Q1 2025 Occidental Petroleum Corp Earnings Call
Speaker Change: Hello and welcome to Occidental's first quarter 2025 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question, you may press star and one on your touch-turned-zone [inaudible]
Speaker Change: To enjoy your question, please press star, Ben Du Please note, this event is being recorded. I would now like to turn the conference over to Jordan Tanner, Vice President of Investor Relations. Please go ahead.
Jordan Tanner: Thank you, MJ. Good afternoon, everyone, and thank you for participating in Occidental's Sports Quarter, 2025, Earnings Conference Call.
Speaker Change: On the call with us today are Vicki Hollub, President and Chief Executive Officer.
Sunil Mathew: Sunil Mathew, Senior Vice President, and Chief Financial Officer, Richard Jackson, President Operations, U.S. Onshore Resources, and Carbon Management, and Ken Dillon, Senior Vice President, and President International Oil and Gas Operations.
Sunil Mathew: This afternoon, we will refer to slides available on the Investors section of our website. The presentation includes a cautionary statement on slide 2 regarding forward-looking statements that will be made on the call this afternoon.
Sunil Mathew: Reconciliation to the nearest corresponding gap measure can be found in the schedules to our earnings release and on our website. I'll now turn the call over to Vicki.
Thank you, Jordan, and good afternoon, everyone.
Vicki Hollub: I'll begin today by highlighting our first quarter performance in which all three segments delivered strong results [inaudible]
Sunil Mathew: Then I'll detail some promising new developments taking shape in Amon, recent debt reduction progress, and how we are approaching activity levels in a macro environment with heightened volatility and uncertainty.
Sunil Mathew: Our teams once again delivered outstanding performance across the portfolio, generating $3 billion in operating cash flow before working capital in the first quarter, while handling challenges from weather and seasonality.
Sunil Mathew: Our only gas business produced at just over 1.39 million B.O.E. per day. That's at the midpoint of our production guidance.
Sunil Mathew: Our Domestical and Gas Operating Cost of $9.5 per VUE came in substantially below our initial expectations.
Sunil Mathew: These results reflect the team's relentless pursuit of efficiency, cost management, and safe operations.
Sunil Mathew: Our 2025 development activities are progressing well alongside the operational excellence and innovation initiatives we discussed last quarter.
Sunil Mathew: Already we are seeing meaningful advancements in one of our key focus areas.
that's efficiency-driven, well-cost reductions.
Sunil Mathew: In a Permian, enhanced well-designed since strong execution have resulted in a 15% improvement in drilling duration per well versus last year, with particularly notable performance in the Delaware Basin.
Sunil Mathew: These achievements, along with more efficient completions and paddialization, have reduced our Permian Uncomventional Well-Calls by more than 10% compared to last year, already suppressing the 5-7% target we outlined just a few months ago.
Sunil Mathew: The drilling efficiency gains give us the confidence to drop two drilling rigs from our Delaware Basin program this year. Thanks to accelerated cycle times and improved time-to-market, we expect to bring more wells online and with slightly increased production, even with this reduced rig count.
Sunil Mathew: As outlined during our last call, we expect a company-lying production to grow from the first quarter through to the second half of the year.
Sunil Mathew: Growth will primarily be driven by the completion of turnarounds in the Middle East, as well as a variety of activities planned in the Gulf of America.
Sunil Mathew: Steady Onshore Development should also be a significant driver and will more than offset volumes associated with recent divestitures.
Sunil Mathew: Turning to Oman, I'm pleased to share that we are in advanced negotiations with the Oman government to extend the current law 53 contract by 15 years to 2050.
Sunil Mathew: Disagreement is aimed to deliver significant value to all stakeholders while closely supporting Amon's National Objectives.
Sunil Mathew: Fox 53 includes the MacKiesna Field, already recognized as a world-class theme flood.
Sunil Mathew: The proposed expansion would cover all reservoirs, including both low decline enhanced soil recovery and primary production across stacked pay formations.
Sunil Mathew: We see the potential to unlock more than 800 million gross barrels of additional resources that offer competitive returns.
Sunil Mathew: While final negotiations and a formal agreement are still pending, we believe this extension will enhance Oxy's cash flow beginning in 2025.
Sunil Mathew: We're proud of the deep roots, strong relationships, and mutually beneficial partnerships we've built in Oman over the past several decades.
Sunil Mathew: These partnerships have been central to our shared success, including recent exploration achievements, and that momentum continues to build. In North O'Mon, we recently made a significant gas and condensate discovery with estimated resources in place exceeding 250 million barrels of oil equivalent.
Sunil Mathew: While it is still early days with appraisal and developmental plans under evaluation, the resources is advantageously located in your existing infrastructure.
Sunil Mathew: Opticum's performance also exceeded expectations, delivering $215 million on an adjusted basis.
Sunil Mathew: The business overcame several operational challenges associated with winter weather, which impacted production and increased raw material cost for ethylene and power.
Sunil Mathew: Looking ahead, we expect OxyChem to continue extending its market leadership as a local cost operator.
