$OXY Occidental Petroleum Q1 2024 Earnings Conference Call

Thank you, Jordan, and good afternoon everyone. I'm pleased to report on a strong start to 2024, driven by our persistent focus on operational execution. As we will detail on today's call, our oil and gas business delivered robust production results, essentially offsetting an extended third-party outage, while our Midstream and OxyChem businesses outperformed our first quarter guidance. Today I'll start by discussing our first quarter performance, including highlighting our Delaware appraisal success and its contribution to the Permian's development runway. Then I'll discuss what's on the horizon for Oxy and how these initiatives are expected to generate significant value for our shareholders. Operational excellence is fundamental to everything we do at Oxy, and our capabilities were evident during the first quarter as our teams generated over $2.4 billion in operating cash flow before working capital. Though the third-party outage in the Eastern Gulf of Mexico made it a challenging start to the year, our teams delivered excellent performance in all areas of our portfolio. We concluded the first quarter by approximating the midpoint of our production guidance, and we restarted production from our Gulf of Mexico platforms affected by the outage in mid-April. Taking a closer look at our production results, the first quarter benefited from strong new well performance in the Permian Basin and the Rockies, overcoming the impact of winter weather early in the year. In the Permian, we exceeded the midpoint of our production guidance due in part to better than expected secondary bench performance in the Delaware Basin. Our Delaware teams are achieving impressive performance results by applying the same proprietary subsurface workflows that have generated remarkable success in our primary benches and applying that to secondary benches. Through utilization of fit-for-purpose well design and reservoir characterization expertise, performance in our secondary benches is nearly matching Oxy's record-setting 2023 program average. Not only that, first year cumulative production from Oxy's 2023 secondary wells exceeds the Delaware industry average for all horizontal wells for the same period by more than 30%. We are driving financial returns for our shareholders by improving our ability to high-grade our near-term inventory and by extending our runway of tier one locations. Meanwhile, use of our existing infrastructure yields meaningful capital efficiencies. We expect these efficiency benefits to become more impactful as secondary benches become a more substantial part of our development program. Our Rocky asset outperformed the high end of our first quarter production guidance, partly driven by strong well performance in the DJ Basin, better production uptime, higher than expected outside operated volumes. Internationally, we achieved record gross daily production in Oman North, driven by new well performance and production uptime. Our teams continue to improve capital efficiency through a combination of innovative well design, exceptional execution, proactive supply chain and management practices. In the DJ and Powder River basins, our teams optimized casing and cementing plans, completion stage design, and profit utilization. These fit-for-purpose well design enhancements resulted in tangible first quarter well cost reductions of between $700,000 and $1 million per well compared to the first half of last year. We're also starting to see cost reduction progress in the Delaware Basin. Our continuous drive for improvement not only leads to innovations that increase operational efficiencies, but in many instances we're also able to reduce emissions and advance progress toward our net zero goals. I'm proud of our team's involvement in another oil and gas industry first: the deployment of a fully electric well service rig. Oxy and Axis Energy Services deployed the first of its kind rig into our Permian Basin operations. Expanding electrification is integral to Oxy's strategy because it increases operational efficiency, generates cost savings, improves safety, and helps reduce our emissions. Our Midstream business significantly outperformed the high end of our guidance for the first quarter. Outperformance was partly driven by gas marketing optimization across our portfolio, where our teams captured value in regional pricing disparities. Former than expected weather combined with various third-party Midstream infrastructure maintenance resulted in disjointed prices in some regions. Midstream's first quarter performance demonstrates how our teams realized value from these pricing abnormalities by leveraging Oxy's rich market intelligence along with our product storage and transportation portfolio. Looking back over multiple quarters, our marketing teams have frequently demonstrated the ability to outperform, with our transportation optimization capabilities playing a major role. Over the longer term, we anticipate similar marketing opportunities, but we generally exclude those opportunities from our guidance because of the difficulty in predicting event occurrence. Not only does our Midstream business provide us with flow assurance for our marketed products, it also offers great diversification during periods of commodity price volatility, as we saw in early 2024. Along with being one of the top performers for the products it manufactures, OxyChem is a consistent cash flow diversifier within our business, due in part to its renowned focus on operational efficiency. During the first quarter, OxyChem benefited from improved demand for our marketed products including PVC and vinyl chloride, as well as lower ethylene cost. This performance demonstrates how our diversified asset portfolio is well positioned to deliver financial results for our shareholders throughout the commodity cycle. In prior calls, we have reiterated our drive to increase value for our investors on an absolute and per share basis through cash flow and earnings growth. Today I'd like to provide an update on the specific projects that we mentioned in our last quarterly call. Some aspects of the OxyChem plant enhancement projects are complete, but there is more to be done, including the Battleground project where the team held a groundbreaking ceremony on April 4th to kick off the site work. Employees, contractors, community partners, city leaders, and elected officials attended in support of the project. The completion of the OxyChem projects and reductions in crude oil and transportation rates from the Permian into the Gulf Coast are expected to deliver incremental cash flow of approximately $725 million per year. In our Midstream business, we expect that our ownership stake in Western Midstream, or WES, will also enhance our financial results. In February, WES announced an increase of over 50% to their distribution. Based on the current distribution, we anticipate that WES will contribute over $240 million of additional cash flow per year to Oxy. Additionally, we intend to increase free cash flow by repaying debt as it matures. Repayment of existing debt maturities through 2026 will result in approximately $180 million of annualized incremental cash flow from interest savings that can then be applied to further strengthen our balance sheet. Overall, we expect more than $1 billion of cash flow improvements that are independent of commodity cycles. That figure does not include our oil and gas business, which is also poised for continued financial success. As most of you know, at the end of last year we entered into an agreement to strategically enhance our Midland Basin portfolio with the acquisition of CrownRock. The free cash flow accretion and portfolio high-grading to be enabled by the CrownRock acquisition are expected to provide the potential for equity appreciation and acceleration of our shareholder return priorities. In our low-carbon ventures businesses, we expect to generate cash flow detached from oil and gas price volatility and further strengthen Oxy's cash flow resiliency. Construction of our first direct air capture plant, Stratos, is advancing on schedule, and during the first quarter we were pleased to announce a multitude of carbon dioxide removal credit agreements with customers across a variety of sectors. Throughout Oxy's portfolio, we are focused on expanding resilient cash flow and enhancing shareholder value for decades to come. I will now hand the call over to Sunil, who will cover our financial results and guidance.

