Oil production - Occidental Petroleum

OCCIDENTAL PETROLEUM CORPORATION
Stephen I. Chazen
President & CEO
Bernstein Strategic Decisions Conference 2015
May 28, 2015
Key Messages & Strategy
Overriding Goal is to Maximize Total Shareholder Return
• We believe this can be achieved through a combination of:
• Oil and gas production growth of 5% to 8% per year over the long-term;
− Executing on our capital program with a focus on growing our U.S. oil production
• Allocating and deploying capital with a focus on achieving well above
cost-of-capital returns (ROE and ROCE);
– Return Targets*
• Domestic – 15+%
• International – 20+%
− Continued improvement in our capital and drilling efficiency
− Start-up of long-term projects
• Providing consistent, annual dividend growth;
• Maintaining a strong balance sheet.
− Single ‘A’ Investment Grade rating
* Assumes moderate product prices
2
Why own Oxy?
Large Integrated Majors
Independent E&Ps
Company
XOM
CVX
Company
Market Cap ($B)
$361
$197
RDS
$195
BP
$131
TOT
$125
ENI
$66
Characteristics
• Low or no growth
• Higher returns
• Stronger B/S; lower risk
• Free cash flow
• Consistent dividend growth
Oxy
Uniquely
Positioned
$59
billion
COP
EOG
APC
APA
PXD
MRO
Market Cap ($B)
$80
$49
$44
$23
$23
$19
Characteristics
• Generally higher growth
• Lower returns
• Weaker B/S; higher risk
• 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 5/26/2015
3
Medium-Term Objectives
CASH FLOW GROWTH
 Permian Resources production growth
 Al Hosn project start-up
 Gradual Commodity price recovery
COST SAVINGS
 ~$400 million of captured cost
savings year-to-date
Cash Flow Neutral after
capital spending and
dividend outlays by 4Q 2015
at around $60/bbl oil
 Capital savings re-deployed into
additional activity in Permian Basin
4
Succession Plan Announced
•
Oxy’s board of directors has approved a CEO succession plan and promoted Vicki A.
Hollub to Senior Executive Vice President of Occidental and President – Oxy Oil and
Gas, responsible for operations in the United States, Middle East region and Latin
America.
•
The board plans for Ms. Hollub, who has served as Executive Vice President of
Occidental and President, Oxy Oil and Gas – Americas, since 2014, to succeed
Stephen I. Chazen as CEO of Occidental after a thorough transition period.
•
Ms. Hollub has nearly 35 years of experience in the oil and gas industry, holding a
variety of technical and leadership roles, both domestic and international.
•
In 2013, Ms. Hollub was appointed Vice President of Occidental Petroleum
Corporation and Executive Vice President, U.S. Operations, Oxy Oil and Gas.
•
She previously served as Executive Vice President, California Operations; and
President and General Manager, Permian Basin operations.
5
Cash Flow Priorities
1. Base/Maintenance Capital
2. Dividends
3. Growth Capital
4. Share Repurchase
5. Acquisitions
6
History Of Returning Cash To Shareholders
($ in Billions)
Period ending 2014
Cash Dividends
Share
Repurchases
3 – years
$5.9
$4.0
$9.9
5 – years
$8.5
$4.4
$12.9
10 – years
$12.4
$8.5
$20.9
1Q – 2015
$0.5
$0.2
$0.7
Combined
– Additionally, over the 10 years ending 2014:
•
•
•
We reinvested $45 billion of capital in the business;
We made cash acquisitions of $22 billion;
Our long-term debt increased by only $3.9 billion.
– We spun off California Resources Corp. to Oxy shareholders
in 2014 valued at ~$2.3 billion.
7
Confidence In Cash Flow = Dividend Increase
•
Raised the dividend by 4+%, the 13th year of consecutive increases.
•
Expect to be able to continue to grow our dividend for many years into the future.
–
The new ethylene cracker which comes on in 2017 will provide a substantial boost in our
distributable cash flow.
–
Our base oil business in Abu Dhabi, Oman and the Permian Basin EOR production will
support cash flow and grow modestly over time.
–
High rates of growth in cash flow and profits will come from our Permian Resources
business.
