Occidental Petroleum Corporation · NYSE:OXY
Occidental Petroleum — Q1 2018 Earnings Presentation
67 slides from Occidental Petroleum's earnings presentation, May 9, 2018
Slide 1: First Quarter 2018 Earnings Conference Call
First Quarter 2018 Earnings Conference Call Occidental Petroleum Corporation May 9, 2018
Slide 2: Cautionary Statements
Cautionary Statements Forward-Looking Statements This presentation contains forward-looking statements based on management’s current expectations relating to Occidental’s operations, liquidity, cash flows, results of operations and business prospects. Words such as “estimate,” “project,” “predict,”
Slide 3: Occidental Petroleum
Occidental Petroleum • 1Q18 Highlights • Breakeven Plan Progress • Financial Summary and Guidance • Permian Resources Update • Closing Remarks 3
Slide 4: First Quarter 2018 Key Takeaways
First Quarter 2018 Key Takeaways Breakeven Plan Strong FCF Raised 2018 Guidance Ahead of schedule International + 2 Mboed Total Production Added 18 Mboed in Permian EOR + $100 MM EBIT Chemicals Permian Resources Chemicals + $750 MM EBIT Midstream Midstream Our differentiated approach is
Slide 5: First Quarter 2018 Highlights
First Quarter 2018 Highlights Enhanced Our Portfolio Increased the Value of Advanced Technologies our Assets and Operations Asset Optimization Well Productivity Improvement Capital Efficiency • Sold non-strategic interest • Sustained Greater Sand Dunes well • Aventine online realizing well-cost in D
Slide 6: Oxy's Unique Value Proposition Returns Focused Growth
Oxy’s Unique Value Proposition Returns Focused Growth Consistent Dividend Growth ROCE Leadership > Growing dividend with an attractive yield > Value protection in down cycle > Promotes capital allocation discipline Growth within Cash Flow Returns Focused Growth > 5% – 8+% average production growth i
Slide 7: Shaping Oxy's Competitive Advantage
Shaping Oxy’s Competitive Advantage Permian Execution Excellence Subsurface Technical Basin-leading Enhanced Recovery Excellence Wells Operational New Mexico D&C Efficiency & Speed Outperformance Product Transport Logistics & Strategic Aventine & Realizations Relationships Logistics Hub Infrastructu
Slide 8: Exceeding Cash Flow Expectations
Exceeding Cash Flow Expectations Midstream Chemicals Permian EOR Market and operational improvements: Market improvements: Market and operational improvements: • Mid to Gulf Coast Differentials • Improved Caustic Soda pricing • Production increased 6% • Export Margin • Improved PVC pricing • Oil pri
Slide 9: Occidental Petroleum
Occidental Petroleum • 1Q18 Highlights • Breakeven Plan Progress • Financial Summary and Guidance • Permian Resources Update • Closing Remarks 9
Slide 10: Cash Flow Breakeven at Low Oil Prices Achieved in 3Q18
Cash Flow Breakeven at Low Oil Prices Achieved in 3Q18 Cash Flow Breakeven at $50: 6.0 Dividend + 5% – 8% Production Growth $5.7 $5.7 Growth 5.0 Cash Flow Neutral at $40: Capital Operating Cash Flow ($ Bn) Dividend with Flat Production $1.0 $4.5 $4.5 $4.3 Actual $4.2 ~$120 MM per $1 $4.1 4.0 Change
Slide 11: Achieving Goals to Cash Flow Breakeven at $50
Achieving Goals to Cash Flow Annualized Cash Flow From Operations Improvements ($ Bn) Breakeven at $50 Achieved since 1Q17 Breakeven Plan Seasonality/Downtime 4CPe Plant contributed to cash SSAU Synergies and 32 Mboed flow during 1Q18 and will 1.0 ~$50/ton Caustic Growth achieve peak-rate in 3Q18. $
Slide 12: Occidental Petroleum
Occidental Petroleum • 1Q18 Highlights • Breakeven Plan Progress • Financial Summary and Guidance • Permian Resources Update • Closing Remarks 12
