Q2 2021 Occidental Petroleum Corp Earnings Call

Good afternoon, and welcome to the Occidental's second quarter 2021 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

After todays presentation, there will be and opportunity to ask questions to ask a question you May Press Star then 1 on your Touchtone phone to withdraw your question. Please press Star then 2.

Please note this event is being recorded.

I would now like to turn the conference over to Jeff Alvarez, Vice President of Investor Relations. Please go ahead.

Thank you Chad.

Good afternoon, everyone and thank you for participating and Occidental second quarter 2021 conference call on the call with US today are Vicki Holt, President and Chief Executive Officer, and Rob Peterson, Senior Vice President and Chief Financial Officer.

This afternoon, we will.

Refer to slides available on the investors section of our website. The presentation includes the cautionary statement on slide 2 regarding forward looking statements that will be made on the call. This afternoon.

I'll now turn the call over to Vicki Vicki. Please go ahead.

Thank you, Jeff and good afternoon, everyone.

Our strong operational performance and the second quarter continued to drive robust financial performance as we marked our second consecutive quarter of generating the highest level of free cash flow and over a decade and.

Most of the case last quarter, our cost structure and capital intensity leadership of catalyst for our strong results and continued to provide a solid foundation for free cash flow generation of the future.

We're especially pleased to the business and of positions at the end of the second quarter to launch the tender process to retire over $3 billion of debt using excess cash generated from operations as well as proceeds from divestitures.

We made incremental progress and reducing debt throughout 2020, and the first half of 2021. The completion of the tender represents a sizable step forward and our deleveraging efforts.

Good morning, I'll cover our second quarter operational performance and divestiture of progress and Rob will cover our financial results and balance sheet improvement as well as our updated guidance, which includes and improvement to our DD&A rate and an increase and guidance for our full year production and for midstream and Arctic in 2020, 1 and earnings.

And the second quarter, our business all of our businesses outperformed our capital discipline and efficiency combined with the supportive and improving commodity price environment positions us to generate the highest level of free cash flow before and after working capital and it's the third quarter of 2008 when W. T I did $145 of.

Barrel.

We are proud of our teams for this accomplishment and we appreciate that they are continuing to improve our capital execution and operating efficiencies to further expand our margins.

We exited the quarter with approximately $4.6 billion the bunch of restricted cash which does not include cash received in July from the recently closed divestiture or the cash used for the debt tender which closed in July.

Bob will touch on the tender and the little more detail, but I'd like to reiterate how pleased we are to be once again, making notable progress and reducing debt and strengthening our balance sheet.

Turning to our operational results, our oil and gas business delivered second quarter production from continuing operations of over 1 point to 2 million Boe per day the <unk>.

Total company wide capital spending of almost 698 million.

Our domestic oil and gas operating cost of $6 per day of week came in substantially below our full year guidance as our teams continue to demonstrate their innovative operations expertise of finding new ways to safely reduce costs and our field operations.

And the second quarter uptick and continued to benefit from robust PVC demand and pricing as well as gradual strengthening and the caustic soda market.

We believe the fundamentals for these markets will remain supportive for the second half of 2020..1 we are confident and increasing our full year guidance to the midpoint of 1 point to $5 billion, representing an almost 60% of an increase over our original guidance for the year.

The ability of our oil and gas business to overcome challenges, while the increasing efficiencies has been transformational looking back over the first 6 months of this year, we overcame the effects of the major weather events and divestitures and a producing asset.

We were able to make up the loss and divested production and have increased our full year production guidance for continuing operations to 1.15 million daily per day.

The continued to be highly encouraged by the performance across our portfolio for example, and the Texas, Delaware, We recently brought online and use silvertip development and its producing approximately 20% more oil compared to our prior development in this area.

Additionally, and an area of roughly 10 miles southeast of silver, Jeff We brought online a 5 well development with average 30 day peak rates of almost 5000 daily per day and.

As I mentioned operationally our teams continue to set new efficiency records of all of constantly pursuing opportunities to improve.

We set new quarterly records across our portfolio on feet drilled and hours pumped and a single day.

And the Midland Basin, we set of new drilling record of because were not and even 500 feet drilled and 24 hours contributing to a new oxy Permian spud to rig release record drilling of 10000 foot horizontal well and the only 8 days.

And the D. J basin, we set of new companywide track record of pumping over 23 hours and a single day.

Utilizing oxy drilling dynamics and the Gulf of Mexico, we had significantly lower drilling cost and duration as the wells drilled in 2020, 1 that's cost 15% less and the average for 2019.

And as I mentioned in the last quarter's call. We've had excellent results leveraging remote operations are.

Our innovative mindset and the ability to leverage technological breakthroughs have allowed us to continue pushing the performance envelope, giving me confidence and our best in class capital efficiency will continue.

Our divestiture plan and advanced and the second quarter with the recent closing of the noncore Permian acreage sales were approximately $510 million.

