21st Annual Credit Suisse Energy Summit Presentation

OCCIDENTAL PETROLEUM CORPORATION
Vicki A. Hollub
President & Chief Operating Officer
Credit Suisse Energy Summit
February 23, 2016
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.
2
Why own Oxy?
Large Integrated Majors
Independent E&Ps
Company
XOM
CVX
Company
Market Cap ($B)
$328
$156
RDS
$142
TOT
$100
BP
$94
ENI
$51
Characteristics
• Low or no growth
• Higher returns
• Stronger B/S; lower risk
• Free cash flow
• Consistent dividend growth
Oxy
Uniquely
Positioned
$50
billion
COP
EOG
APC
PXD
APA
MRO
Market Cap ($B)
$41
$37
$21
$20
$15
$6
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 2/5/2016
3
Why own Oxy?
Balance sheet
Portfolio of Assets
• Ended 2015 with $4.4 Billion
cash
• Long life cash flow assets
• Debt of $8.3 Billion (25%
debt to capitalization ratio)
• Significant growth potential
• Flexibility to ramp activity
up or down depending on
market conditions
People
Strategy
• Maintain and continue to
develop staff
• Invest in projects that
generate long term value with
returns above cost of capital
• Increase use of advanced
technology and data
analytics
• Leverage fast growth
Resources with low decline
EOR
4
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.
*Assumes moderate product prices
5
Cash Flow Priorities
1. Base/Maintenance Capital
2. Dividends
3. Growth Capital
4. Share Repurchase
5. Acquisitions
6
Execution Of Our Strategic Initiatives
 Closed the sale of Williston Basin
properties
Williston Sale
16 MBOED – FY15
 Progressed our efforts to exit from
non-core operations in Middle East
$0.6 bn pre-tax
proceeds
 Reached understanding on terms of
payment with the Republic of Ecuador
for ~$1 billion.
 Continued progress on construction of
the OxyChem Ethylene cracker on
schedule and on budget for start-up in
early 2017
 Exited 2015 with ~$4.4 billion of cash
MENA Exits Ongoing
Iraq
Libya
Bahrain
60 MBOED
– 4Q15
Yemen
Core Assets
7
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,
Integrated pipeline and
Oman and Qatar
marketing business to
• Additional opportunities maximize realizations.
for growth with partner
countries
Oxy will be
• Highest margin
operations
in Colombia.
• Additional opportunities
for moderate growth
with partner.
positioned to grow
• Oil production
• Earnings & Cash Flow
per share
• ROCE
• Dividend stream
8
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.
9
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
10
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
11
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%
12
Permian Resources Production Growth
•
Oil
Total production grew 40% yearover-year to 118 MBOED.
– Oil production grew 49%
year-over-year to 76 MBOD.
– Oil production is expected
to continue to grow at rates
higher than total
production.
