Q3 2022 Occidental Petroleum Corp Earnings Call
Good afternoon, and welcome to Occidental third quarter 2022 earnings Conference call.
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I would now like to turn the conference over to Jeff Alvarez, Vice President of Investor Relations. Please go ahead Sir.
Thank you Rocco.
Good afternoon, everyone and thank you for participating in Occidental third quarter 2022 conference call on the call with US today are Vicki <unk>, President and Chief Executive Officer, Rob Peterson, Senior Vice President and Chief Financial Officer, and Richard Jackson, President and operations Yeah.
Onshore resources and carbon management.
This afternoon, we will refer to slides available on the investors section of our website.
<unk> includes a cautionary statement on slide two regarding forward looking statements will be made on the call. This afternoon.
We will also reference a few non-GAAP financial measures today reconciliations to the nearest corresponding GAAP measure can be found in the schedules to our earnings release and on our website.
I'll now turn the call over to Vicki Vicki. Please go ahead.
Thank you, Jeff and good afternoon, everyone.
We delivered another strong quarter operationally and financially.
Moving us to further advance our shareholder return framework as we made meaningfully meaningful progress toward completing our $3 billion share repurchase program.
We achieved our goal of reducing the face value of our debt to the hygiene and plan to continue repaying debt through the remainder of this year before allocating a higher percentage of cash flow to shareholder returns next year.
The excellent operational performance of our businesses was a key driver of our strong financial results, including generating the cash flow required to advance our shareholder return framework and further strengthen our balance sheet.
<unk> delivered a strong earnings following a record second quarter, while our Gulf of Mexico International Rockies and Permian team set new operational records.
This afternoon, I will cover our third quarter operational performance and the exciting progress of our low carbon business as Matt has made since our investor update in March.
Rob will cover our financial results as well as our updated guidance, which includes an increase in full year guidance for all three of our business segments.
Our businesses all performed well in the third quarter, enabling us to generate $3 $6 billion of free cash flow before working capital with total companywide capital spend of approximately $1 $1 billion.
Our oil and gas business delivered production of nearly 1.2 million daily per day exceeding the midpoint of guidance by approximately 25000 daily per day.
Outperformance from the Rockies and Gulf of Mexico were key drivers of our production exceeding third quarter guidance.
The Rockies success was driven by better than expected base production and higher NGL recoveries.
The Gulf of Mexico, we benefited from unseasonably cool calm weather during most of the third quarter and better than expected performance from Horn Mountain West.
Our ability to generate substantial free cash flow, even as oil prices declined compared to the previous quarter positioned us to complete.
Approximately $2 $6 billion about a $3 billion share repurchase program through November seven.
Over the last 12 months, we have returned approximately $3 21 per share to common shareholders moving us closer to potentially being able to begin redeeming the preferred equity in 2023.
We also repaid approximately $1.5 billion of debt in the third quarter and then the period ending November seven.
Providing commodity prices remain supported we intend to reduce the face value of our debt approximately $18 billion by the end of this year, meaning that we will we will have repaid over $10 billion of debt in 2022.
As we enter 2023, we expect that our free cash flow allocation will ship significantly toward shareholder returns.
We intend to reward shareholders with a sustainable dividend supported by an active repurchase program.
Continued rebalancing of our enterprise value in favor of common shareholders and a reduction in our cost of capital as the preferred equity is partially redeemed.
Turning to Oxy Chem in midstream both of the.
Businesses benefited from supportive market conditions during the third quarter uptick.
I'll take him exceeded this guidance its chlor alkali prices continued to strengthen and the expected softening in the PVC market did not materialize to the extent that we had forecast.
We continue to be highly encouraged by well performance across our portfolio.
In the Delaware Basin, we delivered our best quarter to date for early well performance with a 46 wells online averaging peak 30 day rate of over 3600 daily per day.
Demonstrating the superior quality of our inventory and subsurface expertise.
And then the Texas, Delaware, We recently brought on online a new silver as well with the highest initial oil production of any horizontal well previously drilled in the lower 48.
The Python 13, H well posted a three stream I pay them almost 20000 daily per day and averaged over 11000 daily per day over its first 30 days online, which we believe to be the strongest performance ever for Permian well.
Overall, the Python development has outperformed expectations and we're looking forward to developing the offsetting areas over the next few months.
We're beginning to see additional progress in Colorado's new permit approval process in August we received approval from the Colorado oil and gas Conservation Commission for the state's first comprehensive area plan under the recently implemented regulations.
Plan has paved the way for us to complete more than 200, new wells in Weld County over the next few years.
Also several drilling permit applications that had been pending for a period of time, a recently approved allowing us to add back a rig in the DJ basin. After reallocating one earlier this year.
But the permits we have in hand, and our expectations for future approval, we have enhanced our flexibility as we formulate our activity for next year.
Last quarter, we celebrated the first oil from our new discovery filled in the Gulf of Mexico Horn Mountain West.
While it's exciting to realize production from new discoveries are existing bill have abundant potential that we continue to unlock with innovative technical solutions like subsea expansion.
Example, our Caesar Tonga field recently reached a production milestone of 150 barrels of cumulative oil production. It's a start up 10 years ago.
