Occidental Petroleum Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 13, 2024

There are 11 speakers on the call.

Operator

Good afternoon, and welcome to Occidental's Third Quarter 2024 Earnings Conference Call. All participants will be in listen only mode.

Speaker 1

Mode.

Operator

Please note this event is being recorded. I would now like to turn the conference over to Jordan Tanner, Vice President of Investor Relations. Please go ahead.

Speaker 2

Thank you, Drew. Good afternoon, everyone, and thank you for participating in Occidental's Q3 2024 earnings conference call. On the call with us today are Vicki Hollub, President and Chief Executive Officer Sunil Mathew, Senior Vice President and Chief Financial Officer Richard Jackson, President, Operations, U. S. Onshore Resources and Carbon Management and Ken Dillon, Senior Vice President and President, International Oil and Gas Operations.

Speaker 2

This afternoon, we will refer to slides available on the Investors section of our website. The presentation includes a cautionary statement on Slide 2 regarding forward looking statements that will be made on the call this afternoon. We'll also reference a few non GAAP financial measures today. Reconciliations to the nearest corresponding GAAP measure can be found in the schedules to our earnings release and on our website. I'll now turn the call over to Vicki.

Speaker 3

Thank you, Jordan, and good afternoon, everyone. Our teams delivered another quarter of exceptional performance across all of our business segments. Despite weather disruptions and commodity price volatility, resilient operational execution from our team helped to deliver the highest operating cash flow so far this year. Our strong financial results are a testament to the dedication and capabilities of our team as well as the premium quality of our assets. I'll begin today by reviewing our Q3 performance and providing highlights from our oil and gas business, including the ongoing integration of GroundRock.

Speaker 3

I'll also give an update on our direct air capture projects and then share the progress on our near term debt reduction program. Anil will cover our financial results and 4th quarter outlook, including increases and full year guidance for each of our segments and will provide insight of how we're looking at our 2025 capital plans. In the Q3, our team's commitment and delivery across each of our business units enabled us to generate $1,500,000,000 of free cash flow before working capital, exceeding guidance in all three segments. Our Oil and Gas segment exceeded the high end of our production guidance and set a new company record for the highest quarterly U. S.

Speaker 3

Production in our history. This was an outstanding achievement, maybe even more impressive considering there were 3 hurricanes that impacted our operations across the Gulf of Mexico. This production outperformance was primarily driven by strong new well performance and higher uptime throughout the Permian Basin. Our Midland Basin teams excelled surpassing production guidance in our recently acquired Crown Rock assets and delivering the highest quarterly production in over 5 years across our legacy Middle Basin assets. Optimum geologic targeting drove new well performance supplemented by non recurring OVO benefits.

Speaker 3

The Delaware Basin continues to perform at an industry leading level with our New Mexico performance being instrumental in our 3rd quarter results, Most notably, the 6 wells Wolfcamp development project in our tanks field in New Mexico produced an impressive 1,200,000 barrels of oil in the 1st 90 days. In previous earnings calls, we highlighted that Oxy had 8 of the top 10 industry wells in the entire Delaware Basin from a 6 month cumulative production standpoint. Today, I'm proud to announce that our Rockies team now claims 8 of the top 10 DJ Basin wells drilled since 2019, several of which came online in 2024. Such remarkable industry achievements are only possible because our teams relentlessly pursue innovation and excellence. Not only is our onshore development exceeding expectations on well productivity, we're also executing in a more efficient manner.

Speaker 3

For example, every new well drilled in the Q3 New Mexico development program is utilizing existing infrastructure. As discussed in the past, this significantly enhances project returns and in many cases enable secondary bench developments to deliver stronger returns than our primary benches. We continue to advance our drilling efficiency as evidenced by 10% improvement in Permian unconventional drilling cycle times relative to last year. In the DJ Basin, we successfully drilled a 2 mile lateral in only 80 hours and our teams reduced 3rd quarter well cost by 20% compared to the first half of last year. More than just reducing well cost, these improvements also accelerate time to market, allowing us to turn capital dollars into production faster.

Speaker 3

Our teams continue to make well design and execution improvements with exceptional results. We expect to carry this momentum into 2025. Another factor in our success along with continued well performance leadership and capital efficiency progression is our team's persistent focus on driving down lease operating expenses across our assets, which ultimately enhances our cash margins. Over the last year, we have mainly reduced our domestic operating expenses on a per well basis. Looking to the Q4, we anticipate continued progress will result in a greater than 20% year over year reduction in quarterly LOE for Verapol.

Speaker 3

These steady improvements are driven by several factors including increased uptime, improved CO2 utilization and more recently the integration of low cost high margin Crownrock barrels into our portfolio. Our teams continue to deliver their operational and technical strength to drive margin expansion for both sides, reducing costs while constructing industry leading wells. Turning to our Chemicals and Midstream businesses. OxyChem outperformed in the 3rd quarter, modestly exceeding guidance, while overcoming disrupted Gulf weather. And our Midstream segment also had another impressive quarter with our marketing teams once again leveraging natural gas price locations between Waha and the Gulf Coast to deliver value to the company.

