Q3 2020 Occidental Petroleum Corp Earnings Call

Good morning, and welcome to the Occidental third quarter 20, Twond earnings Conference call. All participants will be on loss only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask your question. You May Press Star then one on your Touchtone phone.

Withdraw your question. Please press Star then too.

Please note this event is being recorded.

I would now like to turn the conference over to Neil back House Director of Investor Relations. Please go ahead.

Thank you Greg Good morning, everyone and thank you for participating in Occidental, <unk> third quarter 2020 conference call on.

On the call with US today are Vicki Hollub, President and Chief Executive Officer, Rob Peterson, Senior Vice President and Chief Financial Officer, and Ken Dillon, President International oil and gas operations. This morning, we will refer to slides available on the investors section of our website. The presentation includes a cautionary.

The statement on slide two regarding forward looking statements that will be made on the call. This morning, I'll now turn the call over to Vicki Vicki. Please go ahead.

Thank you Neil and good morning, everyone.

Our accomplishments in the third quarter, including our continued operational excellence progress in executing divestitures and successful extension of our debt maturities have notably improved our financial position and provided us with a running room necessary to strengthen our balance sheet. The.

The cost reduction measures, we implemented earlier this year combined with the early completion of our overhead and Opex synergies continue to bear fruit as evidenced by the almost $1.4 billion or free cash flow generated in the third quarter.

The synergies and savings. We previously detailed are now embedded in our ongoing operations and we expect to continue better benefitting from our enhanced cost structure going forward.

We are quick to quickly adapt any future potential commodity price to EPS, while being positioned to leverage the benefits of future uplift.

This morning, I'll provide updates on our divestiture program.

As well as our plans for increased activity as we lay the ground work to stabilize our production.

Bob will cover our financial results and current guidance and the one <unk> way, we have created for de leveraging.

Our third quarter free cash flow generation was driven by the strong performance of our businesses and diligent attention to margin preservation continuing to reflect our focus on operational excellence.

Our oil and gas operating costs of $6.04 per BLE and domestic operating cost of $5.38 per be away demonstrate the last the lasting impact of our cost reduction measures as our domestic operating costs were significantly below our original expectations for this year.

All our businesses delivered strong operational performance in the third quarter.

Exceeded our production guidance was lower than expected operating and capital cost for the quarter production from continuing operations of 1.24 million BLE per day exceeded the midpoint of guidance by 12000 Boe per day. Despite an unusually usual number of named storms, resulting in higher than expected production downtime in the Gulf of Mexico.

Oh.

Excluding the incremental impact from the storms, we would have achieved the high end of our production guidance.

Our operational outperformance was primarily driven by strong well performance and continued improvements in opera ability in Permian resources.

Well, we ran a lower than normal development activity set in the third quarter. Our teams have continued to advance their understanding of the subsurface and are constantly applying newly acquired knowledge to improve our well completion design.

In the Texas, Delaware, our team broke another oxy record by bringing our company's dust from you well online in the silver chip area, which is the former Anadarko acreage.

This is just one of the latest examples of how we are leveraging the combined strength of our assets and abilities to better position ourselves for success as macro conditions improve.

In a moment I'll touch on our plans to ramp up activities I want to talk to take this opportunity to reiterate that we will retain a high degree of flexibility with our capital plan, allowing us to adapt to a changing macro environment.

Its flexibility combined with our best in class operational results and leadership as a low cost operator, we'll continue to be a competitive advantage.

With the closing of the mineral and surface acreage and one in Colorado, and Utah, and reaching an agreement to sell our onshore assets in Colombia, we are on track to exceed the two plus billion dollar target that we set for 2020.

We have now closed or announced almost $8 billion of asset divestitures net of taxes since the close of the Anadarko acquisition.

At the time of the acquisition, we established a $10 billion to $15 billion asset divestiture target to be completed within 12 to 24 months. After close of the acquisition 15 months later, we're closing in on the lower end of our original target. Despite 2020, possibly being the worst market for asset divestitures in the history of our industry.

We're targeting an additional $2 billion to $3 billion of asset sale spinel and 2020 or in the first half of 2021 with.

With the completion of these additional divestitures, we will have met our divestiture target in less than 24 months from acquisition close.

We said before we will balance divestiture timing would buy you realization and will not sacrifice value to close transactions quickly.

We continuously review our portfolio to ensure we have the optimal mix the batch abuse, including free cash flow generation and capital efficiency and low decline maybe.

Meeting our original divestiture target of at least $10 billion will mark the completion of asset sales on a large scale.

The proceeds from our expected asset sales, because well continue to be applied towards debt reduction.

These additional asset divestitures will be impactful and reducing debt and strengthening our balance sheet. We.

We do recognize we must go further reducing debt.

Once our large scale divestiture program is complete that reduction will be primarily driven by the utilization of free cash flow to be debt maturities.

Our Permian resources team delivered another record setting quarter as I've mentioned, our Texas, Delaware team broken up the Permian record in the third quarter, bringing a silver <unk> well all that hit a peak 24 hour rate of over 9000 daily per day.