•
Reached goal of 120 MBOED in
November, one year and one
month ahead of original goal
110
NGL
109
Gas
116
118 ~123
74
76
98
75
71
62
71
43
2014
2015
1Q15 2Q15 3Q15 4Q15 1H16E
Production (MBOED)
13
Permian Resources Cost Reduction
Permian Resources Operating Costs / BOE
$15.00
$13.20
• Focus on reducing field
$13.03
$11.39
operating costs during 2015
$10.87
$9.73
$10.00
• Downhole expense ($/boe)
reduced 34% from 4Q14
• Company operated operating
$5.00
expense down ~30% ($/boe)
from 4Q14
$-
4Q14
Surface
1Q15
Downhole
2Q15
Supports
3Q15
Energy
4Q15
Other
14
Permian Resources –Manufacturing Mode
Move to Manufacturing Mode Significantly Reduced Well Cost
DRILL DAYS
Delaware Wolfcamp A 4,500’ HZ
WELL COST
Delaware Wolfcamp A 4,500’ HZ
$12.0
50
$10.9
45
GROSS WELL COST $MM
$10.0
$8.0
43
40
37
35
$5.6
30
$6.2
$5.5
$6.0
20
20
$3.2
$4.0
25
$2.8
$5.3
19
17
14
15
10
$2.0
$2.9
$2.6
Current
Best
$-
5
-
2014
Drilling
Completions
2014
1Q15
2Q15
3Q15
4Q15
Best
Rig Release to Rig Release
15
Permian Resources – Manufacturing Mode
Move to Manufacturing Mode Significantly Reduced Well Cost
DRILL DAYS
East Midland
Wolfcamp A 7,500’ Hz
WELL COST
East Midland
Wolfcamp A 7,500' Hz
50
$12.0
46
45
GROSS WELL COST $MM
$10.0
$9.2
40
35
$8.0
31
30
$6.0
$5.5
$6.0
$5.3
25
20
20
$3.7
$4.0
$2.0
$3.4
18
17
15
13
10
$3.7
$2.3
5
$1.9
-
$2014
Drilling
Current
Completions
Best
2014
1Q15
2Q15
3Q15
4Q15
Best
Rig Release to Rig Release
16
Permian EOR
CO2 Supply & Processing
•
Stable and low-decline base
production at an advantaged
cost
•
Permian EOR business
remains profitable in the
current downturn
•
EOR business is expected to
generate free cash flow this
year in the current oil price
environment
•
Infrastructure would be hard
to duplicate
17
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
Oil & Gas Journal 2012 Biennial EOR Survey
18
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
$0
Well, Surf
Maint
Injectant
Energy
Taxes
SG&A
Sensitive to O&G Prices
Well, Surf
Maint
Injectant
Energy
Taxes
SG&A
Partially Discretionary
19
Permian EOR Cash Costs
Cash Operating Expense ($/BOE)
$25.00
$20.82
•
Cash Operating Expense reduced
by $4.36 / BOE in 4Q14 to 4Q15
•
Savings were driven by
productivity gains and supplier
cost reductions
•
Well maintenance job productivity
improved 32% in 4Q15 versus
4Q14
$20.03
$20.00
$18.16
$18.36
$16.46
$/BOE
$15.00
$10.00
$5.00
$0.00
4Q14
1Q15
Supports & Other
Injectant
Workover / Well Enhancement
2Q15
3Q15
4Q15
Energy
Surface Ops and Maintenance
Downhole Maintenance
20
Denver EOR Unit: Battery 5 Development
Waterflood
Primary
CO2
Battery 5 Redevelopment Project:
• Develops both Main Oil Column & Residual Oil Zone
• Requires deepening 150 wells
• Develops 21 MMBOE net at a $4.80 per BOE
21
Hobbs: CO2 Flood and Expansion Areas
North Hobbs:
• Phase 1 added 35 MMBOE (Injection started
in 2003)
• Phase 2A Project will develop 13.7 MMBOE
at $13.82 per BOE (Injection Starts in 6/2016)
• ~93% oil production
South Hobbs:
• Started CO2 injection into Phase 1 in
September (ahead of schedule)
• Phase 1 & 2 will develop 28 MMBOE at
$10.60 per BOE
• 100% oil production
North Hobbs Oil Production
22
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
23
Permian EOR is a Large, Highly Economic
Resource
Unrisked, gross resource potential of up to 1.9 billion barrels
•
•
•
2015 EOR CAPEX = $500MM
−
Complete and begin CO2 injection at
South Hobbs
−
Start Expansion on North Hobbs CO2
Expected to generate free cash flow
in current oil price environment.
EOR and Resources deliver
advantaged scale, infrastructure and
expertise synergies across Permian.
Unrisked, Gross Reserves and
Resources
Undeveloped CO2
1.9 bn
Developed
2.0 bn
Undeveloped
0.3 bn
24
Permian Summary
EOR
•
•
Resources
2016 activity focused on core
locations with minimal
infrastructure investments
255
Analyze appraisal data to support
future development and initiate
seed projects for long term growth
in EOR
•
Reduce rig count in Permian to 2-4
rigs
•
Technical staff and engineers will
focus on long-term projects,
enhancing base production, and
preparing full field development
plans for to ramp up activity when
oil prices recover.
