Q3 2019 Earnings Call
Third quarter 2019 earnings conference call.
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I would now like turn the call whatsoever to just average Vice President Investor Relations. Please go ahead.
Thank you Brandon.
Good morning, everyone and thank you for participating and Occidental Petroleums third quarter 2019 conference call.
On the call with US today are Vicki Hollub, President and Chief Executive Officer, Cedric Burgher, Senior Vice President and Chief Financial Officer can Dillon, President International oil and gas operations BJ Bear President of Oxy, Cam and Oscar Brown Senior Vice President strategy business development.
And integrated supply and just a moment I will turn the call over to Becky.
As a reminder, today's conference call contains certain projections and other forward looking statements within the meaning of the federal Securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements are more fully described.
And our cautionary statement regarding forward looking statements on slide two earnings press release, the Investor relations supplemental schedules and our non-GAAP to GAAP reconciliations and the conference call presentation slides can be downloaded offer website at www dot oxy dot com.
I'll now turn the call over to Vicki Vicki. Please go ahead.
Thank you, Jeff and good morning, everyone I'm pleased to welcome you to our first earnings call since closing the acquisition of Anadarko in August Eightth.
I'd like to thank our employees, who are hard at work updating our development in capital spending plans and implementing our team based structure across the combined organization with an emphasis on safety collaboration creativity and results.
Our integration and value capture team is working with our business units to capture synergies at an early stage. So we can deliver the full potential this transit transaction for our shareholders.
As we work through the integration process, we've become more confident everyday in our ability to fully realize annual capital overhead and opex synergies of $2 billion, which I'll provide more detail on in a few minutes.
For those of you know oxy well, you'll see our third quarter financial statements include a number of changes due to the completion of the Anadarko acquisition mid quarter.
Our income and cash flow statements capture legacy Oxy results for a full quarter and include legacy Anadarko results as well as consolidated West results really 53 days.
This is now consolidated in our financial statements as a fourth orbit operating segment and our balance sheet reflects the consolidated company, including Wes.
On September Thirtyth.
For transparency for our shareholders. We have provided a schedule in our earnings release, breaking out key financial and operational information from axiom Wes on a stand alone basis.
As our financial statements do not include a full quarter legacy Anadarko Best results, we understand that street consensus was not able to reconcile all the line items affected by the acquisition. This quarter for example, DDNA tax and interest.
Going to slide four oxys complimentary assets on the alignment of our upstream chemical and midstream business the businesses, including our ability to compete in the low carbon world position us for full cycle success.
Our leadership in each area, where we operate combined with our enhanced portfolio of high return short cycle cash flow generating assets will facilitate profitable free cash flow growth, which we will utilize to reduce debt and also to return additional cash to shareholders. This substantial free cash flow, we will generate in higher price environments.
Combined with our ability to pay a sector leading dividend throughout lower commodity price environment is unmatched.
Post acquisition Oxys diversified portfolio provides numerous competitive advantages oxys now the largest oil and gas leaseholder in United States on a net acreage basis, providing us with ample opportunities in the Permian DJ powder River and the Gulf of Mexico to selectively deploy capital in a way that Optimizes capital.
Intensity.
Actually was the largest U.S. producer of Bolan.
And liquids on a combined company bases in the first half of 29 team.
This will allow us to maximize cash margins on a daily basis, especially when taking our <unk> vantage midstream position into account.
Through the acquisition, we acquired approximately 450000 square miles a modern three D seismic data in our core domestic development areas. This includes a 40% increase in our already extensive Permian seismic inventory.
The advantages that Oxys diversified portfolio provides coupled with our unmatched subsurface characterization ability and the execution excellence that oxy is known for ensures that we are positioned for full cycle success in the years ahead.
As we continue our integration efforts, we're aligning westerbork seamlessly with Oxys upstream business.
We're standing less up as they more independent operation.
And to improve operating performance to benefit both oxys upstream business and Wes inclusive of enabling us to be more competitive for third party business.
We're also evaluating alternatives that could result in the deconsolidation of what's in the future. However, we expect to retain his significant economic interest in west for the foreseeable future as we recognize their tremendous value. The west provides and we plan to drive long term value for both companies.
Before providing additional details on synergy capture I want to turn to the excellent operational results that our business.
Our businesses continue to deliver.
Since completing the acquisition of Anadarko, we continue to make quick progress towards fully achieving our post acquisition divestiture and de leveraging goals.
During the third quarter, we divested our planes interest for net proceeds of 650 million.
And close to celebrate Mozambique, LNG stake for $3.9 billion.
Upon completion of the divestitures contracted since May 29 chain, we will have essentially reached the lower end of our 10 to 15 billion dollar divestiture goal net of taxes.
We applaud the proceeds from our clothes divestitures toward reducing debt and have already eliminated our 2020 debt maturities.
I'm very proud of the progress our teams have made over the last few months. We know the we have more to do on the de leveraging front and I look forward to being able to make that additional announcement as we move forward towards the top end of our goal.
Our integration about you capture efforts are proceeding exceptionally well without shifting focus away from our core business, which is evident from our strong third quarter operational result Oaks. It continues to deliver the best wells in the basin, having delivered 25, the top 100 wells in the Delaware basin, well drilling less than 7% of the total wells.
We accomplished this using less profit and then peers, which results in lower cost for us.