In new Mexico, our team set a new completion pumping Tom record of over 20 hours a day for a three well pad our Midland Basin team said, a new Permian wide record by drilling over 7500 feet in a single day.

Well some of the silver city section, where the record well was completed were brought online with an average total well cost that achieved our synergy target for Texas, Delaware well cost reduction.

He said things were achieved despite the wells being drilled before our full cost reductions were implemented.

We expect to continue lowering cost based on our current drilling performance and future savings on hook up.

Our other business units are also lowering DNC costs through design optimization efficiency improvements in collaboration with our vendors.

Operational excellence means more than just consistently delivering strong well results.

Safely delivering superior well results along with consistently improving opera ability, while driving down operating costs are the bedrock of our operating philosophy and her what we define as operational excellence. Our operating philosophy is instilled in our teams continuously striving for improvement.

This is evidenced by the impressive progress our DJ basin team has made in reducing downtime by 78% from the third quarter of 2019 to the third quarter 2020, and our Midland basin team's commitment to continuously lower operating costs, which are now below $5 per bailey.

After a modest resumption of activity in the third quarter, we plan to increase activity more meaningfully in the fourth quarter and add two rigs in each of the Texas, Delaware, New Mexico and DJ basins.

We restarted activity with our JV partner Eco patrol and the Midland Basin by running two rigs in the third quarter.

And then the Gulf of Mexico, We've returned a drillship to work in early October.

The return to a more normalized activity said will be achieved within our full year 2020 capital budget of $2.4 billion to $2.6 billion.

Although we drastically reduced activity earlier this year, our proven development expertise remains intact as we increased activity, we will maximize operating efficiencies to sustain production and maintaining our industry leading capital intensity.

I'll now hand, the call over to Rob who will walk you through our financial results and current guidance and runway to de leveraging.

Thanks, Vicki turning to slide eight in the third quarter, we announced an adjusted loss of 84 cents reported loss of $4.07 per diluted share never between all adjusted EPS. Before result is primarily due to $3.1 billion of after tax losses accounting for the ferry by decline in the price of west compared to the book value.

And the related to the carrying value of assets divested during the quarter as mentioned on the last earnings call torture laid acquisition are now de Minimis in the third quarter cash payment of approximately $150 million is expected to be less sizable acquisition related payments.

Our operational excellence repositioning cost structure capital discipline enable us to generate $1.4 billion of free cash flow the whole working capital and exit September with $1.9 billion of unrestricted cash on the balance sheet. This represents our highest level of free cash flow in the quarter since 2011 and reflects oxys.

Capturing potential even in a lower commodity price environment.

Our overhead costs remain low and were approximately $400 million in the quarter. We continued to demonstrate our commitment to capital discipline spending less than $250 million of capex in the third quarter, one of the 35% below our guidance.

We returned to more normalized development activities that we do not expect capital levels to remain at this level going forward and are pleased with the health dynamic and flexible we can be at our capital spending.

Our enhanced liquidity position ability to generate cash successive leveling our debt maturity profile resulted in our pre financial position as a result, our debt maturity profile has been de risk to the point that we made a decision to pay the preferred dividend cash on October 15th our board of Directors will continue to review the preferred dividend payment method on a quarterly basis.

Yes.

As you can see the manager of your liquidity and debt maturity profile, we view the noncash payment options for the for dividends as a lever we have the optical but only if necessary have a temporary basis.

One or shareholders to know that our preferred positions to pay preferred dividend in cash when possible for us to preserve the value of our shareholders' holdings.

Further de risk our cash flow profile, we have limited natural gas hedging program for 2021.

Cost was called a $40 a piece that we had 530 million cubic feet per day, representing almost 40% or domestic gas production we.

We continue protesting property opportunist basis. It may consider additional have oil and gas hedges for future years.

Instead, our production guidance for the fourth quarter, we've excluded approximately 33000 Boe per day associate with Columbia and report the Acis as continued operation until the transaction closes, which we expect later this quarter we.

We expect fourth quarter production will be sequentially lower in the third quarter due to the combination of scheduled maintenance additional weather impacts in the Gulf of Mexico, as well as declining wedge of base production across many of our assets, although the decline across our asset base has begun to level off.

As we were store development activity at a minimum we intend to stabilize our 2021 average production at 2024th quarter levels as required increase in capital spending in the fourth quarter as we add rigs and frac crews across our highest return on assets.

Current production base case assumptions that we sustain 2021 production at our fourth quarter level of capital spending of approximately $2.9 billion and we continue to evaluate our options considering the recent commodity price volatility.

We expect our overhead and operating cost will remain low in the fourth quarter domestic operating costs will markedly increase in support work and well continue to return to normal operating conditions. Our full year 2020 domestic operating costs are still expected to more than 20% lower than our original 2020 guidance on a b and C basis.

The process, we began in July to smooth out our debt maturity profile why does what the running room necessary to maximize value for our divestment program at a pace. It reflects current market conditions to date, we have exceeded $5 billion maturities due in 2021 to 2023 by five to 10 years. We have also resumed our deleveraging efforts starting with the exchange.

