Occidental Petroleum Corporation Q3 FY2025 earnings call

Strategic Rationale for OxyChem Sale

• Driven by the scale, quality, and diversity of the oil and gas portfolio built since 2015, which more than doubled total resource potential and production.
• Shifted oil and gas production from 50% domestic to 83% domestic, reducing geopolitical risk.
• Substantial oil and gas runway with a 30-plus year development runway, including high-return unconventional and lower-decline conventional assets.

Third Quarter Performance

• Generated $3.2 billion in operating cash flow and $1.5 billion in free cash flow before working capital.
• Exceeded last year's third-quarter operating cash flow despite lower WTI prices.
• Lowest quarterly lease operating expense per barrel in the full oil and gas segment since 2021.

Oil and Gas Portfolio Details

• Expanded Permian resource base by 2.5 billion BOE, now 70% of total resources.
• Strong new well performance in Delaware and Midland Basins, with secondary bench wells outperforming industry average.
• Advancing unconventional and conventional EOR projects, including CO2 EOR with potential for significant production uplift.

Cost Management

• Realized $2 billion in annualized cost savings since 2023 in U.S. onshore operations through operational improvements and supply chain management.

In the third quarter, Occidental's Oil and Gas business produced approximately 1.47 million barrels of oil equivalent per day, exceeding the high end of guidance. The Permian Basin contributed 800,000 BOE per day, the highest quarterly Permian production in Oxy's history. The Rockies posted strong results due to new well performance and stable base operations, while the Gulf of America assets outperformed guidance benefiting from favorable weather and high uptime. The Midstream and Marketing segment generated positive adjusted earnings of $153 million, above the midpoint of guidance. OxyChem's sale is a key strategic move, with proceeds to strengthen the balance sheet and deleverage.

Oil and Gas Guidance

• Raised fourth quarter total company production guidance to a midpoint of 1.46 million BOE per day, driven by strong performance across domestic assets.

Midstream and Marketing Guidance

• Full year pretax income expected to be approximately $400 million above original guidance due to gas marketing optimization and stronger sulfur pricing.

Debt and Capital Allocation

• Proceeds from OxyChem sale to be used to reduce principal debt to less than $15 billion, strengthening balance sheet.
• Plan to reallocate up to $400 million to short-cycle, high-return projects in the Permian, with potential to increase investment in Gulf of America waterfloods and Oman.

Q: Doug Leggate asked about capital guidance, specifically the range for next year's spending.

A: Sunil Mathew responded that midpoint for CapEx guidance this year is $7.2 billion, with chemicals at $900 million. After adjusting for $250 million reallocated to Gulf of America and Oman, and potential $400 million investment in U.S. onshore, spending could be between $6.3 billion to $6.7 billion.

Q: Arun Jayaram asked about details on CO2 injection demonstration pilots and waterflood projects.

A: Richard Jackson discussed unconventional EOR projects with potential 40% to 100% production uplift, and Kenneth Dillon provided details on Gulf of America waterflood projects, including improved recoveries and reduced decline rates.

Q: Neil Mehta asked about STRATOS project start-up and return of capital.

A: Kenneth Dillon mentioned STRATOS Phase 1 start-up proceeding well, with plans to circulate KOH this quarter and inject CO2 in Q1. Vicki Hollub and Sunil Mathew discussed opportunistic share repurchasing and debt reduction plans.

Q: Paul Cheng asked about LCV capital redirection and exploration.

A: Sunil Mathew said LCV CapEx for next year is around $100 million. Richard Jackson discussed $400 million investment in U.S. onshore and flexibility in lower commodity price environments. Kenneth Dillon mentioned deferring exploration in GoA and Oman.

Q: James West asked if the OxyChem sale marks a quieter period.

A: Vicki Hollub stated the sale is a pivotal step, with the portfolio now focused on high-quality U.S. assets, done with major acquisitions, and positioned for long-term value delivery.

Q: Matthew Portillo asked about Rockies well performance and inventory flex.

A: Richard Jackson discussed base production improvements and flexibility between Rockies basins, with optimization and efficiency driving performance.

Q: Neal Dingmann asked about low Permian well costs and conventional EOR returns.

A: Richard Jackson attributed low well costs to operational efficiency and scale, and mentioned conventional EOR returns expected to be competitive in the portfolio.

Q: Leo Mariani asked about production expectations and capital range.

A: Sunil Mathew said production could be flat to up to 2% growth, largely driven by unconventional Permian, with flexibility to adjust based on macro conditions.