first quarter 2016 earnings conference call may 5, 2016 · for the 1q16 were $687 million, and we...
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OCCIDENTAL PETROLEUM CORPORATION
First Quarter 2016 Earnings Conference CallMay 5, 2016
2
Cautionary Statements
Forward-Looking Statements
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. Actual results may differ from anticipated results, sometimes materially, and reported results should not be considered an indication of future performance. Factors that could cause results to differ 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; uncertainties about the estimated quantities of oil and natural gas reserves; 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. 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. 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 forward looking 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 I, Item 1A “Risk Factors” of the 2015 Form 10-K.
Use of non-GAAP Financial Information
This presentation includes non-GAAP financial measures. You can find the reconciliations to comparable GAAP financial measures on the “Investors” section of our website.
• Full-cycle cost leadership
Cost structure continues to improve
• Optimal capital allocation
On track for ~$3 billion 2016 capital budget
• Superior balance sheet
Extended debt maturities, $3.2 billion of cash
• Operational excellence
Increased production guidance due to improved well productivity and base production management
3
First Quarter 2016Key Messages
4
First Quarter 2016Core Production Growth
* Ongoing operations; excludes Williston, Piceance, Iraq, Bahrain, Yemen production volumes
371
397
1Q2015 1Q2016
Total Oil Production*(MBOD)
Total Company Production*(MBOED)
531
590
1Q2015 1Q2016
• Expect continued improvement in cost structure
– Strategic Initiatives
– Lower workovers
– Lower downhole maintenance
– Lower energy costs
5
First Quarter 2016Improved Cost Structure
$13.36
$10.28
1Q15 1Q16
Production Costs*($/boe)
Overhead (SG&A)($ in millions)
$1,270
$1,088
2015 1Q16 Annualized
* Ongoing operations; excludes Williston, Piceance, Iraq, Bahrain, Yemen production volumes
~565585 – 600
Core Assets2015
Other DomesticDecline
PermianResources
Growth
Al HosnFull Capacity
Block 62 OmanStart-up
2016 CoreProduction
Outlook
• Increased FY 2016 production guidance from 570 - 585 to 585 - 600 MBOED • Expect total production from core assets to grow 4% - 6% over 2015 levels
– The increase in guidance is due to better than expected well performance in the Permian and base production management
– Modest increase in Permian Resources and flat Permian EOR
4 – 6% Core AssetsProduction
Growth in 2016
Company-wide Oil & Gas Production from Core Assets (MBOED)
6
First Quarter 20162016 Production Outlook Increased
Note: Core assets exclude Bahrain, Iraq, Yemen, Williston and Piceance Basins
• On track to meet ~$3 billion capital budget
• Shifting capital to longer duration projects in Permian EOR to modify and expand CO2 processing facilities
• Permian Resources development in fields with existing infrastructure
• Ingleside ethylene cracker remains on schedule and on budget
7
First Quarter 2016 EarningsCapital Program
1Q16 2Q16E 3Q16E 4Q16E
Permian Resources
Remaining Oil & Gas
Midstream & Chemicals
$687
2016 Capital Budget($ in millions)
• Total oil production (Bbl/d)
• Total ongoing production (BOED)
• Core results**
• Core diluted EPS**
• 1Q16 CFFO before Working Capital & Other
• 1Q16 Capital Expenditures
• Cash balance @ 3/31/2016
Results397,000
7% year / year growth*
590,000
($426) million
($0.56)
$822 million
$687 million
$3.2 billion
First Quarter 2016Core Results
8*Excludes Williston, Piceance, Iraq, Bahrain, Yemen
**See Significant Items Affecting Earnings in the Earnings Release Attachments.
680
12 (17)
(18)
4Q15 Permian Natural Gas Decline &Piceance Sale
Al Hosn WarrantyShutdown
1Q16
657
First Quarter 2016Oil and Gas Total Company Production - Reported
Company-wide Oil & Gas Production* (MBOED)
• In 1Q 2016, total company oil and gas production volumes averaged 657,000 BOED, a decrease of
23,000 BOE in daily production from 4Q 2015 due to planned maintenance, natural gas declines and
sale of Piceance basin assets
9* Reported production
59712 (3) (16)
4Q15 Permian Other Domestic MENA 1Q16
First Quarter 2016Oil and Gas Total Company Production – Ongoing Operations
Company-wide Oil & Gas Core Production* (MBOED)
• In 1Q 2016, total company oil and gas production volumes averaged 590,000 BOED, a decrease of 7,000 BOE in daily production from 4Q 2015.