Given our industry, leading inventory depth, we welcome the opportunity to monetize these assets at an attractive price as it is unlikely the we would've develop this acreage and the near future.

We expect to close at least $2 billion of divestitures post the Columbia and as we've said previously we will always prioritize obtaining value for our shareholders over meeting of deadline.

I wanted to take a few minutes to talk about our chemical business and how we plan to leverage its leadership and expertise into our low carbon ventures business.

Ken success as demonstrated by the financial performance and track record of consistent free cash flow generation of.

The camera has been a consistent generator of free cash flow during past downturns and what the macro environment improving up the Kim is on track to deliver record earnings this year, even surpassing 2000 Eighteen's results.

The business May also continues to strengthen and future years of caustic soda and 1 of the key profit drivers for the business as experienced only a moderate price recovery to date.

Last quarter I spoke about how oxy ken's integration across multiple chlorine derivatives provides us with the ability to optimize our caustic soda production, all opportunistically and adjusting our production mix to maximize margins.

And there are many opportunities for us to for us to apply the same approach the integration as we develop opportunities between obviously, Ken and I.

The low carbon ventures business and.

The major producer of PVC and caustic potash at chicken has the engineering R&D and process technology expertise as well as the production capability necessary to build our low carbon business.

Obviously, Ken at the World leader and the customization handling and usage of P. D C, which will be a major component and the construction and ongoing operation of the direct air capture facility.

We're also of 1 of the world's largest leading producers of caustic soda potash and the key chemical utilized and the direct air capture process, the separate carbon dioxide for sequestration or carbon neutral the enhanced oil recovery.

Our best knowledge of equipment design, and our experience with the operating and handling of the cost of potash will be key to helping us quickly optimize our direct air capture of facilities.

In addition to being a market leader and consistent free cash flow generator Oxy, Ken is integral to our business of today and tomorrow and it's also worth noting that Arctic him as the market leader and health safety and environmental performance.

And Ken recently earned a remarkable 31 responsible care of awards. These are from the American Chemistry Council and all of the U S. Chemical manufacturing industries, leading performance Awards. The awards recognize the oxy, Kansas achievements and safety price reduction and improving energy efficiency.

Several of the award winning initiatives focused on waste minimization reuse and recycling and then energy efficiency, which will all contribute to our 2025 sustainability goals.

And now I'll hand, the call over to Rob who will walk you through our financial results for the second quarter and guidance for the remainder of the year.

Thank you Vicki our businesses continue to perform well and the second quarter as our free cash flow generation of firm barcode confidence and oxy has the ability to generate cash and healthy price environment. The strong performance contributed to a quarter and unrestricted cash balance of $4.6 billion on our last call I mentioned the potential for a partial reversal of.

Of the working capital change incurred and the first quarter as expected we benefited from a positive working capital changes quarter of approximately $600 million.

And they are contributing to our cash build during the quarter.

And as Vicki mentioned, we lost the loss of tender late in the quarter, namely the repay over $3 billion of debt and July subsequent and successful execution of the debts and in July we received proceeds from the nonstrategic Permian acreage, partially the refresh of our posted our cash position early in the quarter.

And the second quarter, we announced the the adjusted profit of 32 cents and.

And a reported loss of <unk> 10 cents per diluted share.

While we played the greater importance on Catholic generation, especially as we are focused on deleveraging. We are pleased to be generating income on an adjusted basis and P. This is a positive indication of our financial position continues to improve.

Our reported results were less and our industrial results, primarily due to mark to market impact of derivatives.

We delivered outstanding production results year to date, while having deployed less and half of our full year capital budget of $2.9 billion, we expect capital spending should remain within budget and demonstrate our commitment of capital discipline and our capital intensity leadership, even if the capital spin and for the higher and the second half of the than the first half of the year.

The positive working capital change realized in the quarter was driven by lower cash payments for items that are accrued throughout the year and lower crude inventory from fewer barrels and the water, partially offset by higher accounts receivable balance due to the increase in commodity prices.

And the interest payments on our bonds are paid semi annually, our cash interest payments are going to be lower and the second and fourth quarters and they are and the first and third quarters.

During the downturn last year, we received approximately $1 billion of additional cash flow from the oil hedges.

To obtain a cost of structure, we sold of 2021 call position of 350000 barrels a day with an average strike price of $74, 16% rent.

And the commodity prices rose the into the second quarter, we made payments of $5.7 million under the sold call position and $1 million under our gas hedges and July cash settlements paid the date on the hedges of the minimal and there are certainly what the benefit we received last year.

We continue to maintain the opportunistic approach towards hedging and the Ford Corp is supportive, but not added any hedges past. The end of this year, we believe creating a manageable debt maturity profile and reducing debt as the more effective long term solution to derisking, the balance sheet, while providing shareholders with exposure to commodity price gains.

We raised our full year production guidance fall and our strong second quarter results and have increased our earnings guidance for Oxycodone and midstream for the second time. This year looking strong first half performance and improved market conditions.