Caesar Tonga is the subsea tied back to the Constitution spar and it's one of the largest deals in the outer continental shelf. This.
This impressive achievement is the result of the collaboration and hard work across Oxy is Gulf of Mexico business unit, including the assay development teams and offshore personnel, who focus on delivering safe and efficient barrels every day.
In the years ahead, we plan to continue maximizing production capacities through projects like this one.
It's easier Tonga subsea expansion, which is scheduled for startup in the first quarter of next year.
Breaths facility bottleneck and maximize production capacity from the field all signaling a transition into the next phase of field development.
In the second quarter, a whole lot of new production records at our Hudson and the UAE in block nine in Oman, I'd like to congratulate our al husband in Oman teams again this quarter for breaking those recently set records.
We are beginning to benefit from incremental production from all of those and in our police. The expansion project is on track for completion in the middle of 2023.
Turning to our low carbon business I'm pleased to share that we broke ground on the world's largest direct air capture plan in Ector County, Texas. The first stage of construction, which includes site preparation and road work began in September .
Startup is expected in late 2024.
During our March L. C D Investor update we provided an overview of the expected revenues and costs for both direct air capture and light source capture projects.
Since then we've experienced progress all legislative and commercial fronts.
Congress passed the inflation reduction act, which contains several enhancements to the 40 <unk> tax credit.
Incentivize the development of carbon capture projects.
Additionally, strong interest from potential customers has provided us with a clearer picture of the market for carbon dioxide removal credits or C. D R's.
And net zero oil in addition to other products.
We believe our low carbon strategy combined with the ability to leverage direct air capture or death for the benefit of ourselves and others uniquely positions us to lead the market in supplying C. D. R's tens of thousands of businesses that have established net zero ambitions.
We are encouraged by the passage of the I R. I R. A N previously highlighted the potential for the 45 Q enhancements to accelerate our low carbon strategy.
We expect a 45 two enhancements to jumpstart the voluntary market for C. D ours, which gives us confidence to increase the number of deaths in our current development scenario.
70 online by 2035 to approximately 100 equally as important we expect the accelerated development of director capture it will enable us to reduce capital and operating cost at a faster pace.
In March we provided the capital cost for the first stock plan of 800 million to $1 billion.
Given the inflationary pressures felt across the economy, especially for construction materials and labor.
I expect the first plant to cost approximately $1.1 billion.
The current inflationary environment will not last forever, and we will leverage our supply chain and major project expertise wherever possible to lower the cost of our first direct air capture as well as the ones to follow.
U S has taken a leadership role in moving towards net zero, making it more accessible for companies to meet their net zero commitment.
Nation of C D R's.
Our long term view on the potential of direct air capture has not changed but to reach the net zero development scenario of 135. That's described in our March update the rest of the world will need to rise to the challenge in the form of global policy support.
We're already seeing evidence of this such as the pace program recently announced in the UAE, which will catalyze $100 billion in financing and investment.
So Permian location of our first direct air capture will provide us multiple options to maximize the values captured C O two.
You have the ability to inject the C O two into saline reservoir, producing city ours or to utilize the captured C. O two to produce net zero oil from our enhanced oil recovery assets.
Our conversations with many corporate partners and potential clients have highlighted the significant demand for C. D r's generated through C O T sequestration.
To meet this demand and advance our own debt zero ambitions.
Plans are developed several hubs along the U S Gulf Coast, where we will have the option to develop direct air capture provide point source capture and sequestration or industrial emissions or offer both solutions.
The advance our ability to provide sequestration services and generate city yard we have filed applications for two class six sequestration permit.
We plan to file applications in the near future.
We recently secured two new locations for the large scale development of sequestration hub. The first locations cover 65000 acres in south and South East, Texas, but that.
213 billion tons of C. O two sequestration capacity that can support up to 'twenty docs.
We also reached at least a great room with King rash, the largest privately held ranch in the U S.
To build up to 30 ducks and develop point source capture infrastructure.
Our agreement covers approximately 106000 acres, which is about 166 square miles with the capability to safely and permanently sequester approximately 3 billion tons lets see how to.
We expect to develop our second that King ranch and plan to start the prepay before year end.
These two new locations are in addition to the three hubs focus on points worse capture that we're also developing.
We have secured almost 100000 acres in South East, Texas, and Louisiana capable of safely and permanently sequestering approximately one 9 billion tons of C O two.
In total we have secured over 260000 acres capable sequestering almost 6 billion tons in C O two compared to the target we communicated in March.
Securing approximately 100000 acres by the end of the year.
That's power recently announced a plan to develop and build the world's first utility scale natural gas fired power plant with near zero atmospheric emissions. The plant will be located close to oxy has operations in the Permian and will supply our our operations with clean low cost on the manpower.
Oh, two generated by the power plant will be used will be captured in permanently sequestered underground using our existing C O two infrastructure.
This plant will accelerate oxy has plans to reduce carbon emissions to help us achieve our net zero ambition.
This is the first utility scale plant will enable both oxy and that power to develop best practices that use net power's technology provide emission free power for our Permian operations and future direct air capture sides.