•
We remain mindful of the need for close attention to drilling for profits not just
volume growth.
•
Our overall financial strength gives us confidence that we will be able to spend what
we need, in a range of product prices, and still grow our dividends.
8
Delivering Consistent Dividend Growth
($/share)
$22.00
$20.39
$20.00
$17.39
$18.00
$16.00
$14.51
$14.00
$11.95
$12.00
$9.79
$10.00
$7.95
$8.00
$6.48
$6.00
$5.16
$3.96
$4.00
$3.02
$2.22
$2.00
$0.00
$1.57
$1.02
$0.50
$0.65
$0.52 $0.55
$0.50
2002 2003
2004
2005
$0.80
$0.94
$1.21
2006 2007
Annual Dividends Paid
Note: Dividends paid as per the Record Date.
$1.31
2008
2009
$1.47
$1.84
2010 2011
$2.16
2012
$2.56
2013
$2.88
$3.00
2014 2015E
Cumulative Dividends Paid
9
Active Share Repurchase Program
•
Over the last 5 quarters we have repurchased 28.4 million shares of our
stock and have ~69 million shares remaining under our current program
authorization.
•
We will continue to repurchase shares subject to the stock price and
market conditions and expect to ultimately repurchase the entire amount.
Shares Outstanding (mm)
12/31/14
3/31/2015
Weighted Average – Basic
773.1
769.6
Weighted Average – Diluted
773.4
769.6
Basic Shares Outstanding
770.6
767.6
10
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
11
Oxy is Primarily an Oil Producer
Oil & Gas Production
First Quarter 2015
(Million barrels of oil equivalent)
By Geography
By Commodity
5.6
10%
29.3
50%
28.7
50%
U.S.
International
14.1
38.3
24%
66%
Oil
NGLs
Gas
12
Delivering on Production Growth
•
U.S. oil production grew 14% in 1Q15 on a year-over-year basis.*
•
Increased Permian Resources production guidance to 105 - 108 MBOED.
•
Al Hosn expected to average 25 MBOED in 2Q15 and 35 MBOED for FY 2015.
•
In the U.S., we expect oil production growth of 8% this year, partially offset by
modest declines in NGLs and natural gas production.
•
Expect FY 2015 production to grow by 60 - 80 MBOED.
Company-wide 2015 Oil & Gas Production Outlook (MBOED)
30 – 45
650 – 670
Al Hosn
& Other Int'l
2015 Production
Outlook
30 – 33
591
591
FY2013
FY2014
Permian
Growth
* Excludes Hugoton oil production which was sold in 2Q14.
13
2015E Capital Budget Down Sharply vs. 2014
33% decline in 2015 capital budget
Domestic O&G
42%
Chemicals
U.S. 6%
Permian
Midstream
Resources
9%
22%
Exploration
6%
International
37%
Other
Domestic
20%
2014 Capital - $8.7 Billion
Domestic O&G
43%
Chemicals
10%
U.S.
Midstream
10%
Exploration
4%
Permian
Resources
30%
International
33%
Other
Domestic
13%
2015E Capital - $5.8 Billion
Note: Capital budget assumes $55/bbl WTI, $60/bbl Brent and $3.00/mcf domestic natural gas prices.
14
Capital Efficiency Continues to Improve
Organic F&D Costs*
($ / BOE)
U.S.
•
Through the success of our drilling
program and capital efficiency initiatives,
we lowered our F&D costs over recent
years.
•
We expect our DD&A expense to be
~$15 / BOE in 2015, a decrease from
~$17 / BOE in 2014.
•
DD&A rate of growth should flatten out as
recent investments come online and F&D
costs decline.
•
The success of our organic reserve
additions and capital efficiencies achieved
demonstrates the significant progress we
have made in turning the Company into a
competitive domestic producer.
Total
$21.90
$20.48
$20.24
$18.66
$16.89
$12.18
5-Year 3-Year 2014 5-Year 3-Year 2014
Avg. Avg.
Avg. Avg.
*5 Year and 3 Year averages include revisions; 2014 excludes revisions.
15
Capital Spending Ramps Down Through Year
•
2015 Capital Budget
Total company capital expenditures for
the 1Q15 were $1.7 bn and we expect our
quarterly expenditures to continue to ramp
$1.7 bn
down through the year.