We also design our developments with a full cycle well lifecycle approach using appropriate well spacing that we expect to deliver optimal results now and in the future.
Well, we tend to highlight the Permian as it is a gross asset for US all of our businesses continued to perform well since the close of the Anadarko acquisition single day or monthly production records have been set in the Gulf of Mexico, D.J., Alhazen and Permian resources for both legacy Anadarko and oxy assets. This.
Demonstrates the quality and expertise a both the former oxy and Anadarko employees as they stay longer laser focused on delivering superior results even during this integration process.
As proud as I am of all of our teams for the operational excellence. They have maintained during integration I'm, even more pleased with our outstanding safety record. Our teams are continuing to look for ways to further improve our safety performance as operating safely is and will continue to be a core value for us.
Our consistent industry, leading operational results combined with our ability to fully deliver on value capture positions us for full cycle success and enhances our ability to generate increased excess free cash flow to reduce debt and to return cash to shareholders.
Returning excess capital to our shareholders isn't part of boxes, DNA and the third quarter, we returned approximately $600 million to shareholders.
Going to slide seven I'm thankful to have had the opportunity to engage with many of our shareholders over the past few months to discuss the free cash flow potential of the new Oxy and first in our 2020 capital plan as high as.
Well, we typically do not release, our full year capital budget until our fourth quarter earnings call. We're able to provide many details are bar 2020 capital plan. This morning.
2020 capital budget of $5.3 billion to $5.5 billion, well deliver expected annual total company production growth of 2%. This represents an approximate reduction of $3.6 billion from Anadarko's, Inox, whose combined 2019 capital budgets.
Well, we communicated our annual synergy target of $2 billion. We also stated that.
Capital spending would <unk> be reduced by $1.5 billion lowering our companywide annual production growth from approximately 10% to 5%.
We have gone further than this for 2020, we anticipate that the combination of lower capital spending and production growth well generate greater free cash flow enhanced by our industry, leading capital efficiency, which I'll touch on shortly.
2020 production growth on a company level will be driven by Permian resources, while we expect production from other areas to be flat or grow at a reduced rate compared to 2019.
We expect Permian resources production to grow by approximately 5% in 2020 operating 15 gross rigs and eight net rigs the rough breakout for specific areas is five rigs in new Mexico.
Six to seven and legacy Anadarko, Texas, Delaware and three to four in the Midland Basin JB.
In the DJ airplane represents approximately three operated wells rigs.
It's Permian resources shelf production becomes a larger portion of our total oil and gas production, we expect our oil and gas base decline rate to increase to 25% in 2020. However, we do not expect our base decline rate to continue to increase in future years, given our moderated growth rate.
Similar to 2019 or 2020 capital program is dominated by short cycle investments.
At approximately $35 W.G. I R 2020 program will generate a double digit rate of return.
Actually remains flexible throughout the commodity cycle, and if necessary and less than six months, we can reduce capital spending to sustaining level.
Looking past 2020, we know that capital discipline will continue to be important to investors. Our intent is to cap our annual production growth that it at an average of 5% as we balance the best opportunities in our portfolio with growing free cash flow.
Our planned activity in 2020 should enable us to grow production by five person annually in 2021 with the capital budget of $6.6 billion.
It's we're 2019 capital discipline as always is intact at oxy as we remain on track to stand within our combined capital budget of 8.6 billion Excluding Africa.
Since the acquisition close we've had the opportunity to just take a deeper dive into the company.
That's combined oxy Anadarko and ours excited today as we had been it anytime during the last two years about the opportunities in front of us.
Through the strength of our combined companies, we've identified approximately 150 specific capital synergy initiatives across our enhanced portfolio, which we plan to incorporate into our development plan.
Applying these initiatives will lower well costs by $3.1 million per well in Texas, Delaware about $600000 per well in the DJ Basin.
And drilling and completions, we're implementing the fish in development concepts, you utilizing oxy drilling dynamics to improve the trajectory of the bed and wellbore, which reduces drill times and cost.
Example, we expect to improve our drilling rates orphan footage drilled per day in the Texas, Delaware about 35%.
The technical work completed by all of our teams to identify savings initiatives and to improve well productivity has been outstanding and I'm extremely confident in our ability to execute I realize the full synergy targets.
On slide 10, we provide a bottom up view of the $605 million of drilling and completion synergies based on expected savings per well and estimated 2021 net well counts to achieve annual production growth of 5% and 2021.
Slide 11 in addition to realizing $900 million in capital synergies Oxys best in class capital intensity is expected to continue to improve this often under appreciated measure of operational excellence and competitive advantage truly sets oxys capabilities in the Permian apart from other operators.
As a reminder, capital intensity is defined as the total net annual capital required for 1000 net barrels per day average annual wedge production.
Fully capturing our capital synergies and improving our overall capital intensity through faster time to market and better well performance will contribute to driving efficient wedge growth, enabling oxy to deliver expected production growth of 5% in 2021 was $6.6 billion in capital.
We've been a top performer in capital intensity for multiple years, and we will substantially improved capital efficiency of our newly combined Permian resources portfolio, we expect the largest improvement and intensity to originate from legacy Anadarko, Delaware acreage along with continued continued improvements from legacy Oxy acreage.
Our unmatched Permian capital intensity reflects significant improvements in time to market through our efficient operations and so I'm ops planning.
