Download BAML 2016 Global Energy Conference Presentation

OCCIDENTAL PETROLEUM CORPORATION
BAML Global Energy Conference
November 17, 2016
Cautionary Statement
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. 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. Factors that may
cause Occidental's results of operations and financial position to differ from expectations 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; 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. 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 forwardlooking 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 1, Item 1A “Risk Factors” of
Occidental's 2015 Form 10-K.
2
Key Messages & Strategy
Overriding Goal is to Maximize Total Shareholder Return
• We believe this can be achieved through a combination of:
• Oil and gas production growth of 5% to 8% per year over the long-term;
− Executing on our capital program with a focus on growing our U.S. oil production
• Allocating and deploying capital with a focus on achieving well above
cost-of-capital returns (ROE and ROCE);
– Return Targets*
• Domestic – 15+%
• International – 20+%
− Continued improvement in our capital and drilling efficiency
− Start-up of long-term projects
• Providing consistent, annual dividend growth;
• Maintaining a strong balance sheet.
*Assumes moderate product prices
3
Cash Flow Priorities Favor Dividends
1. Base/Maintenance Capital
2. Dividends
3. Growth Capital
4. Acquisitions
Subject to
Returns and
Market
Conditions
5. Share Repurchases
4
Key Messages & Takeaways
• High quality oil and gas assets & other low capital intensity operations
 Improving free cash flow in other segments provides continued dividend support
 Significant exposure to a recovery in oil prices provides optionality for
dividend growth and/or acceleration of production growth
• Operational excellence
 On track to exceed high end of 4% - 6% production growth guidance for FY 2016
 On track for 2016 capital budget of ~$3 billion
• Recent WI acquisitions in existing areas strengthen Permian position
 Operatorship provides opportunity to control pace and cost of drilling
 Significant value capture through operating & development cost synergies, well
productivity, application of D&C knowledge, and leveraging existing infrastructure
 Significant optionality and value through future upside and development flexibility
• Superior balance sheet and ample liquidity
5
Unique Investment Proposition
Large Integrated Majors
Independent E&Ps
Company
XOM
RDS
Company
Market Cap ($B)
$358
$211
CVX
$203
TOT
$120
BP
$105
ENI
$51
Characteristics
• Low or no growth
• Higher returns
• Stronger B/S; lower risk
• Free cash flow
• Consistent dividend growth
Oxy
Uniquely
Positioned
$51
billion
Market Cap ($B)
COP
$57
EOG
APC
PXD
DVN
APA
$54
$34
$30
$23
$22
Characteristics
• Generally higher growth
• Lower returns
• Weaker B/S; higher risk
• Little or no free cash flow
• Little or no dividends
• Moved from gassy to oily
Oxy has positive elements of both groups, appealing to investors who seek
a combination of moderate growth, above average returns and consistent
dividend growth.
Updated as of 11/10/2016
6
A Focused Business with High Quality Assets
Oil and Gas Focus Areas
United States
• Leading position
in the Permian Basin.
• Permian Resources
is a growth driver.
OxyChem
High FCF, moderate
growth business.
Oxy Midstream
MENA
Latin America
• Al Hosn Project,
Oman and Qatar.
• Additional potential
opportunities for growth
with partner countries.
• Highest margin
operations in Colombia.
• Additional opportunities
for moderate growth
with partner.
Integrated pipeline ops
& marketing designed to
maximize realizations.