James <unk> of a percentage of our West LP units in return for the retirement of $260 million note in early October we called the August 21 floating rate notes and repaid more than $1 billion of the term loan.

In summary, including the term loan repayment, we have moved up $5.2 billion up 2021 maturities $721 million up 20.2 maturities and $52 million or 2023 maturities.

This leaves us with $1.1 billion remaining 2021 maturities, which only $350 million remain non callable by early next year as we allocate proceeds from asset sales retiring debt.

Accounting for debt repayments subsequent to September thirtyth, our debt balances approximately $1.3 billion lower than it was at the end of the third quarter and we still expect to receive the proceeds from Columbia transaction during the fourth quarter.

Our liquidity position remains robust and our financial position profile continues to improve we recently entered into a new receivable securitization facility that will provide us with approximately $375 million of additional liquidity, our $5 billion credit facility remains undrawn with no letters of credit outstanding we had approximately $1.9 billion unrestricted cash available.

At September Thirtyth.

I am confident we have taken the steps to succeed in this current environment I expect our differentiators combined with our low carbon strategy will drive success sustainable long into the future I will now turn the call back over to Vicki.

While much has changed during this pandemic for our company and our industry the quality of our asset base and the skills of our teams will support our success as we move into 2021 and beyond we will continue to apply and build up our knowledge continuously improve our track record of operational excellence all our development active.

But he has slowed down in recent months. Our teams have worked diligently to further advance our development technology and technical operations to ensure we emerge from this challenge stronger than before.

We still have work to do but the foundation has been laid for us to further improve our balance sheet as we exploit our portfolio of world class assets.

The innovation and ingenuity of workforce combined with our differentiated low carbon strategy will drive our success and sustainability long into the future.

Before before we turn to the QNX section of our call I'd like to announce that we have set a target to reach net zero emissions associated with our operations before 2014.

And an ambition to achieve net zero emissions associated with the use of our products by 2050.

Through the work of blow up to low carbon ventures, we expect our leadership in developing innovative technologies and services for carbon capture and sequestration will also help others achieved their net zero gold extending our impact well beyond our own emissions footprint.

A detailed information will be available as our climate report, which we intend to release by the end of the month.

I'll now open the call for your questions.

We will now begin the question and answer session to ask a question in My Press Star then one on your Touchtone phone.

We are 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 reenter the question queue.

This time, we will pause momentarily to assemble our roster.

Our first question will come from Devon Mcdermott West from Morgan Stanley. Please go ahead.

Hey, good morning, Thanks for taking the question.

So.

The first one I wanted to ask is on some of the near term strength or a shrinking the quarter I should say and your U.S. onshore production, particularly in Permian resources and you called out some of the increased uptime within the portfolio is one of the drivers there I know that's an opportunity that you all talked about really since the closing of the Anadarko transaction.

And I used the the question is can you talk about where you are more specifically in terms of uptime across the U.S. onshore portfolio. What the difference is between legacy oxy versus legacy Anadarko and how we should think about the size of the opportunity here for further improvement in your base production from improved uptime.

Okay are on our onshore operations part of the opportunity for us to further increase our uptime was associated with some of the west infrastructure.

Where we have done some things to improve working with the West organization, we've done some things to.

Improve the Operability Oh, one of which was to just start working the electrical system, so that well.

When storms do occur as they.

Occur frequently in the Permian basin in particular that the electrical infrastructure was such that we could easily identify issues as they occur and address them and ultimately start to isolate them. So the weekend number one lower than the number of wells that and volume of production.

Thats impacted any any any given a issue or scenario and then too so.

Also tried to ensure that besides isolation.

Of issues that we could get to the wells and get them up sooner. So that's been one thing. It's just working the facilities to have more reliability around the infrastructure and secondly, it's a it's the operability in terms of making sure that our prioritization.

And reaction to well down and facilities down was optimized and that we were focusing on the things that I really matter. The most and the third thing was ensuring that when we're out getting the wells on that we're doing it in the most efficient way possible. So I think that onshore we made significant significant.

Progress and we called out the DJ Basin, where they've made tremendous progress in progress has also been made in the.

And the legacy Anadarko areas within the Permian to the on the Oxy side, we didnt have a high downtime. It was the downtime that we've worked has been mostly associate associated with them.

With the legacy Anadarko and the teams have done a great job to address it I don't know that we have a lot more upside that every time I say that I get out a full don't that our team response, but I think the uptime and the areas that we focused on has increased significantly and the remaining is is in those areas where.

We've had to do some more work that's just.

Yeah, we're scheduling out over time to to ensure that we.

We can get the the hardening like for the electrical system done and done in the right way, so there'll be a little bit more but I think we've probably seen the bulk of that.

Got it great that makes sense and my second question is on the low carbon strategy and really building on some of your closing remarks, Vicki Oxy has been a leader on this front within the U.S. industry I think for a while now and it's good to see that even through this downturn you've been able to advance some of the low carbon goals and in the slide.