Speaker 3

Our demonstrated leadership and midstream expertise allowed us to optimize transport strategies effectively bringing both our products and 3rd party volumes to market even in the first position. I'd like to now share more on the successful addition of Crown Rock to our Oxy portfolio since the acquisition closed in early August. We're thoroughly pleased with the integration of assets and more importantly people. We've been highly impressed with the legacy Crown Rock culture as well as the stewardship exhibited in running day to day operations in a safe profitable manner. Our focus these 1st months has been centered on safety, organizational integration and retention of talent and it's gone very well.

Speaker 3

There have been no significant safety incidents, dating as far back as the December deal announcement and that's a testament to the CrownRocks team's proficiency and professionalism. The combined teams are now sharing best practices and identifying opportunities to enhance field operations through our combined single basin position, as well as constructing our 2025 development plan. As Sunil will cover later, we envision a consistent level of investment in this premier Permian asset next year. I want to highlight a few areas where our teams are identifying opportunities for operational improvements and cost efficiency. The first one I'll mention is leveraging Oxy's supply chain expertise to reduce cost of materials construction.

Speaker 3

We're also evaluating opportunities to leverage our broader Permian frac bores and overall resources to accelerate time to market and increase utilization rates. We've spoken in the past about the ample water capacity and network associated with these new assets and how well they fit with our existing water assets and how they can benefit our legacy business. Recently, we've identified nearly $10,000,000 in expected savings for our singular development plan in the Q1 of 2025, made possible by water integration across assets. We think this opportunity is just the first of many as we leverage shared infrastructure across our combined position. We also see opportunities to enhance the base production through improved operability and artificial lift design.

Speaker 3

Already we are seeing incremental base production improvements into Groundhog assets. Because of this and stronger than anticipated new well performance, our Q3 production volumes exceeded the expectations that we laid out in August. We're now projecting a 9,000 BOE per day increase to our Q4 exit rate for these assets. We're still in the early stages of integration, but are very excited about the opportunities ahead. By bringing our teams together, we expect to unlock new value and achieve greater success.

Speaker 3

Turning now to our low carbon businesses. I'd like to provide an update on our direct air capture project. Construction of Stratos, which will be the largest direct air capture facility in the world is progressing smoothly and to plan. As we have previously shared, we have faced the construction sequence of Stratos to help integrate the latest advancements, research and development efforts. We've been thoroughly impressed with the infusion of talent, passion and performance coming from the carbon engineering team over last year, driving an innovation cycle that's moving even faster than we anticipated.

Speaker 3

Collaboration within our technical teams across Oxy paired with this site with the CE Innovation Center have given rise to incredible technological breakthroughs in engineering design innovation, which we will integrate into the continued build out status. The new design will feature fewer air contactors and fewer pellet reactors, which should reduce operating expenses and increase the liability. We expect to bring the initial 250,000 tons per annum load capacity online in mid-twenty 25 with the additional 250,000 tons to phase in during the next year incorporating those improvements. This disciplined approach not only generates value for Stratos, but will benefit and de risk future DAC builds. We're also advancing our South Texas DAC project and recently achieved a significant milestone with the U.

Speaker 3

S. Department of Energy awarding this project up to $500,000,000 for the additional DAC facility at the site. This grant could potentially increase by $150,000,000 from the development of an expanded regional carbon network in South Texas. The award is momentous and furthering commercial scale of DAC in the United States and validates our ability to accelerate the vital and the technology. A combination of factors will drive our continued progress in this market and and technology and you're seeing them work together now in the cloud.

Speaker 3

1st, our innovative technical teams and continuous investment in R and D are enhancing real world projects. 2nd, we are leveraging project and operational margins from Stratos and applying them to enhance future designs. 3rd, government support and third party capital are serving as catalyst to accelerate investment in developing DAC technology at climate relevant scale, while also solidifying our leading position in emerging markets. We're excited about the progress made to date in constructing Stratos, improving the DACH technology, driving demand in the voluntary and compliance carbon credit markets. Through the development of Stratus, obviously taking your leading role to demonstrate to the developing compliance markets that DAC plus geologic storage is a large scale, highly durable and economic tool approach to climate change.

Speaker 3

We believe we can help R2 of 8 industries like aviation and maritime meet their net zero goals with DAC, which we can also serve as complementary solutions with all of a sustainable aviation and time of fuels. Equally as important, CO2 from our deck can also enable us to produce net 0 oil for our EOR operations, providing resources that U. S. Needs for energy security and energy the world will continue to need for decades. We also recognize that we are in a pivotal moment for power and utilities in our country, especially with the proliferation of data centers and AI increasing the need for reliable low cost low emissions power.