Okay.
I'll now turn the call over to Rob who will walk you through our third quarter results and guidance.
Thank you Vicky and good afternoon in the third quarter, our profitability remains strong as we posted an adjusted profit of $2.44 per diluted share and our reported profit of $2.52 per diluted share even if commodity prices decline from their recent high set in the second quarter.
The difference between adjusted and reported earnings was primarily driven by a gain on sale and a tax benefit related to restructuring.
We offset by early debt extinguishment costs and mark to market adjustments.
As Vicki mentioned, we made substantial progress towards completing a $3 billion share repurchase program in the third quarter.
We ever purchased.
Almost 42 million shares through November 7th for approximately $2 6 billion with a weighted average price below $62 per share.
We intend to complete the share repurchase program by year end and allocate any additional cash flow this year to reducing debt further.
During the quarter approximately seven 4 million publicly traded warrants were exercised bringing the total number of exercise as I said their 30th almost 12 million with a <unk> $104 million remaining outstanding.
The warrants are a cash exercise instrument either oxy received a cash payment from the warrant holder upon exercise, which provides us with an additional source of cash for purchase shares and reduce debt.
We are very pleased to have completed our near term debt reduction goal of lowering debt to the high teens.
In addition to having repaid approximately $9 $6 billion of debt year to date. We also retired $275 million of notional interest rate swaps in the third quarter were approximately $100 million in cash.
We exited the third quarter was approximately $1 $2 billion of unrestricted cash on the balance sheet and as Ive numerous server have reduced the face value of our debt below $19 billion.
We have provided notice that the $340 million note due in February will be called on November 15th, meaning that we will have less than $23 million of debt due next year.
We also intend to retire the remaining $450 million of notional interest rate swaps. This year, which we expect will require approximately $150 million in cash at the current interest rate curve.
As I mentioned on our previous call. We believe we are reducing the face value of our debt in the high teens will accelerate a return to investment grade we have made outstanding progress over the past few years to meet this objective, but understand that we cannot department the timing of any potential ratings change.
And by the impact of improving our balance sheet and reducing debt. This year alone is estimated result in a total annual interest and financing cost savings of over $350 million on a go forward basis.
Debt reduction will remain a priority, but we intend to notably redirect our cash flow priorities next year from proactively reducing debt returning additional cash excess cash flow to shareholders over time, we intend to reduce gross debt below $15 billion.
As Vicki mentioned, we are raising our full year guidance across all three business segments due to outperformance in the third quarter and improved expectations for the remainder of the year.
Sorry, the oil and gas we have raised our full year production guidance by 5000 BOE per day to 116 million Boe per day for 2022, our full year capital guidance remains unchanged and we continue to expect to finish the year on the high end of our capital range.
Our production has increased steadily each quarter. This year, which has always been expected outcome of our 2020 plan in part because of ramp up activity and scheduled turnarounds in the first quarter. We expect this trajectory will continue in the fourth quarter with production exceeding $1 2 million barrels per day.
Our Permian operations were impacted by higher than expected third party downtime and lower OBO volumes during the quarter.
Strong well performance continues to exceed our expectations, but due to third party issues in the quarter. Our Permian production came at the low end of our guidance range.
We have revised our fourth quarter Permian guidance down slightly from the implied guidance, we provided last quarter. After the third quarter exit rate was lower than anticipated.
We expect strong performance from the Gulf of Mexico, and Rockies to more than offset the updated Permian projections.
At our 2022 plan anticipated increased activity throughout the year, our fourth quarter capital spend is expected to be higher than prior quarters. This year.
The activity. It was added in the second half of this year, what places a strong position for 2023 as our Permian production will grow by over 100000 Boe per day in the first quarter, our fourth quarter production expected to grow approximately 18% for the fourth quarter of last year.
Oxy Kim continues to perform well and we've raised our full year guidance to reflect third quarter results as well as an improvement in our expectations for the fourth quarter.
Fundamentals in the caustic soda market continued to be supportive while softening the PVC market at occurred at a slower pace than previously expected.
We expect the fourth quarter reflects seasonal trends that are typical for this business, but did not materialize in 'twenty 'twenty four 2021.
Seasonal slowdown in construction activity towards the end of the year typically reduces demand for chlor vinyl products, which we have reflected in our guidance I will now turn the call back over to Vicki.
Thank you Rob.
That's what I said during our March investor update achieving our net zero ambition will require funding outside of Oxy historical capital allocation program.
As the construction phase and technology of our first stack projects that.
Advances we will.
Continue to consider strategic capital partnerships and structures to address financing.
While we are prepared to fund the first stack plant ourselves if necessary, we are working to derisk, the construction phase and commercialize the technology.
Attractive financing structures that will retain most value for our shareholders.
Finally, we understand that there's a high level of interest in our 'twenty to 'twenty three capital and activity plans, which we will communicate on our next call. Once our plans are finalized and approved by the board.
Formulate our plans for 2023, we will focus on retaining our high degree of flexibility in our capital spending plans, allowing us to adapt and maximized opportunities in a changing macro environment as we do each year.