Buying oxys advanced subsurface characterization to improve well result unlimited interference to reduce infrastructure cost in our legacy acreage from the reuse of existing facilities and the high grading of inventory as well is implementing our Midland basin joint venture with Echo patrol.
And 2020 improvement in capital intensity is aided by the deceleration in capital spending moving into 2021, we will maintain our intensity in the low Twentys 20 million range, even when production growth from Permian resources is increase to support annual company production growth of 5%.
Well. This example applies to our Permian resources business, we continue to make notable productivity efficiency gains across all business segments. We will highlight some of the exciting initiatives and our other areas and next quarter's earnings call.
On slide 12 overhead synergies will be derived from aligning our workforce to meet the current needs of our company in carving out cost related to assets that will be divested reducing real estate and other cost.
In terms of reducing Opex Permian cash operating costs continue to be at the lowest they've been in a decade, driven by our long term high return investments, including facilities and infrastructure. We expect this trend to continue especially with our large footprint in the Permian.
Slide 13, as I mentioned earlier, we have had many initiatives underway to fully captured the synergies promised you can see on our energy tracker, we've already made progress and adding both overhead and capital synergies.
While our progress and realizing synergies may not be linearity linear we will continue to provide updates. So investors are able to clearly see our progress each quarter.
Turning to Permian resources, we again delivered the highest number of taught wells in the Delaware basin on a six and 12 month cumulative basis, and we continue to drive significant productivity improvements.
Also continued to reach new milestones, including a record 10000 foot lateral drilled and only 10.7 days and a record 267 completion stages in one month completed by one fracturing.
This is a record proxy and also for our main frac provider in the Permian.
Following my earlier comment on safety I'd like to draw attention to our new Mexico completions team, which when an entire year without a single Osha recordable incident for employees and contractors that includes over 2 million work hours conducting high pressure frac operations without an answer them. This is a remarkable achievement.
The next slide reinforces our unique development approach and subsurface expertise one of the key factors that continuously enables us to deliver the best wells well using less profit than others, resulting in significant capital savings.
Oxys combined acreage portfolio supports nearly one third of the top wells in the Delaware basin, including Anadarko's six record wells.
The subsurface potential in the <unk> acreage is prolific and we can't wait to unlock more taught wells using our development expertise combined with anadarko's best practices.
I will not now hand, the call over to Cedric, who will walk you through our financial results and updated guidance.
Thanks Vicki.
We move forward as a combined company our commitment to capital discipline and returning capital to shareholders remains unchanged. We remain on track to spend within our for your pro forma combined capital budget of $8.6 billion Excluding Africa.
Furthermore, we have an established we have established a capital budget for 2020 that we expect well, we'll fully optimized free cash flow and position us to grow production in a capital efficient manner, while maintaining the safety of our dividend.
In the third quarter, we returned $660 million of cash to shareholders through our dividend.
Protecting our dividend as a top priority and we look forward to continuing to return significant capital to our shareholders.
Continuing with our third quarter results taking into account the mid quarter completion of the acquisition, we announced adjusted earnings of 11 cents per diluted share and reported a loss of a dollar rate per diluted share.
The difference between adjusted and reported results is mainly due to the $969 million of onetime cost related to the Anadarko acquisition and $325 million of oil and gas impairment charges.
With respect to our segments oil and gas adjusted income decreased in the third quarter compared to the prior quarter, mainly due to lower international production and lower realized price oil prices.
Total third quarter reported production from continuing operations at 1.1 million be always per day included contributions from legacy Anadarko operations of 377000 Boe per day.
As Vicki mentioned all of our U.S. upstream businesses are performing exceptionally well with several single day or monthly average production records, having been said since completion of the acquisition.
Oxys legacy Permian resources business operations exceeded guidance with production of 300000 BOE East per day due to best in class well results and execution.
Actual production of 655000 Boe to be always per day.
For Anadarko's legacy U.S. businesses exceeded guidance of 585000 to 630000 be always per day due to improved operability in the DJ Permian and Gulf of Mexico.
To assist investors with reconciling reported and pro forma production for the third quarter. We've included a table in the appendix of this presentation breaking down actual total company production of 1.4 million be always per day by operating area.
Oxy Kim surpass the guidance was income of $207 million for the third quarter. Despite vital margins coming under pressure from increased ethylene costs, which were driven higher by industry wide ethylene cracker downtime.
Hi, or ethylene costs were offset by stronger sales and production across most product lines.
Our mark marketing and other midstream business reported third quarter adjusted income of $155 million, excluding a $111 million gain on the sale of our planes interest.
Driven by a Midland MGH differential of approximately $5.30.
Compared to the second quarter. The decrease in earnings was largely driven by the narrowing of the Midland to NVH differential impacting marketing margins.
As the differential compresses and impacts marketing income.
Currently 70% of the impact will be realized as an income benefit to the upstream business.
For the fourth quarter, we have provided guidance on a combined company basis and expect to Permian resources growth to slow as we have begun moderating our capital spend going into 2020.
Fourth quarter International guidance reflects the termination of the it El Circo, <unk>, North and South dome contracts in Qatar in early October .
The continuous improvements we are making are evident in our operational results and outlook.
Our revised fourth quarter production guidance represents an increase of 28000.
Yeah, but M.B. always per day compared.
Compared to the implied fourth quarter guidance provided in Oxy second quarter earnings call and the updated guidance, we released for legacy Anadarko operations in early August .