Speaker 3

Over the coming decades, we believe Oxy will be uniquely positioned to contribute to its growing sectors for our equity investment in Net Power and our ability to provide solutions at scale to meet the increased demand for our carbon dioxide renewable credits for large scale data centers and power generators. Finally, I want to share with you some of the recent progress we've made in debt reduction. December, we made a commitment to repaying over $4,500,000,000 of debt within 12 months of closing the Crown Rock acquisition. Progress in our divestiture program, including the closing of Gorilla Draw, the sale of a portion of our West Holdings in the Q3 combined with our continuing strong organic cash flow has put us well ahead of schedule. In fact, during the Q3, we repaid $4,000,000,000 to see only 90% of our near term commitment That's within just 2 months of the current market closing.

Speaker 3

We remain fully committed to achieving our medium term principal debt target of $15,000,000,000 I'll now hand the call over to Sunil to provide more details about our Q3 financial results, guidance and capital plans.

Speaker 1

Thank you, Ity. In the Q3, we generated an adjusted profit of $1 per diluted share and a reported profit of $0.98 per diluted share. The difference between adjusted and reported profit was primarily driven by a loss on the sale of down operated U. S. Onshore acreage, largely offset by a gain on the sale of common units representing limited partner interest in Western Midstream Partners.

Speaker 1

As a result of strong operational performance across all business segments, in the 3rd quarter, we generated $1,500,000,000 of free cash flow for working capital, and we finished the quarter with $1,800,000,000 of unrestricted cash. The strong free cash flow this quarter reflects our team's ability to translate high quality assets into impressive financial results despite adverse weather conditions and commodity price volatility. As Vicki mentioned, the success in the Q3 can largely be attributed with new well and base production outperformance. The Permian Basin inclusive of our newly acquired Tomrock asset. While the majority of the outperformance was associated with company's traded activities, the Permian saw a 6,000 BOE per day uplift associated with nonrecurring of site operated volumes due to prior period at this point.

Speaker 1

In the Gulf of Mexico, production came in below our 3rd quarter guidance range, largely due to unplanned downtime from hurricane related activity and well workovers. Despite these impacts, our domestic lease operating expenses at $8.68 on a per barrel basis, notably outperformed Q3 guidance and are the lowest since the Q1 of 2022. This demonstrates our operational strength and focus on delivering higher margin barrels over time as illustrated on Slide 8. In the Midstream and Marketing segment, we continue to capture value through optimizing our gas marketing positions out of the Permian Basin. This was a significant catalyst in the segment generating positive earnings on an adjusted basis, approximately $145,000,000 above the midpoint of guidance.

Speaker 1

As Mickey highlighted, we are raising our full year guidance for each of our business segments as a result of 3rd quarter outperformance and improved expectations in the 4th quarter. In oil and gas, we are raising our 4th quarter total company production guidance from last quarter's implied guidance to a midpoint of 1,450,000 BOE per day, driven by sustained well performance and operational momentum, coupled with an improved outlook in the Permian. Supporting this, we have increased our full year production guidance for the Permian based on our performance from both our legacy unconventional business and the Ground Rock asset. This rate includes an additional 12,000 BOE per day in the 4th quarter, 9,000 of which are coming from our ground rock assets. We are excited to build on the year to date success across our domestic portfolio and expect these positive production trends in the Permian should more than offset the 4th quarter production impact related to the Gulf of Mexico's ongoing well workovers and disruption from hurricane curtailment.

Speaker 1

Even with an active hurricane season, our OxyChem team was able to overcome the weather disruption and outperform Q3 guidance for a pre tax income of $304,000,000 Q4 guidance reflects an expected update in caustic soda pricing due to European supply disruptions and represents an increase to full year guidance for the segment despite seasonal declines in volumes for both BDC and caustic soda. We are also raising full year guidance for our midstream and marketing segment as a result of the strong 3rd quarter performance. Our guidance assumes that our marketing teams will capture some natural gas transportation optimization centers in the Q4 go to a lesser extent than the prior 2 quarters as Permian gas takeaway constraints. Additionally, our guidance has been adjusted to account for OpSeav's current ownership in West after our sale of a portion of our LPE units during the Q3. Capital spent net of non controlling interest in Q3 of approximately $1,600,000 was in line with our expectations and we remain within our previously guided range for 2024 capital.

Speaker 1

In closing, I want to share an update on how we are approaching our capital program for next scale. 2025 will be a pivotal year for our low carbon ventures and OxyChem businesses as we advance construction of 2 major projects that are expected to generate cash flow growth and enhance long term shareholder value. As Ricky shared, we are well underway with the construction of Spadvis, our first of its kind DAC business. We expect our 2025 low carbon ventures capital budget, net of non controlling interest contributions to be approximately $450,000,000 This represents a $150,000,000 decrease from our 2024 guidance of $600,000,000 Our OCCM Battleground expansion and modernization is also progressing well and is expected to reach peak construction activity next year. We anticipate our chemicals capital budget to be approximately $900,000,000 in 2025, an increase of $200,000,000 from this year due to the increase in project activity.