Jack you have some additional detail on the direct air capture plant that you're planning in the Permian Basin and I was wondering if you could talk a little bit more detail about how the return profile for these types of investments given you were able to offset some of the tier two you need within your enhanced oil recovery business, there's cost savings there there's a lot of capital.

And then I guess importantly, as well, but the scalability of this over time that you see within your business.

Thanks for the question Devin as you mentioned a week, we have been a leader in this we're very committed to this and excited about it because this for US is a win win win. This this not only helps us to help the world by reducing C O two out of the atmosphere. It.

It will help.

Our shareholders too by lowering our cost of in enhanced oil recovery in the Permian and in other places as we had that since out and thirdly. This this helps others, because we're going to be able to expand beyond our own operations to give opportunity.

To those industries that cat otherwise lower their carbon footprint. They can partner with us to do it. So what we've done is we formed a subsidiary called a 1.5 and 1.5 is.

As a partnership and company formed between Nazi low carbon ventures and machine capital.

We form that to ensure that we had the best possible way to deploy large scale direct air capture using a carbon engineering technology, but to do it in a way that that provided others the opportunity to invest and minimizes the actual dollars that we see.

And because of what we've invested thus far and what we bring to the table for this kind of.

Project is the poor space they bring the poor space that that's going to be required for for the ultimate sequestration is this year too and we bring the infrastructure I know.

Nobody has an infrastructure the size of the infrastructure that we have in the Permian. So its extensive and that's going to be key to helping us develop this and to do it at a cost that delivers returns for for oxy rushing and the other investors who want to come in and they are part of this.

So we're very very excited about it.

The I'll point out that were beginning this in the Permian, where we will build the largest direct your air capture facility. That's currently anywhere in the world but.

But our our use of this we expect to go beyond the Permian, we expect to go from the Permian.

The powder River DJ and ultimately internationally.

So it's something that is going to become a we believe a significant business for oxy over the next.

Two years and intend to 15 years, we expect that.

That the cash flow and earnings from a business of this type could be.

Similar or more than what we get from the chemical business. This is something that the world needs without.

Up pushing it and without others doing this there is no way that the world could achieve a cap on global warming up 1.5 or two degrees. So it's something that has to happen needs to happen, but unless you can make it a business unless you can make it profitable it's likely not to happen. So.

Teams have been very strategic with this and innovative and the way they've approached it and certainly the passage of 45 Q was a big.

Big step for us to to be able to.

I'll make this happen in a way that will enable us to to overtime improve the technology lower the cost and operating efficiency. So that this becomes ultimately profitable without tax incentives and so just like solar and wind has done in the past we are excited.

About it and.

Expected to take off and.

And so for us the 2021 and that's meant in terms of capital from Oxy would be minimal.

Great. Thank you very much.

Our next question comes from Jeanine Wai with Barclays. Please go ahead.

Hi, Good morning, everyone. This is anyway, thanks for having me on the call.

Hi, first question is for Rob on working capital and my second question is on the Permian So Rob on the working capital front, we notice that there is a meaningful drop of about $829 million during the quarter can you walk us through some.

Some of the moving pieces of that and how you see the working capital trending and for Q.

Sure James Thanks for the question, so Theres really three.

Big pieces that drove the significant that working capital draw in the quarter.

No one is how.

A combination of cash interest payments the majority of our cash interest payments come due in the first and the third quarter. So that was a big piece of it.

Other piece was acquisition related payments.

That were processed and then finally was just the timing of international improved sales in our marketing business. So as we move forward, we do expect the marketing to improve as reduce inventories towards end of the year certainly be a lower amount of the cash interest payments associated in fourth quarter, and we won't have the associated.

Acquisition related payments that drove a big piece of what happened in Q3.

Directionally, we said, we expect a significant change in direction of where.

In capital in Q4.

Okay, great. Thank you that's very helpful. My follow up on my second question on the Permian I'm in the prepared remarks, you mentioned retaining flexibility to respond to the macro environment.

Getting a nice head start on activity in the Permian and the DJ heading into year end. So can you just comment on how you see that production trajectory throughout 2021, given the time lag I guess between complete drilling and completions and get anything done mine the Permian flatten out in Q1, and then returned to growth as early as June.

Thank you.

It's really hard to tell at this point because our teams are continuing to improve deliverability from the wells or.

So a lot of it will depend on the Ah when we can actually get the wells on we've got some frac crews already working with us now so.

And we were setting records actually so I'd say currently it's going better than expected, but whether will be flat or up in Q1, I think is a little too early for us to tell right now as we resume higher activity levels.

Great. Thanks for taking my questions.

Our next question will come from Paul Cheng from Scotiabank. Please go ahead.

Thank you good morning.

Victory is just too is that are you talking about the sustaining capex 2.9 billion in the actual capex, it's going to be different based on the market conditions can you frame, yet well watch that say yet the oil projects at a much higher level. What is the maximum ceiling on capex is going to look like and that I guess.