Pro forma production guidance for full year 29 chain is included in a table in the appendix to this presentation.
As has been the case in previous years fourth quarter guidance for Oxy, Ken is not representative of our full year outlook as chlorovinyl as the core volumes market is typically subject to seasonal factors in the fourth quarter each year.
In the third quarter, we applied the proceeds from our sale of Mozambique asset and claims interest as well as free cash flow from Algeria, and gonna to pay down $4.9 billion in debt.
We have now retired all of our debt maturities for 2020, and we'll apply proceeds from future sales to retire debt due in 2021 and beyond.
As we continue to apply asset divestiture proceeds and free cash flow to debt reduction we will update the debt reduction tracker shown on slide 20, so that investors can see our progress in meeting our divestiture target of $10 billion to $15 billion net of taxes and de leveraging.
I look forward to continuing to provide updates on our progress on both of these fronts.
I'll now turn the call back over to Vicki.
Thank you Cedrik.
As a leader in our industry Oxy must drive improvement on all fronts, including reducing emissions in the coming quarters, we will provide updates on the progress our low carbon ventures business is making in supplying anthropogenic or manmade C. O two to the Permian for the purpose of carbon utilization and sequestration.
While low carbon ventures is leading our strategy to produce the lowest carbon barrel of oil. We're also reducing greenhouse gas emissions reduce doing so by working to eliminate routine firing monitoring infrastructure for methane emissions and reducing miles driven by transporting supplies into the Permian via rail through or 17 logistics hub.
On an annualized basis, we reduced 1.9 million truck miles per year, which is equivalent to 1700 metric tones of C. O. Two reductions also in this quarter in the Permian Basin, we brought online the largest solar facility in the state of Texas that directly supports oil and gas operations.
The latest publicly available emissions data shows that on a like for like basis Oxy is a leader in greenhouse gas emission intensity in the Permian. While we're pleased to be ahead of peers on this metric we're not satisfied with where we are and we're committed to continue working on reducing emissions across all of our assets.
Turning to slide 23.
Oh, oxy being an innovative unsustainable energy leader means maintaining leadership in each area that we operate.
Our teams are relentlessly focused on value creation through the application of advanced technical excellence applied technology breakthrough innovation in operations and capital execution, all of which helped to make us a lower cost operator, and we will translate into higher margin free cash flow growth.
The cash will be used to de lever the near term and to return more cash to shareholders through a balance of our dividend and share repurchases in the future.
Sustainability also means planning for the future, which we do through the lens of a best in class operator, with an unmatched portfolio a world class assets are focused portfolio includes multiple decades of high return short to medium cycle development opportunities that will include primary secondary and tertiary recovery options the diversity Barton.
He has portfolio strengthens our strategy to operate profitably low carbon world.
The combination of technical and operations excellence applied over a vast set of diverse assets and a strategy to lower our carbon <unk> for it sets us apart from other energy companies.
This will enable us to further strengthen our value proposition and ensure our success and sustainability long into the future.
In closing I want to stress how much potential our newly combined company now house in terms of what we can achieve both financially and operationally.
There's much to look forward to for our shareholders and Roxy.
And now we'll open it up for questions and while we're lining up the questions I do want to give a shout out to our DJ basin team for also achieving record production our DJ basin team achieved almost 301000 barrels a day just your recently so we're excited about what they're doing in the improvements are making in the.
[noise] commitment they have to operational excellence now we'll move to the first question.
Well now begin the question and answer session to ask a question. You May proceed Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
Please limit questions to one primary question and one follow up.
If you have further questions you may ran through the question Q.
This time, we will pause momentarily to assemble a roster.
Our first question comes from Devon Mcdermott with Morgan Stanley . Please go ahead.
Good morning.
Good morning.
So my first question is on the the synergy targets and it seems like you've made some really good progress so far posting integration I think the additional detail on the specific drivers. The synergies is definitely helpful. It seems like you've identified a lot of clear items that get you to the overall targets. My question is more on now that we're a few months.
And to the deal post close.
What you identified or what opportunities you've seen that might be incremental ci or different on your expectations going into the deal on specifically if those might drive upside over time, a and it's part of that I was hoping you could address some of the difference in capital efficiency between some of the legacy Anadarko Permian wells and oxy and how much if any.
We remain in that productivity is baked into it synergy targets and also 2020 guidance.
Well, what we baked into our synergy targets were the things that we knew about the things that we could see and in the Permian Basin. Yeah. We had the data there. So we knew that we had the opportunity to.
Significantly lower cost and to do they do that through a combination of our drilling expertise in our subsurface characterization.
So we've looked at that our teams have delved into that that's why we're very very confident of the Permian resources synergies that we've outlined we know that we can achieve those there.
In the DJ not only based on what we knew with <unk> with respect to our oxy drilling dynamics, we've been incredibly impressed with what the team up there is doing from a drilling perspective, there there and also completions there. They have started to work there completions differently and they are bringing some.
Best practices that now we believe our are really advanced we think that we can still improve that with the subsurface characterization that we've applied to the resources business, but I would say on an operational perspective from drilling and completing those guys are doing a great job and they're doing a great job operationally, we're just how they achieved there.
Sure a their record production of the three almost 301000 barrels here in the last couple of weeks. So what what we're really excited about is that.
Now that we've had a chance to work together the two teams, we're coming up but more synergies the ones that we identified a in my script and the ones that we had counted on initially to deliver Oh, what we expected. Our we had to ours, we already had a little bit more than than those because we wanted a little bit of cushion to.