Slide 13: 1Q18 Results
1Q18 Results Total reported production (Boed) 609,000 1Q18 Actual versus Guidance Boed Midpoint Reconciliation Total Permian Resources production (Boed) 177,000 • Permian Resources execution +6,000 and well productivity Reported diluted EPS $0.92 • Al Hosn turnaround efficiency Core diluted EPS $0.9
Slide 14: YTD 2018 Cash Flow and Cash Balance Reconciliation
YTD 2018 Cash Flow and Cash Balance Reconciliation ($ in Bn) $1.7 ($0.7) ($0.6) ($1.0) $1.7 $0.5 $1.6 $0.1 Beginning Cash CFFO Before Change in Dividends Capital A&D/Other Debt/Other Ending Cash Balance 1/1/18 Working Capital Working Capital Expenditures Investing Financing Balance 3/31/18 14
Slide 15: 2018 Guidance
2018 Guidance Oil & Gas Segment Exploration Expense • FY 2018E Production • ~$25 MM in 2Q18E > Total production of 645 – 665 Mboed • ~$150 MM in FY 2018E > Permian Resources production of 198 – 210 Mboed DD&A – FY 2018E > International production of 289 – 295 Mboed • Oil & Gas: ~$13.50/ boe • 2Q18E
Slide 16: Cash Flow Sensitivities in 2Q18
Cash Flow Sensitivities in 2Q18 Oil & Gas > Annualized cash flow changes ~$110 million per ~$1.00 / bbl change in oil prices • ~$80 million per ~$1.00 / bbl change in WTI prices • ~$30 million per ~$1.00 / bbl change in Brent prices > Annualized cash flow changes ~$40 million per ~$0.50 / Mmbtu chan
Slide 17: Occidental Petroleum
Occidental Petroleum • 1Q18 Highlights • Breakeven Plan Progress • Financial Summary and Guidance • Permian Resources Update • Closing Remarks 17
Slide 18: Subsurface Technical Excellence – Basin-leading Wells
Subsurface Technical Excellence – Basin-leading Wells Sustainable Step Change in Well Results from 2H17 into 1Q18 Productivity 2H17 & 1Q18 Wells – Peak 30D Production Rates1 • 1Q18 & 2H17 Peak 30D ~3,100 Boed1 Wolfcamp XY 5 Wells ~7,100' 3,622 Oil (Bod) • 2 successful appraisal wells in Red Tank fie
Slide 19: Breakeven Plan Achieved
Breakeven Plan Milestone Achieved Increased Total Year Production Guidance 2 MBoed in 3Q18 Permian Resources Production (MBoed) Q1 production exceeded guidance ~47% Production Growth 220 - 246 • New Mexico 208 - 220 > Greater Sand Dunes delivers 188 - 198 more great wells 177 Breakeven Plan Achieved
Slide 20: Aventine – Strategic Relationships that Secure Supply and Lower Costs
Aventine – Strategic Relationships that Secure Supply and Lower Costs 3Q 2016 > 14 unit trains of frac sand delivered • Design concept approved 2018 Operating Highlights > 1,400 tons of pipe delivered > Sandstorm logistics system 2Q 2017 • Acquired land implemented • Project officially broke ground
Slide 21: Logistics & Strategic Relationships – Aventine Logistics Hub
Logistics & Strategic Relationships – Aventine Logistics Hub Secure Supply • 240 acres in Eddy County, NM within 20 miles of Greater Sand Dunes and other future development areas • 30,000 tons of sand storage + transload capacity • 2 unit train loops with ability to expand to 3 located off major rai
Slide 22: Operational Efficiency & Speed – D&C Outperformance
Operational Efficiency & Speed – D&C Outperformance New Mexico Feet Drilled per Day Operational Highlights 23% Increase • Drilled Lower Spraberry 10,000 ft lateral well in 922 Midland Basin in under 10 days* 839 • Drilled 2nd Bone Spring 10,000 ft lateral well in New 749 Mexico in under 14 days* • D
Slide 23: Production Transport & Realizations – Ample Takeaway
Production Transport & Realizations – Ample Takeaway Committed Oil & Gas Takeaway Ensures Products are Realized in Multiple Markets > Multi-year firm oil commitments New Mexico on four, third-party pipelines • Total capacity ~470 Mbod to Gulf Coast Texas • Retain flexibility on third-party volumes g