Before we go to our Q&A.
Lots of things just Alvarez for his leadership with our Investor Relations.
Sure you would all agree he's done a tremendous job to not only share our story and to help you all understand our strategy and results.
He is also providing critical support to our leadership team.
We appreciate what Jeff has done with Investor Relations and what he will do for us in his new role that he's recently accepted.
It really has to become president and general manager of SEAQUEST.
In this role Jeff will lead the efforts to build our C O two sequestration different.
As you've heard in my script. This is a growing and important part of our low carbon strategy, just 30 years of engineering and leadership experience working in domestic and middle East operations and its proven track record of creating value will be needed for this emerging business.
I'm happy to announce that Neil Backhouse, well replaced yes, as vice President of Investor Relations reporting to Rob.
And you all know Neil in addition to Investor relations as diverse expertise includes experienced in Treasury finance and banking.
Prior to joining our oxy Neal works as a corporate bankers focused on oil and gas clients for two high profile International banks.
D S from Colorado State University, a post graduate degree in financial services and a master's degree in international business, both from the University of Manchester.
I give tremendous thanks to Jeff Alvarez for its hot highly favorable contributions. He has made to the finance organization and please join me in extending your supports Aneel and wishing him success, let's he transitions to his new role.
Well now open the call for your questions.
Thank you.
I'll begin the question and answer session.
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Your question. Please press Star then two.
Please limit your questions to one primary question and one follow up.
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At this time, we will pause momentarily to assemble our roster.
Today's first question comes from Doug Leggate with Bank of America. Please go ahead.
Oh, Thanks, good afternoon, everyone I appreciate all the commentary Vicki.
Vicki I know you don't want to give too much away on the capital program for next year, but I Wonder if you could help us with the starting point.
We ask you often I guess, maybe you get a little powder the question, but.
What your sustaining capital is for your upstream business, but obviously, there's a lot of moving parts, particularly inflation and then of course, you have higher productivity that you showed with the the Python well. This this quarter so.
Starting point, where do you see your sustaining capital going as you look into 2023.
The challenge with that Doug is that we really don't know what 'twenty 'twenty three is going to look like from an inflation standpoint, and we can talk a little bit later about what we expect the inflation to be.
People are interested in that but the way you should think about our capital. All we can tell you is kind of what we see from an activity standpoint.
That would be we've mentioned before that that we're not going to try to grow our oil and gas production from 'twenty to 'twenty two to 'twenty 'twenty three we're going to hold that flat.
With.
The past couple of years There've been a couple of business units, where we work and their sustaining capital. So we're going to return to the sustaining capital Permian AOR and the Gulf of Mexico, and I think you've heard that number for Gulf of Mexico before is around $500 million.
And that means $500 million on an annual basis and for EUR $400 million on an annual basis at least it could be closer to $4 50. So those are two assets that will need to increase more in 2023. In addition, you will see higher than.
Sustaining capital with a couple of projects that we find very interesting for next year, one being the membrane conversion project at the battleground because as you know we talked about it last quarter. It's a increases the capacity is battleground by 80% and deliveries of that $250 million to $350 million incremental EBITDA.
While generating a strong return and we had the expansion of El Hudson to 1.45, and 'twenty twenty-three. So adding those projects also will impact our sustaining capital to some degree on a on a go forward basis, but both of those projects generate pretty good returns, but if you add the final thing.
The inflation part of it that's where for US it gets very murky because we're really not sure what inflation is going to be next year and not knowing that it's really hard to now.
Get out what is sustaining capital would be until we get closer to that.
Okay, I am sorry, a tough one but thanks for that.
Framing it for US My second my follow up question is and I guess it would be appropriate to think Jeff also for all the few trips we have over the years for the Permian, but I do want to I do want to referenced a couple of slides in your deck. One on slide 23 on one on slide 25, I'm, what I'm trying to understand this.
I mean, there's a remarkable continued improvement in productivity.
Productivity of your of your Youre, well portfolio, but should we think of what we're seeing in slide 23 as kind of the new normal was consistent with the inventory. That's on slide 25, I'm just trying to reconcile those two and I'll leave it there. Thank you.
Okay, I'll pass that to Richard.
Thanks, Doug This is Richard.
Ill try to answer that kind of start like you said with the well performance and then translate that into the inventory, which we wanted to bring back up you know I think in total this year has been a been a good year thing. We noted in our prepared remarks, the growth trajectory of near 100000 barrels a day from Q1 to Q.
Q4, and certainly the second half of this year has been been pronounced but the best part of Thats been the well performance and so both from a total year basis that represents 200 wells in the Delaware, that's really been been drilled across our acreage from north loving up into new Mexico went through the multiple development.
Areas, there and then even the third the third quarter results that we showed you know that was across I think rub 45 wells.
Across southeast, New Mexico, and loving and so I'll say that really just say that the consistency we do believe is becoming.
The new normal as we continue to improve and I think the Python well it was exciting to disclose but.
It's really what's interesting about that is that that entire north loving development area. It's been consistently good and even that the skew where we.
Had that record well it had offset wells that had been drilled and are similar formation.
So being able to come back where we can develop a DST you with.
