Occidental Petroleum Corporation — 2023 Q3
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Good afternoon, and welcome to the Occidental's Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Neil Backhouse, Vice President of Investor Relations. Please go ahead.
Thank you, Anthony. Good afternoon, everyone, and thank you for participating in Occidental's Third Quarter 2023 Conference Call. On the call with us today are Vicki Hollub, President and Chief Executive Officer; Richard Jackson, President, Operations, U.S. Onshore Resources and Carbon Management; Rob Peterson, Executive Vice President, Essential Chemistry; Ken Dillon, Senior Vice President and President, International Oil and Gas Operations; and Mike Avery, President and General Manager of 1PointFive.
Thank you, Neil, and good afternoon, everyone. The team and I would like to discuss 2 key topics today. First, how our portfolio of assets managed by excellent teams once again drove record performance this quarter, which flowed to the bottom line.
Thank you, Vicki. Today, I'm glad to provide a business update focused on Direct Air Capture and the carbon dioxide removal credit market. I also want to reiterate Vicki's comments on how thankful we are to welcome BlackRock as our initial investment partner for STRATOS, our first DAC facility.
Thank you, Richard. We posted an adjusted profit of $1.18 per diluted share and a reported profit of $1.20 per diluted share. The difference between adjusted and reported earnings was primarily driven by gains on sales of noncore affluent assets, partially offset by derivative losses in the premium paid on preferred equity redemptions. During the third quarter, strong operational execution enabled us to generate over $1.7 billion of free cash flow before working capital, and we concluded the third quarter with over $600 million of unrestricted cash.
Thank you, Rob. As Richard explained earlier, we expect DAC to play a more important role in our premier and diverse portfolio of assets. We believe tremendous additional potential exists there.
[Operator Instructions] Our first question will come from Nitin Kumar with Mizuho.
I want to start, Vicki, with the topic to your and the industry M&A. I know Oxy has a deep bench of inventory that you highlighted. But obviously, with some deals out there recently, there's been a focus on consolidation. So just wanted to get your thoughts on how you see Oxy fitting into that trend going forward.
Well, Nitin, I do want to reiterate that we were early consolidators in our industry with the Anadarko acquisition. And we did that because we saw significant synergies there. And those were obvious to us, and they were in the acreage was in an area that made it possible for us to understand the subsurface and to gain those synergies.
That's very helpful. Vicki, I want to go back. I know the focus is on LCV today, but last quarter, you talked about the strong performance in your Permian well productivity. There's been some talk around improving technology and really focusing on improving recovery rates in the basin, you do as much technical work as anybody else. So just curious if you have any technology if you are deploying or seeing being deployed that could lead to a step change in recovery factors?
I think I really feel like we've already had a step change in our recovery factors. And if you go back and look as far back as 2014 and '15, the improvements that we've seen have been dramatic but most of those improvements have been around understanding the subsurface better and being able to better design frac jobs and also our wellbore configuration so that we can not only get the most out of the subsurface from a modeling perspective for the design, but also from an operating standpoint.
Yes, that's right. I'll stay on point. The thing I wanted to highlight is just obviously, recovery factor is core to what we're doing. We're really proud of the slides that we keep in our appendix, which shows year-on-year the improving performance for our wells and not over a few days. We look at it on our 1-year [indiscernible]. And it's not only in the Permian, it's in the Rockies. And as Vicki alluded to, we were talking earlier, Ken had some great advancements in the Middle East as well.
I thought I was going to have to cut them off there for a second but he did good.
And I was just hoping that you wouldn't, Ricky, but great job, guys.
Our next question will come from Neil Mehta with Goldman Sachs.
Yes. It's really helpful update around LCV. I wanted to take you up Vicki, on that offer to talk about construction and how that DAC plant is building towards the mid-2025 start? What are the biggest gating items to get it to completion? And how do you feel about your ability to mitigate those risks?
Okay. We'll pass that to Ken then.
So far, I'd say construction is going very well. While we are performing extremely well in engineering, procurement and construction phase of the project is basically -- we're moving through the [indiscernible] phase where we've got around 550 people at site into the different trades and we'll move up to about 1,200 people at site by the end of Q1. So far, we've had no issues of paying labor on the field in terms of procurement. We're meeting construction needs at the moment, and we've committed around 90% of the material value that we need. So prices are locked in at the moment. So things are going very well.
I'd just like to build on what Ken was saying about the visionary vendors. What's been very helpful for us is that as we went through and interviewed the various vendors selected those that we felt like were more visionary. We also found that these more visionary companies also were very committed to making this work because what they realize and what's important to them is to do something that benefits the world. And if you look at the CO2 going into the atmosphere today, it's about 35 gigatons and of that 35 gigatons going into the atmosphere, 8 from stroam and that's 23% comes from transportation and that's what Richard was getting at earlier.
That was great, Vicki. And the follow-up is just around '24 capital considerations. I won't get it on the fourth quarter call, I recognize, but can you just talk about the range from '23 to '24 and last quarter, you annualized it looks like a $6.4 billion of CapEx. Is it crazy to say that's a good starting point? And any thoughts on that would be great.
No, it wouldn't be crazy to say that. I'll go back to what Rob said in his script, and that is that our upstream oil and gas, especially in the U.S. will have the same activity level next year that it's had this year. In addition to that, we'll have $100 million for incremental for Battleground in 2024, and we'll run those 2 drillships in the Gulf of Mexico. So I think that gets you to work to that or above as you go in total all of that. And we'll have more guidance on that, hopefully, the first part of next year.