Slide 24: Occidental Petroleum
Occidental Petroleum • 1Q18 Highlights • Breakeven Plan Progress • Financial Summary and Guidance • Permian Resources Update • Closing Remarks 24
Slide 25: Appendix
QELS GSD A (OA a Seen $20 us
Slide 26: Appendix Contents
Appendix Contents • Peer Metrics • Social Responsibility, Environment, and Governance • 2017 Reserves • Permian Updates • Chemicals, Midstream and International Updates 26
Slide 27: Shareholder Distributions Over the Last Three Years
Shareholder Average Shareholder Average Shareholder Distributions Over 4.3% Distribution Yield (%)1 Payout Ratio (%)1 64% 3.8% the Last Three Years 3.6% 3.4% 52% (2015– 2017) 49% 48% 38% 2.1% 2.1% 2.0% 34% > Strong history and commitment to 0.8% 0.7% 17% 15% 13% shareholder returns > Confidence in a
Slide 28: Strong Balance Sheet - Oxy Credit Ratings Vs. Peers
Strong Balance Sheet - Oxy Credit Ratings Vs. Peers Company S&P S&P Moody’s Moody’s Ratings Outlook Ratings Outlook XOM AA+ Negative Aaa Stable CVX AA- Negative Aa2 Stable OXY A Stable A3 Stable EOG BBB+ Stable Baa1 Stable COP A- Stable Baa1 Stable PXD BBB Stable Baa3 Stable APA BBB Stable Baa3 Stab
Slide 29: Short and Long-term Executive Compensation Changes
Short and Long-term Executive Compensation Changes Expanded use of returns-based metrics for incentive compensation Short-term Incentives Long-term Incentives 25% of CEO long-term incentive 15% of CEO annual bonus1 is compensation is determined by determined by CROCE2, with a CROCE, with a performan
Slide 30: Appendix Contents
Appendix Contents • Peer Metrics • Social Responsibility, Environment, and Governance • 2017 Reserves • Permian Updates • Chemicals, Midstream and International Updates 30
Slide 31: Occidental Climate Report issued in March 2018
Occidental Stated Goals Climate Report In addition to our ongoing efforts to conserve resources and reduce issued in emissions, we have made new commitments to: March 2018 • Regularly evaluate our strategy with Board oversight under various lower- carbon scenarios • Model carbon prices and related f
Slide 32: Oxy Safety Culture and Strong Performance
Oxy Safety Culture and Strong Performance Committed to the highest standards of conduct Global Employee Injury and Illness Incidence Rate Incidents and Cases per 100 Workers Fostering a culture of safety excellence and • continuous improvement to achieve a zero- 0.38 0.36 incident safety record, eve
Slide 33: Water Infrastructure Drives Value & Environmental Benefits
Water Infrastructure Drives Value & Delaware Basin Frac Water Usage Environmental Benefits 2017 Actuals 2018 Plan 11% 10% • Increasing Recycled Water Usage 32% Fresh Water Brackish Water from ~30% to ~50% in 2018 Recycled Water 50% 40% 57% • Greater Sand Dunes Water Recycling Project Greater Sand Du
Slide 34: CO2 EOR Process
CO, EOR Process la oxy ww 40% of COz: 60% of COs: <0.1% of COz: Supplied Recycled Flared, Vented or other Emissions . A : SOeSEEEERECEteee’ ye cererererree yap Oil and . ° = ° < e gas to : : . market > Se INJECTION PRODUCTION i PRODUCING RESERVOIR A 100% of COz: ve 40% of COz: Ne 60% of COz: Injecte
Slide 35: How does CO2 EOR Work
How does CO2 EOR Work Physics of Miscible CO2 EOR at Pore Scale • Water injection (blue) recovers oil in large pores; leaving trapped oil (red) in small pores • CO2 (yellow) dissolves and displaces trapped oil; leaving only heavy ends (brown) in the reservoir • The process is normally finalized by i
Slide 36: Appendix Contents
