Earnings Call: Q1 2021

May 11, 2021

Good afternoon, and welcome to the Occidental's First Quarter 2021 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Jeff Alvarez, Vice President of Investor Relations. Please go ahead, sir. Thank you, Chuck. Good afternoon, everyone, and thank you for participating in Occidental's Q1 2021 conference call. On the call with us today are Vicki Hollub, President and Chief Executive Officer and Rob Peterson, Senior Vice President and Chief Financial Officer. This morning, 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 morning. I'll now turn the call over to Vicki. Vicki, please go ahead. Thank you, Jeff, and good afternoon, everyone. I'd like to start this morning by saying how pleased we are with our Q1 operational and financial performance. The momentum generated by our improved cost structure and capital intensity leadership was a catalyst for our strong results this quarter and is expected to continue to provide a solid foundation for free cash flow generation. This morning, I will cover our Q1 operational and performance and divestiture progress. Rob will cover our financial results and balance sheet improvement as well as our updated guidance, which includes an increase in guidance for Midstream and OxyChem's 2021 earnings. Our first quarter results are a perfect example of how our ability to consistently deliver strong operational performance has strengthened our financial position. In the Q1, we generated $1,600,000,000 of free cash flow, which is our highest level of quarterly free cash flow in a decade. We also closed almost $500,000,000 of divestitures, repaid $174,000,000 of debt and exited the quarter with approximately $2,300,000,000 of unrestricted cash. Our plan to stabilize 2021 production at our Q4 2020 exit rate is on track. We delivered 1st quarter production from continuing operations of over 1,100,000 BOE per day, with total company wide capital spending of only 5 $79,000,000 We're particularly proud of this achievement given the operational challenge posed by winter storm Yuri. Our domestic oil and gas operating costs of $7.20 per BOE continue to demonstrate the lasting impact of our cost reduction measures and includes about $83,000,000 of atypical costs related to the winter storm. I want to note that we have fully recovered from the with no lasting impact. Even with incurring storm related costs in the Q1, our full year domestic operating guidance has only increased by $0.10 per BOE, which represents a significantly smaller increase than the approximate $0.25 per BOE that the $83,000,000 in total OpEx and would have otherwise added. This is a significant achievement made possible by our teams continuously seeking efficiencies and finding innovative ways to safely and effectively lower costs. In the Q1, OxyChem benefited from robust PVC pricing and gradual strengthening in the caustic soda market. OxyChem's integration across multiple chlorine derivatives provides us with the ability to optimize our caustic soda production, while opportunistically adjusting our production mix to maximize margins. OxyChem's ability to adjust to rapidly changing market dynamics was invaluable during the downturn last year, We were able to provide critical products to the medical, pharmaceutical and disinfection markets to respond to COVID. Given the recent improvements in the chloro vinyl and caustic soda markets, we expect OxyChem to extend its track record as a market leader and consistent generator of free cash flow. Additionally, during winter storm Yuri, our team was able to safely protect our assets as well as provide essential products to our customers. Our team's effective response limited the storm's impact on facility maintenance costs to an immaterial amount. Midstream and marketing's outperformance compared to guidance in the Q1 was primarily driven by our ability to optimize as long haul gas transportation in the Rockies along with the timing impact of export sales. Following the increase in activity in the Q4, our oil and gas business continued to push the envelope with new efficiency gains as we seamlessly transitioned into the Q1. Our Permian teams outperformed expectations in the Q1 by setting new drilling records in New Mexico, the Texas Delaware and the Midland Basin, while also driving down costs. Our Q1 Permian achievements are especially impressive as we have now augmented the efficiencies of our Oxy Drilling Dynamics with remote directional drilling, an exciting innovation that allows the drill bit to be steered from a separate location. Being able to control and optimize our operations remotely and instantaneously apply shared expertise to similar activities as numerous advantages that we expect our operations to benefit from in the future. We also continue to achieve significant efficiency improvements in the Rockies where in the Our DJ drilling team reached our lowest average cost per foot in program history. I'd also like to highlight Oman for their best ever HES performance with no recordables in the Q1, while drilling the longest laterals in Oxy Oman history and achieving record drilling times. After a pause in the issuance of new drilling permits on federal land earlier this year, we have now started to see the process move forward again with the approval of new permits. We currently do not expect the permitting process to have an impact on our activity levels as we still plan to run an average of 11 rigs in the Permian this year and 2 in the Rockies. In late April, I testified before the U. S. Energy and Natural Resources Committee in support of lifting the federal leasing moratorium. As I told the committee, continued onshore oil and gas development means high paying jobs, immunity reinvestments and meeting energy and product