The minimum that if oil prices really bad and just what that that the oil price is the only on what that district pies is the only factor that you look at what that the fact that that you're going to take that into consideration and full Rob a long that Molly.

Your capital a crew he has over $700 million.

This yet the use of cash how that is going to trend in the fourth quarter and more importantly in 2020 or 21, you. Another was that the net investment is that going to be much lower than what is.

On a GAAP capital budget.

Yeah, Paul with respect to your question on the capital we.

We would view $2.9 billion, our sustaining capital to be a maximum capital for 2021.

Even if prices are higher and then we expect and we take more into account then just a strip oil prices, we look at what's driving the oil prices and and what is the sustainability. For example, there's your while some may have thought a quarter or so ago that prices by the.

By this time would be higher than than much higher than $40 I heard people talking about that we never believed that because we were looking very closely at the fundamentals and what's happening around the world with inventories, then and demand and things like that so were very cautious about just.

Facing our program on strip prices and or what what some might say they believe about near term prices.

So we we will we'll go into 2021 conservatively will recommend to the board I. It capital that would allow us to balance cash flows coming in and so if that.

Ends up resulting in a scenario, where we can recommend sustaining capital to the board will do that if not if if we're going to be a scenario, where we need to be lower than that then then that's something that we'll discuss with the board, but but certainly you can do the 2.9 is it as a cap and our flexibility that we were talking.

And about was to flex down if necessary just as we did in 2020 and you saw the magnitude of flexing of how we can flex down.

And it's always easier to decrease activity than to do a last minute increase in activity.

And you know one of the things that's important to US is to allow the teams to ramp up activity in a safe efficient way.

And doing it in a planned way as we have done I guess, our teams the chance to be successful as they happen and they've they've brought rigs on end achieved the same efficiencies that we had when when we ramped down and that's a credit to them and the way they plan and the way they work in the way they tried to ensure that as as.

They're bringing.

Ah activity back up and say first and foremost do it safely and secondly don't lose efficiency in the process and that's almost unheard of in our industry to have a major shutdown and then to start bringing rigs back online and having this kind of efficiency that we're seeing from our teams now we're really really happy with that but the.

But the reality is that we will spend within our 2.4 to 2.6 budget. This year with this increased activity and then we'll we'll see if we can reach the cap of 2.9 billion and 2021.

Your victory can I just follow up on that on some of your competitors that because of the natural gas and Oh, we have decided to shift the capex more to their guests well from the oil or is that something that you will consider though or that or do you think that your steel Permian just your thoughts there.

Oh, Permian still our best asset and our other oil assets around the world. We don't have any intention at this point to do any gas and bell investment pure gas and all the investment in the U.S. and our gas assets that we very much value alhazen in dolphin and the middle East are important to us.

But we wouldn't do there's nothing new investments that we need to make and those at this point. So certainly our investment dollars will go to oil.

And Paul just close out on your capital accrual question. Your intuition I think in your question spot on it. So you actually see in the capital group third quarter, which is slightly positive.

Yeah as activity levels pick up the capital accrual will reverse itself from what it did when we sharply reduced activity coming out of the first quarter Oh. Your intuition is correct on that.

Our next question will come from Doug <unk> with Bank of America. Please go ahead.

Oh, sorry, sorry, I guess good morning, Vicki is a follow up to the polls question. So there's a lot of them.

Feedback or questions coming in about the fight.

Capital was $600 million midpoint Q4.

And you're still obviously facing a very significant year over year decline. There. My guess is this a momentum issues of timing issue. When the capital is being spent the can you just get to market some confidence that the $2.9 billion is viable.

Fill your level of production because it does leave you with the most cost efficient portfolio in the industry by some margin I'm just wanted to get some understanding as to how you have what your confidence level is.

We have high confidence that we'll achieve that because we're looking at the efficiencies that our teams are achieving on the capital efficiency side and also the well deliverability. So at this point, we do have high confidence that we'll need.

We are sustaining production with a 2.9 billion.

So just for clarification you go some done talking from the Gulf of Mexico in Q4, So what does the sustaining volume number that goes along with it.

Oh. So so then the production volume that we average for Q4 is going to be the the number that we try to sustain into 2021, we've taken into account the the.

The downtime for maintenance.

Right. So what is that number.

Sure regarding to that number.

Okay I just want to try last one from me then.

What is the sustaining cost to breakeven oil price.

Yeah, just to be used to be 40 without 2.82 point do we build a dividend when you met all the synergies from C. One together what do you think your breakeven oil prices to be in sustaining capital and I'll leave it there. Thanks.

Well today were well below $40 and our sustaining or.

Our and our breakeven capital.

But it's well below $40. When you when you talk about breakeven capital that you're looking at it on a quarterly basis afford the well below $40 is is because of our current level of capex, which is below the spending.

So.

Going into 2021, we would expect to be in the high Thirtys.

In terms of breakeven.

Right before the payment of the preferred.

Our next question will come from I would say.

