Vicki A. Hollub
President and Chief Executive Officer at Occidental Petroleum
Thank you, Jeff, and good afternoon, everyone. The fourth quarter of 2021 was a fitting year -- a fitting way to end the year where Oxy's operational and financial performance advanced from strong to stronger. Our focus on consistently delivering outstanding operational results, combined with our steadfast dedication and patience in improving our balance sheet, has positioned us to begin increasing the amount of capital returned to shareholders. Our new shareholder return framework, which we will detail today, includes a dividend that is sustainable in a low price environment. We are pleased to implement this new framework, beginning with an increase in the quarterly common dividend to $0.13 per share. The position of strength that we are in today stems from our team's hard work and accomplishments last year. Throughout 2021, we strived tirelessly to improve our already exceptional operational performance. We capitalized on efficiency improvements by embedding innovative techniques across our operations. Our focus on learning, implementing change, where needed, and maximizing opportunities for improvement enabled us to accelerate time to market for our products while generating notable capital saving.
We will continue to maximize operational efficiencies in 2022 by executing on the capital plan that invest in our highest-return assets to generate long-term sustainable free cash flow. This afternoon, I will begin by covering our fourth quarter and full year 2021 highlights and achievements, before detailing our 2022 capital budget. Rob and I will then discuss our shareholder return framework, and Rob will provide guidance for the first quarter and year ahead. Before turning to Q&A at the end, I will provide a preview of the Low Carbon Ventures investor update that we have planned for next month. Now to talk about delivering cash flow priorities. Those who have followed us at Oxy's journey over the past several quarters know that our cash flow priorities have centered around derisking our balance sheet and reducing debt. We diligently delivered on these cash flow priorities throughout 2021, including the repayment of approximately $6.7 billion of debt. We now expect that our net debt will be below $25 billion by the end of the first quarter of 2022, which will mark a change in how excess cash flow will be allocated going forward. Before I detail our updated cash flow priorities and shareholder return framework, I would like to first touch on a few of the many operational and financial successes that enabled us to reach this significant turning point. 2021 was a year of continuous operational improvements, which drove record free cash flow generation, rapid debt reduction and a return to profitability.
One of Oxy's core strengths is our ability to develop assets in a way that efficiently maximizes production and recovery while generating significant cash flow, and that is just what we did in 2021. Multiple drilling and completion records were set across our domestic and international businesses as our production for the year averaged 1.167 million BOE per day. That's 27,000 BOE per day higher than our initial guidance. 2021 was also a more conventional year in terms of commodity prices, operations and planning, all of which was helpful in providing a reserve update that reflects a more normalized price environment. Our reserves for year-end 2021 increased to 3.5 billion BOE, representing a reserve replacement ratio of 241%. Our reserves position means that we have a vast supply of low-breakeven projects and inventory available. We have included updated inventory information for our U.S. onshore operations in the appendix to this presentation. Over the last year, we significantly advanced our commitments toward a low-carbon future. We are proud to be one of only a few oil and gas companies with net-zero goals that are aligned with the Paris Agreement's 1.5 degree Celsius pathway. In December, Oxy became the first U.S. upstream oil and gas company to enter into a sustainability-linked revolving credit facility, which includes absolute reductions in our combined Scopes one and two CO2 equivalent emissions as the key performance indicator.
We set additional interim emission targets to further refine our net-zero pathway, including a short-term target to reduce our CO2 equivalent emissions to approximately 3.7 million metric tons per year below our 2021 level and to accomplish that by 2024. We set a medium-term target to facilitate the geologic storage or use of 25 million metric tons per year of CO2 in Oxy's value chain by 2032. We also endorsed the Methane Guiding Principles and Oil and Gas Methane Partnership 2.0, a climate and clean air coalition initiative led by the United Nations Environment program. This is consistent with our commitment to enhance methane emissions reporting and reducing those emissions. Our journey towards net zero is underway, and we look forward to discussing in greater detail at our Low Carbon Ventures Investor Day next month. Now the fourth quarter highlights. The strong operational and financial performance that we delivered throughout last year continued in the fourth quarter. We set a fourth consecutive record for quarterly free cash flow generation before working capital, which contributed to generating our highest-ever annual level of free cash flow in 2021. We continue to apply free cash flow towards reducing debt and strengthening our balance sheet, repaying an additional $2.2 billion of debt in the fourth quarter.