Speaker 1

The expansion remains on track for completion in mid-twenty 26. In our Oil and Gas business, we anticipate activity levels to be broadly similar to this year. Across our ground drop acreage, we plan to maintain a 5 rig program as assets have benefited from stable activity levels in the last few years. Next year's development program will feature targeted adjustments to well spacing along with accelerated production delivery through time to market improvements. Overall, we expect single production growth in the mid single digits from these assets.

Speaker 1

Considering the recent commodity price volatility, we are evaluating multiple 2025 activity scenarios across the rest of our U. S. Onshore portfolio. As a result of our higher proportion of short cycle U. S.

Speaker 1

Onshore activity, we retain considerable capital flexibility within these assets. We look forward to sharing our BTA plan at our next quarterly earnings call. As quickly emphasized in our update on our debt reduction progress, we remain dedicated to our core financial priorities. We believe the early success of our deleveraging program leaves us in a great position heading into 2025. We have no remaining 2024 debt maturities and our current unrestricted cash balance is sufficient to cover the remaining $1,500,000 of 2025 debt maturities, the majority of which are not due under the second half of the year.

Speaker 1

We are comfortable with our debt maturity profile and capital investments we pursue in 2025 will be strategically guided by a commitment to further deleveraging and strengthening our financial position. I'll now turn the call back over to Vipin.

Speaker 3

Thank you, Sunil. Before moving to the Q and A, I'd like to close by recognizing the exceptional performance of our team, delivering value through operational excellence, world class execution and through driving down cost in a safe and reliable manner. We continue to demonstrate industry leading performance across our U. S. Onshore assets, setting new records for our operations and well performance.

Speaker 3

Now with the integration of the Crown Rock assets, bolstering our Permian footprint, our combined teams are enthusiastically unlocking operational efficiencies to enhance our margins. Our diversified portfolio across oil and gas, midstream and chemicals continues to deliver strong returns. And I'm proud of the achievements made across our low carbon business. I see a demonstrated leadership and proven capability of carbon management through our EOR operations and we are making great progress delivering our Stratos project pioneering ZAC at scale. With that, we'll now open the call for questions.

Speaker 3

And as George mentioned, Richard Jackson and Ken Dilts are with us today for the Q and A session.

Operator

We will now begin the question and answer session. The first question comes from Doug Leggate with Wolfe Research. Please go ahead.

Speaker 4

Thank you. Vicki, I hope you can hear me okay. The line is a little choppy today, but hopefully I'll you can understand my question. The operational performance is quite extraordinary and I think you never really laid out synergies with Crown Rock. Obviously, they seem to be showing up.

Speaker 4

But I guess my question is, there seems to be a nervousness certainly in the market around the commodity outlook and you guys, I guess, have some big decisions as Sunil laid out, whether you accept the growth or whether you slow down the program, which obviously has got capital implications. So I'm wondering, first of all, if you could I know you don't want to give us numbers today, but just give us your thoughts on the macro in a world that clearly does not need any more oil. That's my first question. My follow-up, if I may, is on disposals. You obviously have a lot of options and you also have laid out this one point $35,000,000,000 of chemicals and low carbon spend next year.

Speaker 4

So I guess my question is we're trying to understand what the deleveraging capacity of the portfolio is. You own Net Power 48%. You obviously own WES and you've got the roll off, I assume, of that capital after 2025. So just give us your thoughts on what the pace of deleveraging could look like and what the options are to achieve that as we go into perhaps a softer commodity backdrop?

Speaker 3

Thank you, Doug. I'll begin with the macro. We meaning our leadership team, we review the macro on a weekly basis. We look at all the fundamentals like the activity levels, supply demand numbers, inventory, external factors, anything that could impact prices and impact our operations we look at. And so we too see the downside of risk to prices in 2025.

Speaker 3

And it's hard to predict prices. So I would say that over the past few years, very few people have accurately predicted prices in this incredibly volatile situation that we have today where there's more volatility in oil prices than I think I've ever seen. But we do believe that 26% will be better than 25%. And it's because much of the surplus in the market today has come from growth in the U. S, Guyana, Brazil and Canada.

Speaker 3

But there's declining growth rates we believe in the U. S. And Brazil. And if you take that along with a couple of other non OPEC countries that are helping to mitigate the current excess with declining production, And that leaves just the wildcards right now are gone in Russia. But that being said, we believe it's very prudent for us to be prepared for that situation to be very much leaning forward and not caught on it flat footed or on our heels like what's happened to us in past decades.

Speaker 3

So what we've done is our current thought is to recommend to our Board the plan that Sunil described, which we feel is conservative. What that is doing is keeping activity levels in the Crown Rock area as they are today. And then lowering slightly the capital in some of the other oil and gas areas. So we wouldn't be growing the rest of the oil and gas portfolio. Ground Rock will grow as a result of just maintaining those that rig activity and trying to maintain those efficiencies, because it's always easier to ramp down than it is to ramp up.