Sets that are child wells, if you like and you'd be able to have this sort of record performance I think is a real testament to the way, we do our sort of subsurface development from an inventory perspective, I mean, I think the slide speaks for itself. We've got a lot of inventory that we've accumulated across a good acreage position and the only thing I would add to that is.
We continue to have.
From what we would consider secondary bench theyre not really secondary because some of these are performing as well as the primary so I'd point you to some.
Second bone spring in the Delaware Basin, and then even though the Barnett appraisal that we noted in the highlights both of those have moved themselves off to really top tier and our development plans. We have optionality in terms of when we develop that and co develop it but it's good to see the secondary benches.
Add to that inventory.
Thank you and our next.
Question today comes from Neil Mehta at Goldman Sachs. Please go ahead.
Yes.
You are thinking I guess, the first question is around the production profile and as you talked about the.
The plan for now as you think about 'twenty three is to keep.
Volumes on the oil side relatively flat.
Would you look for in order to change that viewpoint.
And.
Actually grow volumes is it is a price signal from the market or is it is.
He has a view on where you want your balance sheet to be.
It's it's mostly around creating shareholder value and doing it in a way that ensures that it's sustainable over time and you know part of our value proposition is to provide a growing.
Drilling dividend, which we as you know had the impact and we're trying to now resume.
Well, we really want to do is is.
Make the best decisions around how do you allocate capital we don't feel like we necessarily need to grow cash flow at this point because.
Because we have significant cash flow at almost all price ranges, where breakeven below $40. So currently the way that we see to increase shareholder value. The most and then assure way in a sustainable then and it also enables us to grow the dividend is to buy back shares and that in addition to it.
A billing us to grow the dividend over time, but we do believe that at this point, we're significantly undervalued. So that's the best value decision in the best use.
Our capital dollars there.
And that that's the follow up Vicki, which is just around the authorization you guys did a great job in the third quarter.
Knocking off at this part.
That share our share buyback authorization.
Do you need to come back into the market and how should we think about timing and sizing there.
So well finish the 3 billion for this year and then any cash that's left available. This year will go to further debt reduction starting next year is when we'll be significant have significantly more capital available to us to buy back shares so essentially any free cash flow.
Available next year, it'll be allocated down mostly to do share buybacks and we really want people to understand that this is not something that we're doing on a temporary basis. We do believe that share buybacks, where we are today and where our capital.
The needs are in our cash flow potential share buybacks is a part of our value proposition as it is a growing dividend and the two worked so well together as a combined a value proposition. So that's that's what we're essentially trying to do we will.
Occasionally in the near term do some projects that are not oil and gas that do increase value. So we are increasing value and cash flow and earnings than the membrane development at battleground and also without Hudson expansion. So when we see projects that.
That are kind of the opportunistic we will take advantage of that to the increase of cash flow, but we think the better value is to buy back shares and increase shareholder value that way.
Thank you and our next question today comes from Paul Cheng with Scotiabank. Please go ahead. Thank.
Thank you.
Hmm.
Maybe that this is for Rob Rob with the rising interest weight and potentially for the next several years. He is going to be much higher than what we've seen in the past 10 years, how has that changed or L. C. V business model you have any given the project financing to economic return and may not be as good.
Before.
And also in your chart when you're showing from 2022 to 24 are the revenue and cost seems to match so that means that kurland neat.
Before we see further improvement that the EBITA, we'd be zero, but that would be so that's the first question. The second question is can you tell us the mechanic.
Not that we the Pea for redemption look like next year, you're always stuck to that parcel with Amgen, how would that work and also that the Warren with NATO not fussed about the pizza how close you are going to get exercise. Thank you.
It will start with the LCD questions and first of all I'll just say that.
We really don't know yet what the inflationary environment is going to be we don't expect it at least at.
At this point expect that it would be a long term inflationary period, we know the federal reserve is doing all they can to manage that so what we'll do is we have to continue our business and on the first direct air capture it's really important for us to build it and to operate it before we can understand how to optimize it.
And so as we go forward, we'll always keep in mind, what our costs are with respect to what the potential returns are and we will make decisions on that but based on what we think we can do with it. It's it's more prudent to continue to invest at this point preferably with other people's dollars, but with ours.
If if need be.
Too to ensure that we can get the technology tested up and running and an improved.
I'm going to add Richard Yeah, maybe just a few things that kind of I think.
What Vicki says is exactly.
The way, we're thinking about it important to derisk, what we can control which is really.
Innovation and cost and so you know we have our innovation centers that we continue to progress.
Obviously getting started on these projects, especially if we have line of sight to multiple projects will help our cost down as we improve our engineering and our construction and so that will be important.
The pace of development very supported by the policy really gives us an accelerant.
We're well positioned for.
For some Doa grants that we've talked about it I think with you in the past.
So when you think about near term capitalization those are options longer term wanted to get the cost in the market in place to really support.
The sustainable business and at that point capitalization options.
Our wide open and so that's sort of how we have thought about that but.
But very focused on getting really the cost down on this first point really advancing the innovation pathways that we seem to really move move this development forward.
Hey, Paul I'll take the other part of your question.