We expect the 2021 will be a record year for oxy, Kim even surpassing our earnings and 2018, we benefited from exceptionally strong caustic soda prices because of <unk>.

Part of the back here.

Mr moves it back to the benefit and the second half of the year from continued higher sulfur prices out of Hogan as well as an uplift of the third quarter related to the timing of export sales.

We also lowered our DD&A guidance for 2020, 1 like net.

Mid year reserves update this update takes into account more support of trailing 12 month commodity prices at midyear compared to year end 2020, as well as our activity planned and recent success and lowering operating costs.

The combination of these factors and increased our proved reserves, which we expect the result, and a lower DD&A rates going forward.

Our production of the second half of 2021 is expected to average 114 million Boe per day production in the second quarter benefited from time to market acceleration and the Rockies and Permian.

The weather conditions and optimization of play of maintenance schedules to better sequence shutdown activities resulted in lower than expected downtime of Gulf of Mexico contributed the higher the expected production.

Our expected third quarter production of 1.1, and 4.5 million BOE per day includes and allowance for seasonal weather and maintenance and the Gulf of Mexico. The divestiture of approximately 10000 Boe per day, and the Permian and the timing and impact of our Rockies capital program, which was frontloaded in 2021, as well as PSC impact through the price.

Even as production in the second half of your sort of be lower than the impressive second quarter production results. We remain confident of a production trajectory leveling out as we enter 2022, where we anticipate of production pattern similar to 2020.1.

We have updated our activity slide to include 2 additional and new Mexico rigs the Mexico activity change, we fully funded through the cost savings and optimization of our capital projects gained through efficiency improvement and will not increase our capital budget.

The activity of 1 of the highest return assets will places a strong position as we transition into 2022.

And with the successful completion of a debt tender, we paid over $3 billion of 2020.

And through 'twenty, and 'twenty, 6 maturities and I have clear runway over the next few years.

Generate cash from organic free cash flow, we continue to value of the options available for additional debt reduction and will seek to further our debt maturity profile. So that we were not exposed to any significant amount of maturities of any single year. The options available to us for debt reduction include potentially calling the 2020 floating rate notes prior to maturity executing the initial.

Tenders exercise and attractive and make whole provisions and pursuing open market debt repurchases or he may choose and some cases, the build of cash position, which may be applied toward retire maturities as they come due.

We also plan to retire 7 and $50 million of notional interest rate swaps and the third quarter for the fair value of Mount which will improve cash flow by almost $50 million per annum at the current curve.

We entered the second half of 2021 and the strong position in the beginning of the year and ambulatory being focused on maintaining a strong liquidity position deleveraging of regaining investment grade metrics and preserving the financial policies and cash flow priorities and bad capital discipline, and I will now turn the call back over to Vicki.

Thank you Rob.

We are proud of the substantial progress and delivering our near term cash flow priorities, we have significantly derisked, our balance sheet with the successful completion of our recent debt tender.

And this marks the next stage of our deleveraging effort as we work to reduce further reduce debt and the lower our breakeven.

We still have work to do before transitioning to the next stage of our cash flow priorities, including returning additional capital to shareholders. We're confident that the steps we have completed to date and the strong operational performance and we continued to deliver we will accelerate our progress well now open the call to your questions.

Thank you we will now begin the question and answer session.

Ask a question you May press Star then 1 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 2.

Please limit your questions to 1 primary question and 1 follow up if you have further questions you may reenter the question queue.

At this time, we will pause momentarily to assemble our roster.

Yeah.

And the first question will be from Neil Mehta with Goldman Sachs. Please go ahead.

Thanks, so much and and really strong results here on chemicals, and that's where I want to start can you talk to your views on caustic soda and PVC pricing for the remainder of the year and next year and the sustainability of the margins that we see out there.

Okay.

Yeah, and Neil you know, we continue to see very strong conditions, and our Roes are vital business and steady improvements and the caustic soda business as Vicki indicated as you can see on slide 7 of the deck. The 2 businesses are the major profit drivers for our chemical business and it's unusual but when we do have conditions, where both businesses and favor.

Market conditions, the earnings impact as Youre seeing is significant so 1 of the PVC business. The business remains extremely strong due to a tight supply demand balance.

And year to date basis, we're seeing domestic demand and industry about 16% higher compared to the same period and 2020, but more importantly, it's up 13% from where it was in 2019 liana and the non COVID-19.

The period.

And so the strong demand is also attributed to really low levels of.

Inventory and supply train and combined with the construction sector, what youre seeing and obviously and a lot of their construct of materials and we expect demand remained strong with a very favorable housing start outlook mortgage rates remaining low which tends to also drive historically the business and a lot of investment remodeling and so we're seeing those kind of factors are all pointing towards the sustained.

Improvement in the PBC business.

And I think I would say that when the export business is soft like it is now where we're seeing year to date exports are down 33%, which tends to be the the last of location. The PVC production, that's indicative of a strong market and so you know and there's not enough product to go around we shouldn't see margins remain favorable for us on the.

