Occidental Petroleum Corporation

Good morning and welcome to the Occidental's third quarter 2019 earnings conference call. All 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, Brandon. Good morning, everyone, and thank you for participating in Occidental Petroleum's third quarter 2019 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, BJ Hebert, President of OxyChem, and Oscar Brown, Senior Vice President, Strategy, Business Development, and Integrated Supply. 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 or 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-GAAP to GAAP 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. I'm pleased to welcome you to our first earnings call since closing the acquisition of Anadarko on August 8th. I'd like to thank our employees who are hard at work updating our development and capital spending plans and implementing our team-based structure across the combined organization with an emphasis on safety, collaboration, creativity, and results. Our integration and value capture team is working with our business units to capture synergies at an early stage so we can deliver the full potential of this transaction for our shareholders. As we work through the integration process, we become more confident every day in our ability to fully realize annual capital overhead and OPEX synergies of $2 billion, which I'll provide more detail on in a few minutes. For those of you who know Oxy well, you'll see our third quarter financial statements include a number of changes due to the completion of the Anadarko acquisition mid-quarter. Our income and cash flow statements capture legacy Oxy results for a full quarter and include legacy Anadarko results as well as consolidated West results for only 53 days. West is now consolidated in our financial statements as a fourth operating segment, and our balance sheet reflects the consolidated company, including West, as of September 30th. For transparency for our shareholders, we have provided a schedule in our earnings release breaking out key financial and operational information from Oxy and West on a standalone basis. As our financial statements do not include a full quarter of legacy Anadarko and West results, we understand that Street Consensus was not able to reconcile all of the line items affected by the acquisition this quarter, for example, DD&A, tax, and interest. Going to slide four, Oxy's complementary assets and the alignment of our upstream chemical and midstream businesses, including our ability to compete in a low carbon world, position us for full cycle success. Our leadership in each area where we operate, combined with our enhanced portfolio of high return, short cycle, cash flow generating assets, will facilitate profitable free cash flow growth, which we will utilize to reduce debt and also to return additional cash to shareholders. The substantial free cash flow we will generate in higher price environments, combined with our ability to pay a sector-leading dividend throughout lower commodity price environments, is unmatched. Post-acquisition, Oxy's diversified portfolio provides numerous competitive advantages. Oxy is now the largest oil and gas leaseholder in the United States on a net acreage basis, providing us with ample opportunities in the Permian, DJ, Powder River, and the Gulf of Mexico to selectively deploy capital in a way that optimizes capital intensity. Oxy was the largest U.S. producer of oil and liquids on a combined company basis in the first half of 2019. This will allow us to maximize cash margins on a BOE basis, especially when taking our advantaged midstream position into account. Through the acquisition, we acquired approximately 450,000 square miles of modern 3D seismic data in our core domestic development areas. This included a 40% increase in our already extensive Permian seismic inventory. The advantages that Oxy's diversified portfolio provides, coupled with our unmatched subsurface characterization ability and the execution excellence that Oxy is known for, ensures that we are positioned for full cycle success in the years ahead. As we continue our integration efforts, we are aligning WES to work seamlessly with Oxy's upstream business. We're standing WES up as a more independent operation and to improve operating performance to benefit both Oxy's upstream business and WES, inclusive of enabling WES to be more competitive for third-party business. We're also evaluating alternatives that could result in the deconsolidation of WES in the future. However, we expect to retain a significant economic interest in West for the foreseeable future as we recognize the tremendous value that West provides and we plan to drive long-term value for both companies. Before providing additional details on synergy capture, I want to turn to the excellent operational results that our businesses continue to deliver. Since completing the acquisition of Anadarko, we continue to make quick progress towards fully achieving our post-acquisition divestiture and deleveraging goals. During the third quarter, we divested our Plains interest for net proceeds of $650 million and closed the sale of our Mozambique LNG stake for $3.9 billion. Upon completion of the divestitures contracted since May 2019, we will have essentially reached the lower end of our $10 to $15 billion divestiture goal net