So the with it within the preferred redemption mechanics.
So we cannot voluntary redeem the preferred shares before August of 'twenty nine after August 29, we can voluntary repeat redeem those preferred shares.
Rice of one O five or a 5% premium to par however.
However, the agreement includes a mandatory redemption provision obligates us to redeem the preferred at a 10% premium of 110% on a dollar for dollar basis for every dollar we distribute to common shareholders above $4 on a trailing 12 month basis.
So building off of Vicky script today is if you if U S.
At the end of the day, we would take all the cash spent on share repurchases dividends all the sugar to shareholders on November 10th of last year through November 9th of this year and add that up on a previous today's share count and get a total for that and so as she mentioned in her opening remarks.
That will be $3 21 sense today.
That number added up to over $4 and everything that we distribute to shareholders above that would go on a dollar for dollar basis. The shareholders an equivalent would be redeemed on the preferred on a 50 50 basis. So I'm not sure. If it had been $4.10. We would take 10 times the current outstanding shares.
Dollar amount and applied that towards the redemption of the preferred.
At 110.
About 110% and so we're going to continue that once you are above that you continue with that every day have you distribute whereby the shareholders. If we buy more shares back or pay a dividend and equivalent amount will be applied towards the Berkshire preferred as as long as we're above that threshold you fall below the threshold you discontinue it until you come.
Back above the threshold and you do it again, that's the mechanics of how the Berkshire redemption would work.
In the case of the warrants so the warrants.
Can be exercised at any time and so.
When you get warrants exercise for us.
Warrant holder paid was $22 per share in exchange for a warrant.
Our stock being issued in their in their place and so it will take the cash and on that.
Warrant holders do not participate in dividends and so any any dividend growth as Vicki outlined in her earlier remarks and question discussion they would be not included in that and so.
If if that if the dividend word inquiries et cetera that could drive additional works the exercise as we mentioned we've had about a $12 million to 116 million roughly exercise to it.
Thank you and our next question today comes from Rafael Dupont with Societe Generale. Please go ahead.
Oh, Thank you very much for taking my questions.
I have a couple of questions on <unk>. The first one is on the financing of the first stack.
I understood that you might benefit.
Big feet.
From the infrastructure.
Oxy sorry.
Maybe give us an update on whether we can expect you to benefit from both so subsidies.
And then I will have a question.
The plant will be operational in 2024, and then the the ability to claim they are the C. D ours would be would be available at that time.
Yeah, maybe I'll just add to that I mean in addition, obviously 45 Q. In addition to the uptake with the carbon dioxide removals, which are up.
Sold two businesses that are looking to reduce their emissions, but also as I mentioned briefly well positioned for some potential grant.
For direct air capture that is available from that infrastructure Act. So we want to put a competitive <unk>.
Program together and show how those can really catalyze our business, which will allow us to reach commerciality quicker and then will become self sustaining and as a business to go forward.
And as a reminder, we do have a contract for a 400000 tons per year of C. D hours from that first plant.
And speaking about C D r's.
It's a little bit opaque.
The value of the C. D. Ours can you may be referring to some transactions that would have been closed already or just sort of price made motors that we can guess from what you show on your slide number eight.
Yeah, perfect I wanted to quickly just frame the market a little bit.
Whats happening as this market takes shape.
Carbon dioxide removals, which are uniquely.
Capable.
To reduce atmospheric C O two are becoming very appreciated.
And so being able to have an engineered solution like direct air capture that monitors the capture of that atmospheric C. O two and then places it.
<unk> and securely underground.
That's a unique part of this evolving carbon reduction market and so when I say that first our position and that is really to be large scale and we think we can be competitive on cost. When you look at all the alternatives to reduce emissions. We think we can be quite competitive given those those two things and so.
Wow.
We're not in a position to disclose some of the contracts that we've been working around that there are some that get publicized those are generally smaller volumes.
And a higher cost than what we show in our revenue slide, but we think and the way. This works from a revenue standpoint. In addition to the 45 Q were a policy like that that gives you support on revenue. We're able to then attach the environmental attribute which is a carbon removal on top of that which gives you a total revenue against the cost that we show.
In that slide and so we're pleased with the market acceptance, we're working with some great partners. They realize this is a very cost effective way for many industries and many businesses to reduce their emissions as we look out over the next 10 to 20 years.
Thank you and our next question today comes from Neal Dingmann with true Securities. Please go ahead, good afternoon, and thanks for taking my time. Our first question is around your twenty-three traditional activity I was just wondering specifically do you anticipate continuing to run I don't know I guess, it's around 23 25 rigs next year could we see maybe.
Bit of efficiencies, allowing for less and you know if that's around the number do you anticipate those rigs running in kind of approximately the same area. This is issue.
I can start and then Vicky can add any context that she needs to but I think I think that that rough number.
Is about right.
In terms of where our activity as you know we made note of the rig that we picked up in the Rockies.
Success that we've had with our permitting you've given us a strong runway on those very competitive projects in our portfolio and we also.
Have a rig that we picked up in the second half of this year and enhanced oil recovery.