needs during the transition to a low carbon economy. We look forward to working with Congress and the administration on ways to create clarity and short- and long term regulatory certainty. After we announced the sale of our Columbia onshore assets last year, we updated our divestiture plan to sell $2,000,000,000 to $3,000,000,000 of assets by the middle of this year. Our progress towards this target continues as we closed almost $500,000,000 of sales in the Q1. Post Columbia, we now have closed approximately $835,000,000 of divestitures and are well on our way to achieving our target, but we will continue to make the best value decisions by weighing the impact of future cash flows in our current environment versus the benefits of meeting a deadline or divestiture target. Looking back over the last year, I'm particularly proud of the accomplishments our teams have achieved and look forward to the opportunities that lie ahead. Not only have we optimized our portfolio, improved our balance sheet and continue to reduce costs. We've also created a pathway to achieve net 0 emissions. As we take our next steps toward achieving our future goals, including further balance sheet improvement, returning additional capital to shareholders And bringing our 1st commercial scale direct air capture plant online, we will continue to maintain our low cost, capital efficient, stable production base with a goal of maximizing free cash flow generation through capital discipline and margin preservation. Our cash flow priorities are structured with the aim of positioning our company for future success. While we are encouraged by the improving macro environment and are especially proud of our team's ability to maintain and sustain our production base. We will continue to improve our balance sheet until we reach to the point where our financial position will support a more meaningful return on capital and return of capital to our shareholders throughout the commodity cycle. I'll now hand the call over to Rob, who will walk you through our financial results for the Q1 and guidance for the remainder of the year. Thank you, Vicki. I want to echo Vicki's comments on our strong performance in the Q1. Our cash flow priorities illustrate the importance we We continue to place on capital discipline, free cash flow generation and balance sheet improvement. As we look ahead to the steps necessary to transition from our current to our medium term cash flow priorities, our Focus on balance sheet improvement will continue to influence our financial policies. Throughout 2020, which was one of the worst years of our industry as in Derder, We focused on deleveraging and continue to reduce debt in the Q1 of this year. We repaid approximately $9,600,000,000 of principal since August of 2019. More to come as we can complete our divestiture program combined with leveraging our ability to generate excess free cash flow and maintaining our commitment to capital discipline. On past calls, I've highlighted our preference for a viable path to return to an investment grade credit rating or allocating excess cash flow to our medium term priorities. Our credit ratings are based on several factors, including a certain level of debt, returning to investment grade in a mid cycle commodity price environment may include reducing debt to the mid-twenty $1,000,000,000 range. We are not here today, but we believe this goal is achievable given our potential to generate free cash flow. We repaid $174,000,000 of debt in the Q1 and have less than $225,000,000 of maturity to over the remainder of 2021. To generate cash from organic free cash flow, close our remaining divestitures, we have several options available to deploy at cash to improve our balance sheet. You have the option to call the 2022 floating rate notes prior to maturity and may at times allow our cash position to build until maturities come due. We have additional options available to address future maturities, which we are currently evaluating. We may also consider retiring $750,000,000 of notional interest rate swaps later this year for the fair value amount, which was approximately $665,000,000 at quarter end. This would improve cash flows by almost $50,000,000 per annum at the current curve. In the Q1, we announced an adjusted loss of $0.15 per share and a reported loss of $0.36 per share. Difference between our adjusted and reported results is primarily due to a gain on asset sales and positive fair value adjustments offset by planned lease expiries and and a legal contingency related to our 2016 settlement with Ecuador. This quarter, we classified all derivative instruments with mark to market adjustments as items affecting the comparability. We expect this change will be helpful to investors comparing underlying business performance between periods and reconciling actual results to our guidance, which have previously excluded the mark to market adjustment. We were able to add additional gas hedges in the quarter and have now hedged approximately half of our 2021 domestic natural gas production with a floor of $2.50 per Mcf. We are on track to spend within our full year capital budget of $2,900,000,000 Having incurred capital expenditures of only $579,000,000 in the Q1, our operational success combined with our focus on sustaining production in a more supportive commodity price environment Enable us to generate $1,600,000,000 in free cash flow and exit the quarter with almost $2,300,000,000 of unrestricted cash in hand. Our business incurred a negative working capital change in the quarter, which was largely driven by higher accounts receivable and inventory balances due to commodity price recovery. Over half of the working capital change was due to commodity price, which reflects the timing difference