investor presentation - Occidental Petroleum

OCCIDENTAL PETROLEUM CORPORATION
Vicki A. Hollub
President & CEO
UBS Global Oil and Gas Conference 2016
May 25, 2016
Vicki A. Hollub
Why own Oxy?
Large Integrated Majors
Independent E&Ps
Company
XOM
RDS
Company
Market Cap ($B)
$372
$197
CVX
$188
TOT
$120
BP
$98
ENI
$55
Characteristics
• Low or no growth
• Higher returns
• Stronger B/S; lower risk
• Free cash flow
• Consistent dividend growth
Oxy
Uniquely
Positioned
$57
billion
COP
EOG
PXD
APC
APA
DVN
Market Cap ($B)
$54
$45
$27
$25
$22
$18
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 5/24/2016
2
Keys to Success
Balance Sheet Strength
Diverse Portfolio
• Ended 1Q16 with $3.2 Billion
cash
• Debt of $7.6 Billion (24%
debt to capitalization ratio)
• Long life cash flow assets
• Significant growth potential
Talent Optimization
Returns-Focused Strategy
• Maintain and continue to
develop staff
• Increase use of advanced
technology and data
analytics
• Invest in projects that
generate long-term value with
returns above cost of capital
• 5% – 8 % long-term
• Flexibility to ramp activity
up or down depending on
market conditions
• Domestic +15% / Intern. +20%
• Leverage fast growth shale
with low-decline EOR
3
Cash Flow Priorities
1. Base/Maintenance Capital
2. Dividends
3. Growth Capital
4. Share Repurchase
5. Acquisitions
4
History Of Returning Cash To Shareholders
($ 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
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
Latin America
• Al Hosn Project,
Oman and Qatar.
• Additional opportunities
for growth with partner
countries.
Integrated pipeline and
marketing business to
maximize realizations.
• Highest margin operations
in Colombia.
• Additional opportunities
for moderate growth
with partner.
• Oil production
• Earnings & Cash Flow
per share
• ROCE
• Dividend stream
Oxy will be
positioned to grow
6
Total Spend Per Barrel
Capital Spending + G&A + All Operating Costs
Total Spend per Barrel =
Global Oil & Gas Sales Volumes
~$40.00
2014
2015
2016E
•
Internal performance metric to focus on
operational efficiency, especially in
consideration of the sharp decline in
commodity prices.
•
Portion of senior management’s incentive
compensation is directly aligned with this
performance metric
•
Focuses on efficiency, financial returns, and
free cash flow generation.
•
Designed to help manage the reduction in
overall spending while rewarding production
growth.
7
Improved Cost Structure
Ongoing Domestic Production Costs
Overhead (SG&A)
($/boe)
($ millions)
$1,503
$13.58
$12.28
$1,270
$11.86
~$1,150
2015
4Q15
1Q16
2014
2015
2016
Target
8
2016 Capital Outlook
2016 Capital Budget
• Carefully reduce activity
levels without harming the
strong progress on growth
prospects
($ in bln)
$5.6
$2.8 - $3.0
2015
Maintenance
2016E
Sustaining
• Fund only those
opportunities that exceed
hurdle rates of return
• 2016 plan approximates
expected cash from
operations at around current
prices
Growth
9
Committed Project Capital Declining
•
Committed Project Capital
($ 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
10
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
12 processing plants
1,900 miles of pipeline
– CO2 pipelines
– Oil infrastructure and pipelines
– Marketing business
CO2 Pipelines
11
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
12
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 resources on game changing technologies and applications
 Accelerate continued improvements in execution and cost
Expect to operate 4 - 5 rigs in the Permian over the remainder of the
year
13
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
14
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
60%
48%
40%
14%
•
~350 locations economic
below $40 / barrel
4%
15
Permian Resources Production
•
Total production grew 31%
year-over-year to 128
MBOED.
Oil
We have leveraged and
extended our industry
leading practices from our
EOR business to drive
improvements in base
management to minimize
decline.
Gas
128
– Oil production grew 35%
year-over-year to 84
MBOD.