Sunil Mathew: Our midstream and marketing business significantly outperformed the high end of our guidance range for the first quarter. Results were driven by strong gas marketing optimization in the Permian, where our teams captured value during a period in March of heightened third-party midstream maintenance and regional pricing disparities.
Sunil Mathew: In addition, the midstream business benefited from a healthy market for sulfur produced at Alhosen, contributing further to our strong core of
Speaker Change: Thank you for watching. I'm your host, Sunil Mathew. We'll see you next time.
Sunil Mathew: While Stratus continues to advance toward commissioning a start-up in West Texas, we are pleased to be making commercial advancements in other parts of our Loan Carbon Portfolio
Sunil Mathew: In April , 1.5 signed a landmark 25 year carbon off-take agreement with CF Industries and its partners for their planned low carbon ammonia facility in Louisiana.
Sunil Mathew: This agreement supports the transportation and geologic storage of approximately 2.3 million metric tons of carbon dioxide annually at our Pelican Hub.
Sunil Mathew: Agreements like this highlight oxy's unique capabilities and demonstrate the growing demand for large-scale carbon management solutions to support major investments in American manufacturing and creation of jobs.
Sunil Mathew: Importantly, this contract does not require near-term capital expenditures, and fits squarely within our disciplined growth strategy in low-carbon ventures.
Sunil Mathew: Our first quarter results continue to demonstrate how the quality of assets the talent of our teams and our culture of innovation serve as catalyst for strong financial results and provided solid foundation for free cash flow generation.
Sunil Mathew: Turning now to our deleverging progress, our cash flow priorities aim to position the company for long term success.
Sunil Mathew: That reduction remains a key focus, and we are committed to strengthening our financial position to support a more meaningful return of capital to common shareholders across the commodity cycles.
Sunil Mathew: In the meantime, we believe equity holders will benefit from the rebalancing of enterprise value into common equity through steady debt reduction.
Sunil Mathew: And we're making significant and steady progress. Here today we've retired $2.3 billion in debt with cash sourced from non-core oil and gas detestitures, common warrant proceeds, and organic cash flow.
Sunil Mathew: Over the past ten months, we've repaid a total of $6.8 billion, producing annual interest expense by $370 million. All 2025 maturity have been retired, providing us with a more comfortable runway over the next 14 months.
Sunil Mathew: As we evaluate options to further accelerate the leveraging, including potential we will remain dedicated to this disciplined execution and long-term value creation.
Sunil Mathew: Now I'd like to briefly address the current market environment. Uncertainty around demand, policy, and supply is creating headwinds for the sector and increasing commodity price volatility. From tech trade and tariffs to the return of OPEC plus volumes, all markets are under pressure from multiple fronts.
Sunil Mathew: As operators, we cannot control the macro, but we can control how we respond [inaudible]
Sunil Mathew: We're taking proactive steps in response to the current environment to enhance this year's program.
Sunil Mathew: The Permian Rig Reductions are complemented by projects in timing optimizations across the portfolio, including the Gulf of America. Together, these actions have enabled us to lower capital guidance for the year by $200 million.
Sunil Mathew: We're also executing significant cost actions with $150 million in estimated 2025 off-ex savings.
Sunil Mathew: These steps will strengthen margins and enhance financial resilience with minimal impact on this year's production.
Thank you for watching. Bye.
Sunil Mathew: We are closely monitoring the evolving macro backdrop and remains ready to take additional action if needed. We believe that the diversity of our portfolio and flexibility of our development programs position us well to respond quickly to changing conditions.
Sunil Mathew: If commodity prices weaken meaningfully, we are prepared to skill back activity and manage cost prudently, preserving value through the cycle just as we did in 2020.
Sunil Mathew: We are measured in making large-scale adjustments to activity levels for two key reasons.
Sunil Mathew: First, our high quality, low breakeven inventory, and our current development programs, and second, the proven benefits of sustaining long-term operational efficiencies
Sunil Mathew: Many of the significant capital efficiency gains achieved in recent years stemmed from maintaining steady development programs with consistent reg lines and fractures. Disruptions to that continuity can take months, and in some cases longer to fully recover.
Sunil Mathew: As I highlighted today, maintaining steady operations continues to draw in materials, capital efficiency improvements, which remain the most durable and impactful form of CapEx reduction.
Sunil Mathew: Our focus is not solely on maximizing free cash flow in 2025, but on sustaining strong cash flow generation potential over the next several years and for observing value. At OC we are approaching this environment with discernment and discipline. We are approaching this environment with discernment and discipline.
Sunil Mathew: Our focus remains on protecting and compounding value across cycles, not over reacting to volatility, but positioning through it.
Sunil Mathew: I'll then hand the call over to Sunil to review our financial performance and discuss the enhanced guidance in more detail.
Sunil Mathew: Thank you, Vicki. In the first quarter of 2025, we generated an Adjuster Profit of 87 cents per
Sunil Mathew: The difference between adjusted and reported profit was largely driven by the market impact of derivatives in our marketing business. [inaudible]
Sunil Mathew: During the first quarter, strong operational execution enabled us to generate approximately $1.2 billion of free cash flow before working capital and we exited the first quarter with $2.6 billion of unrestricted cash.