10*Core production excludes Williston, Piceance, Iraq, Bahrain, Yemen production volumes
590
290
298
7 (1) 3 307
1Q15 4Q15 Oil NGLs Natural Gas 1Q16
First Quarter 2016Oil and Gas Domestic Production
Domestic Oil & Gas Production* (MBOED)
• Domestic oil production grew 7,000 Bbls/D in 1Q 2016 with Permian Resources up 8,000 Bbls/D.
11*Core production excludes Williston and Piceance production volumes
WorldwideOil ($/bbl)
WorldwideNGLs ($/bbl)
Domestic Nat.Gas ($/mmbtu) WTI NYMEXBrent
Realized Prices Benchmark Prices
1Q16 $29.42 $10.86 $1.50 $33.45 $35.08 $2.07
WTI % 88% 32% 73%*
Brent % 84% 31%
4Q15 $38.68 $14.02 $1.75 $42.18 $44.71 $2.44WTI % 92% 33% 72%*Brent % 87% 31%
1Q15 $48.50 $17.96 $2.49 $48.63 $55.17 $3.07
WTI % 100% 37% 81%*Brent % 88% 33%
12
First Quarter 2016Oil & Gas Realized Prices
* As a % of NYMEX
Beginning CashBalance12/31/15
CFFO BeforeWorking Capital
Change inWorking Capital
& Other
CapitalExpenditures
Dividends Debt Retirement Asset SaleProceeds,Ecuador &
Other
Ending CashBalance 3/31/16
1Q 2016($ in millions)
$3,180
$820
$4,400
1Q16Debt / Capital 24%
13
First Quarter 2016YTD 2016 Cash Flow
($690)
($680)
($570)
($700) $600
1,4501,250
0
500
1,000
1,500
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2045
2046
14
First Quarter 2016Debt Maturity Schedule
$ million Retired / Called maturitiesNew Issuances
• New issuances extended the dollar-weighted average maturity of debt by over 5 years.
Rating OutlookS&P A Stable
Fitch A Stable
Moody’s A3 Stable
• Oxy issued $2.75 billion of senior notes in April 2016, including a 10-year tranche ($1.15 billion) with a coupon of 3.40%.
15
3.04% 3.33% 3.40%4.15% 4.45%
4.95%5.55% 5.85%
Comp1
Comp2
OXY Comp3
Comp4
Comp5
Comp6
Comp7
First Quarter 2016Recent Issuances of Ten-Year Bonds
Note: Peer companies include APC, COP, CVX, DVN, EOG, PXD, XOM.
T +130 T +97 T +155T +200 T +225 T +312
T +362 T +362
• On track to meet ~$3 billion 2016 budget.
• Total company capital expenditures for the 1Q16 were $687 million, and we expect our quarterly expenditures to ramp down through the year following a modest uptick in the 2Q16.
• Oil and Gas spent $0.5 billion during 1Q16, with Permian Resources expenditures comprising 32% of the total, and the remaining split between Chemicals and Midstream.
16
First Quarter 2016 EarningsCapital Program
Permian Resources
Remaining Oil & Gas
Midstream & Chemicals
1Q16 2Q16E 3Q16E 4Q16E
Permian Resources
Remaining Oil & Gas
$687
2016 Capital Budget($ in millions)
Midstream & Chemicals
17
First Quarter 2016Total Spend per BOE
~$40.00
2014 2015 2016E
Total Spend per BOE = Capital Spending + G&A + All Operating Costs
Global Oil & Gas Sales Volumes
• 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.
