Occidental Petroleum Corporation · NYSE:OXY
Occidental Petroleum — Q4 2017 Earnings Presentation
64 slides from Occidental Petroleum's earnings presentation, Feb 14, 2018
Slide 1: Fourth Quarter 2017 Earnings Conference Call
Fourth Quarter 2017 Earnings Conference Call Occidental Petroleum Corporation February 14, 2018
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 • 2017 Highlights and Beyond • Pathway to Breakeven Progress • Financial Summary and Guidance • Permian Resources Update • International Update • Closing Remarks 3
Slide 4: Improved our Cash Flow in 2017 to Accelerate Breakeven Plan
Improved our Cash Flow in 2017 to Accelerate Breakeven Plan Increased the Value of Advanced Technologies Enhanced Our Portfolio our Assets and Operations Asset Optimization Well Productivity Improvement CO2-EOR Advancement > Sold South Texas Gas position to > Permian Resources average 6 month > Sequ
Slide 5: Improved our Cash Flow in 2017 to Accelerate Breakeven Plan
Improved our Cash Flow in 2017 to Accelerate Breakeven Plan Increased the Value of Advanced Technologies Enhanced Our Portfolio our Assets and Operations $6.0 Bn $17.96 $5.8 Bn Permian Resources $17.22 Net Asset Sales F&D Costs per BOE (All-in)2 Tax Refund Dividends RRR 2017 187% Production $8.53 Op
Slide 6: Long-term Sustainability of our Value Proposition
Disciplined Cash Flow Priorities Following Breakeven Plan Achievement Estimated Cash Flows ($ Bn)1 8.0 $60+ WTI: Opportunistic Long-term Sustainability of our Value Proposition Growth and Share Buybacks 7.0 CFFO $50+ WTI: Opportunistic $60 WTI 6.0 Balance Sheet and Growth 5.0 4.0 $50 WTI: Value Prop
Slide 7: 2018 Capital Will Deliver Breakeven Plan & 8% to 12% Production Growth
2018 Capital Will Deliver Breakeven Plan & 8% to 12% Production Growth 2018 Capital Program by Asset ($ Bn) 2018 Capital Program by Type Exploration 3% $0.3 $0.3 $0.1 Chemicals Total Growth Company Sustaining1 $0.8 Midstream 39% 58% $0.5 Exploration & Other International Facilities 18% Permian EOR $
Slide 8: Occidental Petroleum
Occidental Petroleum • 2017 Highlights and Beyond • Pathway to Breakeven Progress • Financial Summary and Guidance • Permian Resources Update • International Update • Closing Remarks 8
Slide 9: Pathway to Cash Flow Breakeven at Low Oil Prices
Pathway to Cash Flow Breakeven at Low Oil Prices 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 $4.5 $1.0 $4.3 Actual $4.5 $4.1 ~$120 MM per $1 4.0 $4.0 Change oil pr
Slide 10: Achieving Goals to Cash Flow Breakeven at $50 WTI
Achieving Goals to Cash Flow Breakeven Annualized Cash Flow From Operations Improvements ($ Bn) at $50 WTI Achieved since 1Q17 Breakeven Plan 4CPe Plant operations started in December 2017, on-time and on- 1.0 budget. Manufacturing ramp-up $0.9 will occur through 1H18. Marketing differential continu
Slide 11: Current Cash Balance Will Fund Plan to Breakeven
Current Cash Balance Will Estimated Cash Flows Through End of 2018 at $50 WTI1 Fund Plan to Breakeven assuming $50 WTI in 2018 6.0 Cash flow outspend through the completion 5.0 of our plan is covered by our cash balance but total liquidity includes: 4.0 • Current cash balance: $1.7 Bn • Portfolio ma
Slide 12: Occidental Petroleum
Occidental Petroleum • 2017 Highlights and Beyond • Pathway to Breakeven Progress • Financial Summary and Guidance • Permian Resources Update • International Update • Closing Remarks 12
Slide 13: 4Q17 Results
4Q17 Results Total reported production (Boed) 621,000 4Q17 Actual versus Boed Total Permian Resources production (Boed) 159,000 Guidance Reconciliation PSC Impact 5,000 Reported diluted EPS $0.65 Permian Third-Party 4,000 Core diluted EPS* $0.41 Permian OBO Timing 2,000 4Q17 CFFO before working capi
Slide 14: 2017 Cash Flow and Cash Balance Reconciliation