To ensure that we did deliver what we said we would but now I'm really excited about what I'm anadarko's expertise is bringing to the table for us and I believe that that that's going to be exciting news when we could roll it out well we need to do first just quantify the value that it's going to add though we know that the.
That they have some best practices that are really important to us one I can tell you that's not immune related to the shell is there there's seismic interpretation some of the things they're doing there.
We are very very impressive and we're gonna be a applying that to some of our international operations.
Got it great and just to clarify on a the Permian operations. So it's just we think about the 2020 plan how quickly can you emit implement some of the oxy best practices subsurface characterization drilling techniques into the Anadarko development program when might we see some of those productivity improvements show up as we move through 2020 and beyond.
Well, what we have found is that the subsurface work, that's that's going to be pretty immediate because those guys are starting to work that now so from a completion cost perspective that will start happening right away now the results of that they improved recovery per well, you'll see that have a bigger impact from a production standpoint.
Your next year, but we'll see the the efficiency improvements in using less proppant two to still managed to do fracking complete more effectively that'll start happening as we start drilling on the Anadarko acreage in a big way the oxy drilling dynamics everywhere, we rolled it out even internal.
The it takes a little while to get the teams used to it so that they can start to to make it happen and worked for them, there's always a little bit of a learning curve with that but we do expect that we will achieve a that process by the by the first quarter of of 2024 to start taking hold.
And so by the mid to later part of 2020, you'll start seeing I believe some improved drilling in the in the Permian along with the efficiencies of the completions by mid year. So that by the end of year I'm I'm quite confident that that drilling and completion program will be well.
Be much improved.
Excellent look forward to see and the progress there and I have one more on a separate topic and that's just on some of the asset sale and leverage reduction targets. So you've achieved the lower end of the 10 to 15 billion dollar target. So far I was wondering if you could comment just on the overall market backdrop Ferguson additional divestitures, what you're thinking is on the opportunities there.
And then I understand might be hard to comment, but any additional color on on how you see that do you can talk deconsolidation of west potentially playing out with the intention as you matching containing or retaining a large economic ownership, but do you consolidating some of the a the dad noble financials there.
Okay, I'll, just say that no one thing that we really want people to understand is that we are very focused we're very intense on ensuring that we get the asset sales done because we we believe oh, we must get our debt down that's an internal target we talk about it.
Every day, we're getting held throughout the entire organization because I don't think they're very many of our employees that you wouldn't walk up to and that they wouldn't be able to able to tell you that the highest priority. We have as a company is to save every dollar that we can save.
And to become.
As efficient as we can be as quickly as we can be because making sure that we have the dollars either from cash flow or asset sales to lower the dad is critically important for us and and just as a one when we first rolled out our our plan to achieve a cash flow neutrality add a $40.
We had a plan to do that in two years.
And we made that promise to the shareholders. As you all know we achieved that six months ahead of schedule and we did that because our teams are incredibly focused and determine to deliver results into the to deliver what we say will deliver where we're taking that same intensity to this debt reduction. So we are approaching.
Asset sales very aggressively and intently, but with that said one of the things that we're not doing is we're not compromising on the value that we can get from those assets and so we're we're drip balancing both of those and I feel confident that with not only the intensity that we're approaching it but the creative.
City that I hope we've shown you all a in the way we've approached the asset divestures. Thus far so we will there will be some creativity there will be some things that you might not expect but none of those we can talk about or are we compromise our ability to make it happen. So I appreciate you recognizing that but with respect to well someone I handed over to all.
Oscar to to tell you a little bit more about how we're thinking about that sure and as Vicki made earlier comments, obviously, we're focused on the integration right now and helping us improve operations I really become more competitive not only.
With a supporter of Oxys upstream operations, but with third party operations. So all that's ongoing we've been working with our auditors to focus on the accounting deconsolidation of west. So there's some work to do but we think we can do that pretty quickly, but really not change too much our ownership interest in west and so it's like you said, yeah, we have the option to.
Retain a substantial steak and less economically both in terms of ownership, but also obviously were tied together as their largest customer going forward. So all that's progressing just fine and a and we hope to have some news on that in the in the near future.
I will add to that I'm really excited about the new a management team at less they're very operationally focused and they're working on that's why I said the part about picking up third party volumes. They are really focused on improving.
Operations inefficiencies and being being a yeah, I really strong competitor to other midstream businesses in the Permian.
Our next question comes from Ryan Todd with Simmons Energy. Please go ahead.
That's a good thanks, maybe default at a high level is it fair to characterize.
Oh, the large cuts to the 2020 program with an effort to demonstrate your priorities in terms of de leveraging and dividend and the 2021, plus I'll look of the normalization of the business. If that's the case.
But what sort of checkpoints would you have to see the normalize things again versus staying in belt tightening mode. It.
Commodity prices the hitting certain checkpoint on debt metrics, what would you have to see the gonna be normalizing 2021 or not.
So I think you've you just answered the question for me. So thank you for that but it is really goes more beyond just I'm trying to get back to normal what well, we really would need to to look at and evaluate when we get closer to 2021 is is how oil prices look what we've achieved on the on the data.
Reduction and what we've achieved with respect to the synergies and a and also how well our teams are performing from a inefficiencies standpoint, all those factors will be considered as we go to move toward 2021, because the reality is that we don't have to be at the 5% right away or what we wanted to people to knows that overtime.
