as well as the management of the gas lift in the Permian, Texas and New Mexico. So these are exciting things for us, and we're -- we have to definitely gets kudos to the teams. They've gone above and beyond expectations.

Well, certainly, we have the capability at almost any price environment. There's a lower limit to where we would probably not do much share repurchases at $60. But at $70, we could continue a common share purchase program. And certainly, at $75 and above, we've got the cash to do both. But what we feel like with our current shareholder framework is that share repurchases are a big part of that because our -- in common share repurchases because what we're really trying to do is we're trying to create value per share for our investors. And to create value per share, it not only means that we need to grow production a bit. Again, that's with the cash flow is the main thing we're trying to grow when we're growing production, and that's an outcome of our capital program.

I'll just add that part of the challenge that we have is that our program last year was very back-end weighted. We did $2.4 billion of share repurchases concentrated across the second half of the year of $1.8 billion of that just in the third quarter alone. And so it's the pace at which we were able to retire shares last year, matched up against the commodity prices that we have this year, that's really making it difficult to stay with the 4 consistently. So if you look back to last year, gas pricing, we realized over $7 in Q3, oil prices were over $95 realized in Q3. And so that's the big change year-over-year that we're seeing.

The Al Hosn project getting to the 1.45 Bcf a day had very little capital, is definitely a good project for us. And with -- just having gotten that back on, we expect that the certainly, the production looking good towards the rest of this year from Al Hosn and also the fact that we were in Oman, able to get an exploration well that was record setting for us online and to production in less than a month was another good sign for healthy production coming out of the Middle East. We do have incremental opportunities in Oman for additional wells that are similar to that in Block 65. So -- and this year, this past year, in Safah field on the north Oman.

I would say that I have -- my thoughts about the Gulf of Mexico have actually changed a bit over the past year. Originally, when we made the acquisition, our plan was just to keep production flat and use the cash flow to invest elsewhere. I do believe now, again, based on the technical excellence of our teams working at and the fact that artificial intelligence, I believe, is going to be -- advanced data analytics, I believe, is going to be a game changer for the Gulf of Mexico. And I believe our team has the capability and expertise to optimize the use of those tools. So I think that not this year or next year, but I do believe that looking forward in the next 3 to 5 years, the Gulf of Mexico could become more of a growth area for us rather than just a cash generator.

Yes. Great. This is Richard. I'll try to take a few pieces of that. I mean very excited about the DJ, like I described, but the new well performance in the base. But I would say consistent with really what we've done across our reservoir positions and especially in the unconventional. It really starts with the challenge on the subsurface in terms of all the things you described, spacing, how many wells per DSU. And I think the teams continue to look at those opportunities. And as we noted, really thinking about less, I think moving from 18 to 8 to 12 wells per section allows us to deliver the same EUR for less cost. And I think just like we've done in the Permian, that's the right recipe. We have been able to use completions and really frac intensity to kind of turn up the lever to help capture those reserves without having to drill additional wells.

What we're seeing is we're seeing some things start to plateau in terms of cost. We're seeing labor being still a bit tight. But there's also around labor though, we're not seeing as many people wanting to change jobs. It's just a matter of getting the skills that we need in the field, and that's where the big challenge is, to get truckers to drive trucks, and people to do the welding and those kinds of field jobs are so important to us. But I would think that what -- we're not -- while we're not seeing any reduction -- much reduction in service company costs, we don't expect that. But I don't think we've settled on expecting any kind of increase next year.

And I can add maybe just a few. I agree with Vicki. I mean, we're, one, really pleased with the efficiency of our operations. That's always our focus. And so really, the rigs we've added over the last 1.5 years, we've highlighted some of the kind of individual goals, but we're seeing productivity just from reducing nonproductive time, improved kind of efficiency of the operations continue. But as we think about going into next year, OCTG, seeing some relief, but that generally lags, sand kind of similar, and fuel, obviously is a component, which has been lower for us. So we're seeing those types of things come in a little bit lower. But we've got really, the opportunity to continue to work with the fleet we have.