<unk> side of chlorine molecule itself is very tight and so producers are seeking the highest.

Value Alice require molecules and.

And as Vicki mentioned and our very diverse portfolio of coin derivatives allows us to really maximize the bags of corn molecules through our chain of opportunities and so.

<unk> production itself and it's been under pressure for the year simply because of a lot of both unplanned and planned outages and if you look.

Chlor alkali rates are actually lower and 21, and they were and 20 year to date running about 75 per cent year to date versus the 80% of of the same period last year, resulting in about 6% less cost of production available. This year versus last year. So cost is quite tight which is helping to improve prices and with playing out and the schedule in the third quarter, we and would anticipate.

Right.

And for their support for additional price increases and the caustic soda business and the.

And as you see caustic for us tends to be something that moves with the global economy and the.

Certainly as as economies open up and eventually travel restrictions and flows.

He's globally, we should see additional demand and the underlying sectors and so as far as the key demand sectors and the second half, we see better demand and the aluminum sector of the pulp and paper sector water treatment and certainly beliefs sectors.

Sectors, all improving and the third quarter. So both both both sides of the of the of the <unk> are looking strong headed into the second half of the year and the underlying factors certainly are bullish for both of them as we move into 2022 and beyond.

Thanks, and and the follow up is 1 of the key takeaways from earning season and that is the emphasis the investors continue to place on cash returns and and at this point Occidental is more focused on deleveraging the business, which makes a lot of sense can you just remind us what your absolute.

The target is.

And then and at what point or what milestone should we be thinking about the company shifting from a deleveraging.

Approach to 1 of where you can re introduce something like a dividend.

Yeah. So so it's certainly a topic de jure.

We did pick it on the 13th slide of the deck, which was and and we included that were especially on the journey. When it comes the cash flow priorities and after a lot of risk and 2020, the Derisk the company and what I call post Covid world between the stabilization of on production and the slash and of our course and refinance near term maturities now, we're making headway and Vicki.

Detailed on our deleveraging process and we took a significant step forward with the upsize tender and July.

And through both the combination of cash available from strong production performance. The continued capital execution and diligent cost management and really the remarkable turnaround and chemicals all contributed to the success of that and so now we've retired about $12.7 billion of principles of the middle of 19 through that combination of our granite cash generation of the investor.

Program and I think we'll continue to work towards the $2 billion to $3 billion post Columbia, the Vectra target and we've established.

But as we look forward you know the as anticipated that the majority of free cash flow from the business will be the source of future cash for debt retirement, and it's critical that as we take advantage of the elevated prices to the.

Leverage the balance sheet, because we don't even in times of it can be changed and the macro environment that could affect our ultra of commodity prices that would inhibit our ability to do that.

So when I look at the time it takes our past does remain focus right now and the 2 top priorities be.

And that we're focused on and our list.

And how long we're on that path and certainly dependent upon future commodity prices because that certainly impacts the the.

The rate at which we're able to move down the path but.

But I do think that the steps we've taken since March of 'twenty are all part of our long term strategy around the increasing value to our shareholders.

For example, and look at last year, and the Derisking side, we could of staple of interest and our refinance process by using more onerous and ventures and we sit here today with a much less risky maturity profile and a much and the same simple capital structure, we started with and.

And we do believe ultimately deleveraging the company is going to be the benefit of equity holders in the form of equity appreciation and we also understand that the levered to oil price remains attractive and as the director of the pace of the process and our EBIT. The does fluctuate obviously, a lot with commodity prices and while some agencies and modestly increase their models of <unk>.

And we're still well below the current strip. So that's why we keep saying it to get to a more sustainable debt level and the mid 20 range.

Likely necessary to achieve those IV like financial metrics.

In addition of that ratio and we understand that obviously the financial policies of matter and and that's great decision. So use of cash for dividends growth et cetera also reviewed and the near term unfavourably. So that's why we remain focused on deleveraging process and once we reset and more sustainable debt level, we will start resuming a greater amount of cash to shareholders.

Thank you and the next question will come from Doug Leggate with Bank of America. Please go ahead.

Thank you and good morning, everyone and good afternoon, everybody and I should say.

Gosh, its amazing to me how book.

Continues to look for cash returns of the Q1.

You've got the potential of moving 40% of your market cap between debt and equity over the next year.

And I guess is the.

Robert My question Rich disposals, and how you can accelerate and off I'd like to frame. It like this and you announced the $2 billion to $3 billion target, which Columbia rent is $42.

From the 2 to 3 billion target, obviously is not there today so.

And you just give us an update as to do you expect to do more than the 2.3 on the part of your question patients from the oil price or are you moving out of you're targeting to the 3 albeit I'm guessing you can do you can do the fewer assets given the oil price and so.

And I'm just wondering of the health risks the $2 billion to $3 billion and seems to me you can probably do a lot more in absolute terms given the more price of Saudi oil shock.

So at this point, we're not really prepared to change the the goals that we've set out although you know we feel very comfortable the well the cheese the lower end of that goal and.