Yeah, and before Brian could I told you all just a second <unk>. The other thing I should have told Doug and I will get a chance to talk to me again on Thursday is that at that also depends on your assumption for midstream and Oxycodone and those those are critical to be considered when we're talking about what our breakevens will be.

Okay Brian.

[laughter] next question will come from Brian singer with Goldman Sachs. Please go ahead.

Thank you and good morning, I wanted to further follow up on the maintenance capital. The 2.9 billion is is that a maintenance capital. So lead to keep 2021 production flat at fourth quarter 20 levels or do you see that as a sustainable maintenance capital and do you expect that this will fully replace that reserve.

<unk> production replacement would be 100% or would your reserve life be coming down even as your production stays flat.

Oh I see the sustaining capital this is a sustaining capital for on 2021.

Well have to look at 2022, when we when we get there, but 2022 will be dependent on.

On the efficiencies that we build in 2021 and the deliverability of the program that we're developing and so we'll look at that.

More starting in mid point of of 2021, So we'll be able to provide you something more on that as we get closer to the 2022 program.

What's what's happening to us now and what both exciting but that creates a little bit of an uncertainty is the more we learn about the Anadarko asset and the for example, the Silverjet area is really delivering incredible results for us and then the record setting well there was.

A record and you know just broken Oxys record for the Permian Basin, and so now that is our record and so as we continue to improve well deliverability, we'll just have to look at what it means for sustaining capital going forward.

Great. Thanks, and then my follow up is a [laughter] about a three part question with regards to the new carbon or new carbon ventures.

The first is yeah, I think you compared and earlier in the call the potential contribution to what the petrochemical business is delivering now and I wondered whether that makes the petrochemical business or less strategic or greater candidate for asset sale. You mentioned the direct air capture is that the main technology that you were looking to deploy.

Are you considering others and then what is the extent of further cost reduction.

Skill and the timing for when do you think that plant like the one that youre planning here to start investing in Twentytwenty two can be returned to enhancing in the absence of government incentives, which makes sense that that's a key goal.

Okay I'll begin with their the comment about oxy can no. This would not replace oxy can it wouldn't they talk to Ken something that we would want to divest because our optical business really is very synergistic with what we're trying to do a Nazi low carbon ventures and in fact, some of the oxy Kim employees are associated.

With the development of this direct air capture because one of the two things about the direct share capture facility is that one that uses a lot of TBC, which I can make our uses the product provides the products to make.

Second thing is that potassium hydroxide is a is a chemical that's used in the director capture process and where they are.

That was the largest does exactly the second largest in the world with respect to traffic potassium hydroxide. So there's a lot of synergies and we've known this all along and we we want to capitalize on this we believe there will be even more synergies into the future for for Oxy Kim with us on that so so that's important.

The second question was so.

So there was a second second third question. The second question third question with respect to lowering cost even further the second question was.

Oh good there the third was a is it other technologies feasible how quickly can we get them to the point, where they they can make money without government subsidies I'll say that.

What I'm seeing from the strain said the teams here is we were combining oxy people oxy oil and gas people wed uptick in people to work this facility and remembered out Ken is running our major projects team that team partnered with Adnoc to build the largest.

Ultra sour gas processing plant in the world in the middle of the desert. When we were at the peak of construction, we had to build a city to house. The 40000 people that had to be on site build that plant built it to have a capacity of 1 billion one Bcf a day and now they've expanded that plan. We first we put it on without any.

Oh wait any glitches whatsoever.

And it it came on at capacity no glitches no safety incidents and we've now expanded the cat capacity by 30% with only about a 10 million dollar investment and that's incredibly impressive so combine that skill that again, expanding it there by 30% and.

Ultra sour largest gas plant in the world.

They combine that expertise with obviously came expertise who understand this process very very well and our experts at it and so that along with the innovation of carbon engineering and while we don't know yet exactly what the first plant will cost, but I guarantee.

I see that the first plant will from that plant, we will continue to optimize it I think the curve in the <unk> and the pace of improvement for the director capture facility it'd be faster than than what we've seen in solar and wind I expect that and can you had something to add.

Yeah, one the one observation as these are.

The Dax consist of four existing technologies bolted together were where we are.

World leaders in terms of the chemical and.

In terms of the scale up opportunities in the process and Densification, we already see massive opportunities some bruises and densification simply based on the value engineering work. The teams have done so far suits, we are incredibly optimistic but not only can we get the process intensification results required.

But scale up opportunities also one thing to remember is that these can go anywhere but.

That's one of the beauties awful.

Yeah, I think that that that's affordability of the DAC to value is is that as you can imagine the transportation and compression of the C. O. Two molecules is not an expensive in Britain infrastructure. So now you can move the infrastructure to the reservoir and collect it from there and I think underlying it Ah why we believe it will be commercially viable long term is big.

Because in order to achieve the 1.5 degree goal it can't simply be done through emission reduction we firmly believe it has to be done through the capture and sequestration recapture and usage up. So you have to make that goal a reality and I think what differentiates oxys approach to this is we.

