Occidental Petroleum Corporation · NYSE:OXY
Occidental Petroleum — Q4 2016 Earnings Presentation
55 slides from Occidental Petroleum's earnings presentation, Feb 9, 2017
Slide 1: Fourth Quarter 2016 Earnings Conference Call
Fourth Quarter 2016 Earnings Conference Call Occidental Petroleum Corporation February 9, 2017
Slide 2: Cautionary Statements
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
Slide 3: Occidental Petroleum
Occidental Petroleum • Key Messages and Strategy • 2016 Highlights • 2017 Outlook 3
Slide 4: Key Message and Strategy
Key Message and Strategy Overriding Goal is to Maximize Total Shareholder Return We believe this can be achieved through a combination of: • Consistent, annual dividend growth • Value growth through oil and gas development that meets the following targets: • Above cost-of-capital returns (ROE and RO
Slide 5: Focused Businesses
Oil and Gas Core Areas Focused Businesses OxyChem United States High FCF, moderate • Leading position in the Permian growth business • Permian Resources is a growth driver Midstream Integrated infrastructure and marketing Middle East Region business to • Focus areas – Oman, Qatar, and UAE maximize L
Slide 6: Oman and Qatar
Oman Oman • Improved Reservoir Surveillance 140 Oman - Mukhaizna Gross Production (Mbopd) Mukhaizna • Infill and shallow drilling 135 programs 130 Record Monthly 125 Production • 2016 Total Spend per Barrel 120 ~79% reduced by 24% 115 Proved Dec-16 Nov-16 Aug-16 Oct-16 Jun-16 Jul-16 Sep-16 Developed
Slide 7: Colombia
Colombia Colombia • Improved subsurface reservoir characterization • Focused Workover and Drilling Campaign LCI* • New Well Costs reduced by 35% Increased gross • 2016 Total Spend per barrel reduced by 25% production by 5 ~79% Proved MBOPD in 4 • Started a thermal recovery pilot of the Teca heavy oi
Slide 8: Al Hosn Gas
Al Hosn Gas Al Hosn Gas • Optimized plant to deliver more capacity • Completed operational trials Increased • Minimal capital was required Plant Capacity to 110% 2017 production expected to be >70 MBOED 8
Slide 9: Occidental Petroleum
Occidental Petroleum • Key Messages and Strategy • 2016 Highlights • 2017 Outlook 9
Slide 10: 2016 Highlights
2016 Highlights Low-cost Production Growth Exceeds Target 7% 189% $9.65 Production Growth Total Company Total Company All- Capital Program Under FY 2016 Reserve Replacement Sources F&D $3 billion Target Ratio Strong Balance Sheet and Ample Liquidity $9.00 13% 290% Permian Resources Permian Basin Pro
Slide 11: Production Growth Exceeded Guidance
Production Total Company Production* Permian Resources Production Growth (MBOED) (MBOED) Exceeded Guidance ~7% Growth Y/Y ~13% Growth Y/Y 124 602 565 110 2015 2016 2015 2016 * Ongoing operations; excludes Piceance, Iraq and Bahrain production volumes 11
Slide 12: 2016 Accomplishments - Total Spend per BOE Achieved Target
2016 Accomplishments - Total Spend per BOE Achieved Target Capital Spending* + G&A + All Operating Costs Total Spend per BOE = Global Oil & Gas Sales Volumes • Internal performance metric to focus on ~$62.00 operational efficiency, especially in consideration of the sharp decline in commodity prices
Slide 13: 2016 Reserve Additions Through Reservoir Performance
2016 Reserve Additions Through Reservoir Performance Total ~505 MMBOE Reserve Additions prior to price revisions Company 91 2,406 Reserve 346 Replacement 2,200 (231) 2016 ~77% Proved Developed 189% All In ~74% Liquids 150% Organic YE 2015 Production* Additions Acquisitions YE 2016 Reserves & Sales R
Slide 14: Improved Margins in Permian Resources Attracting Investment
Improved Margins in Permian Resources Attracting Investment Permian Resources Cost Structure $16 - $19 / boe • Improved productivity and lower well costs in Permian Resources drive improved profitability • Pre-tax margins > 50% at $50 / bbl oil prices Development Opex G&A Production Cash Costs Cost
Slide 15: Occidental Petroleum
Occidental Petroleum • Key Messages and Strategy • 2016 Highlights • 2017 Outlook 15