Which is a great add to our business as we have low decline production to kind of add to the mix. So those are.
The two I would point to we.
We do have flexibility in the program.
Have staggered terms in terms of contracts. So we can adjust to the macro or is oxy needs us to.
We can adjust with flexibility and then the final two variables I'd give you is obviously.
Our working interest.
We fluctuate between 92 even.
50% to 60% in terms of working interest, saying in a business like the Delaware and so where we have rigs and frac or sometimes that can look a little lumpy from a capital perspective, but it is simply working interests and the same can be said really for <unk> and maybe the last thing.
No. It is just our our JV. So we were able to extend the retro patrol JV into the Delaware, which is a great opportunity for us to accelerate this high quality inventory brings a great partner along with us and so that is another lever that we will not be transparent when youre just trying to look at activity versus capital.
Got it and then just a second question, maybe just staying with you surround that shrunk Python well just wondering could you comment as to magnitude of future locations you all seen in that area and any any plans near term or maybe even next year that obviously given the success there maybe boost activity in that area.
Yes.
Great about M&A is certainly in a very rich geologic area for us, but that area in total was north loving.
Those of you that another position and sort of the Texas, Delaware, that's quite a large acreage position and so near some of the silvertip wells, which had some of the records in the past, but in the near term we have two or three D. S use that'll be coming online over the next couple of quarters, but in total.
That's a that's a large acreage position that we've picked up and just excited about prosecuting that again.
Challenge our team too hard, but we do continue to find ways to.
Improve and so whether it's the primary benches like the Wolfcamp Y which is what was in our secondary in the bone spring I'm looking forward to see what our teams can do.
Thank you and ladies and gentlemen, our next question today will come from John Royall.
J P. Morgan. Please go ahead.
Hey, good afternoon, Thanks for taking my question.
On chemicals can you talk a little more about the drivers of the better than expected results in both <unk> and I think for too.
And how does 2023 set up relative to the run rate in two age I know the housing market is likely to become kind of more and more challenge with rates, where they are but that business does seem to continue to do well.
Sure John I would say that.
Describe the opening comments.
And we've talked about before is you know the macroeconomic conditions continue to drive the demand in our vinyls business and so interest.
Interest rates housing starts are trending unfavorably.
At the end of the fourth quarter, what we're seeing is continued softness in the PVC domestic market due.
Due to the housing sector slowdown.
PVC buyers are also adjusting inventories due to the pricing changes.
We're also seeing a fair amount of imports from Asia now into the market due to continued COVID-19 lockdowns in China, So youre seeing a displacement regionally where PVC typically is.
But what's slowing that pace of decline is partially responsible for the beat in Q3, and our improved guidance for the fourth quarter is first of all Theres still a tremendous cost advantage for U S based chemical production versus Europe , and certainly Asia.
Export business that has ramped up we have a much better competing position from the U S. And if you look at U S. Exports are actually up 8% year to date through September versus prior year. In addition.
I would say also despite the headwinds from interest rates, there's still a pretty significant pent up demand construction overall in the U S is still pulling through a fair amount.
Other key factor I would say is that with slowing demand in PBC, we will see the flip side and we've seen this many times historically is is when the chlorine side of the molecule slows down to the PVC chain.
Naturally makes caustic soda availability much more difficult to come by and tightened up the marketplace and so we've seen steadily increases in caustic soda value is much much greater value than we originally anticipated and so those two collectively are the two main drivers of our improved performance in the third.
Third quarter, and our higher guidance for the fourth quarter are certainly.
When you factor those macro conditions and then look at the fact, we're entering a seasonally slow period. That's the reason why you see four quarter sequentially down versus the third quarter we.
We really don't have a window yet for 2020 through yet.
Very key factor is going to drive that it would be.
The length of the impact of housing starts from interest rates.
How long is COVID-19 shutdowns in China going to persist because once China reopens somewhere to the oil and gas market, that's going to draw a lot of that demand that we're seeing our competition. We're seeing from Asia produced products go right back into China as it has historically.
And then just this period of time typically is a low demand period is it once we go through winter. So really we don't have a really good viewpoint on what's going to happen in chemicals until that February March timeframe. When you start looking at construction season, so not a lot of guidance on 24 by 23 at this point, but it's certainly those would be the key drivers of what's going to really impact us in 'twenty three and beyond.
To be sure that PVC demand construction.
Construction sector General journal kind of durables and construction coupled with the ultimate what happens in China in terms of when they reopen their economy.
Okay. Thank you that's that's really helpful and then.
I'm, a king ranch deal.
It's obviously, it's a very large amount of facilities that you can put on top of it.
Can you just talk to the pros and cons of building units on that side versus where youre developing duck one in the Permian.
Some of the other acreage you've secured and then is there an incremental spend number we should be thinking about over the next couple of years to develop these sites.
Yeah, Let me let me start.
Really excited about the King ranch and thanks to the thanks.
Thanks to the King ranch for working with Us on really.
Different way of looking at it at a great asset.
It really is a unique things for us in that position. It's obviously, a very large contiguous acreage position, so thats like oil and gas that that contiguous position allows us to be very smart with the way that we develop.