We also believe that fossil fuels have a role in the environment and the energy portfolio. The world long term and this is a way to take the carbon footprint of those fossil fuels keep them part of the portfolio still generate a low neutral or even negative carbon fossil fuel molecule exactly and Rob that's that's what differentiates us from others, because if you will.

Look at what the Europeans are doing to lower their carbon intensity, the carbon footprint, they're getting into alternatives into renewables and so.

So we're doing a contrary and approach and that we believe that and using our core competence of C. O. Two enhanced oil recovery expertise is the best way to go rather than trying to go to learn a new business.

And then back to Rob's point about how much this is needed in the world and why it's going to be a huge industry going forward is that right now in the globally. There's only 40 million metric tons of C. O two per year that sequestered are used and.

And if you look at what the IEI model says about what's going to be needed what's going to be needed is anywhere from 5.6 billion metric tons to 10.4 billion metric tons. So that's up to that's going to be more than 250 times. What we're doing today is going to be needed in the future.

And so that's going to make this business incredibly important and no I a model it's not the only one that's calling for this level of.

Even capture and sequestration for us to be able to cap global warming at one and a half to two degrees.

Almost I in fact, I have not seen a model that didnt say this significant carbon capture was going to be required. The other thing about this carbon capture too is that when you. When you look at it as it does the same thing they they the equipment does the same thing is trees, but it requires it's a much smaller footprint on the on the planet there.

Much smaller so well I love trees, and we need trees carbon capture is is important and I think robs point is huge and that we can put this anywhere him and what was kind of holding US up previously is that we are first and when we first started thinking about this 10 years ago.

Oh, we thought we'd have to put carbon capture the facilities on industrial sites and getting the C. O. Two that's captured from the industrial side to the Permian was a challenge and so we were trying to figure out how do we build the pipeline or how do we do that and we're going to do some of that some of that will have.

Happened because the industry's along the Gulf coast needs and other hubs, where there is a lot of C. O two emissions they need to put either direct or capture there or somewhere or or capture on their facilities. So with respect to what other technologies are we thinking about you had already signed a a an agreement.

Wide energy its carbon capture on an ethanol plant. So that's one thing that we will be doing to help them but.

But if you if you put direct air capture in the Permian, It's still gonna help the emissions in the Gulf coast, because generally though the emissions around the world balance out over time so.

It was as Rob said, we can put it when we're done.

Within the initial installations in the Permian as the DJ and the powder, we can put it in Oman would that in Abu Dhabi, we could put it in Algeria. So we can do it anywhere we are indoor at partners facilities.

Yeah, Brian I don't think we caught the last part of your question I just want to make sure that we addressed it in the answer there.

I don't know that I can you still hear me.

Yep, Okay, great I I think I think you did when you just mentioned that you were considering some other technologies like ethanol are putting spring. So you have to ethanol. It was whether you were a.

Pursuing other.

Or other opportunities beyond director capture.

Yeah, we obviously have the wind energy project, which has an ethanol capture in Texas, we're doing already but Oh, we'll capture from this year to emissions from the why.

Why energy's ethanol facilities will take those into the Permian for you. So you are.

Great. Thank you for all the detail on that.

Our next question will come from Phil Gresh with JP Morgan. Please go ahead.

Hi, yes, good morning.

First question just Vicki you had mentioned not having additional major asset sales.

Beyond the two to 3 billion that you're talking about looking out to early 2021, I guess, we should presume then that something like chemicals, probably would be off the table at this point in time and just more broadly.

Once you achieve those asset sales.

And with the cash flow that you expect to generate in the fourth quarter and 2021, where do you think your leverage will be relative to where you want to ultimately get it too.

I think that it's going to it's going to take more than ER than what Weve said with respect to the Divestures, that's happening now and next year and more than cash flow from Q4 of about 2021 to get us to where we need to be I do believe prices will be much healthier in 2022.

And that's where we'll start to balance.

Our cash flow and with respect to using it for it to meet our maturities and to advance.

Advanced mature pay off early maturities, where we can we.

We intend to ensure that our focus is on getting our leverage down and we'll have we'll just have to see where prices are at that time, where cash flow is at that time, but it's still well into early 2022 at least our cash flow priorities will remain the same were first the party.

He is to maintain our production and our our base facilities second is debt reduction.

So so debt reduction will be the second priority for a good while now I think.

Okay.

And then the second question, maybe ill just glue together real quick one it was a clarification on your high Thirtys W.T. high breakeven it cover sustaining Capex you made a comment about a mid.

Midstream and chemicals is it fair to us to.

Soon that perhaps you're using fourth quarter run rate for both of those businesses as the assumption there.

And then my second actual question would be just your production mix in the quarter and the Permian The DJ what.

It was a bit gassier here.

Lower oil mix in general so anything you could provide there as to the driver of that and how you expect that to play out. Thanks.

Well I expect that the gas oil ratio with the continuing development program would would be more stable. This decline. This increase slight increase in gas is partly due to the fact that we weren't adding new production during this time or our wedge collection.