between the revenues recognized and when the cash is received. We We also made several payments that are typical in the Q1, including property taxes, cash interest payments, employee benefit payments and pension contributions. We see the potential for the working capital change to partially reverse over the remainder of this year as expenses are accrued last year or already paid in the Q1 of this year. We are pleased to be able to update our full year guidance for Midstream and OxyChem, reflecting strong Q1 performance and improved market conditions. Our revised guidance combined with our operational achievements have enabled us to lower our 2021 breakeven to the mid-thirty dollars range on a WTI basis before the deferred dividend. I would like to reiterate that despite the Q1 weather impact to our Permian production of approximately 25,000 BME per day as guided on our last call, Combined with the production impact associated with divesting $285,000,000 $285,000,000 in minerals and a negative PSC impact of over 5,000 BOEs per day related to higher oil prices, Our full year production guidance of 1,140,000 BOEs per day remains intact as does our full year capital budget of $2,900,000,000 I would now turn the call back over to Vicki. Thank you, Rob. We are encouraged by the positive reception our 2020 Comment report received following its release in December as well as the enthusiasm our low carbon strategy continues to generate. We understand that many of our stakeholders have a desire to learn more about our low carbon projects and the returns these projects will generate. While we are not yet able to share the economics, We will have created partnerships to finance and deploy cutting edge CCUS technology, which leverages our expertise and our tens of 1,000,000,000 of dollars worth of CO2 infrastructure assets and force base. We are creating these cross industry opportunities for others to invest alongside us to maximize the deployment pace and carbon removal impact. We look forward to sharing more information when possible. As part of being a socially and environmentally responsible operator, we consistently make operational improvements in addition to working toward our net zero goals. In the Q1, we started a water recycling facility in the Midland Basin and began utilizing recycled water in our South Curtis Ranch development. In partnership with an industry leading water midstream company, we were able to increase our water recycling efforts and lower costs. Recycling water has been a large focus of ours in New Mexico for several years, and we are pleased to have been able to expand this effort into Texas. Before we begin the Q and A, I want to announce that in April, we became the 1st U. S. Oil and gas company to commit to adopting the World Economic Forum's Stakeholder Capitalism Metrics. This commitment will guide our process to incorporate the Forum's metrics most relevant to our business into our environmental, social and governance reporting. We believe this is the appropriate framework to supplement our reporting on ESG progress, enhance transparency and strengthen our engagement with investors and other stakeholders. We'll now open the call for your questions. Thank you. We will now begin the question and answer session. Please limit your questions to one primary question and one follow-up. And if you have further questions, you may reenter the question And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Dan Boyd with Mizuho. Please go ahead. Hi, thanks. So I want to ask one on direct air capture, but I think first just kind of starting with the free cash flow Outlook here, can you give us an update on your dividend breakeven? I think last time you talked about it, it was in the high 30s. Presumably, it's lower given the improvements that you've seen in Chemicals and Midstream. And maybe also just comment on your free cash flow generation this year at the DRIP, adjusted for work even if you include working capital, I think there's probably a lot of questions on that today given what the stock is doing. Sure, Dan. Thanks. So our revised guidance, when you combine operational achievements, Did lower our breakeven, I would say, the mid-thirty dollars range on a WTI basis before the preferred dividend. Specifically, We give a range because it is influenced by a number of factors that you listed, including the cash flows, including the natural gas prices, realization of our products, Investor timings and where Chemicals and Midstreams fall in respect of earnings guidance. And obviously, this quarter, we were able to significantly We have our guidance on both the Chemicals and Midstream business, which has a material impact on that range. But in addition to that, as we take that organic cash flow And we can further improve the breakevens and doing things like I mentioned in my opening comments regarding the interest rate swaps where we retired the $665,000,000 of notional value or $750,000,000 notional value that was $665,000,000 at the end of the quarter. We're able to eliminate about $50,000,000 of interest cost for the year using the current curve. So there's a lot of things that go into that. In terms of forecasting out cash flow into the year, we don't forecast cash flow forward on that side of it. I think you can see pretty representative quarter. It's a fairly clean quarter outside of a few things. And I think you can see eliminate the working capital and get an idea what kind of cash we generated Okay. I'm sure you're going to get more on that. So Vicki, I wanted to go back to the direct air capture. I came across a document It was a presentation that someone on your team made to the California Air Resource Board, I think back in October, that talked about building or at least having Four