Occidental Petroleum Corporation

Good afternoon and welcome to Occidental's first quarter 2023 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 Neil Backhouse, Vice President of Investor Relations. Please go ahead.

Thank you, Jason. Good afternoon, everyone, and thank you for participating in Occidental's first quarter 2023 conference call. On the call with us today are Vicki Holub, President and Chief Executive Officer, Rob Peterson, Senior Vice President and Chief Financial Officer, and Richard Jackson, President, Operations, U.S. Onshore Resources and Carbon Management. This afternoon, 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 afternoon. We'll also reference a few non-GAAP financial measures today. Reconciliations to the nearest corresponding GAAP measure can be found in the schedules to our earnings release and on our website. I'll now turn the call over to Vicki. Vicki, please go ahead.

Thank you, Neil, and good afternoon, everyone. The operational and financial successes we achieved last year continued into 2023, as I will detail in our first quarter call. Our operational excellence and disciplined approach to capital spending enabled us to meaningfully progress our shareholder return framework. Our continued efforts to strengthen our balance sheet culminated in regaining an investor-grade credit rating from Moody's. This afternoon, I will begin by covering our first quarter performance, followed by an update on several accomplishments in our oil and gas business. In light of recent market volatility, I will then go over the cash flow priorities established during our last call and highlight the progress made in transferring enterprise value to our common shareholders. Then Rob will detail the commencement and status of the preferred equity redemption before covering our financial results and guidance, including an increase to full-year oil and gas production and an OxyChem pre-tax earnings. Our operational success, even in the first quarter's lower commodity price environment, enabled us to generate approximately $1.7 billion of free cash flow before working capital. Excess cash was primarily allocated towards approximately $750 million of common share repurchases in the quarter, accounting for over 25% of our $3 billion share repurchase program and triggering the redemption of nearly $650 million of preferred equity. Operationally, we exceeded our production guidance midpoint by approximately 40,000 BOE per day, following a prolific first quarter across our premier asset portfolio. In the Gulf of Mexico, we achieved our highest quarterly production in over a decade. This outperformance was partially driven by higher uptime at Horn Mountain and the outperformance following the successful Cesar Talga subsea system expansion project, which was completed in December. Our Permian production benefited from strong new well performance and higher operability, primarily in the Texas Delaware. In the Rockies, strong base and new well performance and higher operated by other volumes in the DJ Basin resulted in higher than expected production. Internationally, our businesses performed well. Most notably, the Alhosen Gas Expansion Project is ahead of schedule because of the team's ability to integrate expansion work with annual turnarounds. The production ramp-up has commenced earlier than anticipated and has already led to a daily production record. These achievements demonstrate how our high-quality assets and talented teams provide the strongest foundation for free cash flow generation in Oxy's history. Our global oil and gas teams continue to perform exceptionally well in the first quarter, achieving several milestones and accomplishments. Domestically, in our onshore unconventional businesses, we delivered strong well performance and established new operational records in the Rockies and Permians. Our Rockies team drilled the industry's longest DJ Basin well ever at over 25,000 feet in just eight days. This well also set a new lateral length record for oxy at over 18,000 feet. In addition, we delivered a single well production record in the DJ Basin by utilizing a new well design. We plan to roll out this enhanced design as we further develop our inventory across the DJ Basin. In the Permian, our Delaware subsurface teams continue to optimize and unlock inventory as demonstrated by success in the deeper Wolf Camp horizon with a single well generating 30-day initial production rate of 6,500 BOE per day and an oxy record for this interval. Our Delaware completions team also achieved a continuous pumping time of approximately 28 hours on another set of wells, far exceeding our previous record of about 22 and a half hours. We expect that increasing efficiencies, such as faster completions pumping, will contribute to lower costs and a faster time to market. Though certain products and services utilized in our operations will likely incur price increases this year compared to 2022, we are seeing some early signs of tempered inflation, Our teams are working towards partially offsetting inflation impacts through various operational efficiencies and supply chain competencies. For example, in the Delaware Basin, we've optimized frac designs to reduce assets and water utilization for an average savings of around $240,000 per well. Our Rockies team has successfully integrated artificial intelligence into our plunger lift program, helping to maximize base production and reduce operating costs. On a broader scale, our supply chain team is continuously pursuing opportunities to manage pricing across our business portfolio through partnerships that thoughtfully balance contractual flexibility with cost management. These capabilities are more important than ever in the current inflationary environment as we strive to continuously deliver value to our shareholders. With these points in mind, I will now review our 2023 cash flow priorities. As we discussed last quarter, our 2023 cash flow priorities incorporate a disciplined capital strategy largely agnostic to the short-term volatility exhibited in commodity prices this year. Our 2023 capital plan remains on track and focused on sustaining our high-quality portfolio of assets while securing our long-term cash flow resilience. We continuously monitor the macroeconomic landscape and intend to maintain our capital plan in the current environment. Should a sustained downturn in commodity prices occur, we possess the flexibility to rapidly reduce activity levels through our short-cycle, low-break-even projects. We demonstrated our nimble approach during the last global downturn, and we are prepared to do so again should market conditions dictate. If oil prices follow an upward trajectory, we do not expect notable changes to our cash flow priorities, though the pace of our share repurchase program and the preferred equity redemption may be accelerated. We have previously spoken about how potential future production growth is expected to be in the low single digits. However, we have many opportunities to grow cash flow outside of production growth. We anticipate that the mid-cycle investments we are making this year will result in meaningful contributions to our future cash flow. For example, our new OxyChem projects are expected to contribute $300 to $400 million in incremental annual EBITDA with benefits expected to start in late 2023 and full project benefits expected in early 2026. Additionally, near-term investments in our low-carbon ventures businesses are expected to enable the commercialization of exciting decarbonization technologies with the potential to generate cash flow detached from oil and gas price volatility. We believe that the combination of our low cash flow breakeven, high return assets, and emerging low-carbon businesses uniquely position us at the forefront of our industry to create value for our shareholders. Value creation for our common shareholders governs our cash flow priorities. The allocation of excess cash toward debt reduction over the past two years was key in positioning us to initiate the next phase of our shareholder return framework. Our balance sheet improvement efforts reduced interest and financing costs which contributed to an increase in our sustainable and growing dividend and the completion of last year's share repurchase program. Building on this success, we've already completed over a quarter of our current share repurchase program, enabling us to trigger the redemption of approximately $650 million of preferred equity in the first quarter. As dictated by our 2023 cash flow priorities, we intend to continue allocating excess free cash flow toward share repurchases, which in turn may trigger additional preferred equity redemption. We expect that these measures will be accretive to cash flow on a per share basis. In combination, we believe that these actions will further our goal of continued enterprise value rebalancing for our common shareholders and serve as a catalyst for future common equity appreciation.