Sunil Mathew: We are the negative working capital change, which is typical for the first quarter as a result of semi-annual interest payments on our debt, annual property tax payments and payments under compensation plans.
Sunil Mathew: Additionally, the first quarter included $350 million dollars of 2024 tax payment as part of the Federal Disaster Relief Program following Hurricane Bill.
Sunil Mathew: Though we expect the working capital change to partially reverse over the remainder of this year, the second quarter will also include another $110 million tax payment associated with the same program in the end of the year.
Vicki Hollub: As Vicki highlighted, all three segments deliver strong results and exceeded our original expectations.
Vicki Hollub: The outlook for the remainder of the year as a positive trajectory and the operational strength demonstrated this quarter provides a solid foundation for the improved corporate guidance which I will turn to now.
Vicki Hollub: Looking head to the second quarter, the midpoint of total company production is expected to modestly increase compared to the first quarter annual low of 1.39 million B.O.E. per day.
Vicki Hollub: The production increase is driven from several sources, including Permian Activity Levels, the completion of annual plant maintenance at Dolphin, and the return of Gulf of America production following seasonal maintenance projects.
Vicki Hollub: This growth more than offsets a turnaround in allowsson currently planned in the second quarter and the impact from first quarter
Vicki Hollub: Though we revised Kulia Gulf of America production guidance down, due to some discretionary capital optimization, including deferring one development well into 2026, it is fully offset by Burmian Time-To-Market-Riven Acceleration from Realized Efficiencies.
Vicki Hollub: We are maintaining our total company production guidance for the year, though the modified production mix is expected to slightly reduce annual total company oil cut.
Vicki Hollub: The shift in production mix resulting from the previously referenced divestitures along with maintenance activities in the Gulf of America are key factors behind the elevated domestic operating expense per VOE guidance for the second quarter.
Vicki Hollub: That said, as Vicki noted earlier, we are reducing our full year operating cost guidance from $9 to $8.65 per BoE, reflecting our commitment to driving operational efficiency.
Vicki Hollub: We had a strong start to 2025 in our chemical business and overcame some short term operational impacts limited to the first quarter.
Vicki Hollub: While uncertainty remains around global trade, we anticipate modest domestic demand growth in the caustic and BVC markets through the 2nd and 3rd quarters.
Vicki Hollub: We also expect some rationalization of domestic capacity in the second half of the year that should help rebalance some of the recent supply growth in the domestic market.
Vicki Hollub: As Vicki highlighted, mid-stream teams are well positioned to capitalize on gas marketing opportunities Thank you.
Vicki Hollub: While we do not expect these market conditions to persist, the results underscore the strength and reliability of our capabilities during periods of war with tool key.
Vicki Hollub: Looking head to the second quarter, we expect mainstream earnings to decrease as a result of declining commodity prices and the associated timing of delivery and cargo sales
Vicki Hollub: However, this will be offset by market adjustments which is a byproduct of our strategy to preserve margins in oil marketing.
Vicki Hollub: Driven by a confidence in maintaining realized efficiency gains, we are elected to release a Delaware Basin Brick in April and plan to release another in early Q3.
Vicki Hollub: Through continued optimization of infrastructure and operational spending across our domestic assets, we have reduced our capital guidance range by $200 million without impacting total company production. Thank you.
Vicki Hollub: Combined with the $150 million in projected operating cost reductions, this is expected to deliver a positive cash impact of $350 million in 2025.
Speaker Change: Before I close, I would like to expand briefly on Vicki's comments regarding how we are positioning the company financially.
Speaker Change: Death reduction remains a core priority, as demonstrated by a consistent pace of repayments and the diversified sources of capital contributing to that progress.
Speaker Change: We were pleased with the results of our March program to temporarily reduce the comment warrant exercise price and initiative that allowed us to retire $900 million of debt in April .
Speaker Change: With all common warrants expiring in 2027, this modest acceleration, meaningfully announced our de-leveraging trajectory.
Vicki Hollub: As Vicki mentioned, we continue to actively evaluate diverse teacher opportunities that align with our strategic priorities and enhance long-term value while maintaining a disciplined approach to execution.
Vicki Hollub: We have successfully navigated through prior cycles of volatility and we are prepared to do so again. All 20-25 time majorities have been retired, leaving us well positioned with minimal debt obligations over the next 14 months.
Vicki Hollub: Our short-cycle US onshore portfolio gives us tremendous capital flexibility and our detailed scenario planning will enable us to act decisively while preserving long-term value.
Vicki Hollub: Importantly, we continue to be excited about the strong rate of change story unfolding across our midstream and chemical segments, which are less exposed to commodity price risk.
Vicki Hollub: which will deliver a pre-tax cash flow uplift of approximately $200 million in 2025 and $400 million annually beginning in 2026.
Vicki Hollub: In the Chemical Business, the Patiground Modernization and Expansion Project will provide a significant uplift in earnings over the next several years.
when combined with the anticipated roll-off of this capital investment.