The Doug you're exactly right, given our portfolio and it could be other opportunities available to us to to continue to optimize what we have today and optimization to us is not just ensuring that you have the best called the assets and your portfolio and that you're putting the your dollars where they generate the most value.

Also looking at the opportunities to do as we just did and that is to monetize where you see that the monetization of that is going to be so far out into the future, it's not meaningful value for our shareholders. Today. So we're constantly looking at and and updating optimizing our plans and looking at those opportunities.

And where where could there be additional situations, where we had the same thing that we just did with the Permian acreage and monetize it today and and had the opportunity to create better value today down to to keep it in the portfolio. When we know we can't get to it. So we're we're still looking at all of those things not prepared yet to.

The change our guidance, but I can say that opportunistically, we do want to create value sooner rather than later, so we will continue to keep that in mind as we as we review the the portfolio and optimize as we go along.

Thank you I apologize for asking for clarification on this book.

If you had the same number of assets.

Are you ahead of schedule and then in terms of the absolute receipts again, reflecting parts of the oil price is higher.

We we are on schedule with what we need to do but with that said given where oil prices are today.

And where we're quite comfortable looking at and opportunities as they come in and by that I mean, we're still getting opportunities coming and the door for various parts of our portfolio.

And we we look at all of those very critically and I.

I think that there's going to be situations that come up over the next 12 to 18 months that would provide us more opportunity to raise additional funds and.

I don't want to commit to that because where we are now and with respect to our cash flow generation and our deleveraging progress were and are positioned to be.

I would say much more.

Careful not and careful is not the right word but much more I guess.

Opportunistic is the only way I can think of to ensure that we get maximum prices for from what we would sell because we started out the divesture program by cutting off the the very tail end of of what we felt like fit within our portfolio that could fit within the others portfolio and a higher level, but for us the things we sell.

<unk> just the just could not compete and could not out of the value that other things and our portfolio could.

So now as we have have divested of the.

Those assets were now and getting to the assets, where we expect them, we expect to get more value from the divestiture of then and those that were at the lower and I guess is the best way to say it and so but we're open to looking at opportunities as we see them.

Thank you and the next question will come from Roger read with Wells Fargo. Please go ahead.

Yeah, Thank you and yes.

I guess good afternoon, congratulations on the quarter and it's nice to see everything clicking.

And the first time and awhile.

I guess, what I'd like to maybe address.

Some of the metrics youre using that.

Underpinning the decision to move away from any sort of the hedging strategy and maybe getting back to thinking about from a you know the.

Debt to EBITDA debt to cap of maybe a long term debt number of youre more comfortable with just maybe all of the pieces that have gone into it the kind of speech to to where you are now versus where everything was 12 and 24 months ago.

Yeah Fair question, Roger you know so certainly historically the company has not been.

The 1 with the hedging philosophy and felt like the combination of our exposure to commodity exposure of the price of of long haul would ultimately deliver the most value to our shareholders.

Versus attempting to.

Use hedges to try and create value and that's certainly changed in 2020, because we were in a position where our leverage was such that.

It was necessary for us to create some protection and the event we were in a day and a negative price environment like what opening and worked out that way and certainly the the $1 billion that we were able to create and value last year from the hedge.

And as something that was critical to our success last year.

And we will continue to maintain the all production and approach, but as we evaluate hedges were concerned a lot of factors number 1 is the cost to execute the hedge and certainly at the cost of sales that we did last year. It came with the call provision this year.

And what you guys have been very expensive, but they can be.

And the implications of the hedge is going to have on the upside to leverage our oil price such as the caller and.

And so.

Peer put hedge is pretty expensive and then.

And colored and introduce and upside that limitation that we would like to put on our shareholders and so.

And if you look at the we think that creating that manageable debt profile of the discussing the comments, particularly knocking down the taller towers and beyond just the near term stuff that we've focused on and you know if you look at the recent tender 80% of the bonds that we addressed where and that 2022 to 'twenty 4 time frame.

And it's a more effective long term solution by the center can provide the and so I do think that you can use a.

Our trailing EBITDA if prices were to continue with the current strip of valley.

And I use and use the trailing EBITDA by the end of the year and we were able to continue on and as we've been doing with debt retirement, we could easily be low of 3 times multiple.

But certainly have to discuss it and that's not necessarily and thats, what the with the script value of as much higher than the net.

What's being used by the rating agencies and so I do think it is important to us and maintain the ratios, but it's also why most of my comments, it's important for us to really go after the maturities while we have the wind at our back in terms of commodity prices, which is exactly what we're doing and so taking that out and continue to move forward and then you can look at the way that we structured the <unk>.

And the strategy approach and that we left aside.

A significant amount of debt that is easily available to us $2 billion worth of its either going to be mature before the end of the year is call before the end of the year or we have attracted make whole payments and in addition to the floating interest rate and items and so that gives us access to very cheaply continue to retire debt and moving forward over the balance of the year, which will go.