facilities online in 2025. And there was also a petition to get credits Or I guess generate the credits during the construction phase. So can you just talk about that and what that might be able to do in terms of Your ability to finance this in creative ways as you just touched upon? Yes. I'll say that we don't have any concerns about being able to Finance our first direct air capture facility. The first one, once we have both trains built, we'll be able to capture 1,000,000 tons per year of CO2. So there to us are no financing concern, but it's helpful to when we can to generate Some cash as we're building the facility, that's what that request was about. And if we could get that request, what that enables us to do is accelerate development of The next facility. So what we're trying to do is what I believe, carb and others want to do and that is accelerate Our ability to be able to have a positive impact on the environment and also to be able to create value for our shareholders. We're trying to accelerate that where we can. And so we believe that we will be able to provide or obtain some funds either from that or potentially from the modifications that we think is critically important to 45Q. Currently 45Q is a tax credit. If that were a direct Pay to us for the carbon that we capture, that's another enabler that allows us to accelerate the construction of the Technology is that advanced faster and more built sooner. So, so there we're looking at multiple ways to accelerate all that we're doing The next question will come from Neal Dingmann with Truist. Please go ahead. Good morning, all. Vicki, I know you mentioned on the prepared remarks that you were fine with as far as permits and it's not going to influence the 2 rigs in the Rockies. Just wondering if and when the decisions come out in August, what might, I guess changes could we see either in the Gulf of Mexico or Rockies, I guess, depending on how to the degree of what comes out? I think the changes that will come out will not impact current leases. I do believe that we'll be able to continue permitting on current leases. My concern is that there could be a moratorium, a longer term moratorium on picking up additional leases. That would be bad for our industry. It would be bad for the United States. It would put our country in a position where We would likely have an even tougher time increasing production above where the United States is today. As you know, we were at 1 point over 13,000,000 barrels a day of oil production from the U. S. That's a scenario that gave us strength in world politics. It gave us the ability to completely supply our own oil and products domestically. We would not have to import very much at all at a 13,000,000 barrel a day level because I believe our refining capacity is somewhere in the year 17,000,000. So We would have some capability to be almost completely independent. With a moratorium on federal leases, That would really drive down our industry's ability to react. Now where we are in that, We've got 9,500,000 acres of to develop in the U. S. And of that 9,500,000 acres, I think only about $1,600,000 are federal and about half of that is offshore. So from a new lease standpoint, there are some companies that are in better positions than others and we believe we are. But what I'm advocating for is the industry and for the country because the other thing about this is some of this is being touted as a Way to reduce emissions for the United States, which would be definitely a bad move because we are very prudent with what we're doing in the United States compared to a lot of countries around the world. We've reduced emissions significantly in the U. S. And continue to push technologies to further reduce. API, we're part of API and a lot of companies within API have committed to a voluntary partnership where we're all working to share technologies then to help each other reduce emissions and to get the best available Technology in place to address emissions and climate change. So I think that for me, the biggest worry It's not on existing leases. It's just the moratorium could be extended for a long time on Picking out or anybody picking up any new releases. No, very I don't like the details. Thanks. And then, just a follow-up. I'm just wondering, will your financial investments in, I guess, sort of 2 part here, just talk about maybe what type of financial investments you see in your carbon Sure. And initiatives, other cleaning energy initiatives, because you seem to have an advantage, especially out there in the firm on some others. And really my main question around that is, Will the funds that you spend on that, is that going to influence what you're able to spend On either on some of the upstream or are they 2 sort of independent there? Thank you. No, our low carbon strategy is Very connected to our CO2 Enhance Oil Recovery project. And as we have mentioned before, we started Working on this low carbon strategy because we wanted a more sustainable source for CO2 and a lower cost CO2 for our enhanced oil recovery. Where we're positioned today is incredibly exciting because in the Permian Basin, we have such a footprint of not only Reservoirs, core space and resources, we have the processing plants, we have the pipelines and all of that necessary to Further accelerate development of additional 2,000,000,000 barrels in our conventional reservoirs. And then we We haven't even been able to calculate yet what we could get from CO2 enhanced oil recovery in the shale. We're doing that in the Permian, doing that in the DJ Basin and the Powder River, That sets us up for decades to come of generating New reserves and production from existing reservoirs. And so really it's tied to that, it's Tied to being able to create value