Appendix Contents • Peer Metrics • Social Responsibility, Environment, and Governance • 2017 Reserves • Permian Updates • Chemicals, Midstream and International Updates 36
Slide 37: 2017 Reserve Additions Through Program Execution
2017 Reserve Additions Through Program Execution 200 MMBoe Reserve Additions prior to price revisions Total Company Reserve 357 55 2,598 Replacement 2,406 (220) 2017 74% Proved Developed 187% 75% Liquids All In 162% Organic YE 2016 Production* Additions Acquisitions & YE 2017 Reserves Sales Reserves
Slide 38: Successful Drilling and A&D Programs Leading to Lower F&D Costs
Successful Drilling and A&D Programs Leading to Lower F&D Costs F&D Costs (All Sources)* $17.96 $17.22 Program Execution Highlights $8.53 > Positive total-company performance revisions > Improved productivity and lower well 5 Year 3 Year 2017 costs in Permian Resources > Purchased ~80 MM Boe more $1
Slide 39: Appendix Contents
Appendix Contents • Peer Metrics • Social Responsibility, Environment, and Governance • 2017 Reserves • Permian Updates • Chemicals, Midstream and International Updates 39
Slide 40: Permian Resources 2018 Focused Development
Permian Resources 2018 Focused Development • Appraise 6 new benches Permian Resources 2018 Program • Additional Unconventional CO2-EOR pilots 2018 Capital by Type • Logistics hub in New Mexico D&C Turkey Track ~0.5 rigs 70% online Facilities Greater Sand Dunes ~5.5 rigs 2018 15% Midland Basin ~1 rig
Slide 41: Creating Value at the Seminole San Andres Unit
Creating Value at the Seminole San Andres Unit Increased Production 3,600 Boed or 16% Reduced Redrill Capital Costs by 36% Greater than $5/Boe Opex Reduction • Increased plant inlet volume 32% • Savings utilizing Permian scale • Optimized Purchased Injectant • Reduced flaring by 60% • Implemented Ox
Slide 42: Turkey Track - New Modular Development Area
Turkey Track - New Modular Development Area New Mexico Modular Development Area Southeast New Mexico Innovative Development Provides Scale Advantages to Regional Areas Leveraging Permian Scale to Realize Multi-bench potential Value in Smaller Development Areas Modular Facilities Turkey Track – N
Slide 43: Greater Barilla Draw Operating Excellence
Greater Barilla Draw 2017 Barilla Draw proper– Wolfcamp A & Hoban Optimized Landing Point Results Operating Excellence 350 2017 Average 300 8 wells ~6,700’ Excellent results across multiple fields 250 Cum MBoe 2018 Average • Barilla Draw proper 45% improvement in 200 6 wells ~7,500’ Wolfcamp A 150 •
Slide 44: Midland Basin - Merchant
Multi-bench program and operating efficiency create play-leading opex Midland Basin - Merchant Merchant Opex / Boe Successful Development Planning from Inception Leads to Greenfield Operating cost <$2.75/Boe $3 $2.70 Operating Cost • Horizontal only development $2 • First wells online in 2014 • 10,0
Slide 45: Permian EOR – Growing Production at West Seminole San Andres Unit
Permian EOR Growing Production at the West Seminole San Andres Unit Oxy Operated Grass Roots CO2 8,000 Flood and Current Development Area Phased Development Approach 6,000 Daily Production, Bopd Oxy’s CO2 EOR Capability Can Grow Production of Mature Fields 4,000 • ~55% Expected Ultimate Recovery • L
Slide 46: Enhanced Subsurface Characterization From Appraisal to Development
Enhanced From Appraisal to Permian Leading Well Performance Subsurface Characterization > Regional Basin Overview - Geologic Understanding Flow Unit Characterize 3D flow > Geochemistry of Source Rocks through Rock Samples Appraisal Flow Unit units Flow Unit > Appraisal & Testing of Bench Opportuniti
Slide 47: Optimized Sequenced Development (OSD)