Vicki Hollub: The Completion of Stratos, and the reduction in interest expense as we pay down debt.
Vicki Hollub: We are expecting approximately $1 billion in incremental pre-tax free cash flow from non-oil and gas sources in 2026, with even further expansion in 2027
Vicki Hollub: As we have outlined on today's call, we are entering the remainder of the year with strong operational momentum, a strengthened financial position, and a flexible operating framework.
Vicki Hollub: These advantages give us confidence in our ability to deliver consistent results, preserve value through commodity cycles, and drive long term shareholder returns. I will now turn the call back over to Vicki.
Thank you, Sunil
Vicki Hollub: As we move forward, we remain focused on strengthening the ballot sheet, increasing returns to shareholders, and contributing our significant resource base to advancing US energy leadership.
Vicki Hollub: Above all, we're building a high-performing, resilient business to deliver strong results across commodity cycles through disciplined capital allocation, operational excellence, and an unrelenting focus on value creation.
Vicki Hollub: With that, we'll now open the call for questions. As Jordan mentioned, Richard Jackson and Kendillin are here with us today for the Q&A session.
Vicki Hollub: We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tron phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question at any time, please press star
Vicki Hollub: Please submit questions to one primary question and one follow-up. If you have further questions, you may re-enter the question queue. At this time, we will pause momentarily to assemble a roster.
. . .
Speaker Change: Today's first question comes from Devon McDermott with Morgan Stanley . Please go ahead.
Hey, good afternoon. Thanks for taking my questions.
Speaker Change: You did a good job describing the Permian rate cuts, but you talk a little bit more about the other buckets, infrastructure, Gulf of America, and then OptX, I think, is in reference to Enhanced Oil Recovery, and as part of that, are there any impacts on 2026 production or capital from these changes that we should be thinking about?
Richard Jackson: Yeah, there's a there's a mix of both of those and we'll start with you, Richard, for the Permian.
Richard Jackson: Yeah, great. Thanks, Devin. Appreciate the opportunity to talk through this. You know, teams have spent a lot of time and continue to do it. So really every year, thinking through our programs and the different scenarios. Like Vicki said, you know, focused on, of course, near term free cashflow, but important to us is maintaining.
Richard Jackson: These cost efficiencies are these operational efficiencies for longer term cash flow and so as we look through that, you know, just kind of a decision framework from a US entrepreneur perspective that may be helpful, you know, continue to add, you know, cost efficiency. I think we shared certainly at the end of last year and then now in the first quarter continued year on year performance improvement across.
Well-Cost and Operating Expense [inaudible]
Richard Jackson: We look at our cost structure opportunities with supply chain and continue to look for opportunities there and I'm sure Ken and I can provide more cover there if interested.
Uh-oh.
Richard Jackson: We look at infrastructure like you mentioned in terms of capital facilities.
Richard Jackson: Often, and as we think about the Permian in particular, we're able to optimize that. These are multi-year projects that support our development, and we can optimize that, but we've also been able to find synergies, even in the middle of basin with our Oxy Rock assets.
Richard Jackson: and then, you know, we get the op-ax. And like you mentioned, op-ax for us, especially where with our enhanced over-covering business provides.
Richard Jackson: So, for us, from an OPEX perspective, we look at things like direct and direct.
Coss, like CO2. [inaudible]
Richard Jackson: Volumes and Price and our teams do a great job of optimizing around that
Richard Jackson: and then, you know, downhole maintenance is a big one for us. This is a really doing well service work.
Richard Jackson: and it really starts from, you know, our operating teams having a great...
Richard Jackson: Approach to really that operating production system. You know, the thing we wanted to point out, we've had a great failure reduction. So you think about beam pumps in our operations. If we go back to 2023, we've had a 20% reduction.
Richard Jackson: in the failure of beam pumps. Well, what that means is you don't have to deploy rigs and services to repair down wells. And so our downhole maintenance rigs, we've dropped over 30 over the last two years. And so...
Richard Jackson: As we think about both the capital and the op-ex, we do see these as sustainable as we go into next year and it's just really great work over the last few years from our teams to help deliver that capability. We're going to be able to deliver that capability.
numbers.
Speaker Change: Great. Before we go to Sunil to answer that I forgot Devin to hand it over to Ken who has some information you can share with you about the Gulf of America.
Betty: Projects that we had. Good morning, Ben. As Neil mentioned, we rescheduled.
Some of our activities associated with the medium-term projects.
Betty: Spending 100 million less this year. No funds have been diverted from drilling and completion. So this gives us a chance to further optimize the design of the water floods and maybe also benefit from deflation that we're starting to see.
Betty: Given it's a water flood, mainly we have some potential to play catch up later without impacting the overall project .
Betty: We also defer the platform well from this year and to next year that will give us a chance to optimize the whole platform program next year and also benefit from the
Speaker Change: Hi, David. So regarding a question around the cash flow in the collection, so if you refer to slide number 14, so I'll start with the chemical segment first.
Betty: So as we have said, the peak spending for the battleground project is 2025, it's around 600 million. Next year, it's expected to come down to 300 million. So as you look at 2026, that is a 300 million saving on the Capix site.