2017 Cash Flow and Cash Balance Reconciliation ($ in Bn) $4.7 ($0.3) ($2.3) ($3.6) $2.2 $1.4 ($1.1) $0.8 $1.7 Beginning Cash CFFO Before Working Change in Working Dividends Capital Expenditures Asset Sales Acquisitions/ Tax Refund Ending Cash Balance Balance 1/1/17 Capital Capital Other 12/31/2017 1
Slide 15: 2018 Guidance
2018 Guidance Oil & Gas Segment Exploration Expense • FY 2018E Production • ~$20 MM in 1Q18E > Total production of 640,000– 665,000 boed • ~$150 MM in 2018E > Permian Resources production of 195,000 – 209,000 boed DD&A – FY 2018E > International production of 286,000 – 297,000 boed • Oil & Gas: ~$13
Slide 16: Cash Flow Sensitivities in 2018
Cash Flow Sensitivities in 2018 Oil & Gas > Annualized cash flow changes ~$110 million per ~$1.00 / barrel change in oil prices • ~$80 million per ~$1.00 / barrel change in WTI prices • ~$30 million per ~$1.00 / barrel change in Brent prices > Annualized cash flow changes ~$40 million per ~$0.50 / M
Slide 17: Occidental Petroleum
Occidental Petroleum • 2017 Highlights and Beyond • Pathway to Breakeven Progress • Financial Summary and Guidance • Permian Resources Update • International Update • Closing Remarks 17
Slide 18: Improved our Cash Flow in 2017 to Accelerate Breakeven Plan
Improved our Cash Flow in 2017 to Accelerate Breakeven Plan Increased the Value of Advanced Technologies Enhanced Our Portfolio our Assets and Operations Permian Resources Permian Resources Permian Resources > Sold $600 MM of assets beyond current > Added 750 undrilled locations to <$50 > Four uncon
Slide 19: Undrilled Locations
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 20: Step Change in Well Results De-risks Breakeven Plan
Excellent Results Sustainable Step Change in Well Results De-risks Breakeven Plan in Greater Sand 2H17 Wells2 – Peak 30D Production Rates1 2nd Bone Spring Performance2 Dunes Oil (Bod) NGL (Boed) Gas (Boed) 350 300 4,000 2H17 - 12 Wells 18 new top tier wells in 4Q17 250 ~6,500’ 3,543 Includes 1 Avalo
Slide 21: Breakeven Plan Achieved
Breakeven Plan Milestone Achieved Permian Resources Value-based Production Growth in 3Q18 Permian Resources Production (Mboed) Dec-2017 Exit at 172 Mboed ~45% Production Growth 220 - 244 4Q17 Production Impacts 206 - 220 • ~3 Mboed: 3rd Party Downtime 184 - 199 • ~2 Mboed: OBO Timing Breakeven Plan
Slide 22: 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 23: Occidental Petroleum
Occidental Petroleum • 2017 Highlights and Beyond • Pathway to Breakeven Progress • Financial Summary and Guidance • Permian Resources Update • International Update • Closing Remarks 23
Slide 24: 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 25: 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 •
Slide 26: Major Recent Projects Delivered On-time and On-budget
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 27: Occidental Petroleum
Occidental Petroleum • 2017 Highlights and Beyond • Pathway to Breakeven Progress • Financial Summary and Guidance • Permian Resources Update • International Update • Closing Remarks 27
Slide 28: 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 15% of CEO annual bonus1 is 25% of CEO long-term incentive determined by CROCE2, with a compensation is determined by performance target of 1
Slide 29: Appendix
Appendix
Slide 30: Shareholder Distributions Over the Last Three Years
Shareholder Average Shareholder Average Shareholder Distributions Over 9% Distribution Yield (%)1 Payout Ratio (%)1 66% the Last Three Years 56% 56% (2016 – 2014) 6% 5% 5% 44% 5% 5% 4% > Strong history and 30% 27% 22% commitment to 14% shareholder returns 1% 1% 9% > Confidence in asset capabilities
Slide 31: 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 32: Appendix Contents
Appendix Contents • Social Responsibility, Environment, and Governance • 2017 Reserves • Permian Updates • Chemicals and Midstream Updates 32
Slide 33: Occidental's First Climate Report will be Released in 1Q 2018