Speaker 3

But I can assure you that our teams have prepared plans and next steps for multiple price scenarios along with the plan of when to pull the trigger, how to pull the trigger, how to execute a decrease in activity to be needed. I will say that should prices go up, which we don't exactly expect, we would not increase our capital beyond what we're talking about right now. We would only trigger some reaction if prices look like they're going down and that trend is strongly downward. So with that, they have the opportunities. We have the opportunities to make changes.

Speaker 3

And as you saw what we did during the pandemic, we reacted quickly and strongly to that situation. So we have the same capabilities through that now. But I would say there's no better time to allocate capital to our capital business than now as we're doing at Battle Ground. That project is in 2026 and will provide $325,000,000 of additional cash flow. And it's kind of like this that we feel like with this high volatility in oil prices our OxyChem and our gas projects in the Middle East along with our production sharing contracts.

Speaker 3

Those I guess they're not as appreciated in other challenges they are now looking through having that steady cash flow through the cycles. So that's where we are with the macro. That's where we are with what we're thinking about capital spend. And again, we have the capability to ramp down and methodical approach to 1st working what our cost structure would be. So we've got details on Deverance.

Speaker 3

With respect to the synergies in Crown Rock, those synergies have been pretty strong that we're starting to see now. So we will I'll let Richard take a stab at that. But before he does, I just want to get to your deleveraging question. As you mentioned, we have lots of opportunities. We have one of the largest portfolios in the Permian as any company.

Speaker 3

We also have the other things that you mentioned. We have some things that we are marketing now. And as we go into the future, we have lots of levers to pull. And we'll we always have everything on the table. We look at everything.

Speaker 3

And depending on what the macro is, I can assure you that we have a plan for any kind of scenario and the opportunity to execute on the therapeutic initiatives.

Speaker 5

Hey, Doug, this is Richard. Yes, I'd be glad to talk through some of the most recent updates on our Crabrock integration. I know that we've gotten several questions on that. So I appreciate you bringing that up. Obviously, going really well from the start of close and really that's a means a lot from the team that's been operating it over the last year.

Speaker 5

So they really brought in some strong operational performance that led to the beat in the Q3 and the Q4. So very appreciative of that. But really been able to, as Vicki said, the teams dive into some of the potential synergies. And a few just to highlight, As you know, we always start with our subsurface and we as we look into next year, we think we have a very strong program for those 5 rigs focused on some of the horizons that we well understand, but we are moving to some de spacing. And so I think we'll be able to talk about that more as we get to the next call, but looking to de space and improve our recovery per dollar spent.

Speaker 5

Supply chain is another area we've been very focused because they've helped bring a lot to the table, but looking with this more balanced operational portfolio between the Delaware and the Midland Basin, we're seeing some opportunities. And so one of the examples that they've highlighted is really our frac core utilization as we're able to take advantage of what we call white space, the time between sort of being complete with the well ready for frac until mobilizing that unit to frac the well. They're targeting quite a bit of improvement next year, north of 20% improvement in that white space. So what that does is you're carrying a normal sort of DUC level due to operations that may go from something like 22 DUCs at any one time down to 15 and that adds barrels on the year for really no cost. So I'm pleased with that.

Speaker 5

The water example that Vicky talked about, that's a South Curtis Ranch development that we're able to use the nearby Nail Ranch facility that Crown Rock had for water. And so that's $10,000,000 that they're able to deliver there. And then the final thing I would say is we're just now really getting into these what we call best of the best workshops. So it's not just what Oxy brings, it's certainly valuing what Crabrock or the Oxyrock team brings now to our overall operations. So the Midland Basin team as they look at next year, they're out looking better than 10% cost improvement across the Midland Basin operations due to these kind of best of the best synergies between the teams.

Speaker 5

So we think that's pretty meaningful and outpacing certainly what we'd be able to do alone.

Operator

The next question comes from Roger Read with Wells Fargo. Please go ahead.

Speaker 6

Yes. Thank you. Good morning. One thing we noticed in the results last night, it was a discussion on the sell side call was the oil mix in the Permian here. And I know there's been a lot of moving parts, right?

Speaker 6

Crown Rock comes in, some things go out. But as you think about the go forward drilling program, what is the right way for us to think about that? Q3 a bit of a kind of a blip to the downside and then back up where you were? Or are we seeing a, I don't know if the right term is structural change, but maybe a change in the resource base that you have there?

Speaker 3

Hey, Roger, you cut out over the last couple of sentences. Sorry about that. Would you mind repeating it?

Speaker 6

Yes. Sorry about that. I just said last night with the results and then on the sell side call, there were discussions and questions about the percentage of oil produced out of the Permian. And I was just trying to understand, we had a lot of moving parts this quarter with the addition of Crown Rock and then some assets sold as well. And as you look at the go forward, how should we think about that oil mix?

Speaker 6

It was kind of 58%, 59% this quarter, 55%. Just it's not a huge difference, but we're all watching those small changes and trying to figure out what they mean.