• FY 2016 Total Production Outlook – Core Assets (Excludes Iraq, Bahrain, Yemen, Williston & Piceance)
– Total volumes of 585,000 – 600,000 BOED
• 2Q16 Total Production Outlook – Core Assets (Excludes Iraq, Bahrain, Yemen, Williston & Piceance)
– Total production of 600,000 – 610,000 BOED
– Domestic production flat at ~307,000 BOED
– Permian Resources & Permian EOR flat versus 1Q16
18
First Quarter 2016FY 2016 Production Outlook – Core Assets
Oil & Gas Segment
• FY 2016E Total Production – Core Assets– 585,000 – 600,000 BOED
• 2Q16E Production – Core Assets– Total production of 600,000 – 610,000 BOED– Permian Resources & EOR production flat
Cash Flow Sensitivities
• A $1 / bbl change in WTI oil price affects annual operating cash flows by ~$100 million
• A $0.50 / Mmbtu change in domestic natural gas prices affects annual operating cash flows by ~$50 million
DD&A – FY 2016E• Oil & Gas: ~$15.00 / BOE• Chemicals and Midstream: $670 mm
Exploration Expense• ~$25 mm in 2Q16E
Chemical Segment• ~$100 mm pre-tax income in 2Q16E
Corporate• FY 2016E Domestic tax rate: 36% • FY 2016E Int'l tax rate: 76%• Interest expense of $80 mm in 2Q16E
19
First Quarter 20161Q16 & FY 2016 Guidance Summary
First Quarter 2016 Earnings Permian Resources Production
20
• Total production grew 31% year-over-year to 128 MBOED.
– Oil production grew 35% year-over-year to 84 MBOD.
• We have leveraged and extended our industry leading practices from our EOR business to drive improvements in base management to minimize decline.
6475
110118
128
35 43 71 76 84
2013 2014 2015 4Q15 1Q16 2Q16EProduction (MBOED)
Oil NGL Gas
Well Performance: Texas Delaware – Wolfcamp A
21
First Quarter Earnings 2016 – TX Delaware Basin Recent Performance
• Continue to test more aggressive completions− Tighter cluster spacing
− Higher clusters per stage
− Increased proppant concentration
• Initial results positive, continuing to evaluate and test new trials
• Tailoring completion design with geology across the field
OXY Operated Acreage
190249
Boepd / 1000’
69% Oil
84% Oil
491306
296205255191
Optimization Efforts: Wolfcamp A
76% Oil
475354
First Quarter Earnings 2016 – Permian Resources Manufacturing Mode: Drilling / Completions
Move to Manufacturing Mode Significantly Reduced Well Cost
22
$5.3 $3.6 $2.9 $2.7
$5.6
$4.1
$3.4 $2.7
$-
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
2014 2015 Current Best
GR
OSS
WEL
L C
OST
$M
M
WELL COSTDelaware Wolfcamp A 4,500‘ HZ
Drilling Completions
43
25
19
13
-
5
10
15
20
25
30
35
40
45
50
2014 2015 1Q16 Best
DRILL DAYSDelaware Wolfcamp A 4,500’ HZ
$10.9
$7.7
$6.3
Rig Release to Rig Release
$5.4
Well Performance: New Mexico 2nd Bone Spring
OXY Operated Acreage
23
First Quarter Earnings 2016 – Southeast New Mexico Recent Performance
• Cedar Canyon 27 Fed Com 7H three month cumulative
production of 135 Mboe – 81% oil
• Cedar Canyon 28 Fed Com 7H three month cumulative
production of 129 Mboe – 82% oil
262393
Boepd / 1000’
525401
391292
266192
364274
82% Oil
82% Oil
80% Oil
Completion optimization efforts have significantly increased value
24
First Quarter Earnings 2016 – Southeast New Mexico Recent Performance
• 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
recently drilled extended laterals
• Preparing to transition to produced water base
fluid in development areas to decrease costs82% Oil
Offsetting increased completion costs with continued drilling efficiencies
New Design – 4 Wells 78% Oil
Old Design – 8 Wells 83% Oil
• 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
Well Performance: East Midland - Wolfcamp A
25
First Quarter Earnings 2016 – East Midland Basin Recent Performance
• Adams 4231WA six month cumulative production
of 220 Mboe – 91% oil
We believe it’s the most productive well drilled in Howard County in recent history
• May 1102WA six month cumulative production of
146 Mboe – 85% oil
OXY Operated Acreage