But really the uniqueness great geology in south, Texas lots of poor space per acreage position.
Access to water being on the Gulf coast with our aqueous fluid design for director capture the.
The ability to grow zero emission power to support.
This larger build out a direct air capture and then proximity to points, where submissions you know one of the things we talk about while this is a great.
Place to capture and build direct air capture proximity to the Gulf coast to be able to also think about points, where submissions and bring that gives us some economies of scale to sure that sure that call. So advantages versus the Permian Theyre just different I think.
Permian has the proximity to our C. O two infrastructure has the ability to both through sequestration and net zero oil through enhanced oil recovery process, and so depending on where the customers prep.
Preferences are for sequestration or net zero oil we have the ability to do both.
I think on that point, we get asked a lot you know how do we think about that and I think.
Our our ability as they both reduced submissions as you think about net zero oil or C. D. R's youre lowering the atmospheric C O two and so start there, but the other thing is the ability to grow our market for both allows us to deploy more of this technology and bring the cost down making it very competitive.
When you look at other cost.
Cost abatement for emission so.
So that's how we think about it I think again pace I would point you back in terms of how we should think about incremental capital.
That'll be a function of getting our cost down and improving innovation, how fast the ctr market grows and we anticipate it will and actually value will over the over the next 10 years and then in the early time.
Pork from something like the Doa grant could really help catalyze and allow us to move more in parallel.
And then again once we get a sustainable commercial business capitalization options are wide open.
And I would just add to that that we have we have quite a bit of interest in partnerships and even people investing in the project itself or directly in our low carbon business. So there's a there's no lack of interest there is for us. It's a it's a matter of choosing the right partners as we began this process it really is.
Just about as Richard said, starting the process, making the technology better and less expensive over time, improving it up that's windmill will have even more options on about how to finance.
Thank you and our next question today comes from David <unk> with Cowen. Please go ahead.
Okay.
Thanks for the time today.
I wanted to follow up a bit on just the direct air capture plan and some of the incentives around the I R. E. Just given the increased arb between sequestering C O two versus utilizing it.
Has this changed the way that you think about the.
The amount of <unk> that would be used for E O R or just the <unk> business in general and I guess, when we think about the acceleration I presume that this will all be towards sequestration oriented projects.
I think I can start I think.
The markets are evolving.
Again, I think our view is that both products, whether that be net zero oil or sequestration or valuable products of the feature and so when you look at that or it's hard to determine exactly.
Where that's going to land. The good news is we think its commercial for both and certainly when you take into account.
Our ability to.
Produce a low decline now very low carbon barrel of of oil.
That's a tremendous potential market for the future and so I think we'll let let the market determine where we go the good news is we've got options for both.
And you know.
Again, the challenges we want to deploy this technology to get the cost down.
We're commerciality supported this will allow us to do it across both both products.
And I would add that my view is that the world cannot afford a climate transition without.
By cutting out completely oil and gas production oil production is going to be needed for decades for decades to come and are using C. O. Two an enhanced oil recovery is the way to produce a net zero emission oil and to have that as the as the fuel source, it's low cost.
Lower cost and other options it would help with the transition that would help to fund the transition so.
So I think that oil is needed for us.
For our company in particular, we have 2 billion barrels of resources available for further development in our enhanced oil recovery assets and we'd like to use them either anthropogenic or atmospheric C. O two for them to develop those resources. In addition, we do know that we can technically.
Our U C O two in the shale reservoir. So we can we can increase the 10% recovery that we have today to something much higher than that.
So it's there is a I use for C O two in enhanced oil recovery.
Not as well recognized yet, but when the world realizes how much the transition will cost I do believe that this will become the preferred option to ensure that we can continue the production of low carbon fuel for those that need it.
Thank you and our next question today comes from Leo Mariani with MK I'm partners. Please go ahead.
Yeah.
I wanted to follow up a little bit on the thought around production here you guys talked about not really trying to grow the <unk>.
Oil and gas production.
Next year I, certainly appreciate that but just wanted to kind of clarify on that point, you, obviously have pretty significant growth on oil and gas production. During the course of the year and 'twenty. Two so as you think about potential growth in 'twenty. Three are you more talking kind of exit to exit so sort of fourth quarter, 22% of fourth quarter, 'twenty, three where there won't be much growth because obviously if you were.
Flat year over year, I guess that would imply your volume to start dropping here and in 'twenty three.
Okay.
No. We were we were thinking that probably it would be year over year, and I'm, not saying that there wouldn't be some growth. We we don't intend to grow it if growth is an outcome and it would probably somewhere be somewhere in the neighborhood of 1% or less so.
So it's not our intention to grow it but if we have more wells like Richard just talked about and there will be growth from our assets, but it's not it's not our desire to grow it in three.
3% to 5%, it's not that the growth is not the target its to develop the best wells in the best possible way that that delivers growth and that's good.
Thank you and ladies and gentlemen in 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 would just like to thank you all for your participation today and thanks again to to Jeff as he makes this his final call.
Thank you Ma'am. This concludes today's conference call. Thank you all for attending today's presentation.
Now disconnect your lines and have a wonderful day.
Oh.