Slide 16: 2017 Capital Plan Will Deliver 4% to 7% Production Growth
2017 Capital Plan Will Deliver 4% to 7% Production Growth Flexible Capital Program • Domestic ($ in billions) > Increased Permian Resources drilling in SE New Mexico and Greater Barilla Draw > Short cycle development allows for flexibility to respond to oil price volatility • International > Spendin
Slide 17: Cash Flow Priorities Favor Dividends
Cash Flow 1. Base/Maintenance Capital Priorities Favor Dividends 2. Dividends 3. Growth Capital Subject to Returns and 4. Acquisitions Market Conditions 5. Share Repurchases 17
Slide 18: Financial Highlights
Financial Highlights • 2016 Results • 2017 Guidance 18
Slide 19: Core Results – Fourth Quarter 2016
Core Results – Fourth Quarter 2016 Results • Total production (BOED) 607,000 • Core results* ($97) million • Core diluted EPS* ($0.13) • 4Q16 CFFO before Working Capital & Other $998 million • 4Q16 Capital Expenditures* $891 million • Cash balance @ 12/31/2016 $2.2 billion *For a reconciliation to G
Slide 20: Company-wide Oil & Gas
Oil and Gas 4 Core Production (MBOED) 605 (2) 0 607 Company-wide Oil & Gas Production In 4Q 2016, total company oil and gas production volumes averaged 607,000 BOED, an increase of 2,000 3Q16 Permian Other Domestic International 4Q16 BOE in daily production from 3Q 2016. 3 (2) 1 296 Production (MBOE
Slide 21: FY 2016 Cash Flow
FY 2016 Cash Flow ($ in billions) $3.6 ($0.4) ($2.9) ($2.3) $4.4 $1.5 ($1.7) $2.2 Beginning Cash CFFO Before Change in Working Capital Dividends Debt Asset Purchases & Ending Cash Balance 1/1/16 Working Capital Capital Expenditures Retire/Proceeds Sales, Ecuador & Balance Other 12/31/16 21
Slide 22: Financial Highlights
Financial Highlights • 2016 Results • 2017 Guidance 22
Slide 23: Free Cash Flow Improvement
Free Cash Flow Improvement • Improved market conditions, project start-ups and lower capital should increase free cash flow generation in 2017 2017 vs 2016 FCF Improvement International O&G ~$400 MM Midstream $150 - $200 MM Chemicals ~$400 MM Total $950 - $1,000 MM 23
Slide 24: Cash Flow Improvements Expected in 2017
Cash Flow Improvements Expected in 2017 • Improved product prices > Annualized cash flow changes ~$100 million for a ~$1.00 / barrel change in oil prices > Annualized cash flow changes ~$45 million for a ~$0.50 / Mmbtu change in natural gas prices • Improved chemicals performance > Annualized cash f
Slide 25: 1Q17 and FY 2017 Guidance Summary
1Q17 and FY 2017 Guidance Summary Oil & Gas Segment DD&A – FY 2017E • Oil & Gas: ~$15.00 / BOE • FY 2017E Total Production • Chemicals and Midstream: $685 mm > 625,000 – 645,000 BOED > Permian Resources production of 140,000 – 150,000 BOED Midstream • 1Q17E Production • ($60) – ($70) mm pre-tax loss
Slide 26: Permian Resources Results and Guidance
Permian Resources Results and Guidance • Total production grew 13% year-over-year to 124 MBOED Oil NGL Gas • Increased activity in 4Q 2016 140 - 150 > 16 wells online in 4Q16 vs. 9 in 3Q16 124 127- 132 > Added 7 top tier performing wells in Greater Sand Dunes 110 • 1Q17 program: increase in activity
Slide 27: Permian Basin
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Slide 28: 2016 Performance Exceeded Expectations
2016 Performance Production Program F&D Cost* Exceeded Expectations 300 269 $14 $12 250 $12 222 • Permian CAGR 10% 200 $10 $9 mboe/d > Base management $8 150 $/boe > Well productivity improvement $6 100 $4 • Improved F&D 25% 50 $2 > Increasing EURs 0 $0 > Focused development synergies 2014 Total Per
Slide 29: Permian Basin Key Takeaways
Permian Basin Key Takeaways • 2.5 million net acres in the Permian Basin > 650,000 net acres within the Delaware and Midland basins • Increased unconventional horizontal drilling locations to 11,650 > Average lateral length up 20% to ~7,100 ft > Locations with breakeven < $50 WTI up over 100% by ~1,
Slide 30: Permian Basin
Permian Basin • Acreage and Inventory Update • Growth Potential Through Focused Development • Differentiated Permian Position 30