Multiple 3D Flow Unit Development Optimized Sequenced Development (OSD) Accelerates Production Efficiently Maximize margin, EUR and capital efficiencies Development Sequence Cross section view Optimized Sequence vs Simultaneous Development Three Section 2nd Bone Spring Development Development with m
Slide 48: Results in Greater Sand Dunes Area Multi-Bench Development
Results in Greater Sand Dunes Area Multi-Bench Development Recent Well Results Target Formation Greater Sand Dunes Lateral Peak 24 Hr Peak 30 Day Oil Barilla GreaterDraw Type Log Sand Dunes Well Name Length (ft) (Boed) (Boed) (%) Brushy Canyon Federal 23 13H 4,376 899 833 90% Avalon Patton MDP1 18 F
Slide 49: Results in Greater Barilla Draw Area Multi-Bench Development
Results in Greater Barilla Draw Area Multi-Bench Development Recent Well Results Target Formation Peak 24 Hr Peak 30 Day Oil Greater Barilla Draw Well Name Lateral Length (ft) (Boed) (Boed) (%) Avalon Evaluating st 1 BS Evaluating Collie A East N63H 9,725 1,370 1,155 81% nd 2 BS Aardvark State 6 2H
Slide 50: Permian Resources Delivers Basin Leading Wells for Less Cost
Permian Resources Delivers Basin Leading Wells for Less Cost Oxy has 21 of top 50 Permian Wells in Prior 12 Months Basin Leading Wells with Less Proppant 6,000 4,000 Competitor Average 5,000 3,000 Proppant #/ft Proppant #/ft IP 24 Bopd 4,000 2,000 +46% Oxy Average 3,000 1,000 Proppant #/ft 2,000 0 3
Slide 51: Permian Resources Wells Continue to Improve
Permian Resources Wells Continue to Improve New Mexico Bone Spring Texas Delaware Wolfcamp 250 160 140 Cumulative Production 200 Cumulative Production 120 6 Month Boe 100 6 Month Boe 150 80 100 60 40 50 20 0 0 2015 2016 1H 172017 Top Peers Top Peers 2015 2016 1H 17 2017 Top Peers Top Peers Expected*
Slide 52: New Mexico Well Cost Improvements
New Mexico Well Breakeven Plan Sustainability Enhanced by Cost Improvements Operating Efficiency and Logistics Savings Logistics: Project Aventine New Mexico 2nd Bone Spring 10,000’ Well Cost Well design: Fluid $0.6 ($0.8) $9.9 ($0.8) optimization and produced $8.9 water recycling Operating: Reduced
Slide 53: Operating Capability Reduces Costs
Operating Permian Resources Opex/Boe Capability Reduces Costs 38% Improvement $12.93 • Full-field development $12.00 $11.17 for life-cycle value • Water-handling $8.43 reducing surface costs $8.00 $8.00 <$7.00 • Lift optimization <$6.00 reducing downhole failure costs $4.00 $- 2014 2015 2016 2017 20
Slide 54: Added Horizontal Locations in 2017 with <$50 Breakeven
Added 750 Horizontal Locations in 2017 with <$50 Breakeven Exceeded <$50 Inventory 17 years of inventory <$50 breakeven with 10 rigs Growth Goal 3,500 > Added 750 locations in 150 3,132 150 2017 vs 400 location goal 3,000 125 Midland Basin 175 > Increased <$50 average 2,500 (118) 150 Undrilled Locat
Slide 55: Added ~30 Rig Years of Activity to <$50 Inventory in 2017
Added ~30 Rig Years of Activity to <$50 Inventory in 2017 Permian Resources 14,000 Inventory 2Q17 > Added 750 locations BE <$50 11,996* 12,000 11,650 • ~500 in New Mexico 11,207 Undeveloped Drilling Locations Midland • Replaced majority of inventory Basin from divestitures 10,000 • Divestiture impac
Slide 56: Permian EOR Proven Leader in Maximizing Recovery
Permian EOR Proven Leader in Maximizing Recovery Across the Permian • Seminole San Andres Unit Permian EOR adds low F&D inventory Net Resource Potential > ~1,000 MMBoe at 2,000 < $6.00 future development cost High-gradable Inventory 1,500 • Significant opportunity to improve and grow new inventory M
Slide 57: Permian Resources Acreage