Boepd / 1000’
89% Oil
77% Oil
170148
129
140115
110
184148
First Quarter Earnings 2016 – Permian Resources Manufacturing Mode: Drilling / Completions
Move to Manufacturing Mode Significantly Reduced Well Cost
26
$3.7 $2.4 $2.3 $1.9
$5.5
$4.6 $3.8
$3.4
$-
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
2014 2015 Current Best
GR
OSS
WEL
L C
OST
$M
M
WELL COSTEast Midland Wolfcamp A 7,500' Hz
Drilling Completions
46
19 16
11
- 5
10 15 20 25 30 35 40 45 50
2014 2015 1Q16 Best
DRILL DAYSEast Midland Wolfcamp A 7,500’ Hz
$9.2
$7.1$6.1
Rig Release to Rig Release
$5.3
• Extensive base surveillance and monitoring
− Re-deployed engineers from Houston to field offices
− Maximizing knowledge of the reservoirs from current producers to enhance
future production and reserves for new wells
• Increased activity around well enhancement, capital workovers, and lift revisions
− High return, quick payback projects with low development cost
− Expecting more than 5 mboed annual average uplift from base optimization
activities
27
First Quarter Earnings 2016 – Permian Resources Base Management and Surveillance
Focus on maximizing production from existing wells
• Continued focus on reducing
field operating costs during
2016
− Downhole expense $/boe
reduced 36% from Q1 2015
− Company operated operating
expense down ~37% ($/boe)
from Q1 2015
28
First Quarter Earnings 2016 – Permian Resources Continued Opex Reduction
$13.02
$11.41 $10.87
$9.74 $8.72
$-
$5.00
$10.00
$15.00
1Q15 2Q15 3Q15 4Q15 1Q16
Permian Resources Opex/BOE
Surface Downhole Supports Energy Other
29
First Quarter 2016Permian EOR
• Stable and low-decline base production at an advantaged cost
• Permian EOR business remains profitable in the current downturn
• EOR business expected to generate free cash flow this year in the current oil price environment
• South Hobbs:
− Started CO2 injection into Phase 1 in September 2015 (ahead of schedule)
CO2 Supply & Processing
0
500
1,000
1,500
2,000
2,500
3,000
3,500
0 5 10 15 20 25 30 35 40
Num
ber o
f Inj
ectio
n W
ells
Number of Projects
Denbury
Chevron
Apache
Anadarko
Oxy
Kinder Morgan
Hess
Exxon
Size of bubble = CO2 EOR Production Volume
All of Oxy’s CO2 operations
are in the Permian Basin
• Oxy is the largest handler of CO2 in the Permian- Injects 1.9 billion cubic feet a day- Operates 31 CO2 EOR projects Source: Oil & Gas Journal 2014 Biennial EOR Survey
First Quarter 2016World Leader in Enhanced Oil Recovery
U.S. CO2 EOR Projects
30
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
4Q14 1Q15 2Q15 3Q15 4Q15 1Q16
$/BO
E
Supports & Other Energy
Injectant Expense Surface Ops and Maint
Wrkovr / Well Enhncmnt Downhole Maint
31
First Quarter 2016Permian EOR
Cash Operating Expense ($/BOE)
• Improvement in well maintenance job productivity sustained into Q1
• Surface costs negatively impacted by severe weather in January
• Lowered injectant costs while maintaining injection volumes
$20.82 $20.03$18.16 $18.36
$16.46 $16.49
Main Oil Column CO2 Flood:
• Started CO2 injection into Phase 1 in September 2015 (ahead of schedule)
• Phase 1 and Phase 2 will develop 28 MMBOE at just over $10 / BOE
32
Residual Oil Zone (“ROZ”) Potential:
• Four pattern initial development to begin in 2016
• Full ROZ expansion ~50 patterns; 80 MMBOE
Waterflood
Phase 1 & 2 CO2 Flood
ROZ Initial Development
First Quarter 2016South Hobbs: CO2 Flood and Expansion Areas
South Hobbs ROZ
33
• 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.
First Quarter 2016Residual Oil Zone Development
ResidualOil Zone
Main OilColumn
GeologicSeal
Water Zone
OriginalProducer
DeepenedROZ
Producer
OriginalInjector New ROZ
Injector
DeepenedROZ
Injector
Producing OilWater Contact
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
34
First Quarter 20162016 Permian Strategy
FIRST QUARTER 2016 EARNINGS CONFERENCE CALL Q&A
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