Thank you, Sunil. Before we move to Q&A, I want to tell you about a milestone our team celebrated last quarter. Oxy began trading on the New York Stock Exchange on March 3rd, 1964. On that day, our operations consisted of 252 oil and gas wells in six states. Today we are an international energy, chemicals, and carbon management company with the best portfolio in our history. But I believe that Oxy's employees are the true differentiator. Their expertise and drive to outperform continue to stretch the limits of what is achievable in our industry. Our employees are hard at work executing our strategy through superior operations and best-in-class assets. Their efforts result in long-term shareholder value, and I look forward to showcasing more of their achievements on future calls. With that, we'll now open the call for questions. And as a reminder, as Jordan mentioned, Richard Jackson and Ken Dillon are with us today for the Q&A session.

Well, for us, we don't have an issue moving oil or gas out of the Permian Basin. In fact, some of the positive impacts for our Midstream performance are due to the fact that from a gas perspective, we have capacity so that we can move molecules around and trade molecules, and we have ways to get gas to California and to other markets. So from a gas marketing perspective, we're in really good shape, and takeaway capacity is in good shape there. Oil we're also in good shape. We have overcapacity now to get barrels out of the Permian. When we talk about fluctuations in the Midstream business with respect to crude marketing, normally some of that is associated with picking up the third-party barrels that are associated with the capacity that we need to fill with incremental barrels above and beyond our current production. So that's the volatility mostly in the Midstream business. That along with the gas marketing does cause volatility, but normally that volatility is to the upside for us because, as I just mentioned, we have the capability to move things around and to take advantage of situations where others are disadvantaged. While with Waha and the situation that it's in, our upstream realizations are lower, but our Midstream business is able to capture opportunity to offset that.

