Scotia Howard Weil Presentation 2016

OCCIDENTAL PETROLEUM CORPORATION
Stephen I. Chazen
Chief Executive Officer
Howard Weil
March 22, 2016
Why own Oxy?
Large Integrated Majors
Independent E&Ps
Company
XOM
CVX
Company
Market Cap ($B)
$350
$182
RDS
$160
TOT
$111
BP
$97
ENI
$49
Characteristics
• Low or no growth
• Higher returns
• Stronger B/S; lower risk
• Free cash flow
• Consistent dividend growth
Oxy
Uniquely
Positioned
$54
billion
COP
EOG
APC
PXD
APA
MRO
Market Cap ($B)
$53
$42
$25
$23
$19
$8
Characteristics
• Generally higher growth
• Lower returns
• Weaker B/S; higher risk
• Little or no free cash flow
• Little or no dividends
• Moving from gassy to oily
Oxy has positive elements of both groups, appealing to investors who seek
a combination of moderate growth, above average returns and consistent
dividend growth.
Updated as of 3/17/2016
2
Keys to Success
Balance Sheet Strength
Diverse Portfolio
• Ended 2015 with $4.4 Billion
cash
• Debt of $8.3 Billion (25%
debt to capitalization ratio)
• Long life cash flow assets
• Significant growth potential
Talent Optimization
Returns-Focused Strategy
• Maintain and continue to
develop staff
• Increase use of advanced
technology and data
analytics
• Invest in projects that
generate long-term value with
returns above cost of capital
• 5% – 8 % long-term
• Flexibility to ramp activity
up or down depending on
market conditions
• Domestic +15% / Intern. +20%
• Leverage fast growth shale
with low-decline EOR
3
Cash Flow Priorities
1. Base/Maintenance Capital
2. Dividends
3. Growth Capital
4. Share Repurchase
5. Acquisitions
4
History Of Returning Cash To Shareholders
($ in Billions)
Period ending 2015
Cash Dividends
Share
Repurchases
3 – years
$6.0
$4.0
$10.1
5 – years
$9.6
$4.9
$14.5
10 – years
$14.2
$9.1
$23.3
Combined
– Additionally, over the 10 years ending 2015:
•
•
•
We reinvested $54 billion of capital in the business;
We made cash acquisitions of $25 billion;
Our long-term debt increased by only $5.5 billion.
– We spun off California Resources Corp. to Oxy shareholders
in 2014 valued at ~$2.3 billion.
5
2016E Sources & Uses of Cash
2016 Illustrative Sources and Uses of Cash
$9.2 bn
•
S&P Rating affirmed at single
A with stable outlook.
Moody’s lowered only one
notch (A2 to A3)
•
Financial flexibility to invest
through the cycle and return
cash to shareholders
•
Annualized cash flow
changes ~$100 million for a
~$1.00 / barrel change in
realized oil prices
•
Annualized cash flow
changes ~$40 million for a
~$0.50 / Mmbtu change in
realized natural gas prices
$6.0 bn
6
Oxy Runs A Focused Business
Oil and Gas Focus Areas
United States
• Leading position
in the Permian Basin
• Permian Resources
is a growth driver
OxyChem
High FCF, moderate
growth business.
Oxy Midstream
MENA
• Al Hosn Project,
Integrated pipeline and
Oman and Qatar
marketing business to
• Additional opportunities maximize realizations.
for growth with partner
countries
Oxy will be
positioned to grow
Latin America
• Highest margin
operations
in Colombia.
• Additional opportunities
for moderate growth
with partner.
• Oil production
• Earnings & Cash Flow
per share
• ROCE
• Dividend stream
7
Permian Basin Is The Core Domestic Asset
EOR Business
•
•
•
2015 Production - 145 MBOEPD
1 million net acres
1.9 Billion BOE remaining in reserves
and resources
Resources (Unconventional)
•
•
•
2015 Production – 110 BMOEPD
1.5 million net acres
8,500 identified well locations
Midstream
•
•
Oxy Acreage
Oil Pipelines
CO2 Pipelines
12 processing plants
1,900 miles of pipeline
– CO2 pipelines
– Oil infrastructure and pipelines
– Marketing business
Infrastructure difficult to duplicate
8
2016 Permian Strategy
Given the current oil price environment, we will focus on
investment to achieve four core goals:
 Accelerate geoscience, characterization and modeling programs
to enhance recovery, productivity and field economic returns
 Minimize base decline and set up major growth programs in
both Resources and EOR segments
 Focus efforts on game changing technologies and applications
 Accelerate continued improvements in execution and cost
9
Permian Summary
•
•
2016 activity focused on core
locations with minimal
infrastructure investments
Analyze appraisal data to support
future development and initiate
seed projects for long term growth
in EOR
•
Reduce rig count in Permian to 2-4
rigs
•
Technical staff and engineers will
focus on long-term projects,
enhancing base production, and
preparing full field development
plans for to ramp up activity when
oil prices recover.