Slide 31: Permian Resources
Net Business Area Acreage Permian Acres* Resources • Resources – Unconventional Areas • Enhanced Oil Recovery Areas 1.4 1.1 Occidental Permian Total 2.5MM Significant Acreage & Growth Potential In All Development Areas Net Resources Basin Development Areas Acres* ~650,000 Net Acres within • NM Delaw
Slide 32: Increased Total Horizontal Drilling Locations ~37%
Increased Total Horizontal Drilling Locations ~37% Improved Permian Resources Horizontal Inventory from 4Q2015 Locations within 300,000 net acres • Added 1,250 locations ~11,650 ~11,650 BE < $50 12,000 • Added 3,150 total locations Midland Basin 2016 • Increased average length from 10,000 Added 5,95
Slide 33: Permian Basin
Permian Basin • Acreage and Inventory Update • Growth Potential Through Focused Development • Differentiated Permian Position 33
Slide 34: Growth Potential of 30+% from Focused Development Areas
Growth Potential of 30+% from Focused Development Areas Multi-Year Permian Resources Growth Potential 300 18 15 14 16 • Top-tier well performance 250 14 Production (mboed) 30% CAGR • Deep inventory for range of activity 200 12 Rig Count 10 • Infrastructure to support growth 150 8 8 9 9 • Core develo
Slide 35: Permian Resources 2017 Focused Development
Permian Resources 2017 Focused Development New Mexico NW Shelf • 2017 Resources Capital $1.0 – $1.4 Bn Greater Sand Dunes – 2,000+ Locations Midland Basin > ~80% D&C, Non- NM Delaware Basin Operated, Capital Workovers > ~20% Facilities and TX Delaware Basin Central Basin infrastructure, Platform Mai
Slide 36: Greater Sand Dunes Improved Productivity by ~150%
Greater Sand Dunes Improved Productivity by ~150% ~150% 6 month cumulative production • Subsurface characterization enabling leading performance Oxy’s 2nd Bone Spring Improvements improvement from old design > 178 Miles2 3D Seismic + 186 Miles2 additional in 2017 300 4,500 ft Laterals 3Q 2016 > 3 Be
Slide 37: Greater Sand Dunes Area Multi-Bench Development Provides Up to 50+% ROR
Greater Sand Dunes Area Multi-Bench Development Provides Up to 50+% ROR Recent Well Results Barilla GreaterDraw Type Log Sand Dunes Target Formation Lateral Peak 24 Hr Peak 30 Day Oil Well Name Length (ft) (BOEPD) (BOEPD) (%) Brushy Canyon Federal 23 13H 4,376 899 833 90% Avalon James 29 38H 4,730 1
Slide 38: Lower Well Costs Are Sustainable Through Design and Performance Gains
Lower Well Costs Are Sustainable Through Design and Performance Gains • Design and efficiency to secure well costs 2017 Focus Areas • Reduction of drilling non productive time through focused development • Improving well costs despite increasing stimulation designs • Improve execution of new stimula
Slide 39: Permian Basin
Permian Basin • Acreage and Inventory Update • Growth Potential Through Focused Development • Differentiated Permian Position 39
Slide 40: Permian EOR Proven Leader in Maximizing Recovery
Permian EOR Proven Leader in Maximizing Recovery Across the Permian Significant inventory in Permian EOR Net Resource Potential 10-year plan MMBOE 2,000 Geographically diverse High-gradable 100 active CO2 + water 1,500 Inventory floods covering multiple horizons Midland Basin 2 BBOE of identified ne
Slide 41: 2016 Accomplishments in EOR Business
2016 Accomplishments in EOR Business 2017 Capital Opex Reduction Capital Efficiency Outlook $25 17% Reduction 2014-2016 12% Reduction Y/Y 600 $20 500 CO2 Floods / Expansions - $195MM $/BOE $15 400 300 $MM $10 TZ / ROZ Projects 200 $5 100 - $50MM $0 0 2014 2015 2016 2016 Target 2016 Actual Gas Proces
Slide 42: Differentiated Permian Position
Differentiated Permian Position Primary + EOR Reservoir Management Full Cycle Value • Subsurface characterization • Integrated Capital and Operating cost effectiveness • Enhanced oil recovery through capability and technology Infrastructure to support capital efficient growth and recovery 42
Slide 43: Appendix
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Slide 44: Capital Flexibility to Pursue Profitable Growth