•
Based on our lower pace of spending in
1Q15 and continued cost efficiency gains,
Permian
Resources
we expect total capital spending for 2015 to
~$1.0 bn
be below our original guidance of $5.8 bn.
•
Oil and gas spent $1.5 bn, with Permian
Resources expenditures nearly 50% of
Remaining
Oil & Gas
the total, and the remaining $200 mm split
about evenly between Chemical and
Midstream.
Midstream
& Chemicals
1Q15A
•
2Q15E
3Q15E
4Q15E
4Q15 exit rate of capital would imply an
annualized spending level of ~$4 bn.
16
Capital Program 2015 Evolution
2015 Capital Budget and Domestic Drilling Rigs
100%
Capital
Budget
Domestic
Drilling Rigs
75%
50%
25%
•
As we capture price savings from
suppliers and improve efficiencies,
we are able to do more with less
spending.
•
Given our large acreage position and
deep inventory, we have the flexibility
to defer drilling and appraisal activity.
•
Although we will likely outspend our
cash flow during 1H15, we expect that
by 4Q15 our operating cash flow will
cover our capital and dividends, at oil
prices of roughly $60/bbl.
0%
1Q15
2Q15E
3Q15E
4Q15E
Note: 1Q15 is the baseline index; subsequent quarters are a % of 1Q15
17
Permian Basin Is The Core Domestic Asset
Oxy Acreage
Oil Pipelines
CO2 Pipelines
•
Largest oil producer and operator in
Permian Basin.
•
Significant investments in infrastructure to
support the upstream provide low operating
costs, advantaged realized prices and
competitive advantages.
•
~60% of Oxy’s Permian oil production is
from CO2 related EOR projects – Oxy’s
most profitable business.
•
The EOR business (mainly CO2) will
continue to generate significant FCF.
•
Permian Resources is the cornerstone
growth asset of the domestic business.
•
Substantial acreage position with
significant resource development potential.
•
We have shifted toward horizontal drilling
and expect the Resources business to grow
rapidly.
18
Total Operated Production, Thousand BOEPD
Oxy is the Largest Permian Basin Producer
Source: IHS Energy Feb and Mar 2014, 6 MCF/BOE excluding estimated CO2 production.
Cumulative
% of total
2.3 million
BOEPD
19
Permian Resources Drilling Inventory
Lowering economic hurdle point by improving well productivity,
time to market and costs
100%
(~44 yrs)
Drilling Inventory
1.
2.
3.
4.
Investing in characterization
and optimization to improve
well productivity.
Applying manufacturing
principles to improve time to
market and cost.
Aggressively working with
Suppliers to improve
productivity and lower cost
structure.
Enhancing our base
management and well
maintenance operations.
Based on Q4 Costs
81%
(~ 36 yrs)
Better Well
Productivity and
Lower Cost
Avalon
Delaware
61%
(~27 yrs)
Bone Spring
Spraberry
37%
(~16 yrs)
Wolfcamp D
Wolfcamp C
15%
(~7 yrs)
Wolfcamp B
Wolfcamp A
$40-$50
$50-$60
$60-$70
$70-$80
>$80
(## yrs) represents drilling inventory of years at 2015E activity levels
20
Permian Resources Summary
Increased 2015 production guidance from 100 MBOED to 105 - 108 MBOED
Production (MBOED)
Average Rig Count
Horizontal
Vertical
4
7
5
17
19
2Q14
3Q14
4
25
4Q14
21
13
1Q15 Remainder
2015
Wells Drilled / Online
98
48
57
64
75
107
120
Drilled
84
2012
87
2013
2014
*Assumes $60/bbl WTI oil prices
4Q14
150
126
59
2011
Online
1Q15 2015E 2016E*
2Q14
75 71
3Q14
85
86
70
4Q14
1Q15 Remainder
2015
21
Permian Resources Summary
Achieved 17% increase in BOED and 22% increase in BOPD vs. Q414
1Q 2015
126 Wells Online
WELL ACTIVITY
Oil Production (BOPD)
vs. 4Q-2014
vs. 1Q-2014
Capital Expenditures
Active Rigs
1Q 2015
98,000
62,000
22% Increase
68% Increase
$728MM
25
120
100
Well Count
Total Production
(BOED)
80
60
40
Wells Drilled
86 / 61Hz
20
Wells Online
126 / 67 Hz
(+20 Hz v Q4)
0
Drill
Online
1Q14
67
67
2Q14
87
59
3Q14
75
71
4Q14
85
73
1Q15
86
126
22
(# of Days)
Step Change in Efficiency –
Our Total Time To Market Is Down 50%
2014
Drilling
YTD
Completion
•
Faster drilling
•
Less idle time
•
More frac stages per day
•
Integrated planning
•
Infrastructure investments in
water handling, storage,
gathering and takeaway
•
Step change in capital
efficiency should allow for
increased activity with fewer
drilling rigs and structural
long-term cost reductions
TARGET
Hook-Up
23
Domestic Drilling Rig Evolution For 2015
•
Some of the captured cost savings have been re-deployed into higher activity
levels than planned for the remainder of 2015.