EOR
211
Resources
255
261
~266
110
118
~123
145
144
143
222
64
75
147
147
2013
2014
2015
4Q15
Production (MBOED)
1H16E
10
NET MBOEPD OPERATED PRODUCTION
Oxy is the Largest Permian Basin Producer
350
10%
75%
50%
Gas
Liquids
Average
300
Cumulative
% of total
3.1 million
BOEPD
250
200
150
100
50
-
Source: Wood Mackenzie, 9/23/15, Company Net Working Interest Production Rates
11
Permian EOR Strategy
CO2 Supply & Processing
•
1.0 million net acres
•
Shift more capital to longer-cycle
EOR to take advantage of lower
cost of materials and services
•
Inventory includes projects that
have F&D costs of $3-$12/BOE
•
Incremental production will come
on line in 6-18 months after the
start of CO2 injection
•
Debottlenecking and bolt-on
equipment to existing
infrastructure will increase CO2
injection capacity by 25% over
the next 5 years
12
World Leader in CO2 Enhanced Oil Recovery
U.S. CO2 EOR Projects
Size of bubble = CO2 EOR Production Volume
Number of Injection Wells
3,500
3,000
Occidental
2,500
2,000
• Inject 1.9 billion cubic feet a day
• Operate 31 CO2 EOR projects
Kinder Morgan
1,500
Apache
1,000
Chevron
Exxon
Hess
500
Denbury
Anadarko
0
0
5
10
15
20
25
30
35
40
Number of Projects
EOR Survey
Source: Oil & Gas Journal 2012 Biennial EOR Survey
13
Permian EOR
ROZ Projects development cost
ranges from $3 - $7 per BOE
“Stranded Oil in the Residual Oil Zone by L. Stephen
Melzer, Advanced Resources International and the U.S.
Department of Energy, February 2006.
South Hobbs
Residual Oil Zone (“ROZ”) Potential:
• Four pattern to begin in 2016.
• Full ROZ expansion:
– ~50 patterns; 80 MMBOE
14
Permian EOR Cost Structure
Permian EOR can operate at cash costs as low as $22 per BOE
2015 Permian EOR Cost Structure
$35 WTI, $2.00 NYMEX
2015 Permian EOR Cost Structure
$55 WTI, $3.00 NYMEX
$35
$35
$30
$4.0
$25
$25
$4.7
$20
$ / BOE
$ / BOE
$30
$2.7
$4.7
$15
$1.8
$20
$3.2
$2.2
$15
$4.0
$10
$10
$14.1
$5
$5
$10.8
$0
$0
Well, Surf
Maint
Injectant
Energy
Taxes
SG&A
Sensitive to O&G Prices
Well, Surf
Maint
Injectant
Energy
Taxes
SG&A
Partially Discretionary
15
Permian Resources Summary
2016 Focus Areas
•
1.5 million net acre position
•
Shorter cycle – faster growth
•
Significant improvements in
capital execution efficiency and
reduction in operating
expenses
•
Will run 2-4 drilling rigs in
development areas
– Maintain momentum with
efficiency improvements
– Continue to optimize ultimate
recoveries
•
Integrate seismic with data
analytics from producing wells
to further evaluate inventory
16
Permian Resources – Drilling Inventory
Continuing to lower economic hurdle points through reservoir characterization and
optimization, improved productivity, reduced well costs, and faster time to market
100%
•
•
•
Drilling Inventory
Total of ~8,500 locations in
horizontal inventory
Based on Q4 Costs
Better Well
Productivity and
Lower Cost
~3,400 total locations
economic at less than $60 /
barrel which is an increase
of approximately 700
locations from previous
version
~350 locations economic
below $40 / barrel
60%
48%
40%
14%
4%
17
Permian Resources Production Growth
•
Oil
Total production grew 40%
year-over-year to 118
MBOED.