So much lower than what it would normally be so we don't expect that this is going to going to be an ongoing issue for us.

With respect to the.

To the.

Assumption of what uptick in the mid single B, we haven't guided to that though we're optimistic.

About how the chemicals businesses is going to look.

Next year, depending on the cobot situation and so we're not guiding anything right now, but but we do believe that theres going to be progress made we just don't know what the timing will be and when that happens we believe the chemicals business when do that back pretty pretty well from this.

Okay. Thank you.

Our next question will come from Roger read with Wells Fargo. Please go ahead.

Yeah, Hello, good morning.

I guess I kind of wanted to follow up on Phil's question. There on you know thinking about the de leveraging and specifically.

The chart on page 15, you've done a good job so far of you know take.

Taking the dates out extending maturities and so forth and I was just curious as you look at the 22.

Debt. That's there should we expect you to start attacking that in 21 in terms of.

Some opportunities to extend the maturities, they're not simply face a you know a $4 billion.

Wall of debt on top of some of the smaller maturities left in 21.

Yeah, Roger Good question and absolutely I think we'll continue to take a very thoughtful approach towards the mantra that between I mean, the divestitures and proceeds from the balance sheet and attacking those and so it certainly wouldn't be surprising.

Surprising for us to access the market again at some point and start moving those out in a similar way that we did in the third quarter with the $5 billion in races that we did and we're trying to be very thoughtful about those access the market when it's opportunistic for the company to do so and then also looking at you know get anything Green dot runway for us. So that we can get the best value for our divestitures and we have to.

Done a good job now to make sure that as we approach the divestitures were not a position where we have to do them under a specific timeframe and we'll continue to give the company that that Oh leeway in so that we can get the best value for the Divestures as they occur so absolutely we'll be not waiting until the last moment to address the 22 maturities.

Okay I appreciate that a follow up question Gulf of Mexico. Some sets I think your largest federal holdings exposure.

No you're not in the exploration mode out there I don't think hardly anyone is but I was just curious as you look at drilling permits in hand, how a potential change in administration.

What's your visibility for drilling.

Wells, and 21, and say 22 relative to permit availability.

So Roger our belief around what's happening or what will happen with respect to the regulatory environment is first of all that we don't think that it is going to be the highest priority the administration as they as they take over and start executing their plans.

I believe that there's going to be other things that are much more urgent for a president who seem to be president biden to take on so I don't we don't expect any near term impact on either Gulf of Mexico, permitting or anything onshore.

We believe this gives us time to start working with his staff and and we've always stayed engaged the EPA and the deal them and we have great relationships with them and so what we want to do is we want to be a part of the solution to to what I'm, what they're going to need to do to.

Oh to meet the needs of their constituency and that is I know, they're going to want more regulation I know, they're gonna wallet Uh huh.

Aim deeper focus on permitting and where the permits are what's happening what is a safety, though of what's happening and what's.

What's the impact on the environment and I think this is a a <unk> an opportunity for us to be collaborative likely always are we I think our company has developed this is a core competence that because of the some of the areas that we've operated in around the world you look back I hate to mention kind of country names all avoided that.

Yeah. We had previously worked in some very very challenging countries, where collaboration lots of patients. But persistence is is really required to help get to the point that is reasonable for both the company and and wherever we're operating and here.

We'll we'll use the same thing we know that the deal then has a lot of great people and they've they've been very helpful. As we've gone through our developments, both offshore and a and onshore you asked.

So we know that the competency of the people there and that part of it won't change well just be aggressive and the way we address it.

And I think also on that to what I would add is not an additional relationships. We built over you know in the history of working 100 years is a company with a federal demonstrations is from a pure holdings standpoint were very good shape or even with a different approach, where the largest lease holder and the Gulf of Mexico illness Spectre the onshore.

Well, it's just about 1.6 million acres that are on federal lands half offshore half Alpha and the golf you know within the APC, Delaware stuff none of that is on federal lands that we that we purchased.

For the past the biggest onshore exposure in the powder River basin, where we have very little activity and casing in Mexico, we have well over 200 permits already in hand in a couple of hundred permits in the works and so Oh, we have a significant drilling inventory in new Mexico already.

One thing I'd like a those operational excellence really helps when you're seeking permits or you want to have discussions with the government in any country in the world and this year. Our go more operations teams really carried the exceptional work and the moves back to the storm season on record.

They've improved safety results for managing Covidien D modeling and remodeling the platforms multiple times and again like Vicki said, they actually are domestically.

Process engineers have managed to improve uptime, and one installation by 12% much should lead to about $40 million worth of cash flow next year, having spent almost nothing to do it so really talk class achievement and the last thing I would like to Dimensionalize the supply chain teams, which have helped to.

Completely to spread rates using appliances, which we think are win wins for us and the contractors going forward.

This will conclude our question and answer session in the interest of time.

I would like to turn the conference back over to Vicki Hollub for any closing remarks.

Just want to say thanks to all of you for joining our call today, we appreciate it and have a great day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.