Occidental Petroleum Corporation

Good morning and welcome to the Occidental's second quarter 2020 earnings conference call. All participants will be in a 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, Andrea. Good morning, everyone, and thank you for participating in Oxnald Petroleum's second quarter 2020 conference call. On the call with us today are Vicki Holup, President and Chief Executive Officer, and Rob Peterson, Senior Vice President and Chief Financial Officer. This morning, we will refer to slides available on the investor section of our website. The presentation includes a cautionary statement on slide two regarding forward-looking statements that will be made on the call this morning. I will now turn the call over to Vicki. Vicki, please go ahead.

Thank you, Jeff, and good morning, everyone. On our first quarter earnings call, we outlined the cost reduction measures implemented across our company to adapt to the immediate crisis of the pandemic and to the ensuing market volatility. I'm pleased to be able to say that compared to a few months ago, our financial position has notably improved as we are currently free cash flow positive and expect to generate significant free cash flow over the remainder of this year, thanks to the relentless efforts of our teams, as well as the moderate recovery in commodity prices. We are determined to build upon this progress, ever mindful that COVID-19 remains a threat to the global economy the demand for the products we produce, and to the health and safety of our employees and their families. We continue to manage our employees as carefully as possible through this health threat. To ensure that we continue to be positioned for success through this cycle, we are permanently embedding many of the implemented cost reductions into our repositioned cost structure. This morning, I will provide updates on our base management optimization progress, the pathway to and capital required to sustain our production, and our cash flow priorities. Rob will cover our financial results, current guidance, and debt management progress. Turning to our second quarter results, our businesses outperformed expectations despite a slowdown in activity. Production from continuing operations of 1.4 million BOE per day exceeded the midpoint of guidance by 36,000 BOE per day. Our outperformance was primarily driven by our consistent focus on efficiency, increased uptime, and base management. Operability remains high across our oil and gas operations, and we've reduced downtime across the Legacy and Adarco acreage faster than originally planned. To maximize the economic benefit from our existing base production, we have increased production by debottlenecking surface infrastructure, mitigating decline, and reducing operating costs. We are employing remote surveillance processes utilizing artificial intelligence to further enhance our predictive maintenance schedules, optimizing artificial lift systems, tying in additional wells to centralize gas lift, and reducing back pressure throughout our gathering systems and facilities. In the Permian, we also continue to lower our water handling expenses by increasing utilization of the West's infrastructure. Domestically, our midstream and marketing business has consistently and reliably delivered our products to market at times when other operators may have curtailed their production. The close integration of our upstream and midstream businesses enabled us to shut in less production than originally planned. The second quarter, shut-ins averaged about 29,000 BOE per day, of which approximately half were OPEC Plus related. Shut-ins peaked in May at approximately 47,000 BOE per day. We have now brought back online the majority of the domestic production that was shut in for economic reasons with no detrimental impact to well performance across our portfolio. We accomplished this with total oil and gas operating costs of $5.27 for BOE and domestic operating costs of $4.69 for BOE, significantly exceeding our guidance of $6.25 for BOE. Although a portion of the significant cost reduction relates to a deferral of activity, we expect our repositioned cost base to lower full-year operating costs on a BOE basis by over 15% compared to our original 2020 guidance as we maintain low operating costs in the second half of the year, even with declining production. Our teams are continuing to deliver exceptional operational results as they deliver better than expected production at lower than expected cost. This quarter, we achieved our combined overhead synergy and cost reduction goal by decreasing our overhead cost to below $400 million. On an annualized basis, we have fully realized $1.5 billion of total overhead savings versus our original synergies target of $900 million. We exceeded our original cost synergy targets and delivered these savings in less than a year after the close of the acquisition, a full year ahead of our original two-year plan. We expect that more than 90% of the additional cost savings will remain permanent in future years. We also reduced our operating costs by $800 million, which is an additional $600 million more than our synergy target of $200 million. We expect more than two-thirds of the additional operating cost savings will be