Speaker 5

Yes. Hey, Roger, I'll try to help that a little bit. I think to start the question, I think moving forward, we're going to try to do what we can to help guide to that and help you understand what that means. A couple of things I would point to, one is increased secondary benches, especially in the Delaware. We moved year on year 2023 to 24, I think we went from about 20% secondary benches to 40%.

Speaker 5

But like Vicki mentioned in our script and we highlighted in the slides, that's adding a lot of value for us. Even though there are a little more NGLs associated with that, the value being able to take those 2 existing facilities is quite accretive on a return basis. And so we're doing more of that blend between our primary and secondary benches taking advantage of that existing infrastructure. So from a go forward, 1, we'll try to help, but 2, I think what you're seeing in the second half is sort of leveling off and you can see it in the Q3 and Q4 implied percentage on that. So hopefully that helps and we'll do what we can to show that.

Speaker 5

Probably the one other point I wanted to mention on that, we did from a pure volume basis on oil, just want to reiterate the strong performance of the team that was a beat on oil. So that's a plus 5 from the Permian on overall oil volume. So understand the percentages, but also want to give kudos to the team in terms of the delivery on that.

Speaker 6

Yes. And I didn't mean to imply a bad total production. It was more just trying to understand the moving components in there. The other question I have and I think this kind of has been addressed, but in terms of the goals on debt reduction now and let's leave aside what the oil price is going to be because obviously that will change what CapEx and all that is. But if we just sort of took the forward curve and we think where you're going to be in 12 to 18 months, how do you see the balance sheet?

Speaker 6

Like what would be defined as success from your standpoint?

Speaker 3

We think we've already had significant success with the $4,000,000,000 but we do believe that even in a lower price environment, we're going to have some cash flow. We're still going to have some divestitures. We'll still make progress in 2025 regardless of where prices will be. And that's our target. Our target is to continue our debt reduction through the year regardless of what it takes to do that.

Speaker 6

Okay. And apologies for my bad connection, but thank you.

Speaker 3

Thank you, Roger.

Operator

The next question comes from Neil Mehta with Goldman Sachs. Please go ahead.

Speaker 7

Yes. Thanks, Vicki and team. Vicki, I had a macro question for you. I just I think you've talked a lot about how over the next couple of years you expect shale to get more mature and well, maybe not decline, but resource kind of tapers out and we're going to need to then pull on exploration. But one of the things that's emerged from this earning season is very consistent beats on productivity and oil volumes, not just from you guys, but from the industry broadly.

Speaker 7

And I just love your perspective. Has that evolved the way that you're thinking about the macro, the continued resiliency of supply in the face of a declining U. S. Rig count, your macro perspective would be great.

Speaker 3

I do believe that we're going to continue to increase efficiencies in the Permian Basin. And I think the Permian is the basin that will continue to deliver where we'll see volumes declining and ultimately achieving a plateau for the Permian within the for the U. S. Within the next 3 to 5 years will be because of declines from the other base. These secondary benches that we have, 2nd and third and fourth benches that we can develop in the Permian and in the Delaware and the Midland Basin, those will continue to contribute to growth for the Permian.

Speaker 3

So it's the growth from the Permian that's going to offset the decline from the other basins in the near term and ultimately help us to achieve I think a larger higher peak than where we are today, that's when we'll start to plateau in the Permian. So that would be, in our view, 3 to 5 years out, because as you said, we're still continuing to get more out of those reservoirs. And there's a lot of productivity still remaining, a lot of wells still to be completed. And as always, we're seeing that increase. I think that it's going to continue.

Speaker 3

I expect though in the near term with weaker prices that what we used to think as a peak in say in 3 years moves further out because with weaker prices I think there's going to be less growth in 2026 than what we saw or in 2025 than what we've seen in 2026. So it's going to push that peak a little further out, but still productivity in the Permian as you have mentioned and indicated, it's certainly going to continue to increase. It's the basements that we'll keep on giving for sure.

Speaker 7

Thanks, Vicki. That's great color. And then just going back to the DAC, and as you think about bringing on Unit 1 by the middle of next year, what are the sort of the gating items, the critical path items to get it into service? And what are you really focused on around the startup from an engineering standpoint? And then in light of the election, has anything changed about the way you think about the economics of this business?

Speaker 7

Or is your view on this independent of the subsidy environment?

Speaker 3

I'm going to take that first one first and then Ken is going to go through the milestones and what he's looking at seeing with respect to construction. But I will say that in weaker prices and in the scenario we see today, I think that DAC is going to be one of those businesses for us that kind of fits in the same categories, our chemicals business and higher gas business in the Middle East. I think DAC is going to be a value creator and a cash flow generator for us for a long time. We have work to do in the near term. But in the long term, what we what's happening with respect to support for DAC is pretty amazing and taking advantage of that.

Speaker 3

But because of what we're able to do here, apply innovation even as we're building the first stack, it's very encouraging from a commercial standpoint. So we're already working down on the cost curve. We're already looking at opportunities for improvements in DAC 2. So we do believe that the commerciality is still there for these units and the market is getting stronger all the time. So we're still excited and encouraged about where we are with respect to commerciality.