Further and further towards that and so we've just got work to do we made of giant step forward with the debt tender and the last quarter, we sell of a little work to do but I do feel like that the work we've done, particularly between the deleveraging and the cleanup runway and it made us give us a lot more selectivity around hedging strategies moving forward.

Day that we would never do them again, but it certainly is getting all of our certainly our preference is to create the value for shareholders and gives them the.

Both of the oil price, which is something that oxy has to offer right now and that many others don't.

No I appreciate that that's the good answer and just sort of gets to the reduced risk profile overall of appreciate that.

Maybe just change of directions with my other question a little bit here, the comment about being able to add the 2 rigs in the in Mexico and no impact on Capex and it was just curious so does is that a function of a reflection of improved <unk>.

And <unk> and productivity some of the other things you mentioned like the the uptime all of the pumping jobs, maybe Vicki just a question overall as you're seeing the evolution and and continued productivity and efficiency gains out of the field.

Yeah. It was the combination of the efficiencies of the current drilling program and also the utilization of existing facilities too to ensure that we could shift all of our capital to the 2 additional rigs without needing any incremental infrastructure expenditures so and create this is.

The really good opportunities. The fact that our teams are continuing to improve what they're doing.

And Roger on top of what Vicki just I think it's important to note I mean, if you look at our activity profile I mean, we were ramping down through the year.

And I thought we necessarily.

And are ramping up activity, it's not the case, we're just not ramping down and we still went from 12 rigs down the 10 today, we're at 11.

So just kind of flattening out the activity profile, while still keeping the capital budget you know exactly the same so we're not adding to that as you pointed out and the impacts really more about next year. If you look at that activity set.

And 1 rig start up another and I'll start up soon.

You know it will add approximately 20000 barrels a day to second quarter next year, So that'll help our capital profile going into next year.

Thank you and the next question will be from Phil Gresh with J P. Morgan. Please go ahead.

Yes, Jeff just to follow up and what you were talking about with the activity levels. As you look at the second half spending you annualize the second half spend is around $3.2 billion or so and.

The initial thoughts.

And the 2022 Capex levels would you be looking to kind of keep it where it is.

Yeah I'll stop there.

And I know, it's a good question and as you know Phil It's a little early for us to forecast what 2022 looks like we usually do that.

Our fourth quarter call, but to your point about cadence because I think that's that's relevant and you can kind of read some things into that when you look at our capital profile lots of 2.9 and for the year. As you mentioned, we spent 1.3 and the first half and and Theres a couple of things that drive that and you can see it like for example, and our chems business, we forecasted about $300 million.

We spent a little over 100 million. So a lot of those activities are backend weighted on our Permian activity Slide you can see of our $1.2 billion. We've only spent.

$500 million of that and the reason for that is a lot of our Midland Basin Wells were front end loaded.

And so much lower working interest with the carry now we're getting the some of our higher working interest wells that go with that so it's really more about where we're spending capital and how it is more than a cadence of and activity set drastically change and so I wouldn't read into the 8.

800 quarter type number.

And what we need for next year. So as you look the 2022 I mean, obviously would give a lot more color on those going forward and I think the same narrative, we've talked about in previous calls and we continue to see great improvement from an operational standpoint, I think when you look and what our teams have done this year, it's exceeded all of our expectations.

And from an efficiency standpoint, I mean, we every time, we look to put the slides together and we asked for new records up and sat.

Blown away by the new things that come up again, and again and again that our teams are doing.

I don't think that's kind of a stop I mean, we even after we put the slides together for this we got notice last night, where our Rockies team set a record for the month of July per pumping efficiency of like 630 hours of pumps. So you start doing the math on that and that's 10% better and our previous Fracs.

<unk> and the fast Western hemisphere record for the the service provider of that did that and Halliburton and so I think you know we're going to continue to see those improvements that are going to help with capital efficiency going forward and we do know there's takes against that and we will need to build in and we've talked about gum was especially low.

Of this year and we know that probably takes a little more capital to run the type of business. We want to run there. We've got other projects going on and that could push that up but those will be offset by some improvements so.

And more to come on that and the future, but I do think as we kind of roll that out.

We'll talk about some of the benefits and then some of the things that may cause us to spend a little more capital and the short term, but we definitely don't want to underestimate all of the great things of the teams are doing to get more efficient and get better results from the money that they spend and I think that's what you saw in the first half of this year is that rolling through.

And hence why we connect activity compared to what we thought without.

Without increasing the capital budget.

That makes sense and my next question I guess it would be for Vicki.

And do you think about the E. All of our business moving forward, where would you say.

You are in terms of the opportunity of the process anthropogenic Cotwo and how should we think about the timing of potential updates from the company as we look ahead and say the next 6 to 12 months around the U S.

Yeah, and as you May remember, we have 2 billion barrels of resources, yet to the developed and the enhanced oil recovery business are in the Permian and the conventional reservoirs and so we're really excited about the fact that the low carbon business will provide us either very low costs, our net zero cost of C. L.

