Occidental Petroleum Corporation

Good morning and welcome to the Occidental Petroleum Corporation fourth quarter 2018 earnings conference call. Our participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jeff Alvarez, Vice President of Investor Relations. Please go ahead.

Thank you, Laura. Good morning, everyone, and thank you for participating in Oxnell Petroleum's fourth quarter 2018 conference call. On the call with us today are Vicki Holub, President and Chief Executive Officer, Cedric Berger, Senior Vice President and Chief Financial Officer, Ken Dillon, President, International Oil and Gas Operations, and BJ Hebert, President of OxyChem. In just a moment, I will turn the call over to Vicki. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements, as more fully described in our cautionary statement regarding forward-looking statements on slide two. Our earnings press release, the investor relations supplemental schedules and our non-gap-to-gap reconciliations, and the conference call presentation slides can be downloaded off our website at www.oxy.com. I'll now turn the call over to Vicki. Vicki, please go ahead.

Thank you, Jeff, and good morning, everyone. Today I'll begin our fourth quarter results followed by our 2018 achievements, a plan for the year ahead, and an overview of the benefits of our integrated business model. The fourth quarter of 2018 wrapped up a successful year for Oxy both financially and operationally. We returned $900 million to shareholders in the quarter through a combination of the dividend and share repurchases. Our continued focus on increasing returns for our shareholders was achieved due to outstanding performance from all three of our businesses in a changing market condition. Despite WTI falling below $43 a barrel in the quarter, we posted core earnings per share of $1.22 and generated the highest semiannual level of operating cash flow since 2014, making the second half of 2018 our strongest six-month period since our portfolio optimization. Permian cash operating costs were the lowest this decade, driven by the long-term, high-return investments that we're making, such as in facilities and infrastructure. We operate our assets with a full lifecycle view. Our investments will continue to provide payback in the form of lower cost as our production base expands. Oxychem and our midstream business both achieved record fourth-quarter earnings as a result of our integrated business model, which enables us to take full advantage of market conditions such as delivering higher realizations from our Permian takeaway position. In 2018, we grew cash flow to a level that exceeded both capital expenditures and our dividend, a key achievement we had been working towards since completing our portfolio optimization. Organic cash flow growth was driven by prioritizing the allocation of capital to opportunities that generate the highest full cycle returns. We are pursuing cash flow growth with two key objectives in mind. first and foremost to generate a higher return on capital and second to return an increasing level of excess cash to shareholders. In 2018, we returned more than $3.6 billion to shareholders through our sector-leading dividend and $1.3 billion of share repurchases under our $2 billion plus share repurchase program. We intend to complete the remainder of the share repurchase program in 2019. We remain committed to returning capital to shareholders through a balanced combination of dividends and share repurchases, as we've done for a long time. Since 2002, we've increased our dividend each consecutive year, and we've returned $33 billion to our shareholders through our dividend and share repurchases. That's about 70% of our current market capitalization. Almost 50% of this was returned in the last five years, a time period which included one of the worst downturns our industry has ever experienced. Through this downturn, we also maintained our strong balance sheet and A-level credit ratings. Our focus on investing in our high-quality assets delivered a 2018 return on capital employed of 14% and cash return on capital employed of 27%, both significantly higher than 2017 and upper quartile performance versus our performance peer group. These achievements reflect our commitment to our value proposition, the strength of our integrated business model, and the high quality of our assets. We made notable productivity and efficiency gains across all three business segments in 2018. The investments that OxyChem and our midstream business completed in recent years paid off in 2018 as both segments optimized cash flow and delivered record earnings. Our Permian business continued to outperform with Permian Resources delivering an impressive 52% production growth and Permian EOR exceeding cost reduction targets for the acquired Seminole CO2 field. Our international business generated $1.4 billion in free cash flow in 2018 and has enormous potential to grow cash flow going forward. On our last call, Kim provided details of our new international opportunities. Now we're pleased to have been awarded a new block in Abu Dhabi that Ken will describe in a few minutes. This new Abu Dhabi block along with six in Columbia and three in Oman make 10 new blocks added in the last year. These new international opportunities will add significant high return, low decline development inventory to our portfolio. At the same time, it's worth highlighting that these will require only a modest investment in the short term. One of our key competitive advantages is our ability to develop assets in a way that efficiently maximizes oil production and recovery and generates significant cash flow growth over the next decades. For the last three years, we've achieved all-in reserve replacement ratios exceeding 160% company-wide. The 2018 reserve replacement ratio of 164% is due to the excellent technical work our teams have completed in enhancing subsurface characterization across our portfolio and building customized development plans. Our momentum has continued into 2019 as our business segments continue to invest in high return opportunities. Last month, we discussed various capital budgets for three different pricing scenarios, but we've decided to limit our full capital spend in 2019 to $4.5 million. This represents a $500 million or full 10% reduction from 2018. By maximizing efficiencies, we are reducing spending to adjust to a lower oil price environment. As activity is adjusted to meet full-year capital spending of $4.5 billion, we expect spending to be higher in the first half of the year. In creating our capital budget to realize the highest returns, Permian Resources shale production will become a larger portion of our total oil and gas production. We expect this will increase our oil and gas base decline to 20% in 2019. As we continue to invest in the Permian, we will advance our appraisal in the short cycle low decline development opportunities in our new international blocks to prepare them for growth. Our 2019 capital program is dominated by short cycle investments, the majority of which will pay back within two years at $50 WTI. We will continue to be conservative, and if necessary, within six months, we can reduce capital spending to sustainable levels. meaning that Oxy remains flexible throughout the commodity cycle. We will grow oil and gas production by 9 to 11% in 2019 to replace the cash flow from Qatar in 2020, but our long-term annual growth rate forecast remains at 5 to 8 plus percent. Cash flow growth is an inherent driver in generating a higher return of capital and a higher return on capital. Our 2022 roadmap details the projects we will prioritize and execute over the next few years in order to grow cash flow from operations to $9 billion in 2022. While Permian Resources will continue to be the main driver of growth through 2022, our international business will also grow in terms of both cash flow and production. In addition to having many high return short cycle opportunities, We also continue to benefit from the stable, sustainable cash flow generated by OxyChem, Midstream, and Dolphin. Even with a lower activity level and a significantly reduced capital budget for 2019, we still remain on track to achieve the low end of the 2022 cash flow range of $9 to $9.5 billion that we communicated in our third quarter call. As you will have noticed, based on our expectations for the WTI spread, we updated our rent price assumption for 2020 onwards. And this will have minimal impact based on our production sharing contracts. To be conservative, we modeled OxyChem and Midstream cash flow at the low end of the previous range. And our projection of $9 billion in cash flow by 2022 does not include significant upside from several additional projects that we're currently evaluating. We'll provide updates on these projects as we advance. This morning, Cedric will take you through our financial results and updated guidance, and Jeff will detail the continuous improvements we are creating in the Permian. Ken will then provide an update on our new opportunities in our international business. I'll now hand the call over to Cedric.