Betty: with one of the project starts. So that gets you to the 460 million.
and on the midstream side...
Betty: that are expiring this year. So, one happens in end of Q, Q1. [inaudible]
The next one is end of Q3.
Betty: and then with the role of a Strato Spending, that's another 250 million. So,
Betty: So, next year, within the midstream segment, you're looking at 450 million of cash flow improvement.
Betty: and the last one is on the interest reductions as we pay down debt.
Betty: So what we have assumed is all debt that is maturing in 26 and 27. We just paid down as it matches. Now that was just the assumption that we used to come up with this in cash flow from our interest expenses.
Betty: So that gets you to the 1 billion. And for 2027, you get the benefit of the full 600 million CapEx reduction from the Batman Project. You get the uplift on operating cash flow.
Betty: Once the project is fully online and you have the interest payment reductions for both 26 and 27.
Great. Thanks so much. Appreciate all the details.
Speaker Change: The next question comes from Doug Leggate with Wolf Research. Please go ahead.
Thank you.
Doug Luggett: Thanks, everybody. Thanks for all the information today. Vicki, I wanted to come back on my first question on one of the comments you made, and I want to make sure I'm not miss quoting here, but
Doug Luggett: You said we're going to accelerate the leveraging and look at all the options including potential
Thank you.
Sunil Mathew: You obviously, your damp maturity profile as Sunil is pointed out is...
relatively shallow now of the next couple of years.
Sunil Mathew: So the implication is that you would put cash on balance sheet, which obviously reduces net debt. I'm just curious if you're going to elaborate on what you're thinking in terms of disposal and whether with the midstream ramp up, Wes might make it onto that list.
Sunil Mathew: Well, we can't really say exactly what we're going to do but we can say with confidence that we will achieve the debt reduction that we have in the Turing and in 2026.
Sunil Mathew: We would like to get that at least partially paid off this year [inaudible]
But we know we can achieve that. [inaudible]
Sunil Mathew: Certainly by the maturity, and as we've done with all the other...
Sunil Mathew: Death that we've paid off thus far, accelerating and it would be better for us.
Sunil Mathew: in our view. But we still want to keep a healthy balance of cash on the balance sheet, but pay the maturities as we can. So, growing cash on the balance sheet isn't in the near term plan, but after we pay off 2026 maturity, that could be a possibility.
Speaker Change: So that's really helpful. My follow-up is again related to free cash flow, but it really kicks off with the level of spending you have currently. A lot of the projects has seen you point it out.
particularly battleground and but also dark.
Speaker Change: is rolling down next year. And I guess my question is, would you anticipate replacing that capital with other projects, such as Mahaisna, for example, or the UN visits the absolute level spending moving to a lower normalized level once these major projects are done? [inaudible]
Speaker Change: Yeah, we expect that the capital will be lower next year. At what level we haven't determined that yet but we wouldn't replace that all of those, the cost of those projects that were completing with the additional capital. [inaudible]
Speaker Change: Sorry, clear. Thanks very much. I did appreciate it.
All right. Thank you, Doug.
Speaker Change: The next question is from Arun Jayaram, with JP Morgan. Please go ahead.
Arun Jayaram: Yeah, good afternoon. I wanted to get your thoughts, maybe a follow-up to Doug's question on
Speaker Change: Vicki, at this point in the cycle, do you think it would? [inaudible]
Arun Jayaram: Be a better time to sell, call it short cycle assets in this type of environment, or would you lean towards thinking about more long cycle assets within the portfolio? Just trying to get a sense of how you evaluate the vestitures at this point in the cycle.
Arun Jayaram: The good thing is we have several options and so it's always value-based for us.
Arun Jayaram: There are still companies wanting to get into the Permian, no matter what the cycle will.
Arun Jayaram: because most of us have a long-term view that old prices over time are going to...
Arun Jayaram: We cover probably not at the level we want this year or next year, but there's going to come a time when prices especially given. [inaudible]
Arun Jayaram: The lack of exploration success around the world and the fact that the largest 20 reservoirs in the world were discovered before 2000, so we think that there's going to come a time when
Arun Jayaram: Oil Resources are not going to be easily found or replaced.
Speaker Change: Great, and maybe just to follow up, shifting gears is you highlighted some new value enhancement opportunities in Oman as maybe you could kind of unpack kind of the opportunity set in Block 53 and North Oman Discovery announced.
Yeah, I say we're very excited about that and
Sunil Mathew: Ken was your snail, who's going to take that? Sunil's going to take that. Good deal. Yeah, so maybe I'll start and then hand it over to Ken. No, definitely we are very excited about these opportunities and, you know, Vicki did mention about cash flow improvement. Now, at this point, although we cannot provide any guidance on any specific operational financial metric.
Sunil Mathew: I mean, all we can say is that we expect an uplift in cash flow compared to where we are today.
Sunil Mathew: while also being resilient at lower oil price, you know, being a PSC.
So we are excited about that.