2015E Domestic Drilling Rigs
35
31
31
30
25
20
14
15
11
13
10
10
13
9
5
0
1Q15
2Q15E
January Plan
3Q15E
4Q15E
Current Outlook
24
Move to Manufacturing Mode Has Significantly
Reduced Well Costs
Manufacturing Mode Drilling / Completions
DRILL DAYS
Delaware WC-A 4,500’
WELL COST
Delaware WC-A 4,500‘ HZ
$12.0
$10.9
50
45
GROSS WELL COST $MM
$10.0
40
$8.3
$8.0
$5.6
35
$6.5
$6.0
43
$4.7
31
30
26
25
$3.0
$4.0
20
14
15
$5.3
$2.0
$3.6
$3.5
16
10
5
$2014
Drilling
Current
Completion
Target
0
2014
Feb
Mar
Best
Target
Spud to Rig Release
25
Move to Manufacturing Mode Has Significantly
Reduced Well Costs
Manufacturing Mode Drilling / Completions
WELL COST
New Mexico Bone Spring HZ
WELL COST
SCR Spraberry 10,000‘ HZ
$9.7
$8.0
GROSS WELL COST $MM
$7.0
$7.9
$8.0
$7.2
$5.7
$6.0
$4.6
$4.3
$4.0
$2.0
$4.0
$3.3
$2.9
Current
Target
$-
GROSS WELL COST $MM
$10.0
$6.6
$5.7
$6.0
$5.0
$5.5
$2.9
$2.9
$4.0
$3.0
$3.0
$2.0
$3.7
$2.8
$1.0
$2.5
$2014
Drilling
Completion
2014
Drilling
Current
Target
Completion
26
Permian – Delaware Basin Opportunities
OXY Acreage
Delaware Basin
Benches
•
Majority of Wolfcamp locations are
in our operated areas of Reeves
County.
•
Current Bone Spring locations are
located primarily in New Mexico.
Bell Canyon
Cherry Canyon
Brushy Canyon
Avalon
1st
Bone Spring
2nd
Bone Spring
3rd Bone Spring
Wolfcamp
A
B
• Wolfcamp A/B and 2nd Bone
Spring are in development mode
C
D
Development
Appraisal
Drilling Locations by Bench
Gross Wells
Bone Spring 1st, 2nd and 3rd
1,500
Wolfcamp A / B / C
800 / 650 / 700
Other
600
Vertical
350
Total
4,600
Horizontal Development Ready
1,500
Net WI Wells
3,500
• Additional benches currently in
appraisal mode are the 1st and 3rd
Bone Spring, Wolfcamp C/D, and
Brushy Canyon.
27
Permian – Midland Basin Opportunities
Midland Basin Benches
Wolfcamp
OXY Acreage
Yates
Grayburg
San Andres
Clear Fork
Upper Spraberry
Middle Spraberry
Lower Spraberry
A
B
C
D / CLINE
• Majority of Wolfcamp locations
are in our operated areas of
Martin, Midland and Andrews
Counties.
• Wolfcamp A & B and Spraberry
are in development mode.