Next question will come from Paul Cheng with Scotiabank.
Two questions on -- maybe this is for Richard. Have you seen any meaningful inflation rate in the construction side? And also, does the higher interest rate impact your growth plan and the business model? That's the first question.
Sure. I'm going to start -- I'm assuming the inflation is oil and gas. But if I -- we need to go more broadly we can help with that.
Yes. And can we also expand not just on the oil and gas, but also to the low carbon business that are we seeing the inflation rate very different and is actually hitting up that does look like a lot of people is moving in that direction.
Great. I'm going to -- I think the way we'll do this, maybe you can start a little bit on inflation as it relates to DAC and then certainly, I want to have Mike talk about the market and what we're seeing with offtake. I think that's an important part of our message.
It's Ken. Yes, we did see increases in the STRATOS cost estimate, mainly related to general industry inflation, so not specifically because of the back but we also increased cost as a result of incorporating learnings from the CEIC. And I would say it was probably 50-50 in terms of impact of moderate inflation on DAC and it's just general industry inflation, steel prices, materials, et cetera.
Paul, this is Mike Avery here. So I'll give an update on the sales process and progress that we've made for STRATOS. And so what we're getting here is a lot of momentum building in the market with a strong sort of pipeline of buyers that are growing now.
Our next question will come from Doug Leggate with Bank of America.
Vicki, I wonder if I could ask you about the business plan or the strategy for that going forward. Clearly, you've given up some working interest now, which I think you'd signaled before. But I think -- I don't want to misquote Richard here, but I think you said our first partner in STRATOS, where do you see your working interest? How do you see it in DAC 2? And where does license revenue fit into the capital efficiency of the DAC strategy? And I've got a follow-up, please.
Well, we have a lot of confidence in this technology and a lot of confidence that it fits very well with our strategy on a go-forward basis. Not only are we going to benefit from the sale of carbon reduction credits as a part of this technology and our strategy. Ultimately, we also -- while we're continuing to provide sequestration and sailing reservoirs for our customers. We also want to provide CO2 as a product to customers to convert to sustainable aviation fluids. So that's another part of the revenue -- potential revenue stream.
Yes. Vicki, just to clarify, so these obviously very ambitious growth plans going forward. It doesn't require that it's Oxy capital, I guess, was my point. Am I right in thinking that outsourcing the capital once the technology is proven has potential to be a revenue stream as a -- like a license revenue. That's what I was really getting at?
Yes. That's incredibly important to us. There's absolutely no way that we would have the capability to provide all of the capital. We can't do it. We're going to continue to be an oil and gas business because oil and gas is also important for the world. We'll continue our investments in oil and gas and grow our oil over time because our oil will be carbon neutral or carbon negative ultimately. And so that's to me the last barrel of oil produced in the world should come from an enhanced oil recovery reservoir using CO2 from the atmosphere. So we will be doing that.
Our next question will come from Neal Dingmann with Truist Securities.
My first question is on your Permian plan, specifically. Just wondering, will you all turn to more co-development in the Dell or maybe just discuss your future broader completion plans there?
[indiscernible]?
Yes. I'd answer that a couple of ways, I think. I think one that's been really important to us, and we've tried to highlight is again back to some of the secondary benches in the way we think about those developments. We've been pretty precise in terms of how we put together our DSUs with those in mind. I would say this year, we have increased our -- I'll generalize completion intensity, but it's really frac intensity. And some of that was some of the capital that we put back into the Permian that delivered increasing cash flow for us this year. So I'd say a good portion of that capital increase was due to our increased completion intensity.
And then second also on the Permian. The second largest earthquake in the Perm was reported this morning. I'm just wonder is probably too early to know if you had any direct impact? I'm just wondering, could you all discuss the continued disposal process and if that has changed in recent years?
I'm sorry, Neal, I didn't get that -- the first part of that question.
This morning, there was announced the second largest earthquake. Hit the -- it looks like it hit the...
Earthquake.
And I'm just wondering -- I'm not asking for the impact too early there, but just wondering maybe if you could discuss -- I know you had changed some disposal process and things in the past. If you could maybe just hit that quickly.
Yes. Our plans continue to leverage really the work we've done around water recycling, just in general, I'd say, independent of any of the hazards. We just believe that responsible use of water is a big part of what we should do. we actually had a trip here recently to the Permian, got to revisit the large recycling facility that we put together with our partner there in the Midland Basin.
Our next question will come from Matt Portillo with TPH.
I wanted to start out on the Gulf of Mexico. You mentioned you'll be running 2 drillships there next year. Just curious if you could just give an idea of key projects you're progressing in 2024? And maybe expand a little bit on the depth of the tie-in opportunities and potential, I think, Vicki, you commented last quarter for possible growth out of the asset in the second half of the decade.
Yes. I would just reiterate, we're really excited about not just what we're doing from a capital perspective and the new development, but also what we're doing with the development that we have and Ken has some really good things to share with you about that.
If I start off with the first part of your question, as part of the development initiatives, we plan to drill and complete 5 wells includes proximity to our facilities tied back to existing subsea manifolds with available capacity. We also do test on 2 promising exploration opportunities in the Eastern [indiscernible] probably have a working interest of around 40%, that aligns to our sort of approach of more shots on goal through partnering.
And that concludes our question-and-answer session. I would like to turn the conference back over to Vicki Hollub for any closing remarks.
Thank you all for your questions and for joining our call today. Very much appreciate it. Have a great day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.