Sunil Mathew: And the other thing is we disclose the production by country and on totally international operating costs. So you should see flow through once we sign the contract in terms of what uplift us.
Sunil Mathew: So, definitely very excited about the extension, the Block 53 extension and the Oman are not gas discoveries. So, now I'll let Ken talk about why we are so excited about this.
Ken Dillon: Thanks, Neil. As you can see, we're having a great year in Oman. The vision of the Minister of Energy is to unshackle the resources of the country and we're delighted to play our part in this vision. Log 53 is very large infantry potential as you can see from the slide and we know it well.
Ken Dillon: Today we've produced over 640 million barrels and currently operate 3,500 wells in the block with an incredibly strong operational team.
Vicki Hollub: As Vicki said, we see opportunities in all aspects, low decline, ER projects as well as conventional and exploration.
Vicki Hollub: On Expans, the same story as resources, our artificial lift performance has improved so significantly that our workover rig cost per barrel is reduced by 50% over the same period.
Vicki Hollub: Again, we'd like to thank the government of Amman, the energy minister, his team for all their efforts in making this happen on Paquilla.
Vicki Hollub: Um... I'm going to stop sharing my screen. I'm going to stop sharing my screen.
Vicki Hollub: It's really great news, our exploration team as well as being really skillful, they're also very persistent and they've been rewarded with success here.
You know, Vicki described the discovery. We're now exporting.
Vicki Hollub: and Selling, and getting early reservoir data, exploration also with another small discovery on the same block, which is also on-stream and being assessed. Both were brought online in less than 13 weeks.
Vicki Hollub: In Block 9, where we had record production last year after 40 years, we continue with our CO2 EWAR pilot. We're getting very encouraging results with no breakthrough, so we continue to be very positive about the project, so overall we drink water for a man.
Yes, I'm on it, the country that keeps here, Vinny.
All right. Thanks, Vicki and Tim.
Thank you.
Speaker Change: The next question comes from Neil Mehta with Goldman Sachs. Please go ahead.
Neil Mehta: Yeah, Vicki, team, thanks so much for taking the time. Just want to get your perspective on the low carbon ventures business. You get some important milestones coming up as it relates to straddles here and just help us unpack how you're thinking about de-risking those.
Speaker Change: How the changing policy environment could affect the potential of returns associated with at least phase one of the project.
Speaker Change: Yeah, I think that it's very exciting, and Richard can give more detail, but with the policy, there's...
Speaker Change: There's such a strong voluntary compliance market and so many corporations that have committed to become neutral that in the interim as we're building our DAC business toward a business that will use CO2 for enhanced all recovery to get more.
Speaker Change: Oil out of the existing reservoirs that we have here in the United States to help extend our energy and dependence here as we're building towards that the compliance voluntary compliance market for carbon reduction credits will continue I believe to help us on.
to build the bridge between now and making the EOR.
Realizations happen over time.
Speaker Change: and Richard, do you have more detail? Yeah, just maybe a couple of points to add to Vicki's. I think sort of trajectory, a couple of things that we are excited about. One is our R&D progress, I think specific with
David Deckelbaum,
Speaker Change: Vision coming out of our team from carbon engineering. So when we look at that, we disclose as we went from phase one to phase two, some of the changes in the reduction of process components and the savings associated with that, that continues. So we're excited about that piece of it.
The the other component is we think about schedules is
Speaker Change: You know, the returns have to be competitive, so we've looked at that.
Speaker Change: and how to do that, derisking through R&D is one important component of that, but the operations with Stratos coming online the second half of this year, and then, you know, the market support that Vicki describes are all important decision criteria for us to FID going forward. I would say partnerships, partnerships, the other piece of that, and so, you know, we look forward as we create the market and the cost down and the development opportunity to have those development partners.
Speaker Change: with us. So, you know, that really goes across all of our low carbon, you know, efforts.
Speaker Change: And the final thing I would say, we just as Vicki mentioned with you are continue to see all of these technology choices were to fit our integrated value. And so, you know, we see it not just in the tech development, but also our cost as a core part of our oxy business. [inaudible]
Speaker Change: Thanks, Richard. Thanks, Vicki. And then, Vicki, the follow-up is about your thoughts on the oil mat grow and you're always willing to talk about how you think about using moving pieces.
Speaker Change: including US oil supplies. So just get to your latest, latest thoughts a couple of years ago, I know.
Speaker Change: You guys were pretty constructive on the long-term for oil because of the under-investment in exploration, but obviously a lot of moving pieces here now as we think about this year. So near-term, long-term and thoughts on US supply.
Speaker Change: Yeah, as you know, that most of the shell basins now have either plateaued or starting to decline, except for the Permian, and the Permian was really making up for the decline of the other basins, but the Permian I believe is if companies continue to...
Talk about dropping activity levels. I think the Permian could.
Speaker Change: Plato sooner than we expected and we had expected the Permian to continue growth through 2027.
Speaker Change: and we had expected that US production overall would peak between 2027 and 2030, it's looking like with the current headwinds, or at least...