I'm the 5% is what we believe is the right growth a percentage to enable us to not only start to grow our dividend more meaningfully again, but to also be able to at the same time return cash to our shareholders through buybacks.
Okay and on the leverage side is there anything that you're looking ahead to say.
Kind of until we until we get to this place.
We probably.
Things tight.
I would say that we have aggressive internal targets and if we haven't met those then that would play a big role than what we do and 2021.
Okay. Thanks, maybe.
A follow up on the on the 2020 plan I mean should we think about.
Everything outside of the Permian resources is being held roughly flat from a production point of view.
With all the growth coming from Permian resources, and if that's the case.
Under a normalization.
It's a 6.6 billion in 2021 to some of these other assets Rockies Youre et cetera kind of returned to growth or does the majority of that incremental capital just go back to permit I guess on a on a multiyear view. It should we think of X Permian resources is being largely held flat or will we see growth.
Outside of the permit.
Well, what we like to do with our with our teams internally is left them compete for foreign capital when they have to compete for capital capital by submitting projects that that cannot beat the Permian.
And and actually we have we believe the some of those projects both a in Oman, all the Dhabi, Colombia, the DJ and probably in about two to three years, the powder River, we believe and and Gulf of Mexico looking at the the data that we see no.
Now and the performance so we see a the the margins and and the returns our returns from almost it from everything that we had the opportunity to invest dollars in is double digit add at $40 or above and so we have this is what this is the the value of this.
Tremendous a portfolio we have today, we have lots of options, we have lots lots of flexibility and and what the teams have to do is they just have to make their their projects competitive enough to get the dollars and ultimately the way I see it now in a 6.6 billion dollar environment.
And it by 2021, essentially we would be potentially growing all of our areas, except Gulf of Mexico, and maybe powder River. Its certainly all the other areas would have the opportunity to grow because of the projects they that they haven't their inventory today.
Our next question comes from patrolling with Scotia Bank. Please go ahead.
Hey, guys good morning.
We can either you or did you say that fall from your standpoint, five to 10 years to white growth we.
Can you you Luckily wife, I could send them and given the size of the company today and long term more demand growth looks like it's going to be 1% or even though a I think the monetizes actually would be more happy if you grow with 3% himself 5%.
It would be commodity prices always come into play when we're deciding what our growth were right would be.
And what I am a better way for me to say it is that we're gonna averaging 5% growth we're right on the average over time so in those Ah.
Times, when commodity prices because of weaker demand, we would grow at a lower right. So we're going to adjust and I think we onetime we showed a hey, a chart that shows that we would potentially grow from a certain oil price to a different oil price above which that our growth would be.
Capped well have that same scenario going forward and as we as we de lever and get back to to this scenario, where we'll we'll start taking into account a the opportunities to grow with that 5% cap then we'll start looking at those metrics in providing those two you again, but but we will.
Ends on commodity prices efficiencies, where we are from leverage standpoint, we well and I guess, what I'm really trying to say is that when once we put all the variables in our model in <unk>, we run the various scenarios. It's at the other day, it's a value calculation and whatever creates the most value is and then delivers the most.
Returned to the shareholders, what we'll do.
Yeah. Thank you for that but I just my two cents is that.
Given the increasing number after gentleness, that's a concern about their long term or <unk> and corresponding need that's the longer time, a commodity prices that notion, saying that we grew at 5% I think the easy way to look at is that mostly invested to date poppy won a one.
Both on on hand, then to plug into Bush's.
The second question quick one on Permian, how much is due to send off you all.
Land position, you're seeing the federal then and how much off you all production today is in the federal then.
So in the and the Permian resources business.
We have a very low percentage of of what is total federal lands I can't remember overall I think our overall percentages.
About 2% look let me hand, this the Jeff He's got those numbers.
Yes, so domestically you know for a 14 million acres, yeah 2 million of that as federal but half. That's offshore. So do you think of onshore about a million acres. This federal and if you go to the Permian about 270000 acres across the Permian and then if you continue to narrow that down into the Delaware basin.
And that's where people want to talk about the most approximately 20% of our acreage in the Delaware Basin is on federal land. If you look at the DJ It's it it's less than 1%, it's very very small there.
Our next question is from Pablo <unk> with Raymond James. Please go ahead.
Thanks for taking the question on me a low carbon initiatives as I look at the slide breaking out your 2020 Capex.
Hi, it if it's there it seems awfully small so I thought it would just ask.
Why a level of funding youre planning to allocate to the low carbon.
For this coming year.
So our strategy for low carbon ventures is more around a a targeted goal of the activities and what we what we need to accomplish.
And how we accomplish that with respect to capital standpoint is is a part of the did low carbon ventures team strategic initiatives is to look at the best way too.
To fund those I ultimately I'm. So excited about this business because this is a win win win business in that we are going to be able to lower emissions. Both in the United States and then the other areas that we operate while also taking then the anthropogenic C O two and.
And using it to increase all production, there, thereby creating value for a royalty owners for for the states and for for the the country in which we operate wherever it is and in addition to that Oh, we're going to be able to ultimately in my view, you make a and our teams view, making.
Business of this and that we will be able to build us into a business that generates cash flow and earnings for for our shareholders. So did the the way we intend to do that is a bit at this point something that's proprietary in terms of how we want to how we think about it and how we're building that to happen but its.