Capital Capital Outlook Flexibility to ($ in bln) Pursue $3.0 - $3.6 Profitable ~$2.9 Growth Total Capital Outlook – $3.0 to $3.6 Bn 2016 2017E Maintenance Sustaining Growth 44
Slide 45: Committed Project Capital Shifts to Permian Resources
Committed Project Capital Shifts to Permian Resources Committed Project Capital • Multiple long-term investments to drive cash ($ in millions) flow and earnings growth have started up > Al Hosn Gas $1,300 > Ethylene cracker JV > Ingleside terminal $800 > Gas processing • Capital spending will contin
Slide 46: 2017 Production Outlook
2017 Production Outlook • Total production from core assets to grow 4% - 7% over 2016, with long-term production growth target of 5 - 8% > Improved Al Hosn Gas performance > Increase in Permian Resources > Modest impact from turnarounds, PSCs and quota compliance in 2017 Company-wide Oil & Gas Produ
Slide 47: Middle East Record 2016 Production
Middle East Record 2016 Production Achieved record production in 2016 in Oman and the UAE Core Countries 2017 Impact • Oman: FY16 record production of 96 • Improved production and cost reductions at Al MBOED through multiple onshore projects Hosn Gas and in Oman should increase free utilizing enhanc
Slide 48: Midstream: Improving Cash Flows and Market Access
Midstream: Improving Cash Flows and Market Access Business Segments 2017 Impact • Gas Plants: Natural gas and CO2 • Free cash flow expected to improve $150 - gathering, compression and processing $200+ MM due to better marketing economics systems to control upstream costs and ramp up of Ingleside oi
Slide 49: Chemicals Free Cash Flow to Significantly Increase
Chemicals Free Cash Flow to Significantly Increase Ingleside Ethylene Cracker – September 2016 • Ingleside Ethylene Cracker commercial operation in Q1 2017 > All systems turned over for commissioning • 50/50 JV with Mexichem in Corpus Christi, TX > $1.5 Billion for a 1.2 Billion lb/yr cracker, pipel
Slide 50: Basic Chemical Market Dynamics Are Shifting
Basic Chemical Market Dynamics Are Shifting Spot Domestic Caustic Soda Price* North American Chlor-Alkali Capacity Share * Low end of price range as reported by IHS $450 $400 Rest of $350 Industry Olin 23% 35% $300 $250 Westlake 18% $200 OxyChem 24% • Caustic soda prices reversed their multi-year •
Slide 51: Growing the Greater Barilla Draw Area
Growing the Greater Barilla Draw Area Q4 Acquisition Highlights Increased working interest from 26% to 63% • Increased acreage position to 100,000 net acres & 5,000+ horizontal locations • Capability to deploy 3 rigs in 2017 and 5+ rigs in 2018+ on acquisition acreage • Scale allows for operational
Slide 52: Successful Drilling Program Leading to Lower F&D Costs
Successful Drilling Program Leading to Lower F&D Costs F&D Costs (All Sources)* $25.41 $22.02 $9.65 • Improved productivity and lower well costs in Permian Resources 5 Year 3 Year 2016 • Improved performance and $26.22 expanded capacity in Al Hosn F&D Costs (Organic)* $21.73 Gas • Permian acquisitio
Slide 53: 2016 Total Company Reserve Replacement
2016 Total Company Reserve Replacement MMBOE 2015 YE Proved Reserves 2,200 Production* (231) Revisions of Previous Estimates 159 Improved Recovery 185 Extensions & Discoveries 2 Total Organic 346 Purchases & Sales 91 2016 YE Proved Reserves 2,406 Total Additions (All In) 437 Reserve Replacement (All
Slide 54: Improved Recovery and Acquisition Leads to Strong U.S. Reserve Replacement
Improved Recovery and Acquisition Leads to Strong U.S. Reserve Replacement Reserve 210 (18) Replacement 1,353 1,271 (110) 2016 175% All In 66% Organic YE 2015 Production Additions Sales YE 2016 Reserves Reserves All reserves are in Mmboe. 54
Slide 55: 2016 U.S. Reserve Replacement
2016 U.S. Reserve Replacement MMBOE 2015 YE Proved Reserves 1,271 Production (110) Revisions of Previous Estimates (92) Improved Recovery 165 Extensions & Discoveries 0 Total Organic 73 Purchase & Sales 119 2016 YE Proved Reserves 1,353 Total Additions (All In) 192 Reserve Replacement (All in) 175%