permanent, even as we return to normalized activity levels. Our capital spending was below $400 million in the quarter, demonstrating our agility and adapting to changing circumstances. We are committed to spending within our 2020 full-year capital budget of $2.4 to $2.6 billion and intend to moderately increase drilling and completion activities in the third and fourth quarters. We are restarting activity with our JV partner in the Midland Basin, and we'll be running two rigs there by the end of the third quarter. We are pleased to be continuing this development with Echo Patrol, who's an excellent partner for us. In the DJ Basin, we will begin completing a select group of high-return, drilled but uncompleted wells. We will also selectively resume activity across other assets, including completing key development sections in Permian Resources within Greater Sand Dunes and Silvertip during the fourth quarter. In the Gulf of Mexico, we are restarting our drill ship that was idled earlier in the year. As all of our businesses continue to outperform, they have also stayed true to our core value of safety for all. This includes all of our people in our operations, our employees, our contractors, and the public. Recently, our OxyChem and Gulf of Mexico teams demonstrated their safety commitment by setting a new all-time safety record for their operations. Joining others in our company who have also accomplished record-setting safety performances, we're proud of them all. In the second quarter, we continued to execute on our divestiture program. In June, we closed the sale of our Greater Natural Buttes asset in Utah. Although the asset accounted for 33,000 VOE per day in the second quarter, the cash flow impact from the sale is immaterial as the asset did not generate cash or income with gas prices below $2.50 per MCF. While our Rockies production will now be lower this year, the remaining barrels are higher margins. We remain highly confident in closing over $2 billion of divestitures in 2020 and will close divestitures in excess of that amount over time. As we've said before, we will balance divestiture timing with value realization and will not sacrifice value just to close transactions quickly. During this downturn, base management proficiency has become increasingly important and may be the best described as multiple small actions compounding and having a sizable impact on the long-term decline rate. The actions we are taking today may not be highly visible within the quarter, but remain an effective way to mitigate our decline rate over time, expand margins, and minimize the growth wedge needed in future periods. As an example, we set new uptime records in New Mexico, the DJ Basin, and on the Lucius platform by automating more processes where possible. We're applying these learnings across all of our portfolio. Earlier this year, we swiftly and decisively maximized liquidity by lowering our capital budget and repositioning our cost base while maintaining the integrity of our assets. Some of the near-term actions we took were activity-based, which will cause our production to decline through the rest of the year. However, our asset base retains its full potential, which will enable us to stabilize our production through the allocation of capital to our highest return barrels. We expect approximately $2.9 billion of capital will be required to sustain production from our 2020 fourth quarter rate. At this capital spending level, we could keep production flat at approximately $40 WTI. This is a significant reduction from the sustaining capital $3.9 billion we previously communicated for 2021 and is a testament to the progress we've made in stripping costs out of the business. The optimized capital activity in the second half of 2020 will help serve as a bridge to build momentum into 2021 as we thoughtfully ramp up activity. Our teams continue to optimize development plans to safely extract more value for less cost. Our approach to stabilizing production will involve exercising capital discipline by spending within cash flow and selectively allocating capital. We do not intend to grow production until we have significantly reduced debt We view the long-term price of WTI to be sustainable at higher levels than where the current curve indicates. In any eventual growth scenario, we expect that annual production growth will be less than the 5% per year that we previously stated. While our desire is to at least stabilize production next year, our 2021 capital budget will depend on what market conditions are indicating when we roll up the budget in the fourth quarter. We'll communicate our full 2021 capital budget in a future earnings call. On our cash flow priority slide, we have updated the framework for how we will prioritize capital allocation and excess cash flow going forward. As we move towards 2021, our top priorities are to stabilize and maintain our low-cost base production and to further deliver. We intend to return to a position where we have the ability to deliver solid returns and, again, distribute more capital to shareholders with the support of a strengthened balance sheet. We'll now hand the call over to Rob, who will walk you through our financial results, revised guidance, and debt management progress.