Permian Resources Net Business Area Acreage Acres* • Resources – Unconventional Areas 1.4 • Enhanced Oil Recovery Areas 1.1 • Significant growth potential in Oxy Permian Total ~2.5MM all development areas • ~650,000 net acres within Net the Delaware and Midland Resources Basin Development Areas Acre
Slide 58: Appendix Contents
Appendix Contents • Peer Metrics • Social Responsibility, Environment, and Governance • 2017 Reserves • Permian Updates • Chemicals, Midstream and International Updates 58
Slide 59: Chemicals Cash Flow Improvement Drivers
Chemicals Cash Annualized Chemicals Cash Flow From Operations ($ MM) Flow Improvement 1,800 Achieved Drivers $1,600 1,600 JV Ethylene Cracker $1,475 $50 startup complete 1,400 $150 4CPe Plant startup in 1,200 $1,125 $150 4Q17 with ramp-up Market improvements: through 1H18 1,000 • Improved Caustic So
Slide 60: Chemicals Free Cash to Significantly Increase with Lower Capital Spending
Chemicals Free Cash to Significantly Increase with Lower Capital Spending • 4CPe Plant complete on-time and on-budget Chemicals Capital Spend > Plant started up in 4Q17 700 600 • 4CPe Plant manufactures the feedstock for a climate- 500 friendly, next generation refrigerant to be used in $MM 400 auto
Slide 61: Chemicals Market Overview Update
Market Overview Chemicals Pre-Tax Earnings (EBIT)1 350 Update 300 250 $ Millions • Major industry 200 consolidation 150 complete 100 50 • Caustic soda supply- 0 2Q18E 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 demand b
Slide 62: Midstream Cash Flow Improvement Drivers
Midstream Cash Annualized Midstream Cash Flow From Operations ($ MM) Flow Improvement Achieved Drivers 900 $800 800 Al Hosn plant debottlenecking: 1Q18 700 Market and operational improvements: with ramp-up through • Mid to Gulf Coast Differentials 3Q18 600 • Export Margin • Gas, NGLs and Sulfur Marg
Slide 63: Outlook for Midland to Gulf Coast Spreads
Outlook for Midland to Magellan East Houston Spread ($/Bbl) Midland to Gulf Actual Outlook Coast Spreads 12.00 Truck Transportation Cost to Gulf Coast Possible pipeline capacity constraints (late 2018/ 10.00 early 2019 pending new project in-service dates) 8.00 Rail Transportation Cost to Gulf Coast
Slide 64: Leadership in Gulf Coast Crude Exports
Leadership in Gulf Coast Crude Exports Increasing Ingleside export capacity to 750,000 Bopd Suezmax > Expanding Ingleside Terminal • VLCC loading capability 4Q18 2H18 - 2019 • Capacity increase 2H19 > Leading Permian Crude Marketer with ~600,000 Bopd > Largest Permian crude exporter VLCC Oxy Inglesi
Slide 65: 2017 International Highlights and 2018 Plan
2017 International Highlights and 2018 Plan > 2017 production of 298 MBoed generated over $1 Bn of free cash flow at ~$55 Brent > Pipeline of potential short and long-cycle projects > Best international HES performance in Oxy history Oman Block Position > Record Al Hosn Gas production of 71 > Al Hos
Slide 66: Complex, Major Project Capability
Complex, Major Recent Major Projects Delivered On-time and On-budget Project Capability Domestic Projects Industry-leading execution • Ingleside, TX – Ethylene Cracker • Ingleside, TX – Oil Terminal performance • Geismar, LA – 4CPe Plant Compared to industry average of >20% capital overruns and 9 mo
Slide 67: Al Hosn Gas – Project Execution and Operational Excellence
Al Hosn Gas – Project Execution and Operational Excellence • World-class, state-of-the-art sour-gas project delivered on-time and on-budget • Production and throughput continues to improve with operational excellence • Modifications will occur during turnaround beginning in 1Q18 and ending in 2Q18 •