Speaker Change: Volatility and uncertainty around pricing and the economy and recessions and all of that. It's looking like that peak could come sooner, so I'm thinking right now the the Permian
Speaker Change: As if it grows at all through the rest of the year, it's going to be very little little.
Thank you, Vicki.
Speaker Change: The next question is from Gina and Salisbury with Bank of America. Please go ahead.
Speaker Change: Hi, thank you for the walkthrough through the free cash flow inflection in response to an earlier question. Can you just clarify if there's been any additional midstream recontracting or chemical project benefits added or if it was more of a reframing of the overall picture, but those specific components are unchanged.
Speaker Change: . . . .
Speaker Change: That's right, nothing has changed. These were the two oil transportation contracts that were expiring in Q1 and Q3, which we had outlined earlier and the other benefittos on the Battleground Expansion Project. So there's nothing new.
Speaker Change: Okay, great, thank you. And then I believe, you know, you kind of talked about one component of the lower operating costs coming from EOR. Can you give any more color on how you expect this to change the relative mix of EOR and the portfolio going forward if at all?
Speaker Change: Yeah, perfect. Yeah, again, these sort of efficiencies we expect to really carry through more from a cost structure basis. Again, we didn't change production as part of this.
Speaker Change: and so it's things like continuing to work on operations efficiency, really optimizing CO2 through our reservoirs and how we do that and so if anything it's expanding margins and continuing to improve the competitiveness of your own portfolio.
Okay, great. Thank you.
Speaker Change: The next question is from Paul Cheng with Scotiabank. Please go ahead
Paul Cheng: Hi, good morning. Vicki, just curious that, if we're looking out into 2026 and 27,
Speaker Change: on your momentum of this year co-saving. What's the potential that we could expect for those two years and how big are the opportunities set that we may be talking with that you see the most opportunities set? [inaudible]
Speaker Change: The same question is that, I mean maybe with your comment earlier.
Speaker Change: Talking about, you think the U.S. could see production may be picked out somewhere between 2027-2030 or maybe even a bit earlier if people continue to cut back
Speaker Change: From a portfolio standpoint, should we assume that hoxy at some point over the next several years would like to substantially increase your activity level outside the US then? And if that's the case, where you see the most opportunities. Thank you.
Okay, I'll
Speaker Change: I'll answer the second question first and that is that I just want to go back and share with you some of what we've done to get our portfolio to where it is today, going way back in time about 10 years ago.
Speaker Change: We were only producing about 650,000 BUE per day. Now our production is 1.39 million barrels per day.
Speaker Change: In 2015, 50 percent of our production was from international locations. Today, 83 percent is in the United States. We exited several countries, but stayed only in the countries that are business focused and where we can see significant upside.
Speaker Change: In 2015, our oil and gas resources totaled 8 billion with 2.2 billion of that improved, but today we have 14 billion of total resources, all resources with 4.6 in approved reserves.
Speaker Change: and in 2015 only 16% of our approved reserves and 25% of our total resources were shaled, the rest was conventional.
Speaker Change: and today 60% of our approved reserves and 55% of our teleresources are shale. So what we've done
Speaker Change: over the past 10 years is we've taken our portfolio and expanded significantly in the shell. So the wing we have.
Speaker Change: more than a decade, maybe up to 15 years of development in the shell. But what people don't usually get is that we also have...
Speaker Change: In addition to the Shell, we have about 6 billion identified today of resources and conventional areas around our country. I'm in our company. So right now...
Speaker Change: And I believe that $6 billion of additional resources is light when you consider the fact that we're doing AI work in the Gulf of America. We're also doing...
Speaker Change: Some work around water flooding, doing additional enhanced over-covering air, production optimizations, so the Gulf of America is going to add to the 6 billion of conventional that we have.
and also in Algeria having just...
obtained the largest onshore 3D seismic survey in the United States.
Ken Dillon: We expect that we'll get out of that upside that we can continue to add to this $6 billion and then Elmont, as Ken mentioned, where he was talking about the gas block and what we discovered there. That could be bigger. There could be where you find gas. We'll get out of here.
Ken Dillon: and you see structures around it. That means those other structures could have gas, same with the old discovery.
Ken Dillon: and we're continuing to make progress in the block 9 and 27 where we have previously been working. So we have growth there. So when you look at those three areas and the growth potential that we could have,
Ken Dillon: We just haven't done the appraisal work yet that we need to do, but we are almost...
Ken Dillon: going to be equivalent from a conventional resource perspective as we are from a Shell perspective.
Ken Dillon: Technology that we're developing is going to help us extract CO2 that could then enable us to do enhanced or recovery, and not only the reservoirs in the U.S., but the reservoirs in Amon, Algeria, and potentially...
and Abu Dhabi as well.
Ken Dillon: and we're getting close to rounding the corner with our debt reduction.
Ken Dillon: I believe that is going to unlock the a lot more value for our shareholders than most people have anticipated. So we're pretty excited about that and ready to keep going with it.
Speaker Change: Thank you. The next question comes from Leo Mariani with Roth. Please go ahead.
Leo Mariani: Hi, thanks. I just wanted to follow up on some of the CAPEX and OPEX reductions here in 25. So I know you guys are...