And Michael, this is Neil. I just wanted to add. We'll always encourage our coverage group not to rely too much on consensus for whatever time period. As you know, the further out it goes, the more sale data that can be in there. So just continue to have the conversations with us, and we'll guide at the appropriate time.

I would say we don't know that because we're continuing to get more barrels. I mean just look at the graphs where our teams are getting more production from the wells for either the same or lower cost. We're doing both. We're increasing efficiencies of execution while also getting more recovery out of the wells. So I don't think I'd be prepared to say that we'd have to spend more capital just to stay flat. We'll look at that. And again, the efficiencies that are being gained, I think we have to take all that into account. And we'll -- we're starting to look at some of that now, but I'm a bit impressed with what we've been able to do with the dollar to spend because I think that we still have for our wedge production, the lowest capital intensity on a per barrel basis in the industry, I believe, at least the last time we checked it. Now we haven't done that number in a couple of months. So we probably need to check that again to know for sure.

It doesn't cover Stratos, but it does cover other things, and it could cover things that we currently have today, not -- probably not the first deck at the King Ranch. But what we had done is we put together a work group that worked with ADNOC to talk about what the possibilities are for direct air capture and sequestration here in the United States versus Abu Dhabi. And the big focus was to try to help each of us to achieve the goals that we've set out. And ADNOC just set another goal for themselves to get to net zero, I think, by 2045. So they're on a mission. They have a goal, and we also do and we -- given the fact that we collaborated on making and building the what is now the largest -- and what was it, even at the time, the largest ultra-sour gas processing plant in the world. There were several companies that walked away from that they didn't want to try to attempt that.

I can't comment too much on what's happened. But I will say that there's probably not any carbon capture or CO2 EOR things that are happening in the U.S. or even worldwide that we don't follow very closely, one of which we had followed probably for a few decades or at least a couple of decades. But when we look at it, we -- and Richard can build on this. So we have now structured what we're doing so that we can focus on the things that we do best. And the things, as we've talked about in this call, the things that we do best are: one, understanding the subsurface.

Sure. I mean -- yes, just build a minute. I think even especially in our Permian EOR or Permian position, we continue to work many carbon capture opportunities. We continue to think because of that legacy position we have, especially in the subsurface that that's going to present economic and real opportunity for us and emitters in terms of being able to capture and retire the CO2. In terms of the Gulf Coast, I know we talked about it before, but I want to reiterate, like Vicki said, be very focused on the sequestration of the subsurface piece of that. That's really as we learned where we could best add value, it's around that position, and we have our hubs that are going in the Gulf Coast.

Okay. I'll turn that over to Richard. Richard's been actually looking at that more closely.

Sure. Yes. Let me just kind of walk you through where we were this year. Obviously, we were significantly underinvested in the last couple of years coming out of the downturn, really focusing capital on the shortest cycle. We really restored capital back to the Rockies this year back to more sustaining levels, but the teams continued to outperform. And so what really has happened this year is a shallower decline in the first half of the year. We had expected growth in the second half of the year, but the growth is actually a bit better. So if you look at kind of where we're at first half to second half, I think we're growing about 6,000 barrels a day. So the -- in terms of rigs, we're running capable -- been running 2, capable for 3. And we continue to work on these well improvements to see really how that asset and that production competes for capital in our portfolio going into next year. But I think really the -- sort of the capital that you're seeing deployed in the Rockies this year takes us from a decline into really a flat to moderate -- low-end growth.

Look, the teams have continued -- we challenge everybody, but I think the Rockies team has really done a great job on this. Getting upfront in terms of land development, permits, really getting the midstream position in place to be able to do more. But again, it needs to fit our capital allocation. So they do high returns even at lower gas prices. These are very competitive returns. I would call them a bit longer cycle than the, say, the Delaware in Texas, but they also have a bit lower decline. And so for us, they fit really well. We'll have capability to do more, but it really needs to fit the sort of cash flow outcome that the company needs as we put capital together for next year. But we can do more as that fits.