•
NGL
110
118
75
64
35
43
2013
2014
71
76
84
2015
4Q15
1Q16
2Q16E
Production (MBOED)
16
Southeast New Mexico Recent Performance
Completion optimization efforts have significantly increased value
•
Increased proppant to 1,500 lbs/ft
−
Testing up to 2,000 lbs/ft
•
Evaluating cluster spacing and fluid design
•
Monitoring cumulative production results of
New Design – 4 Wells 78% Oil
recently drilled extended laterals
•
Preparing to transition to produced water base
Old Design – 8 Wells 83% Oil
fluid in development areas to decrease costs
82% Oil
Offsetting increased completion costs with continued drilling efficiencies
•
Decreased drilling cost/lateral ft by greater than 20% from 2015
•
Current drilling, completion and hookup cost $5.9mm
•
Expect to realize continued savings - 2H 2016 target well cost $5.5mm
17
Permian Resources – Manufacturing Mode
Delaware Wolfcamp A 4,500’ HZ
$6.3
$3.4
$2.7
$2.9
$2.7
Current
Best
$5.3
2014
DRILLING DAYS
$5.4
43
37
20
19
17
19
Drilling
Completions
$6.1
$5.5
13
2014 1Q15 2Q15 3Q15 4Q15 1Q16 Best
$5.3
$3.8
$3.7
2014
DRILLING DAYS
WELL COST $MM
$5.6
$9.2
WELL COST $MM
Drilling
Completions
$10.9
East Midland Wolfcamp A 7,500’ HZ
$3.4
$2.3
$1.9
Current
Best
46
31
20
18
17
16
11
2014 1Q15 2Q15 3Q15 4Q15 1Q16 Best
18
Permian Resources Continued Opex
Reduction
• Continued focus on
reducing field operating
costs during 2016
Permian Resources Opex/BOE
$15.00
$13.02
$11.41
$10.87
$10.00
$9.74
$8.72
− Downhole expense
$/boe reduced 36% from
Q1 2015
− Company operated
operating expense
down ~37% ($/boe) from
Q1 2015
$5.00
$1Q15
2Q15
3Q15
Surface
Downhole
Supports
4Q15
Energy
1Q16
Other
19
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
20
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
21
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 Injectant Energy
Maint
Taxes
SG&A
Sensitive to O&G Prices
Well, Surf Injectant
Maint
Energy
Taxes
SG&A
Partially Discretionary
22
Residual Oil Zone Development
• The ROZ development is a vertical expansion of the CO2 flooded interval.
• Utilize work-over rigs to drill the extra depth into additional CO2 floodable sections of
the reservoir.
• The ROZ underlies most of our major EOR properties with current projects in South
Hobbs and West Seminole and can be developed between $3 and $7 per BOE.
Geologic
Seal
Producing Oil
Water Contact
Main Oil
Column
Original
Injector
Residual
Oil Zone
Deepened
ROZ
Injector
Original
Producer
New ROZ
Injector
Deepened
ROZ
Producer
Water Zone
23
Middle East Summary
Middle East Footprint
Qatar
UAE
•
Reduced footprint in the Middle
East.
•
Strategy is to grow businesses in
the core countries of UAE, Oman
and Qatar.
•
Oxy has stopped investment in
Libya, Yemen, and Iraq and has
agreed to exit Bahrain.
•
The Al Hosn gas project is currently
producing over 60 MBoed (net to
Oxy).
•
At full production, annualized
operating cash flow is expected to
be $300 to $600 million depending
on commodity prices
Oman
Focus Areas
Al Hosn Project
24
Chemicals – Ethylene Cracker Update
Average annual Chemicals EBIT of
almost $600 Million over last three
years with earnings and cash flow
growth expected from the start-up
of the Ingleside Ethylene Cracker.
•
MexiChem Ethylene Cracker JV
Currently have spent ~80% of total
project capital of ~$725 mm (net)
MexiChem Ethylene Cracker JV
for the MexiChem Ethlyene Cracker
JV.
•
Facilities to become commercially
operational in early 2017.
25
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
26
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.
27