Occidental’s Stockholder Proposal First Climate • Produce a report assessing portfolio impacts of plausible scenarios that address climate change, including the International Energy Agency’s “450 Report will be Scenario” Released in Report Highlights 1Q 2018 • Board and Management’s process for iden
Slide 34: Oxy Safety Culture and Strong Performance
Oxy Safety Culture and Strong Performance Committed to the highest standards of Global Employee Injury and Illness Incidence Rate conduct Incidents and Cases per 100 Workers • Fostering a culture of safety excellence and 0.38 continuous improvement to achieve a 0.36 0.33 zero-incident safety record,
Slide 35: 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 36: CO2 EOR Process
C02 EOR Process Makeup CO2 Gas Plant Makeup CO2 Gas & NGL Supplied from Supplied from Pipeline Sales Anthropogenic Sources CO2 Recycled from Gas Plant Produced Gas Producer wellbore CO2 Production Emissions Reducing Injection well Oil / Water / Gas Separator Opportunity Oil Sales Drive Miscible Oil
Slide 37: How does CO2 EOR Work
How does CO2 Oil (Red) EOR Work Physics of Miscible CO2 EOR at Pore Scale Water Injection • 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 CO2 (brown) in the reservoir Injection
Slide 38: Appendix Contents
Appendix Contents • Social Responsibility, Environment, and Governance • 2017 Reserves • Permian Updates • Chemicals and Midstream Updates 38
Slide 39: 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 40: 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 41: 2017 Total Company Reserve Replacement
2017 Total Company Reserve Replacement MMBOE 2016 YE Proved Reserves 2,406 Production (220) Revisions of Previous Estimates 151 Improved Recovery 201 Extensions & Discoveries 5 Total Organic 356 Purchases & Sales 55 2017 YE Proved Reserves 2,598 Total Additions (All In) 412 Reserve Replacement (All
Slide 42: 2017 U.S. Reserve Replacement
2017 U.S. Reserve Replacement MMBOE 2016 YE Proved Reserves 1,353 Production (111) Revisions of Previous Estimates 109 Improved Recovery 149 Extensions & Discoveries 0 Total Organic 258 Purchase & Sales 55 2017 YE Proved Reserves 1,555 Total Additions (All In) 313 Reserve Replacement (All in) 282% R
Slide 43: Appendix Contents
Appendix Contents • Social Responsibility, Environment, and Governance • 2017 Reserves • Permian Updates • Chemicals and Midstream Updates 43
Slide 44: 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 45: New Mexico Modular Development Area
New Mexico Modular Turkey Track - New Modular Development Area Development Area Southeast New Mexico Innovative Development Provides Scale Leveraging Permian Scale to Realize Advantages to Regional Areas Value in Smaller Development Areas Multi-bench potential Modular Facilities • Turkey Track –
Slide 46: Greater Barilla Draw
Greater Barilla Draw 2017 Barilla Draw proper– Wolfcamp A Optimized Landing Point Results Operating Excellence & Strong Results 250 Strong results across multiple fields 200 Average of 2017 10,000 ft Average of 2017 5,000 ft Cum MBOE wells (5) > Core Barilla Draw continues excellent 150 wells (3) re
Slide 47: Midland Basin - Merchant
Midland Basin - Merchant Multi-bench program and operating efficiency create play-leading opex Merchant Opex / BOE Successful Development Planning Operating cost <$2.75/boe $3 from Inception Leads to Greenfield $2.71 Operating Cost > Horizontal only development $2 • First wells online in 2014 > 10,0
Slide 48: Outstanding Results in Greater Sand Dunes Area Multi-Bench Development
Outstanding Results in Greater Sand Dunes Area Multi‐Bench Development Recent Well Results Target Formation Lateral Peak 24 Hr Peak 30 Day Well Name Oil (%) Greater Sand Dunes Length (ft) (boed) (boed) Brushy Canyon Federal 23 13H 4,376 899 833 90% Avalon New Patton MDP1 18 Fed 23H 4,108 2,008 1,509
Slide 49: Improving Results in Greater Barilla Draw Area Multi-Bench Development