Yeah, there's a lot of incoming interest. Once we announced that we were going to divest between $4.5 billion and $6 billion, Sunil started getting a lot of phone calls and letters. The interest is there, and it's very high interest. What we're hoping and expecting is that that high level of interest translates into appropriate levels of offers for the things that we might consider selling. But it all comes down to valuation, and that's going to make the difference for us because we do have options. As you know, lots of acreage. We're going to make the best value decision that we can. We don't see that there would be any impediments barring something that we haven't foreseen that would cause us to have issues with our divestitures.

Sorry, please. Sunil, what we were going to do is just for those that haven't heard, Sunil is going to go through what we think about with respect to divestitures, just to give those who might be listening an idea of what we're looking at.

Just to go back and look at what OxyChem has been able to do the last few years. When we think about pricing of PVC and caustic, we've just come out of an incredible super cycle where in 2022 we achieved our highest annual earnings ever, our second best earnings in 2021, and our third best in 2023. Now that we're into 2024, prices don't seem to be quite at the bottom. As we were going through the first quarter, we started to see some strengthening in both caustic soda and PVC a little bit. But the reality is that inflation in the United States, along with very weak demand out of China because they're basically overbuilt right now in both commercial and residential housing and buildings, we don't see China demand getting better anytime soon. But we do believe that beyond this year, getting past our inflationary environment, once there's some certainty around some reduction in inflation, we think the housing market is already primed for growth again. If we can get to an inflation level that is conducive for that, we'll certainly start seeing recovery in prices here in the United States. The international market, and we do export, so the international market impacts us. We'll continue to see some pricing challenges in that market. But ultimately, getting beyond this year in the next 18 months, I do believe that driven by India and other places, we'll see growth in demand again and we'll start seeing prices going back up. We're feeling like we're probably at a bottom right now.

I'm sorry, could you repeat that question a little bit? We had some disturbance. Mr. Royall, could you pick up if you're on a speaker phone, pick up a handset by any chance?

I have high confidence that we'll achieve the $400 million. Some of that we're already seeing today. I do believe that we wouldn't, trust me, we wouldn't say it if we weren't pretty confident that we'll get it.

We don't really have any update on the production or any of the other metrics from CrownRock, just what we've provided previously. We'll probably provide, well, we'll definitely provide an update when we have our next quarterly meeting because by that time I believe we will have closed, maybe not, but it's going to be certainly sometime in the third quarter.

Yeah, I think that the agreement that was reached in Colorado is a win-win for both the people of Colorado and the investments, the investors in Colorado. We feel that paying the fee, along with paying the fee to have taken away some bills and some potential ballot measures that would have severely restricted what the oil and gas industry could do, when you take that together all together, it provides a scenario for the governor and the government of Colorado to do something positive with the fees that will be collected. We view this to be not overly burdensome for our operations. We think it's actually going to be a doable scenario for us as we work toward doing some of the other things that will come along with this, which is working more on doing things that impact and help to reduce the impact on the ozone layer as well as doing some things that will help from an environmental justice standpoint. It's a full package deal, it's not just a fee, and putting all that together, it's a good deal.

No, it was almost entirely due to the Gulf of Mexico shutdown. There's really nothing else trending differently that we have in our portfolio.

I don't think that's what we intended to say. That was not the message we intended to give. When we talk about the fact that we will evaluate everything from a value perspective, what we want to do is just ensure that we're making the right decisions. Divestitures of non-core areas is something that we want to do, and we believe that based on the interest that we're seeing, that we should be able to achieve.

I'd just like to thank you all for your questions and for joining our call. Have a great rest of your day.