Quality assets position
Oxy to grow
• Oil production
• Earnings & Cash Flow
per share
• ROCE
• Dividend stream
7
Production Growth Exceeding Expectations
• Expect to exceed the higher end of 2016 production guidance
of 4% - 6% growth
– Record high production at Al Hosn and Oman
– Permian Resources ~13% FY 2016 growth
• Anticipate production growth of 5% - 8% in 2017
Company-wide Oil & Gas Production from Core Assets (MBOED)
600 – 605
565
2015 Core
Production
Other Domestic
Decline
Permian
Resources
Growth
Al Hosn & Oman
Block 62
Note: Core assets exclude Bahrain, Iraq, Yemen, Williston and Piceance Basins
>6% Core
Assets
Production
Growth
in 2016
5 – 8%
Production
Growth
2016E Core
Production
Outlook
2017E Core
Production
Outlook
8
Total Spend per BOE Has Declined
Capital Spending* + G&A + All Operating Costs
Total Spend per BOE =
Global Oil & Gas Sales Volumes
~$62.00
•
Internal performance metric to focus on
operational efficiency, especially in
consideration of the sharp decline in
commodity prices
•
Portion of management and employees
incentive compensation is directly aligned
with this performance metric
•
Focuses on efficiency, improved margins,
and free cash flow generation
•
Designed to help manage reduction in overall
spending while rewarding production growth
~$40.00
$28.50
2014
2015
2016
Target
* Excludes cost of acquisitions
~$27.50
2016 YTD
9
Recent Debt Offering & Sources of Liquidity
• Cash balance of $3.2 billion at 9/30/2016
• Recently issued $1.5 billion in bonds with 10-year coupon
at 3.00% and 30-year coupon at 4.10%
• Single ‘A’ credit ratings re-affirmed with stable outlook
• Additional sources of liquidity in 2017 - 2018
of ~$2 billion including:
 Anticipated tax refund in 2017
 Monetization of non-strategic corporate assets
 Portfolio management & optimization
10
Capital Flexibility to Pursue Growth
Preliminary Capital Outlook
($ in bln)
•
Total sustaining and
maintenance capital of ~$2.2
billion*
•
Focused on return based capital
for growth projects in Permian
Resources
•
Shorter cycle capital
investments allow for flexibility
to respond to any changing
price environment
•
If oil prices show downside
volatility, can quickly adjust
capital program below current
outlook
$3.3 - $3.8
<$3.0
2016E
Maintenance
2017E
Sustaining
Growth
* Estimated capital budget required to keep production stable
11
Middle East Update
Achieved record production YTD 2016 in Oman, Qatar and the UAE
Core Countries
2017 Impact
• Oman: YTD record production of 95
MBOED through multiple onshore
projects utilizing enhanced oil recovery,
including steamfloods.
• Improved production and cost reductions at
Al Hosn and in Oman should increase free
cash flow by ~$300+ MM
• Qatar: YTD production of 110 MBOED
through multiple shallow-water EOR
projects, Dolphin and ISSD record
production
Al Hosn Gas development
• UAE: YTD production of 61 MBOED
from the Al Hosn gas project, exceeding
performance expectations, including
planned turnarounds
– Al Hosn 2017 production to
increase to 65 – 70 MBOED
Al Hosn Gas Project
12
Midstream Update
Business Segments
2017 Impact
• Gas Plants: Natural gas and CO2
gathering, compression and processing
systems to control upstream costs
• Free cash flow expected to improve $150 $200+ MM due to better marketing
economics and ramp up of Ingleside oil
storage and export facility
• Pipelines - Domestic: Take-away
capacity via common carrier oil pipeline
and storage systems, including
Centurion pipeline, CO2 source fields
and pipeline systems
• Ample takeaway capacity and new outlet for
Permian oil production
• Pipelines - Foreign: Stable free cash
flow from Dolphin natural gas pipeline
• Power Generation: Lower cost
electricity through power and steam
generating facilities
• Marketing & Trading: market
production at highest realizations;
includes Ingleside export facility
Shipments from Ingleside export facility
13
Chemicals Update
Integrated Value Chain
2017 Impact
• Chlorine: 60% Internal Use for VCM,
EDC, and Other Derivatives / 40%
External Merchant Sales
• Expect free cash flow to increase by ~$400 MM
with lower capital expenditures, start up of
ethylene cracker & product margin increases
• Vinyls: Demand driven by
construction growth: PVC – sell 75%
domestically and 25% exported; VCM