of taxes. We applied the proceeds from our closed investitures toward reducing debt and have already eliminated our 2020 debt maturities. I'm very proud of the progress our teams have made over the last few months. We know that we have more to do on the deleveraging front, and I look forward to being able to make that additional announcement as we move forward towards the top end of our goal. Our integration and value capture efforts are proceeding exceptionally well without shifting focus away from our core business, which is evident from our strong third quarter operational results. Oxy continues to deliver the best wells in the basin, having delivered 25 of the top 100 wells in the Delaware basin while drilling less than 7% of the total wells. We accomplished this using less profit than peers, which results in lower costs for us. We also design our developments with a full life cycle approach using appropriate well spacing that we expect to deliver optimal results now and in the future. While we tend to highlight the Permian as it is a growth asset for us, all of our businesses continue to perform well. Since the close of the Anadarko acquisition, single-day or monthly production records have been set in the Gulf of Mexico, DJ, Alhosen, and Permian Resources for both legacy Anadarko and Oxy assets. This demonstrates the quality and expertise of both the former Oxy and Anadarko employees as they stay laser-focused on delivering superior results even during this integration process. As proud as I am of all of our teams for the operational excellence they have maintained during integration, I'm even more pleased with our outstanding safety record. Our teams are continuing to look for ways to further improve our safety performance as operating safely is and will continue to be a core value for us. Our consistent industry-leading operational results, combined with our ability to fully deliver on value capture, positions us for full cycle success and enhances our ability to generate increased excess free cash flow to reduce debt and to return cash to shareholders. Returning excess capital to our shareholders is a part of Oxy's DNA. In the third quarter, we returned approximately $600 million to shareholders. Going to slide seven, I'm thankful to have had the opportunity to engage with many of our shareholders over the past few months to discuss the free cash flow potential of the new Oxy. Interest in our 2020 capital plan is high. While we typically do not release our full year capital budget until our fourth quarter earnings call, we're able to provide many details of our 2020 capital plan this morning. Our 2020 capital budget of $5.3 to $5.5 billion will deliver expected annual total company production growth of 2%. This represents an approximate reduction of $3.6 billion from Anadarko's and Oxy's combined 2019 capital budgets. When we communicated our annual synergy target of $2 billion, we also stated that capital spending would be reduced by $1.5 billion, lowering our company-wide annual production growth from approximately 10% to 5%. We have gone further than this for 2020. We anticipate that the combination of lower capital spending and production growth will generate greater free cash flow enhanced by our industry-leading capital efficiency, which I'll touch on shortly. 2020 production growth on the company level will be driven by Permian resources, while we expect production from other areas to be flat or grow at a reduced rate compared to 2019. We expect Permian Resources production to grow by approximately 5% in 2020, operating 15 gross rigs and eight net rigs. The rough breakout for specific areas is five rigs in New Mexico, six to seven in Legacy, Anadarko, Texas, Delaware, and three to four in the Middle Basin JV. In the DJ, our plan represents approximately three operated wells, rigs. As Permian Resources shell production becomes a larger portion of our total oil and gas production, We expect our oil and gas base decline rate to increase to 25% in 2020. However, we do not expect our base decline rate to continue to increase in future years given our moderated growth rate. Similar to 2019, our 2020 capital program is dominated by short cycle investments. At approximately $35 WTI, our 2020 program will generate a double digit rate of return. Oxy remains flexible throughout the commodity cycle, and if necessary, In less than six months, we can reduce capital spending to sustaining levels. Looking past 2020, we know that capital discipline will continue to be important to investors. Our intent is to cap our annual production growth at an average of 5% as we balance the vast opportunities in our portfolio with growing free cash flow. Our planned activity in 2020 should enable us to grow production by 5% annually in 2021 with a capital budget of $6.6 billion. As for 2019, capital discipline, as always, is intact at Oxy as we remain on track to spend within our combined capital budget of $8.6 billion, excluding Africa. Since the acquisition closed, we've had the opportunity to take a deeper dive into the company that's combined, Oxy Anadarko, and are as excited today as we have been at any time during the last two years about the opportunities in front of us. Through the strength of our combined companies, we've identified approximately 150 specific capital synergy initiatives across our