243
254
260
261
~266
222
110
98
109
116
118
~123
147
145
145
145
144
144
143
2014
2015
75
1Q15 2Q15 3Q15
Production (MBOED)
4Q15 1H16E
25
2016 Capital Outlook
2016 Capital Budget
•
Carefully reduce activity levels without
harming the strong progress on growth
prospects
•
Fund only those opportunities that exceed
hurdle rates of return
•
2016 plan approximates expected cash from
operations at around current prices
•
Majority of the program will be allocated to the
Permian Basin and to completing long-term
projects in Chemicals and Midstream
•
In Permian Resources, drilling activity focused
in the Midland and Delaware near existing
infrastructure, to achieve higher returns
•
In Permian EOR, a modest increase for
building out facilities and systems to handle
and inject greater quantities of CO2, with 1-2
year production response time
($ in bln)
$5.6
$2.8 - $3.0
2015
Maintenance
2016E
Sustaining
Growth
26
Committed Project Capital Declining
•
Committed Project Capital
($ 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
27
2016 Capital Breakdown – Oil & Gas
2016 Capital Budget
$2.8 - $3.0 billion
Chemicals
18%
Permian Resources
21%
Midstream
16%
Permian EOR
17%
Exploration & Other
4%
International
24%
28
Oxy Production Growth
Total Oil Production*
Total Company Production*
(MBOD)
(MBOED)
416
362
2014
652
571
2015
2014
2015
* Ongoing operations; excludes Williston & Hugoton production volumes
29
2016 Production Outlook
•
Expect total production from core assets to grow 2% - 4% over 2015 levels
– Core assets exclude Bahrain, Libya, Iraq, Yemen, Williston and Piceance Basins
– Full year contribution from Al Hosn and start-up of Block 62 in Oman should add
~35,000 BOED of production
– Modest increase in Permian Resources and flat Permian EOR
Company-wide Oil & Gas Production from Core Assets (MBOED)
570 – 585
~560
2 – 4%
Core Assets
Production
Growth
in 2016
Core Assets
2015
Other Domestic
Declined
Permian
Resources
Growth
Al Hosn
Full Capacity
Block 62 Oman
Start-up
2016 Core
Production
Outlook
30
Improved Cost Structure
Production Costs
Overhead (SG&A)
($/boe)
($ millions)
$13.50
• Expect continued
improvement in
cost structure
$1,503
– Strategic Initiatives
$1,270
$11.57
– Lower workovers
– Lower downhole
maintenance
– Lower energy
costs
2014
2015
2014
2015
31
2016E Sources & Uses of Cash
•
S&P Rating affirmed at
single A with stable outlook
•
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
2016 Illustrative Sources & Uses of Cash
Ecuador Payments ~$1.2 bn
& Asset Sales
4Q15
Annualized
Cash Flow
@ $42 /
barrel
Beginning Cash
Balance
~$3.6 bn
Debt Reduction
~$0.7 bn
Capital
Program
<$3.0 bn
~$4.4 bn
~$2.3 bn
Dividends
Sources
Uses
32
Cash Flow Priorities
1. Base/Maintenance Capital
2. Dividends
3. Growth Capital
4. Share Repurchase
5. Acquisitions
33
History Of Returning Cash To Shareholders
($ in Billions)
Period ending 2015
Cash Dividends
Share
Repurchases
3 – years
$6.0
$4.3
$10.4
5 – years
$9.6
$4.4
$14.6
10 – years
$14.0
$9.2
$23.3
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.
34
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
Further advances in improved recovery
Investment in people
Portfolio expansion
Data Analytics
Technology (new or different)
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
•
Conservative balance sheet
•
Continuing Dividend Growth
•
Strategy to maneuver through this environment
35