•
Reached goal of 120
MBOED in November, one
year and one month ahead
of original goal
Gas
118
– Oil production grew 49%
year-over-year to 76 MBOD
– Oil production is expected
to continue to grow at rates
higher than total production
NGL
~123
110
75
64
71
35
2013
76
43
2014
2015
4Q15
Production (MBOED)
1H16E
18
Permian Resources Cost Reduction
Permian Resources Operating Costs / BOE
$15.00
$13.20
$13.03
• Focus on reducing field
$11.39
operating costs during 2015
$10.87
$9.73
$10.00
• Downhole expense ($/boe)
reduced 34% from 4Q14
• Company operated
$5.00
operating expense down
~30% ($/boe) from 4Q14
$-
4Q14
Surface
1Q15
Downhole
2Q15
3Q15
Supports
Energy
4Q15
Other
19
Permian Resources – Manufacturing Mode
East Midland Wolfcamp A 7,500’ HZ
Delaware Wolfcamp A 4,500’ HZ
Completions
$5.6
$6.2
$5.5
$3.2
$2.8
$5.3
2014
$2.9
$2.6
Current
Best
WELL COST $MM
WELL COST $MM
Drilling
Drilling
$10.9
$5.3
$3.7
$3.7
$3.4
$2.3
$1.9
Current
Best
46
20
1Q15
2Q15
19
3Q15
17
4Q15
14
Best
DRILLING DAYS
37
DRILLING DAYS
$6.0
$5.5
2014
43
2014
Completions
$9.2
31
20
18
17
13
2014
1Q15
2Q15
3Q15
4Q15
Best
20
2016 Capital Outlook
2016 Capital Budget
•
Carefully reduce activity levels without
harming the strong progress on growth
prospects
•
Fund only those opportunities that exceed
hurdle rates of return
•
2016 plan approximates expected cash from
operations at around current prices
•
Majority of the program will be allocated to the
Permian Basin and to completing long-term
projects in Chemicals and Midstream
•
In Permian Resources, drilling activity focused
in the Midland and Delaware near existing
infrastructure, to achieve higher returns
•
In Permian EOR, a modest increase for
building out facilities and systems to handle
and inject greater quantities of CO2, with 1-2
year production response time
($ in bln)
$5.6
$2.8 - $3.0
2015
Maintenance
2016E
Sustaining
Growth
21
Committed Project Capital Declining
Committed Project Capital
•
($ in millions)
$1,300
Multiple long-term investments to
drive cash flow and earnings growth
– Al Hosn
– Ethylene cracker JV
– Ingleside terminal
$800
– Gas processing
$500
•
Capital spending will continue to
decline and cash flows and
earnings expected to grow as
projects start-up.
•
Increased flexibility on capital
budget in 2016 and 2017
$100
2014
2015
2016E
2017E
22
Improved Cost Structure
Domestic Production Costs
Overhead (SG&A)
($/boe)
($ millions)
• Expect continued
improvement in
cost structure
$1,503
$15.64
– Strategic Initiatives
$1,270
$13.73
– Lower workovers
~$13.00
~$1,150
– Lower downhole
maintenance
– Lower energy
costs
2014
2015
2016
Estimate
2014
2015
2016
Estimate
23
Summary – Key to Success / Strengths
• A key to long term success is to take advantage of this
downturn to improve our future:
– Major cost structure changes
• Data Analytics
– Further advances in improved recovery
• Technology (new or
different)
– Investment in people
– Portfolio expansion
• Technical excellence
of our people
• Diverse portfolio
– Two businesses in one of the best basins in the world
– Long life, low decline, value adding, cash flow generating assets
– Flexibility to ramp up or down depending on market conditions
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Cautionary Statement
Portions of this presentation contain forward-looking statements and involve risks and uncertainties that could
materially affect expected results of operations, liquidity, cash flows and business prospects. Words such as
"estimate," "project," "predict," "will," "would," "should," "could," "may," "might," "anticipate," "plan," "intend,"
"believe," "expect," "aim," "goal," "target," "objective," "likely" or similar expressions that convey the
prospective nature of events or outcomes generally indicate forward-looking statements. Factors that may
cause Occidental's results of operations and financial position to differ from expectations include but are not
limited to: global commodity pricing fluctuations; supply and demand considerations for Occidental’s
products; higher-than-expected costs; the regulatory approval environment; reorganization or restructuring of
Occidental's operations; not successfully completing, or any material delay of, field developments, expansion
projects, capital expenditures, efficiency projects, acquisitions or dispositions; lower-than-expected
production from development projects or acquisitions; exploration risks; general economic slowdowns
domestically or internationally; political conditions and events; liability under environmental regulations
including remedial actions; litigation; disruption or interruption of production or manufacturing or facility
damage due to accidents, chemical releases, labor unrest, weather, natural disasters, cyber attacks or
insurgent activity; failure of risk management; changes in law or regulations; or changes in tax rates. You
should not place undue reliance on these forward-looking statements, which speak only as of the date of this
presentation. Unless legally required, Occidental does not undertake any obligation to update any forwardlooking statements, as a result of new information, future events or otherwise. Material risks that may affect
Occidental’s results of operations and financial position appear in Part 1, Item 1A “Risk Factors” of
Occidental's 2015 Form 10-K.
25