Occidental Petroleum (OXY.US) Q4 earnings call: More focus on short-term assets and short-term cash flow. Expected average oil production for the full year 2024 is 1.25 million barrels per day.

In recent days, Occidental Petroleum (OXY.US) held a conference call to discuss the fourth quarter financial results for 2023. Occidental Petroleum reported that in 2023, the company generated $5.5 billion in free cash flow, with $600 million used for common stock dividends, $1.8 billion for stock repurchases, and $1.5 billion for redeeming preferred stocks. Additionally, the company spent $6.2 billion on capital expenditures. For 2024, the oil and gas capital expenditures plan is expected to decrease by 3-6% compared to the previous year. In terms of capital expenditure allocation, priority will be given to cash flow projects with fast returns, starting with the DUC consumption in the Rockies, followed by artificial lift and EOR projects such as carbon dioxide injection to enhance recovery rates. In terms of production, last year, the company's global oil and gas business production exceeded the initial full-year production guidance midpoint by 43,000 barrels of oil equivalent per day. This was driven by record production in domestic assets in Delaware, the Midland Basin, and DJ Basin, as well as the record production in Block 9 in Oman. Furthermore, the company successfully completed the expansion of the Al Hosn plant in the UAE, also achieving record production levels. For 2024, the company expects an average daily production of 1.25 million barrels of oil equivalent, representing a low single-digit increase from 2023, with the Rockies and Al Hosn regions driving production growth. Occidental Petroleum highlighted that U.S. oil companies are adjusting and optimizing their asset durations through mergers and acquisitions, balancing short-term dividends with long-term reserves. For example, XOM's acquisition of PXD is aimed at balancing short-term and dividend capabilities. On the other hand, CVX's acquisition of HESS is motivated by CVX's shorter reserve life compared to other international oil companies (CVX 10 years, shorter than XOM's 12 years), with Buffett acquiring a growing asset in Guyana to capitalize on HESS's growth potential. As for OXY, the company's reserve life in shale oil assets is relatively low (less than 9 years), with over $10 billion in bonds maturing each year and $8.5 billion in preferred stocks needing redemption. The acquisition of Crownstock announced at the end of last year is a short-term cash cow. Crownstock, a private company with limited information available, is identified as a mature oil field with high production and cash flow, and minimal debt. This acquisition is seen as a strategic move by OXY to increase short-term production, improve debt repayment capabilities, and enhance current dividends. Q&A 1. My question is about deleveraging. How do you plan to bring your balance sheet to the desired level after acquiring CrownRock, and how do you view the asset sale market in reducing debt through asset sales? A: Many companies have great interest in entering the Permian Basin. We have some assets in the Permian that are not core to us but might be core to others. So, I believe asset divestitures will go smoothly. However, what we won't do is do any asset sales until we close the acquisition of CrownRock. Then we will actively start that process more aggressively. 2. The first-quarter production impact by third-party pipeline operators, and the subsequent recovery progress? A: The first-quarter production guidance is 107 to 115 Mboed, so for the remaining three quarters this year, we need to achieve 133 to 141 Mboed. I suspect a significant portion of that is related to pipeline interruptions. Could you shed some light on what the limiting factors are for getting that asset back online, and how we should think about the production cadence throughout the year? We will leave the updates to the operators. So we won't comment on that because we are giving them space to do their job. As far as the remaining time this year, we anticipate it will continue normally, and we expect that when we come back online, we might get some acceleration in production, we hope our target date for resuming operations is very close to what we've said. Do you have anything to add? Another executive added, we are quite optimistic about the progress of resuming production. For instance, tomorrow we are sending our professional startup personnel overseas to complete facility arrangements needed for full operations. I believe this will give you an insight into where we stand in this process. 3. When you acquired Anadarko and tried to deliver, I recall you had about 25 different asset packages available for sale. So my question is, can you tell us whether a significant cash flow in the range of $4.5 billion to $6 billion will be generated, without specifically mentioning assets, and what the related free cash flow figures are? A: Based on the content of the actual divestitures, we can't provide estimates for you today. It might still take some money because blocks that haven't been assessed are difficult to sell. 4. Regarding maintaining production corresponding to capital expenditures? A: You have already increased the capital expenditure figure slightly to $3.9 billion. The growth rate this year is around 2%. Your total capital expenditure is $6.5 billion, with $1 billion used for Battleground and DAC, excluding these two, it is $5.5 billion in capital expenditure. So, I am trying to figure out that a 2% growth rate seems to correspond to a $1.5 billion capital expenditure. This ratio seems a bit off. Can you help me understand how I should think about this? In 2024, we will spend $4.8 billion to $5 billion on oil and gas. Part of this will be for some mid-cycle projects, such as Permian EOR. Investing in this project will yield oil and gas production in the third year after we start. The Gulf of Mexico, some of which are also being prepared for the future, so mid-term investments will not impact this year's production. The potential 2.2% growth will be based on a $4.9 billion monthly expenditure, minus $480 million (for mid-cycle projects), and then possibly reducing it a bit for facility investments. (z) - capital; funds; finance5. Would you like to know some details about the addition of 700 million barrels of oil equivalent in reserves? Most of the additions come from our Permian. I think basically most of it is. We made some adjustments in other areas, but most of it comes from Permian EOR. Another area is Algeria, which is the result of the team's efforts to merge all 18 contracts into one contract and then extend it. 6. In terms of EOR, what growth rate in production from EOR do you expect in the next 5 to 10 years? In the next 5 to 10 years, it will become an important part of our product portfolio development. We still have 20 billion barrels of resources to be developed, and we believe that, as we eventually build direct air capture facilities to remove carbon dioxide from the atmosphere, this will become the most sustainable oil production in the world. Currently, in oil production, 30%-40% of oil in conventional reservoirs is left undeveloped underground, and for shale oil, this proportion is as high as 90%, which is unacceptable. In order for the US to continue achieving energy independence, increasing recovery rates must ultimately become part of it. Because we do believe that if EOR cannot produce net-zero carbon barrels of oil, the world will not be able to afford a climate transition. One of the characteristics of EOR production is reducing field decline. Therefore, as we have gone through the past few years, especially during the period of low commodity prices, achieving steady decline of less than 5% can help us maintain a significant amount of free cash flow. 7. In terms of capital spending allocation, why put more investment in Rockies and EOR, rather than Permian? The acquisition of CrownRock brought a significant increment (short-term increment), it is a more mature, unconventional development project, with high profit margins and a decline rate of 35%, making it a very good growth point this year. In the Rocky Mountains area, around 40% of the investment this year is being put into completing the drilled but uncompleted oil wells (DUCs) from last year. From an investment intensity perspective, this is very, very low investment intensity. The number of DUCs will decrease from over 60 (in the fourth quarter of last year) to a balanced 30 plus, which allows us to actually reduce half of the rigs. We need to balance short cycle, fast declining production, and medium cycle, slow declining production. Permian EOR has the lowest base decline in our investment portfolio. Therefore, if you look at a typical Permian EOR project, we will reach peak production in the third year, with peak production almost three times as much as the first year, with only slight decline after that. 8. The company needs to spend money on redeeming preferred stocks by the end of 2025, and with the acquisition of CrownRock bringing in short-term cash flow, will it be able to cover the payment needs for the next year or so? The short-term cash flow from the acquisition of CrownRock will first help us reduce our debt to $150 billion, and then help us start recovering stronger common stock dividends and eventually redeem preferred stock.