Speaker 8

Good afternoon. The DAG project is doing very well. First phase is nearly 90% completion now, and this includes the first two capture drains, which should be mechanically complete by the end of the year as well as the central processing area. So all the major equipments there, loop checks have been done ongoing at the moment. Central processing size for 500,000 tons, which will support the additional 2 capture trains for the Ecom online between mid-twenty 25 to mid-twenty 26.

Speaker 8

So overall, if you take both together, the project is about 70% complete towards the full capacity. Since the CE purchase, our engineers have been working closer than ever. There are many cost out ideas that we continue to work, but Richard asked if we could see what the project team could recently incorporate into Stratos. From the slide, you've seen physical changes that Vicki mentioned earlier resulting in pure pellet reactors and also smaller area contractors with a 30% reduction. What you can see, which goes to your point is all the savings in the piping, the number of valves, the instruments that have all been eliminated.

Speaker 8

This also makes it much simpler to build. And there's also a massive improvement in the air contactor construction method going forward by using modules, which will have the build time for the air contactors. Future banks will plan to see 10% to 15% savings these modifications and can see additional improvements to take it past 20%, also with reduced OpEx maintenance, improved safety. The team at Worley has been key to being able to adapt on the fly in engineering and procurement. In fact, Hassane, the Worley CEO was at the site to meet with his team recently to show support for the project.

Speaker 8

So overall, the teams are working incredibly well together as the project is on schedule.

Speaker 3

And then I'll just follow-up with your question about the election results and the impact that will have. I think the election of up to become our next President is going to be very positive for our industry, especially for this our director of capture. The reality is that I believe he understands better than anybody our need for energy independence here in the United States. He understands the industry. He understands how it plays in geopolitical politics.

Speaker 3

He knows what we're trying to accomplish and what we're doing. And he also understands the part that our Director of CAPTCHA will play in helping with that energy independence and security. So I believe that the funding from the Infrastructure Investment and Jobs Act that the DOE has already awarded will be dispersed as per the agreement such as for our DAC II because the deals on the Keaton Ranch. We do expect to get the $500,000,000 with the potential for $650,000,000 We also believe that 45Q will continue to have bipartisan support because of the deal benefit of, first of all, helping companies to do carbon on carbon reduction credits from us, but also the recovery of additional reserves from our domestic reservoir. President Trump clearly supports that as well.

Speaker 3

And he again understands that that's something that's necessary. Getting oil on reservoirs you already have is the best possible way to provide affordable gas gasoline to our country. And it's impossible to be a superpower without ample supply of liquid fuels. The use of CO2 for natural recoveries, as I mentioned, is a big part of what makes that so important for the country. And some people don't understand that process.

Speaker 3

And we'll take the time to go into how it works. But just helping people to understand, again, pressure from Troutman is that the CO2 takes more CO2 injected into resin and then the incremental oil that it generates will get when used. But we just don't have enough CO2 to use in the reservoirs here. We don't have enough organic CO2. So that is necessary to achieve the incremental CO2 that we need.

Speaker 3

And then going from DAC to net power and Doug had mentioned the 20% ownership of net power to make our DAC emission free initially and probably throughout use some amount of solar, but we'll also need to build a net power, which is an emission free way to generate electricity by combusting the type of carbon gases with oxygen and stuff there. That creates water and CO2. CO2 drives the turbine to create the electricity. It also captures CO2 as a part of the process. That is incremental CO2 and that power can also be used to restore recovery or to make products.

Speaker 3

So, we're developing what I believe are 2 of the technologies that the world really needs to address not only the companies that want to decarbonize to help them, but to get incremental oil and extend our country's energy. So that's where we stand in this. We're pretty confident about where we are and how that's going to play out with this election.

Operator

The next question comes from Paul Cheng with Scotiabank. Please go ahead.

Speaker 9

Hi, good morning. I think the first one is for Cindy. Cindy, you probably already addressed it, but trying to make sure I understand, this year, based on the Q4 CapEx, so your full year CapEx is about, say, 7 100,000,000 or that about $200,000,000 higher than your previous midpoint guidance. And is that all in the kuangwap because you are doing or that all in permit because you are doing better? If I'm looking at next year, yes, Quang Rok CapEx is still looking for $900,000,000 So I think PMIC is assuming that this is a $500,000,000 incremental.

Speaker 9

So now that I mean, how much is the incremental CapEx from Pronghrop for next year? This is the first question. And second question, if we look at the I just want to go back into the gas oil ratio. If we look at the Q3 versus the Q2, it dropped by about 2% in permit. Is that something one off has triggered yet or is all driven by Quang Rok?

Speaker 9

And it does look like Q4 that the gas oil ratio is relatively close to the Q3. So I suppose that maybe that this is all driven by but just want to clarify and make sure that we understand correctly. Thank you.

Speaker 1

Okay. So Paul, if I understand correctly your question, your first question was what was the driver for the increase in the full year guidance for 2024? Is that correct? Or is it That's correct.