Operationally, all three business segments excelled in driving our robust financial performance. OxyChem delivered record earnings for the second consecutive quarter as performance throughout the year culminated in 2021 being OxyChem's strongest in over 30 years. The fourth quarter, which is typically lower due to seasonality, even exceeded the record third quarter. And in our oil and gas segment, our Permian, Rockies and Oman teams set new operational records and efficiency benchmarks in the fourth quarter, further improving on their third quarter record. Our midstream business outperformed by maximizing gas margins during the fourth quarter. While short-term opportunities in the commodity markets are difficult to predict, our midstream team exceed at finding and taking full advantage of such opportunities when they arise. Now I'm pleased to say that our fourth quarter results continued to demonstrate the commitment of all of our employees, no matter their position or location, to find ways to further create value by lowering costs, improving efficiencies and maximizing recoveries.
They truly are driving our strong financial results and providing a solid foundation for free cash flow generation. Now on to 2021 oil and gas operational excellence. On each of our last several calls, I've enjoyed highlighting the many operational achievements our teams continuously deliver. The magnitude of these achievements is striking when viewed on a combined basis over the last year. We established record drilling cycle times in the Gulf of Mexico, the Permian, Rockies and in Oman, and set new efficiency benchmarks across our portfolio in 2021. We intend to maintain our focus on continuous improvement in the year ahead as we work to maximize the value our portfolio can generate for shareholders. Now our 2022 capital plan. Our 2022 capital plan invests in cash flow longevity while building on the capital intensity leadership we demonstrated in 2021. We have sized our capital plan to sustain production in 2022 at 1.155 million BOE per day while investing in high-return projects that will provide cash flow stability throughout the cycle. We have also incorporated an expectation for inflation and a capital range to reflect the potential for fluctuations in our third-party-operated assets and our low-carbon opportunities during the year. Our sustaining capital, which we define as the capital required to sustain production in the $40 WTI environment over a multiyear period, remains industry-leading.
Our multiyear sustaining capital is expected to increase from our 2021 capital budget of $2.9 billion, the reduced inventory of drilling uncompleted wells and additional investment in our Gulf of Mexico and EOR assets, to optimize the long-term productivity of our reservoirs and facilities. If the macro environment requires spending below our multiyear sustaining capital, we have the ability to reduce it further and hold production flat for shorter periods of time, as we've demonstrated. We're also investing in attractive mid-cycle projects that will provide cash flow stability through the cycle in future years. For example, these projects include the Al Hosn expansion, which began last year. And OxyChem is in the process of completing a FEED study to modernize certain Gulf Coast chlor-alkali assets from diaphram to membrane technology. Our capital plan also includes investments to advance our net zero pathway, including reducing emissions, improving energy efficiency and developing our carbon sequestration initiative. We're allocating capital in the budget to 1PointFive to begin construction on the first direct air capture facility. We continue to make progress on both the engineering and commercial needs for direct air capture development. We're improving both of these aspects and believe Oxy's capital helps retain value for our shareholders.
As the construction phase and technology of this new project advance, we will continue to consider strategic capital partnerships and structures to address financing. We'll provide more comprehensive update on 1PointFive and direct air capture at our March 23 LCV investor update. We benefited greatly from commodity price rebound last year and appreciate how swiftly the price environment can change. The optionality that our scale and asset base provide enables us to retain a high degree of flexibility in our capital and spending plans. The majority of our capital program is comprised of short-cycle investments, meaning that we have the ability to quickly adapt to changes in the macro environment. Within six months or less, if necessary, we can reduce capital spending to sustaining levels. And if oil prices remain supportive this year, our intent is to follow our cash flow priorities and capital framework that we will share with you today. We have no need and no intent to invest in production growth this year. Having a flexible capital budget that includes investment and cash flow longevity provides us and puts us in a strong position to implement shareholder return framework that will benefit shareholders over the long term.
With respect to cash flow priorities, our priorities for 2022 remain largely unchanged, with a continuing emphasis on reducing debt while maintaining our asset base integrity and sustainability. The objective of strengthening our financial position remains the same: Enable us to confidently increase the amount of capital that we may sustainably return to shareholders throughout the cycle. As we expect net debt to fall below $25 billion by the end of the first quarter, our focus has expanded to returning capital to shareholders, beginning with the increase in our common dividend to $0.13 per share and the reactivation and expansion of our share repurchase program. The increase in the dividend to $0.13 per share is consistent with our intention to initially increase the dividend to a level that approximates the yield of the S&P 500. We believe establishing framework for returning capital to shareholders through a sustainable common dividend, combined with an active share repurchase program and continued debt reduction, creates an attractive value proposition for shareholders while also improving the company's long-term financial position.
For the first phase of our shareholder return framework initiated, we have the options in future years to invest in cash flow growth. We have the ability to grow oil and gas cash flow through higher production, but also have multiple investment opportunities across our other businesses. As evidenced by our guidance for 2022, we do not intend to grow production in 2022. At the point where it is appropriate to invest in future cash flow growth, we will only do so if supported by long-term demand. Any future production growth will be limited to an average annual rate of approximately 5%. I'll now turn the call over to Rob, who will walk you through our shareholder return framework.