It's a win win win and it's a it's a great. The team's doing just a great job in making this happen and we made some investments in some new technologies those have been direct investments.
We have the one of those was net power, which generates a lower cost of electricity and still provides a C. O. Two stream p. almost pure C. O two stream for use in enhanced oil recovery and the other thing we've invested in and Weve, even announced that we will build.
We're evaluating building one of the largest are the largest director capture unit and the world in the Permian what that will do is take C. O. Two from from the atmosphere and we can then use that in our enhanced oil recovery projects and the reason all of this is so important to use in.
And enhanced oil recovery.
Rather than a sequestration is that.
Using it in and enroll reservoir still sequesters about 40% of what you're cycling every time you you cycle through the reservoir. So you get the sequestration part of it but what you also do is by using that you're able to generate a lower carbon intensity barrel of oil and so the I believe.
That you have for the world the last barrel of oil produced in the world whenever that happens should come from a C. O two enhanced oil recovery reservoir, because and then it will be a net lower emission barrel.
Our teams are working toward that and they they've got some very creative commercial ways to deal with it.
That's helpful and then lastly on name.
A board changes are really changes on the chart or that you outlined at the very end of your slides today I do these proposals that will be voted on next year.
Actually sat all the disagreement with icon.
I'll say that when Mr. Icon brought up the concerns he had a these were all part of his concerns and that's that's what are the things that are two <unk> result of him bringing up is the reason we looked at it we're not out to settle anything with this will work.
To do is just to do the right thing for our shareholders and we felt like you brought up an issue that we needed to address and the board did that and the board has actually gone further than that we I'm I'm not only are we responding to shareholder feedback on the two proposals to lower the the percentage required.
For a special meeting, but also the procedure lowering the though requirement for though the written consent vote as well, but what I'm even more excited about is what the board has done with respect to the creation of a committee now that's specifically addresses E.S.G. and specific.
Specifically addresses it in a way that.
That engages the board more with the shareholders. So what sometimes missed and what that what that proposal was it's it's yet to they're going to focus on the E.S.G. things that fall sorta n. between the health Environmental and safety Committee and the governance Committee. So there is something.
He said that we were struggling with where do we include dad, who takes the the ownership of that so creating this committee clearly has a committee on our board focused on.
Our specific E.S.G. initiatives that they're not really so much safety or or environmental related.
And and those that are not specifically governance related puts them. In this committee. So this committee is gonna be focused on that but the other thing. This the that our chairman wants. This committee to do is be a lot more engaged with the shareholders. Both on the E.S.G. side and on the portfolio management side to ensure that they are more engaged.
No how our shareholders think a one of the topics that are a top of mind for them and if there are issues that we need to address their getting that feedback now directly and so I think that's been a huge change for us and I think is gonna be a positive thing for all of our shareholders going forward.
Our next question comes from Bryan singer with Goldman Sachs. Please go ahead.
Thank you good morning.
According forgot with regards to the Permian you talked about the rig split a earlier, but can you talk a little bit more with regards to how you view the Anadarko Permian properties competing relative to the legacy Oxy Permian properties and to the degree that you were to ramp back post 2020 to deliver.
5% growth rate would that ramp up occur more from Anadarko side versus the oxide.
I think our our southeast New Mexico area still remains I believe are the the top and the best that we haven't I believe the legacy Anadarko acreage is gonna be very close in line not even a second maybe a one be in terms of the priority. The acreage is really really good.
Subsurface is excellent so I would say that our Texas barilla draw area would be probably second and so behind won a in southeast New Mexico, Monday and legacy UMB Anadarko acreage.
Great. Thank you and then to follow up on the earlier question with regards to Wes I think in the past.
Yeah, Oxy said that the process to improve performance operationally could be done by early 2020 is that if that's still the case or what do you see it and what do you see.
The scope of the improvement in how you would measure success and then one additional one on that threat is I think you'd commented on the potential for de consolidation, but retention of it I economic interest I'm, just I mean that you would divest the portion but not all of your interest then cede control sorry, I know there a lot of questions in there.
I would say all the old dress the operations, one and throw it to Oscar for the for the structural one but from an operation standpoint.
What has been I think a huge change is the new collaboration between between the the filled up upstream operations in the facilities guys and the west team I.
I think that are what they did early on as they they.
Decided to have had a team approach how we're doing business today, how lessons doing their business. How we're interacting aware of how we connect with them and to look at ways to reduce costs on both sides and improve efficiencies they've already outlined some specific things that they're addressing one of the deals was that we were a bit.
Surprised by the downtime that well sad and a it's just I'm kind of unacceptable to us to have that level of downtime and so combining the current a management teams perspective with their designee working with the oxy side of it. They said these teams now have come up with.
Ways to specifically address the downtime and get the downtime a much lower and.
Yeah. That's you know those are inexpensive barrels of just just making sure that your uptime is is a the best that it can be a that's the quickest an easy way to get barrels and I think we'll start seeing but we have to change <unk> infrastructure first to make that happen Oh, So I think you'll start to see that that happening in Q1.
Oh 2020.
And Oscar sure its Oscar so on the deconsolidation fronts, one of the key things as the business. Yeah Westar has matured greatly over the years and then everything the vicky's talking about to improve operations and most importantly set up this company so really be aggressive in it and its ability to win third party business.