2 so.

But for those projects, but we see that the the incremental for our enhanced oil recovery. It will probably come closer to the time of the of getting the first direct air capture facility online and we still have access to organic C O 2 and will.

And have minor increases as we as we continued to expand faces within the Permian AOR business, the significant improvement and escalation will come and as a part of our low carbon strategy and that'll help to provide the the low decline assets and production that we've been used to having and the past which.

We'll have to offset some of the resources decline. So it's a it's a key part of our low carbon strategy and it's a and will be a key contributor and growth.

Engine for us as we go forward beyond the.

And the implementation of the first few Dax.

Thank you and the next question will come from Paul Cheng with Scotiabank. Please go ahead.

Hi, good afternoon.

2 question piece, the first with the just curious.

The guys. It's definitely 1 of the very efficient and I'll pray type of in Permian and you have done the quick job.

Hum.

And we and the path that you have formed from John mentioned essentially.

All of them off and I are trying to prove the value for width and buy.

Having someone that from you.

But going forward and making up on sheets thought the getting and shape and cash flow getting better.

And looked at the opportunity that you talked to some of your P. S like shell.

The 2 to maybe pull the.

Permian the answer to get that into a Jai and joint venture and you kind of feel it's Monday lock going to extract cash upfront, but just drive really great efficiency gains going forward.

The deadly pitch yaw technical experts and see.

I think that.

And what you've said is a great idea, we always look at opportunities to do that for us, it's not and matter of how you do it we just look for ways to create value and any way that we can create value for our shareholders. We're open to doing it and so we've the P. J D with Echo patrol and the minimum Midland Basin has been.

Very successful for us all win.

And may look at the additional JV and the and the Delaware Basin to continue to accelerate what we're doing there and partnering with others, where we can join forces and find ways to to obtain synergies and to utilize our team too for the execution part of it and the evaluation part I think of that.

And it's a really good idea because I and I'm. So proud of our team's eye as Jeff said I can't reiterate enough how.

And they've blown us away with the the work that they've done that is not just at steady state today is continuing to improve as Jeff mentioned, the subsurface work goes beyond what I ever expected to see and the shell play and they're now I'm really pushing the technology envelope on how to model out of.

The first evaluate the data analytics, and then model of the sub surface production and the AR and the shale reservoirs and to know exactly.

Where the land and how to how to Frac and how to complete and you combine that with the fact that our drilling and completion guys are continuing to set records and I tell you.

3 years ago, we would not would not have predicted where we are today and they even last year. We wouldn't have predicted some of the things that are happening. This year. That's why when we talk about capital and the future, it's really hard to say, what our sustaining capital would.

It would be because we didn't expect it to be 2.9 this year back when we looked at it 18 months ago. So the the progress made and pushing the envelope of being innovative and really developing the the leading edge part of the industry and with respect to this.

And the technology it has been amazing and I.

And so proud of the team's I'll say again I don't know of any other group that I've ever seen that could do this kind of work and continue to progress it.

And just kidding aside Vicki how can you talk to any of your P. As you heard the CEO of I mean, because everyone seems to have a pick Nico and thank the team. That's the best but I mean is that something that the the industry is ready to do something like that because it could be great for you and quick for everyone and actually for the whole industry.

1 willing to they put aside the eagle and doing something like that.

I think they just don't know Wes attached.

Yeah, I, you know I don't want to mention names, but there has been some discussion around that and I think that that is something that the industry is opening up to because we as an industry. We want to create value we want to do.

And do business differently than we've done in the past we have to do that as an industry to attract investors back to.

And the oil and gas industries can and the important that we change our paradigm the about how business should be done and I have had some conversations with other Ceos about exactly what you've said and and there are some open to it some are not but there are some open to that and I think this sort of thing needs to happen and has to happen.

And as to to.

To maximize the value of the assets that we and others have today.

Hi, Paul and if I can add I think of lot of people forget I mean, our Permian position was built on 1 of those Jv's basically we bought the joint venture between what was the Amoco shell and BP, and then and Arco, which was exactly that so a lot of the people and the company are very well versed and the burner.

And I come from that and continually look for those opportunities, but that is the heart of our Permian operations.

Thank you and the next question comes from Neal Dingmann with Truest. Please go ahead.

And acronym.

And just sort of power and once you said earlier I want to make sure I'm clear on this you you'd mentioned I think the prepared remarks, and there could be some coordination said between Aki clamor of your de Carbonization and business I'm. Just wondering what you know how youre thinking about that or how quickly you could something like this could occur.

Well, obviously Kim has already involved in the design of the direct air capture facility. So they will be a key part of the fun of engineer from and engineering and design. That's happening today, we're doing the feed study. So oxy, Ken participants are a part of that and they're helping to drive that and we.

And we really want to leverage their expertise around the use of caustic potash and the we need to to use PVC products and the direct air capture facility, that's going to be a key part of some of the components going into it. So they will not only and this but and potential other kinds of processes and the future with respect to how.