Speaker 9

And also correspondingly that from 24 to 25, what is the incremental CapEx that we should assume?

Speaker 1

Okay. So with respect to your first question, yes, all the incremental CapEx for the full year of 2024 is related to ground ground. So what we had disclosed in the last earnings call was this will be around $400,000,000 and that is for the 5 months that we are operating from. So with respect to what the capital would be for next year, like I mentioned in my prepared remarks, we are planning a 5 day program for next year and we are still working the details around what the capital would be, but we expect it somewhere the $900,000,000 to $950,000,000

Speaker 3

range.

Speaker 1

And so with respect to your second question, that was on the GEOF of Permian, right?

Speaker 9

Is there anything is one off in the Q3 that related to that because it's a job of 2% that is pretty substantial job comparing to the 2nd quarter oil cuts in the Permian?

Speaker 5

Yes, I can start and Sunil can help on any other macro. Yes, it really is, I mean, 1, Permian growing unconventional. So we had growth in the Rockies and Permian. And so that significant jump in production with a lower oil cut mix was one piece of it. 2, a bigger part of that is our secondary benches that I mentioned earlier.

Speaker 5

In our 1st year, oil cut is significantly less for our secondary benches, but the value is better. And so we want to continue to reinforce that. So I think to your point, the growth in Crown Rock is a part of that growth in unconventional. That is really driving that oil percent, but we see that percentage in the back half of this year sort of extending into next year. And as we develop different areas that may drive that change over a period of time, we're going to help and we'll try to help guide to that so that you can understand and follow that.

Speaker 5

Hopefully, that helps.

Operator

The next question comes from Scott Gruber with Citi. Please go ahead.

Speaker 7

Yes, good afternoon. A couple of questions here. Just back on the Permian, you mentioned raising the percentage of secondary zone development in the Delaware from 20% to 40%, if I heard correctly. Where does that figure go in 2025? And then as you look at the Midland side of the basin with the Crown Rock assets, could you step up the percentage?

Speaker 7

Where is that percentage currently? And can you step it up in 2025 as well?

Speaker 5

Yes. Thank you. So, I think a similar percentage on the overall Permian in terms of primary and secondary benches. I think we did sort of a level set utilizing these existing infrastructure facilities for that. So I don't expect that to largely change at least with activity levels as we're currently operating.

Speaker 5

Obviously, we adjust down or up depending on what our final program is that could change a bit, but I think that will be very similar. From a Crown Rock perspective, our base plan for those 5 rigs next year is really what we call 85% primary benches. So while we see some opportunities in secondary benches, the program that's been put together is very derisked and we did that really to be able to perform operationally. So we've tried to get out in front of sort of those operational plans. So the Spraberry, kind of Dean, Wolfcamp A and B, those are the primary zones that we're looking at next year.

Speaker 5

If we see opportunity to improve on that, we obviously would change, but that's the going in plan for next year.

Operator

The next question comes from Arun Jayaram with JPMorgan Securities. Please go ahead.

Speaker 10

Yes, good morning. I wanted to see if you could discuss your thoughts on what you view as more normalized CapEx in chems. You mentioned that you'll spend about $900,000,000 next year given some projects. And what you think about more normalized CapEx? And what does the growth CapEx you're spending next year, what does that do to the earnings power of that segment?

Speaker 3

So in OxyChem, pretty special projects, we were running about $300,000,000 And so that's what we expect to be able to get back down to those battleground and the couple of pipeline projects we just had.

Speaker 1

And with respect to the earnings power, like as Vicki mentioned in the prepared remarks and later, we expect around $325,000,000 uplift once we complete the project. And the project is expected to be completed in mid-twenty 26. And that is finally driven by the expansion in capacity of around 80%. And this assumes around mid cycle of 40%.

Speaker 10

All right. That's helpful. And just one question on the Rockies. It looks like from your disclosure that you have sold some properties in the Rockies, looks like the Powder River Basin. Just give us a sense of future thoughts on the Powder and what exactly you've divested there?

Speaker 3

So in the Powder River,

Speaker 1

we bought

Speaker 3

the whole thing obviously as a part of the Anadarko acquisition. But we saw early on that there was a southern part of the Powder River Basin most by far the most contiguous and the cars that we felt like we could get the most value out of. So that's why we sold and we want to always be focused and always have contiguous acreage where possible and always looking at subsurface where we think we can optimize and create value. So we sold the park that's north of that local part of the southern part of the basin. We sold that to Hancho because it's in a better area for them to be able to develop.

Speaker 3

And so for I think we did a win win situation there and now have the focus on the area that we think is going to bring a lot of value for us in

Speaker 8

the future.

Operator

In the interest of time, this concludes our question and answer session. I would like to turn the conference back over to Vicki Hollub for any closing remarks.

Speaker 3

I want to thank you all for your questions and for joining our call today. Have a great rest of your day. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Powered by Quartr
Earnings Conference Call
Occidental Petroleum Q3 2024
00:00 / 00:00