Barnett Shale
Mississippian Lime
Montoya
Simpson
Ellenburger
Development
Appraisal
Drilling Locations by Bench
Spraberry
Wolfcamp A / B / C / D
Vertical
Exploration
• Additional benches currently in
appraisal mode are the
Clearfork and Wolfcamp C & D.
Gross Wells
450
250 / 350 / 550 / 700
200
Total
2,500
Horizontal Development Ready
1,050
Net WI Wells
2,300
28
Permian Resources Production Guidance
•
•
Continue to execute focused
development strategy
PRODUCTION
(MBOED)
For the remainder of 2015:
−
Operate average of 13 rigs (higher
than planned)
−
Expect to drill 150 wells
−
Continue to pursue step changes
in well productivity and cost
structure
−
107
Continue to reinvest cost savings
•
Expect to deliver target of 105 - 108
MBOED average production for 2015
•
Oxy is well positioned to meet the
challenges of lower prices and grow.
48
2011
57
64
120
75
2012 2013 2014 2015E 2016E
Production (MBOED)
29
Permian EOR – Consistent Generator of Cash
•
•
•
•
•
•
~150,000 BOEPD of low cost
production.
Most active and largest EOR
operator in the Permian Basin
with 30 active floods.
Over 40 years of successful
CO2 flooding experience.
High working interest in over
350 properties.
Operate 2 CO2 source fields
Handle 2 BCFD of gas
through:
−
12 gas processing plants
−
1,900 miles of pipeline
CO2 Supply and Processing
30
Permian EOR Has A Low 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
$0
Well, Surf
Maint
Injectant
Energy
Taxes
SG&A
Sensitive to O&G Prices
$10.8
$0
Well, Surf
Maint
Injectant
Energy
Taxes
SG&A
Partially Discretionary
31
Oxy Permian Gathering / Takeaway
Cushing
Centurion
SENM/
DE Basins
Central/
Midland Basins
Basin
Slaughter
Seaway
Colorado City
WTG
MidlandSouth
BridgeTex
LongHorn
Houston
Cactus 2Q15
Owned
3rd Party
Corpus Christi
BridgeTex Started Up in Late Sept 2014
32
Long-term Growth Investments
•
Some of the longer lead time investments we have been
making over the past couple of years will start contributing
to our results this year.
– Continued preferential access and commitment to the BridgeTex
pipeline which started in late September will improve our Permian
price realizations.
– The Al Hosn Gas Project started its initial production in the beginning
of 1Q’15 and started contributing to our cash flow.
– OxyChem Ingleside Ethylene Cracker.
– Oxy Ingleside Energy Center.
•
As these projects come on line in 2015 - 17, we expect them
to make significant contributions to our earnings, cash flow, and
improve our overall returns.
33
Al Hosn Gas Project Continues To Ramp Up
•
We completed the Al Hosn gas project, on budget and on time.
•
It is currently producing ~25,000 BOED (net to Oxy) and will ramp up
through the year.
•
FY 2015 volumes from Al Hosn should average ~35,000 BOED (net to Oxy)
with more than 40% of production coming from NGLs and condensate.
•
At full run-rate production, annualized operating cash flow is expected to
be $300 to $600 million depending on commodity prices.
34
Future Growth – Chemicals
OxyChem Ingleside Ethylene Cracker
•
We have formed a 50/50 JV with Mexichem to
build a world scale ethylene cracker at the
OxyChem plant in Ingleside, TX.
•
Construction on the Ingleside cracker project
began mid-2014 with the facilities to become
commercially operational in early 2017.
•
Oxy’s share of capital spending ~$725MM.
•
Provides Oxy with high level of integration from
well head to VCM:
– The ethylene will be processed with chlorine from
Oxy’s nearby chlor-alkali plant to provide EDC
feedstock for VCM production. Oxy will in turn
supply VCM to Mexichem for their PVC production
under a 20-yr agreement.
35
Future Growth – Ingleside Energy Center
OxyChem Plant
• Terminaling
- LPG: 60-100 MB/d (2Q 2015)
- Crude/Condensate: 200-300 MB/d (1H 2016)
- Storage: 2 - 4 MM BBLS
• Future processing options
Provides flexibility and avoids congested ship channel
36
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 2014 Form 10-K.
37