– 50% internal use for PVC and 40%
exported and 10% sold domestically;
• $10/ton of Caustic Netback = $30 MM cash flow
• US infrastructure backlog a significant upside
Ingleside ethylene cracker near completion
• Caustic Soda: Leveraged to exports,
manufacturing activity and chemicals
demand: 95% sold externally; 40%
exported; market prices now rising
• Natural Gas Inputs: Partial hedge of
Oxy’s domestic natural gas production
14
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
MENA
~$300 MM
Midstream
$150 - $200 MM
Chemicals
~$400 MM
Total
$850 - $900 MM
15
Permian Basin Is The Core Domestic Asset
EOR Business
•
•
•
YTD ‘16 Production - 144 MBOEPD
1 million net acres
1.9 Billion BOE remaining in reserves
and resources
Resources (Unconventional)
•
•
•
YTD ‘16 Production – 125 MBOEPD
1.4 million net acres
8,500 identified well locations*
Midstream
•
•
Oxy Acreage
Oil Pipelines
CO2 Pipelines
* Based on 4Q15 metrics
12 processing plants
~2,900 miles of pipeline
– CO2 pipelines
– Oil infrastructure and pipelines
– Marketing business
Infrastructure difficult to duplicate
16
Growing the Greater Barilla Draw Area
• Unique opportunity to increase working
interests and operatorship in Red Bull
properties
BEFORE
~26% Working Interest
• Recent acquisition enhances Occidental’s
strong position in the Southern Delaware
Basin
−
Part of a multi-year investment plan started in 2012
−
Area now encompasses ~100,000 net acres & 3,800+
hz locations
• Scale of contiguous position allows for
synergies
−
Vast delineated area of subsurface characterization
−
Expanded best-in-class operating capabilities
−
Integrated infrastructure and supply chain leverage
−
Market access for rapid production growth
~26% Working Interest
~63% Working Interest
AFTER
• Unconstrained high value growth potential
~100% Working Interest
17
Multi-Bench Development Potential
Barilla Draw Type Log
Recent Wells
Target Formation
Well #*
Effective Lateral
Length (Feet)
IP-30
(Boepd)
Potential
Avalon
Evaluating
1st Bone Spring
2nd Bone Spring
Well #1
Well #2
4,514
4,947
762
821
3rd Bone Spring
Well #1
7,576
642
Wolfcamp A
Well #1
Well #2
Well #3
Well #4
Well #5
4,396
7,700
4,407
4,300
7,553
1,564
2,210
1,304
1,892
1,240
Wolfcamp Debris
Flow
Well #1
Well #2
Well #3
Well #4
4,500
6,575
4,776
4,681
1,907
1,247
1,340
1,263
Wolfcamp B
Well #1
Well #2
Well #3
Well #4
7,377
6,947
6,935
7,376
1,171
1,513
1,124
1,416
Wolfcamp C
Well #1
4,251
937
Debris Flow
Proven Economic
Evaluating
* Wells include Oxy and acquisition acreage
Potential
18
Greater Barilla Draw Advantages
$12
7,500 ft Lateral
150
120
90
60
30
0
Infrastructure Cost
7,500 ft Lateral
Facilities % of Development Capex
180
Well Cost*
Total Well Cost ($MM)
6 Month Cumulative MBOE
Well Productivity
$10
$7.8 - $8.5
$8
$6
$4
$2
$‐
Prior
Operator
Oxy
Current
Oxy
Potential
• Subsurface Expertise
– Vertical Delineation History
Prior
Operator
Oxy
Current
Oxy
Potential
15%
10%
5%
0%
Prior
Operator
Oxy
Current
Oxy
Potential
• Oxy Drilling Dynamics
• 300+ MMCFD Gas Pipeline capacity
– Expansive sub-basin characterization
area
– More Lateral Footage / Rig
• Optimal Full Section Spacing for value
20%
• 150,000+ BOPD Oil Pipeline takeaway
– Faster Drilling + Reduced Downtime
– Unique designs to fit geo-science and
reservoir characteristics
25%
• 5+ Rig Development Potential
– 3D Seismic + Core
• Integrated Stimulation Designs
30%
• Completion Efficiencies
– Maximizing Stages per Day
• 290,000+ BWPD Pipeline SWD
Capacity
• 90 MW of Power from 5 Electrical
Substations
– Optimized Flow Back
• 52 consolidated CTB’s
– Shared infrastructure
• Integrated Artificial Lift systems
*Well cost includes drilling, completion, hook-up, initial flow-back, capitalized
*overhead, and artificial lift
19
Acquisition Influence on Greater Barilla Draw
Net Production - BOEPD
38,000
• Oxy’s development capability adds significant
value to the acquired assets
• Previously owned a 26% WI in the acquisition
area
• Oxy operating adds over $600MM of Future
NPV10* to the Greater Barilla Draw area
Net Acres
Drilling Pace Capability
*Future NPV10 calculation assumes a modest 3 rig pace with $500K / well cost improvement,
$0.50 / boe opex improvement and 10% well productivity improvement from the prior operator.