enhanced portfolio, which we plan to incorporate into our development plans. Applying these initiatives will lower well costs by $3.1 million per well in Texas, Delaware, and by $600,000 per well in the D.J. Basin. In drilling and completions, we're implementing efficient development concepts utilizing oxydrilling dynamics to improve the trajectory of the bed and wellbore, which reduces drill times and costs. For example, we expect to improve our drilling rates for footage drilled per day in the Texas Delaware by 35%. The technical work completed by all of our teams to identify savings initiatives and to improve well productivity has been outstanding, and I'm extremely confident in our ability to execute and realize the full synergy targets. On slide 10, we provide a bottom-up view of the $605 million of drilling and completion synergies based on expected savings per well and estimated 2021 net well counts to achieve annual production growth of 5% in 2021. On slide 11, in addition to realizing $900 million in capital synergies, Oxy's best-in-class capital intensity is expected to continue to improve. This often underappreciated measure of operational excellence and competitive advantage truly sets Oxy's capabilities in the Permian apart from other operators. As a reminder, capital intensity is defined as the total net annual capital required for 1,000 net barrels per day of average annual wedge production. Fully capturing our capital synergies and improving our overall capital intensity through faster time-to-market and better weld performance will contribute to driving efficient wedge growth, enabling Oxy to deliver expected production growth of 5% in 2021 with $6.6 billion in capital. We've been a top performer in capital intensity for multiple years, and we will substantially improve the capital efficiency of our newly combined Permian resources portfolio. We expect the largest improvement in intensity to originate from legacy Anadarko Delaware acreage, along with continued improvements from legacy Oxy acreage. Our unmatched premium capital intensity reflects significant improvements in time-to-market through our efficient operations and CIMOPS planning, applying Oxy's advanced subsurface characterization to improve well results and limit interference to reduce infrastructure costs in our legacy acreage from the reuse of existing facilities and the high grading of inventory, as well as implementing our Midland Basin joint venture with Echo Patrol. In 2020, improvement in capital intensity is aided by the deceleration in capital spending. Moving into 2021, we will maintain our intensity in the low 20s, 20 million range, even when production growth from Permian Resources is increased to support annual company production growth of 5%. While this example applies to our Permian Resources business, we continue to make notable productivity efficiency gains across all business segments. we will highlight some of the exciting initiatives in our other areas in next quarter's earnings call. On slide 12, overhead synergies will be derived from aligning our workforce to meet the current needs of our company and carving out costs related to assets that will be divested and reducing real estate and other costs. In terms of reducing OPEX, Permian cash operating costs continue to be at the lowest they've been in a decade, driven by our long-term high return investments, including facilities and infrastructure. We expect this trend to continue, especially with our enlarged footprint in the Permian. Slide 13, as I mentioned earlier, we have had many initiatives underway to fully capture the synergies promised. You can see on our energy tracker, we've already made progress in adding both overhead and capital synergies. While our progress in realizing synergies may not be linear, we will continue to provide updates so investors are able to clearly see our progress each quarter. Turning to Permian Resources, we again delivered the highest number of top wells in the Delaware Basin on a six- and 12-month cumulative basis, and we continue to drive significant productivity improvements. We also continue to reach new milestones, including a record 10,000-foot lateral drilled in only 10.7 days and a record 267 completion stages in one month completed by one frac team. This is a record proxy and also for our main frac provider in the Permian. Following my earlier comment on safety, I'd like to draw attention to our New Mexico completions team, which went an entire year without a single OSHA recordable incident for employees and contractors. That includes over 2 million work hours conducting high-pressure frack operations without an incident. This is a remarkable achievement. The next slide reinforces our unique development approach and subsurface expertise, one of the key factors that continuously enables us to deliver the best wells while using less profit than others, resulting in significant capital savings. Oxy's combined acreage portfolio supports nearly one-third of the top wells in the Delaware Basin, including Anadarko's six record wells. The subsurface potential in the acquired acreage is prolific and we can't wait to unlock more top wells using our development expertise combined with Anadarko's best practices. I'll now hand the call over to Cedric, who will walk you through our financial results and updated guidance.