Speaker Change: You know, dropping a couple of rigs and sounds like, you know, cutting, you know, some EOR
Leo Mariani: To understand, there's not really a near-term production impact, but-
Leo Mariani: If you look out over the next year or two, do you see some modest production impact from some of those cuts at this point, or do you think you can kind of make that up with further efficiencies over time?
Thank you. Bye.
Leo Mariani: Yeah, we made the decisions that we made because we absolutely did not want to sacrifice production in the outer years, 26 and 27 basically because that's cash flow that could be used to create additional value. So we're looking for. Thank you all for your time.
Leo Mariani: for High Return Cash Flow, and so those are the decisions that were made.
Richard Jackson: Can support that and so we can first don't let me get off track here but let me got a Richard on some of the [inaudible]
Richard Jackson: The Optics, Specifics, and then I want to go to Ken after that with supply chain who could address some of the cost reductions that certainly are going to help us without any impact on production.
Speaker Change: Thanks, Vicki. Yeah, I'll just add quickly. I mean, again, both, you know, I mentioned more on the up, up experts on capital, again, efficiency related.
Speaker Change: You know, this two-rig drop was really an acceleration. So if you think about our program during the year we were able to compress that drilling efficiencies we noted I think in the highlights slide.
Speaker Change: that added 15 net wells online for the year and over 30 rig releases and so that enabled us to do more or less, we're able to drop the rigs. The other part of the CAPEX was really this facilities and infrastructure, again optimizing that over multi years, the way we have scale and our operations provides that capability and then the wanted bit on that, you know, great opportunity came out of the crown
Rock and our legacy Midland. [inaudible]
Speaker Change: Development, where we were able to utilize one of their existing central facilities without building a new one for for that operation. So, you know, that was several million dollars. So it's all things like that that are really optimizing without that production or cash flow, you know, degradation. But definitely want to the other important piece of this is supply chain. So I want to let Ken. Yeah.
Discuss that.
Ken Dillon: We're working with our Tier 1 relationship companies who have scale and who also understand the market. 15 companies make up 40% of our spend domestically.
Ken Dillon: At the same time as we're doing that, we're also receiving offers of reductions
Ken Dillon: from viable vendors both domestically and internationally and something we've not heard for quite a few years. There's a lot of people are talking about market share rather than margin in this environment and the benefits of it. [inaudible]
Ken Dillon: So we see benefits, you know, going forward into next year related to deflation and managing services going forward.
Speaker Change: Appreciate that. Why don't you switch gears to the Chemicals business a bit here.
Ken Dillon: Just kind of looking at your first tap, you know, Outlook .
Ken Dillon: for 25, you guys are expecting around, you know, 435 million or so.
of operating income there, your full year guides, 900.
Speaker Change: to a billion, just wanted to kind of square the circle there. For be thinking that maybe Kim is going to be a little bit towards the lower end, kind of based on where we are and some of the economic uncertainty at this point, but maybe you can just provide a little bit more kind of color on how you're thinking about chemicals and the outlook going forward. [inaudible]
Thanks for tuning in.
Speaker Change: So maybe I'll first start with the market dynamics and then get your questions. So if in terms of demand starting with PVC, we expect the domestic PVC demand to grow by around 4 to 5%
Speaker Change: International Economic Conditions in China is still challenging and the oversupply in China is weighing on the export market.
Speaker Change: and if you look at China's PVC exports, so it has grown significantly over the last few years. The export market share has grown from almost zero in 2020 to around 30% in 2024. So, these lower export prices also put downward pressure on domestic prices.
Speaker Change: and now shifting to the plastic side, domestic demand is expected to be quite similar to last year.
Speaker Change: and on the pricing side, the recent Gulf Coast expansions that came online in late 2024.
Speaker Change: is expected to maintain the pricing pressure, but the rationalization of domestic capacity which is targeted for the second half should help pre-balance the market and improve pricing.
Speaker Change: So if the rationalization happens earlier than what we have forecasted or the Chinese economy does better than market expectations, that will definitely help with the pricing. Now coming to your question around, you know, first second up was this first step. [inaudible]
Speaker Change: In Q1, we were impacted by several short term events, you know, the winter storm unplanned
Speaker Change: So in later part of Q2 and as we move into Q3 we expect to see improvements in demand and pricing as domestic and foreign producers continue to rationalize supply.
Speaker Change: also the recent drop in ethylene and natural gas price should also help with the earnings in the second half. So there is still quite a bit of uncertainty around how the demand and pricing will play out for the rest of the year, but there's also potential tailwinds from
Speaker Change: So currently we expect the full year income to be within the guidance range, but we should have more clarity after the second quarter. So we decided to wait for another quarter before making any adjustments to the full year guidance.
Speaker Change: Thank you. In the interest of time, this concludes our question and answer session. I would now like to turn the conference back over to Vicki Hollub for any closing remarks.
Vicki Hollub: Thank you all for your questions and for joining our call today. Have a great rest of your day. Thanks. Bye.
Vicki Hollub: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.