20
Greater Barilla Draw Development Area Timeline
2012
Enter
2013
Appraise
 Systematic
acquisition
criteria
 Subsurface
characterization
progression
 Leverage nonoperated learning
early
 Testing of key
subsurface
concepts
 Add large
contiguous
operated acreage
 Delineation of
multiple benches
 Bolt-on’s to
create value
 Surface acreage
for full cycle cost
advantage
 Vertical to Hz
well transition
 Drilling &
Completion
technology
advancement
2014
Improve
 Pad Drilling
 Slim Hole well
design
 Unique Drilling
Fluid
implementation
 Well-ordered
stimulations
 Total Time-toMarket
reduction
 Total activity
integrated
planning
 Water
Infrastructure
2015
2016
Optimize
Innovate
 Extended lateral
inventory build
 Well Spacing
studies
 Orientation tests
 Stimulation
advancements
 Full section
development
design
 Consolidated
CTB’s
 Oil & Gas
Gathering
Infrastructure
2017+
Grow
 Acreage
improvements
 Unconstrained
Growth Potential
 Supply Chain and
logistics
transformation
 Expansive multibench subsurface
characterization
 Co-bench
development
technology
 Infrastructure and
facilities
enhancements
 Enhanced
Reservoir
Recovery
 Low cost
multi-bench
co-development
capability
 Oil + Water + Gas
infrastructure and
assurance
 Operating cost
synergies
 Gas processing
and assurance
21
Greater Barilla Draw Timeline
Lockridge
Collie
Barilla
Draw
Existing Oxy 3D Seismic Surveys
Red Bull –
North
(~63%)
Red Bull South
Motorcycle
(~25%)
Proposed 2017 3D Seismic Acquisition
Outside Operated
Oxy Operated
2012 - Enter
2013 - Appraise
2014 - Improve
2015 - Optimize
2016 - Innovate
• 1st WC A Hz well at
Lockridge
• 1st WC B Hz well
appraisal
• 1st WC C and 3rd BS Hz
appraisal wells
• 5,000’ lateral <15 drilling
days
• Barilla Draw acquisition
• Operated and nonoperated acquisitions
• Acquired core: WC A, WC
B, 2nd and 3rd BS
• 1st 10,000’ Hz lateral
• Oxy/Enterprise JV gas plant
• Acreage swap & JVs for
extended laterals
• 35,000 net acres acquisition
22
Permian Resources Drives Oxy Production Growth
Oil
• Total Permian Resources
production growth expected to be
~13% in 2016
–
5 rigs drilling a mix of development
and appraisal wells
Gas
MBOED
~124
• Increased activity expected in 4Q16
in preparation for 2017 growth
–
NGL
110
75
Production will start increasing
again before year-end
71
43
2014
2015
2016E
2017E
23
Overall Permian Continues to Grow
• Expect to increase to 8 rigs in 4Q16
Oil
Gas
MBOED
• Successfully enhancing completion
methods across Permian Resources
acreage position
• Achieving better than expected results
in both Permian businesses which will
allow us to invest the savings into
additional wells in each respective
business
NGL
255
~270
222
• Expect production growth in 2017 with
added rigs in Permian Resources and
continued investment in Permian EOR
2014
2015
2016E
2017E
24
Access to Multiple Markets Through Midstream
Investments
• Ample
takeaway
capacity to
reach multiple
markets and
hubs to drive
improved price
realizations
• Blending
capabilities
allow for
optimization
Cushing
Mid‐Valley
240 kb/d
Colorado
City
Midland
Wink
Crane
McCamey
Nederland
Houston
Ho‐Ho Pipeline
HOFTCO Terminal
Ingleside Terminal
Oxy owned
Corpus Christi
Oxy is a major shipper
25