I think all those things are aligned with a company that can stand on its own and.
And being independent company, and ultimately and convenience for us as the deconsolidation on the accounting fraud. So all those things aligned in terms the specifics on how much control oxy would need to give up and is there a related needs to sell down some interest.
Economic interests and the company, we're we're still working out with our auditors, but the key is that the company can you know is getting the company to a place that has its own employees. It can stand alone its own officers great operations. Its complement to our businesses and then again the real growth upside. The next stage for west beyond will be can do.
We'll continue to do with Oxy to support Wes is the third party business, which is one of the great opportunities there. So.
More to come on that but but that's where we stand today.
Our next question comes from Michael Hall, with Heikkinen Energy Advisors. Please go ahead.
Thank you good morning.
And it's one of the I guess reviewed a little bit on the the capital efficiency or or intensity disclosures you provided on the Permian resources business I'm. Just curious how you think about the ability to maintain.
That level of of capital intensity or the 2020 level as you think about you kind of reentering more of a normalized for growth type scenario and 2021 is that a.
Linda.
A sustainable level or is that being kind of dragged down by the.
By the slowdown in 2020.
Well that's that was one of the things that we took into account is that it and when we decided to lower our capital.
How would impact 2021 was a factor that we thought about in considered and so we do have a plan to to onboard rigs should we go back up and 2021, we would make that decision at a point, where it would give our teams the time to make that happened because every time you shut down a rig and you really screws you had the the.
As you bring in those crews back getting them back to the efficiency level that they were when they shut down obviously, you recognize that and that that's what you're quite a question is centered around we have a more robust process around doing that because it's always irritated us said that even though we know it happens that it always happens and so we try to.
We're trying to figure out now and have some people that are involved in and trying to make that that the reboot and the these start up again have a rig that's been idled to make that more efficient and so as we go toward 2021 and see how that's looking I will take the is the step.
Apps to try to get the that rig whatever rigs that we bring on up and running and without too much loss of efficiency initially.
Did you have anything to add on that Kim.
Yeah. So im just add my calling me to your point I mean, Vicki comment or a scrip, we do expect 2021, plus the capital intensity to be in the low twentys. So there's synergies flow through and although we expect.
Not to beat and that level as we go forward and if you spend time, you know I know you know going through with our Permian resources leadership, Yeah, they've got very very definitive goals to drive it down from there. So I do think that is our our new normal.
That's helpful. Thanks, and I guess continuing on the throughout the <unk>, what's the base decline on the Permian resources business I guess exiting 2019 pro forma other combined businesses and then how that looks coming out of 2020 as you look at it and these.
Capital intensity figures.
Yeah, so without doing decline curve analysis I'm on the how it applies a capital tenancy I'll give you a couple of quick number so the base decline actually to accept for Permian resources isn't the mid to high 30, So say about 37%, but as you know that to exit to exit number and when we do the capital intensity calculation we use the.
Real decline, which is exponential so it's not straight it's kinda concave. So just for easy math, if you think about the wedge, we're adding them Permian resources next year, there's about 105000 barrels a day. So if you take the 2.2 billion I'm honored and five that's what gets you to the 21 million capital intensity number.
Sure so that answer what you're looking for Michael Yeah, I guess I was also trying to understand like how that.
Changes as you exit 2020 into 2021 seem to actually have tailwinds to the yeah that kind of what I'm getting I'm just trying to understand yeah, well that's appointed as the base gets bigger and that you have less of those new high decline barrels coming on.
That base decline actually improves as you head into 2020.
And the interests of time. This will conclude our question and answer session I would like turn the conference back over to Vicki Hollub for any closing remarks.
Yeah, there's another couple of things, we'd like to dress before we go but first I wanted to to pass it to Ken to a there's been some questions offline about Gulf of Mexico like for him to the shares mental on that.
Hi, good morning, Thanks, Vicki so far we're really excited about both the people on the assets. The subsurface characterization opportunities. We believe can lead to being able to extend the popular with modest cost over a long period or length is key to will come in with really good logs snowmobile onstream in Q1.
Next year, we plan to spend $100 million on near field exploration that also drilled development wells from platforms.
Especially lift synergies or something we didn't build into our thoughts and it's something we're working on together as a team here and we see that is real potential upside to go home.
We see goldman's, a long time steady cash flow business, but there's great significance and everything we've seen so far support stuff.
Okay, then lastly, Ah I'd like to say then in closing that.
Now we are really positioning oxy for long term success. The acquisition of Anadarko has positioned us to more effectively address what I think are the three most critical issues facing our industry today.
Those are climate change geopolitical volatility and I'm the regulatory environment in the U.S.. So with the position that we have now building on on the fact that we're the largest sandler Seo two for enhanced oil recovery in the world, we intend to utilize now our position as the largest acreage older in India.
I'd states and all with a vast amount of that being shale play to execute CEO to enhance story recovery in the shell that a will fit perfectly into our low carbon venture strategy and enables us to to continue to grow and get the most out of the shell then than anyone else overtime.
And we we think this that these assets it perfectly in they perfectly compatible with the conventional assets there will be developing in Oman, and the UAE overtime. So I think I'm really excited about our portfolio. We have an opportunity to continue to go into the future with the.
Well the portfolio the structure the people and the sustainability do withstand oil price cycles, while also maintaining a social license to operate globally in low carbon world. So thank you all for your questions and for joining our call have a good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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