And to use the product so it's not just in the first direct air capture facility. We believe also they they have and R&D mindset and and they have a group that's been very innovative and the past around developing new ways to do things and Rob could speak more of that history. If we had time maybe in the future will have and do that.

But the right now that day.

They are a key part of the low carbon strategy and gives us a strength that others don't have in this regard.

Got it got it and then just my follow up is just more on the upstream activity.

Despite your kind of indication for stable U S activity going forward it looks like you've slowed and the P. J from first to second half and I'm. Just wondering is this more of a function of slower permitting or a shift of interest you know I'm. Just wondering and then as you see 'twenty 2 'twenty to be more of like first half with more than 50 sales.

Or more like second half this year with less and twenty-five kills.

Yes, I think what Youre seeing there when you look at wells online and that's heavily influenced by the amount of the docs. We brought on early in the year. So if you look at the activity sets relatively flat, we're basically running.

The 2 rigs up there 1 and the powder, 1 and the D J and of Frac core and that activity sets of pretty consistent but youre right and the 1 that you pointed out we think we brought on 70% of the wells, but that was heavily influence we brought on about 100 docs late last year into the early part of this year.

So that's what's heavily influencing.

And the wells online number but the activity that's pretty constant and the teams are continuing to build inventory. So we can we can keep that activity ongoing.

Thank you and the next question is from Leo Mariani with Keybanc. Please go ahead.

Hey, guys wanted to.

Just jumping a little bit more on the kind of direct air capture side of things here. So.

Correct me, if I'm wrong, but it's my understanding you have like.

The pilot project coming on and the Permian sometime early next year I was just hoping to get a little more information about that and.

In terms of like and what type of capacity in terms of tons of cotwo and whenever it might be able to kind of pull out of the air and maybe just a little bit more about what you're kind of hoping to achieve with that pilot.

And we're using the technology that was developed by carbon engineering of which were and equity owner and carbon engineering has the pilot.

The facility already in operation in Canada. So the pilot and is already working and so we will be designing the facility that we build on the basis of that pilot and that's where obviously Kim also comes into play because oxy Kim has done this and the past and <unk> done pilots and and scaled up those pilots and that they have.

Done that very successfully so they have experienced doing this so the.

The 1 that we're gonna Bill will be the largest direct share capture facility and the World Cup.

Currently there are a couple of other different technologies that are.

That can capture C O 2 from the air there's other technologies the largest 1 of them. That's built today captures about 4000 tonnes per per year. The facility that we intend to build and the Permian oil to capture 1 million tons per year.

And so it's it's on the basis of taking that pilot upscaling, it and and the process of what we're also doing is we're working on the feed study is there is a separate group kind of working together to to optimize the facility. So we're not wasting time to get it and operation and then see how it works where where.

Innovating and as we build and as we look at the and the study for the the engineering and we're doing that we're innovating too. So we expect that when we get it and.

Ration is gonna be waiting and we think certainly and better product than it would've been had we not involved besides oxycontin and the innovation process and simultaneous to the feed study.

Okay, and that's definitely helpful and I guess, just can you remind us of little bit on the kind of rough timeline and get that first project.

And in place and then Additionally is there and I think there was a planned and maybe fund that sort of off balance sheet or maybe looking kind of more creative financing and can you maybe update us and where you are there.

Well the of the feed study of I should be done and we should have final investment decision the.

Early part of next year, and we hope to be again, the construction by the end of 2020, 2 or beginning of 2023, so and it should be than online towards the end of 2020.3 of our ended 2024, so it it'll be up and running and certainly by 2020 for the.

And.

The process around what we're doing to ensure that we and.

Get the the right funding for it is we have been talking with partners and so we have multiple opportunities to bring in others, who want to be of part of this United Airlines has announced that they will be of part of our direct air capture facility, so there'll be not only and.

<unk> to the capital needed to build and but they'll be taking the fuel from the facility and.

So they they they are committing to and off take out of the low carbon fuel that will be provided by the C. O..2 the captured from the air. So there are multiple ways to fund it. So the 1 is to.

Making the investment and the facility itself second is to commit to taking the C. O..2 credits third is to commit to purchasing the oil and this generated from the C. O 2 that goes into enhanced oil recovery. So we have.

Several ways of financing facility.

Facility and so it's where we havent finalized how they'll do that we're working through that now and talking to a lot of interested parties. We should have more information on how we're going to do that by early next year, but it's a there's definitely a lot of interest and making this happen it's or the for the U S.

And for the World of direct air capture needs to happen successfully and happened and the big way and so that's generating the interest and the the parties that want to be contributing to it and then get them.

To participate and the results of it.

Okay.

Thank you and the interest of time. This concludes our question and answer session I would like to turn the conference back over to Vicki Holt for any closing remarks.

I just wanted to thank you all for your questions and for joining our call today.

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

Yeah.

Okay.

And then.

James.

And.

And.

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Okay.

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