Yes, great. I'll start with the CDR sales. I think as we've continue to talk about, we really believe in the market and believe that really the formation and sales are following kind of our expectations. I mean, clearly pleased with strategic, strong strategic customers like A&A that recognize really the fit of our product, which is a CDR into a larger aviation decarbonization. So while there -- we think about broadly sustainable aviation fuels, we feel like CDRs fit well into that market.

Yes. No, I think -- look, we remain optimistic that we're going to have good partners as we think about financing this long term. We've been strong in our ability to be able to carry the near term, but we understand longer term that we need financial partners that come into this with us, and we continue to make progress. Just to talk about the capital, we've stayed with the range $200 million to $600 million for the year. And really, that reflects that room to bring in that capital partnership by the end of the year.

Yes. And I would say, Devin, I appreciate your interest and we will have a bit more of an update in November. I want to give anybody to thinking it's some sort of major announcement, it's not. It's just an update just like what Richard gave now because things are continuing to change with respect to demand for CDRs and that sort of thing. So we'll give you a little more of that in November.

Yes. I think construction progress, I should say, we're about 23%, I think, to date. So we'll have more construction progress. We think we can point more to the market. And just kind of follow-up on that deep dive we had last year kind of giving some updates on how these pieces come together.

Yes. Just had one question, just following up on that last point. The ADNOC MOU is quite encouraging. But whether it's ADNOC or another partner? In terms of just thinking about making that equity investment in DAC, do the partners that you're talking with, do they want to see the learnings from Stratos manifest into lower capital and operating costs, DAC 2 or DAC 3 to pull the trigger on an investment? Or do you sense that just showcasing progress in constructing Stratos and getting it up and running would be sufficient to attract equity funding into the program?

I would say with ADNOC, they know our track record of building major projects and they know Ken Dillon well, who's actually manages our major projects. So they've seen us and how we not only -- we're innovative in how we built Al Hosn, but we were also innovative in this just recent expansion to expand the plant by almost 50% with probably spend way under 10% is -- was phenomenal. And so I think that ADNOC will be prepared to move forward with us sooner than waiting on what happens with Stratos. I think they all understand that technologies go through a cost down. There's never been a technology that's worked and been adopted in large way without having gone through the same kind of thing that we'll go through with our direct air capture.

Yes. And the only thing I would add, I mean, there definitely is different capital, I think as we're able to move down that cost down over the next decade. We really like to partner with strategics like ADNOC or others that can be a part of not only the near term, but the long term. But obviously, we want to get the right value and set up the right economics for both parties as we bring them in. And so I think, of course, long term, as we bring costs down, the market forms, we expect that to open really capital, and that's a big part of our ability to scale development. And so to answer your question, yes, I do think that changes -- presents more opportunities over time.

Yes. One final comment on it is, partnering with ADNOC, we know their capabilities and expertise, too. So we know what they bring to the table. And so that's the other exciting aspect of this is having their knowledge and their experience, their expertise combined with ours, to do whichever we do or a combination of both the CCUS and the direct air capture.

I would say that we're not going to execute a large growth program in our upstream oil and gas business. So -- but I will say that our intent is to keep a moderate capital spend, what we consider to be something similar to the activity level that we have on a whole year basis, not the second half, take the second half of this year and project it into next year is what our oil and gas activity level would be. But what we want to do is we just want a program that delivers the best returns at present value. So that doesn't mean that we're going to take our capital framework right now and dramatically change it. Share repurchases is a part of that.

The other thing I'll add, David, too, is in 2023, because our share repurchase program is thus far, far more ratable in our concentration and purchases last year. We're creating a foundation for 2024. We don't have as many slugs to overcome with us that necessitate spikes in oil prices or whatever to get there. So we are laying the groundwork for next year even as we continue to buy share repurchases this year, whether or not we're retiring preferred along with it or not.

I would just like to say thank you all for joining us, and have a great day.