Improving Results in Greater Barilla Draw Area Multi‐Bench Development Recent Well Results Target Formation Peak 24 Hr Peak 30 Day Oil Well Name Lateral Length (ft) Greater Barilla Draw (boed) (boed) (%) Avalon Evaluating 1st BS Evaluating Collie A East N63H 9,725 1370 1155 81% 2nd BS Aardvark State
Slide 50: 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 17 2017 Expected Top Peers Top Peers 2015 2016 1H 17 2017 Top Peers Top Peers
Slide 51: Optimized Development Plans
Optimized Record Well Results Provide Near-term Visibility to Development Achieving 80 Mboed Production Increase Milestone Plans Permian Resources Horizontal Wells Online Operational resources Actual Outlook secured and on-board New Mexico 59 - 63 for 2018 Texas • Added 4 drilling rigs end 45 of 2Q1
Slide 52: Project Aventine – Strategic Partnerships Reduce Costs in Value Chain
Project Aventine – Strategic Partnerships Reduce Costs in Value Chain Project Aventine • 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 o
Slide 53: New Mexico Well Cost Improvements
New Mexico Well Cost Breakeven Plan Sustainability Enhanced by Improvements Operating Efficiency and Logistics Savings • Well design: fluid optimization New Mexico 2nd Bone Spring 10,000’ Well Cost and produced water recycling $12 • Logistics: Project Aventine $0.6 MM $0.8 MM • Operating: reduced TT
Slide 54: Operating Capability Reduces Costs
Operating Capability Permian Resources Opex/BOE Reduces Costs $12.93 $12.00 $11.17 • Water-handling reducing surface costs • Lift optimization reducing $8.43 $8.00 downhole failure costs $8.00 $7.63 $4.00 $- 2014 2015 2016 2017 2017 Q4 Surface Downhole Supports Energy Other 54
Slide 55: Undeveloped Drilling Locations
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
Permian EOR Proven Leader in Maximizing Recovery Across the Permian • Seminole San Andres Unit Permian EOR adds low F&D inventory Net Resource Potential > ~100 MMboe at < $6.00 2,000 future development cost High-gradable Inventory • Significant opportunity to 1,500 improve and grow new inventory Mid
Slide 57: Permian Resources
Permian Resources Net Business Area Acreage Acres* • Resources – Unconventional Areas 1.4 • Enhanced Oil Recovery Areas 1.1 • Significant growth potential in Oxy Permian Total ~2.5MM all development areas • ~650,000 net acres within Net the Delaware and Midland Resources Basin Development Areas Acre
Slide 58: Appendix Contents
Appendix Contents • Social Responsibility, Environment, and Governance • 2017 Reserves • Permian Updates • Chemicals and Midstream Updates 58
Slide 59: Chemicals Cash Flow Improvement Drivers
Chemicals Cash Annualized Chemicals Cash Flow From Operations ($ MM) Flow Improvement 1,600 Achieved Drivers $1,475 $50 1,400 $150 JV Ethylene Cracker startup complete 1,200 $150 $1,125 4CPe Plant startup in 1,000 4Q17 with ramp through 1H18 800 Capturing margin from 600 improving pricing and operat
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
Chemicals Pre-Tax Earnings (EBIT)1 Market Overview 300 Update 250 200 $ Millions • Major industry 150 consolidation complete 100 50 • Caustic soda supply- 0 demand balance 1Q18E 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 co
Slide 62: Midstream Cash Flow Improvement Drivers
Midstream Cash Annualized Midstream Cash Flow From Operations ($ MM) Flow Improvement 500 Achieved Drivers $450 450 $50 Al Hosn plant continued 400 optimization: 1Q 2018 $50 350 300 Oil terminal capacity upgrade: 2H18 – 2019 250 $200 200 Near-term Midland to $150 Gulf Coast spread 150 outlook ~$2.50
Slide 63: Near-term Outlook for Midland to Gulf Coast Spreads
Near-term Outlook Midland to Magellan East Houston Spread ($/bbl) for Midland to Gulf 7.00 Coast Spreads Actual Outlook 6.00 Accelerating global economic growth drives New strong demand 5.00 Harvey Impact on Pipeline Spread Capacity Balanced global supply 4.00 assuming OPEC+ extension Permian pipeli
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