for our shareholders through the extended production of more reserves than what can typically be produced out of conventional or unconventional resources. For example, in conventional reservoirs, With CO2, you can get up to 70% or better recovery, and whereas it was just primary development, normally you get 20% to 25% at most. So we can get better than 70% with CO2 flooding in the unconventional where Most companies will tell you that you'll get at most 10% to 12% recovery of the hydrocarbons from the shale play. But with CO2 enhanced oil recovery, we tested it. We've run 4 pilots and we now know that we can potentially Yes, 75 percent additional recovery or maybe even double it. So we're sitting in a position now where We have a significant amount of future potential development and we have it in the areas where we operate, the areas where we already have the infrastructure. So as we go forward, our incremental production and recoveries are just going to continue to be at lower and lower cost beyond the point where we were able to get these direct air capture facilities built. But what's also going to help us there too and help further lower costs And executing on our NetPower technology, which we're also an equity investor in. Net power is the process that generates a lower cost of electricity by combusting hydrocarbons with oxygen And therefore, it spits off a pure stream of CO2 that, and no other emissions. So we can take that CO2 and use it in our reservoirs. So it's essentially a lower cost emission free, electrical generation process for us. So We have a lot of ways as we go forward and this is why we're incredibly excited, a lot of ways to get more oil out of the ground for lower costs. And so as we go forward, our cost structure will continue to decrease, not just from the debt reduction that Rob has talked about, but from the actual development and operations in the field. And in addition to that, We will be able to provide Aviation and Maritime Industry with a net carbon 0 oil. So we're going to be the solution for actually aviation and maritime and that's why United wanted to join with us on building this 1st direct air capture facility. So it's exciting for us, sorry if I'm talking too long on this, I'll stop here and see if you have anything else to ask, It's exciting for us and we're really looking forward to being able to talk more about this. And as I said in my script, We can't yet because we're in the middle of some processes and some discussions and interactions with others, but we hope that In the fall or close to the end of the year, we will be able to share more about it and get you a model that you'll be able to See and understand at that point. The next question will come from Doug Leggate with Bank of America. Please go ahead. Thanks. Good morning, everybody. Rob, I hate to be on the cash breakeven question, but I want to do a little math with you real quick. $1,600,000,000 of free cash, obviously, before working capital, annualized is $6,400,000,000 2 $250,000,000 per dollar is $30 and the average WTI price in Q1 was $57,000,000 $61 So how do you get mid-30s? Even if I add back the press, that's the only issue to low-30s. What am I missing? So I think that part of what is missing from that is certainly the CapEx and then also Whereas I would say the chemicals, the performance in Q1, as you can see in the guidance, is sustained throughout the year. The midstream inclusion in Q1 It's more of a one time event associated with Winter Storm Yuri. So I think it's part of annualizing the Q1 numbers. That's what I would Modify your analysis, Bhai. I realize they're not repeatable, but still, delta is about $7 Okay. I'll take it offline. My follow-up is, Vicki, I guess, it's a regular question every quarter, the disposal update, A little bit more progress this time, but still a long way to go to get to the $2,000,000,000 to $3,000,000,000 Can you give us any color on timing visibility at this point? Yes, I would say that if I include the unsolicited offers that we've gotten, we currently have offers in hand that would get us well above the 2,000,000,000 Minimum target. However, in this environment, we expect to that we would we'll meet the 2,000,000,000 But whether or not we go above the $2,000,000,000 really depends on how the macro continues to look for us. And then everything that we're getting in and every Divestiture that we have the potential to do, we always want to evaluate what it delivers for us versus what the cash flow in the future would generate. So it's a value proposition for us. And it's also ensuring that The other part of the consideration is making sure that we have enough cash flow to meet our maturities, debt maturities and even to go beyond that to, As Rob was saying, to deal with the interest rate swaps and some other minor costs that we have. So it's all about lowering our cost structure We're making sure that we maximize our higher margin cash flow, keep that intact. So We still have gone up. We have not announced any others that we have, but we do have a couple of several things actually in process, A couple that have the that are higher priorities for us to do. 1 is Ghana, as we've talked about it before. But because we have several processes running now, we feel comfortable that we'll get to the 2,000,000,000 And then going beyond that's really going to be a preference based on and a decision based on the valuation. The next question will come from Neil Mehta with Goldman Sachs. Please go ahead. Thanks so much. I just wanted to build on some of the cash flow questions in the quarter. Can you just walk us through again why the cash flow working capital Number was so large. And then how should we think about the reversal? A lot of this just sounds like timing stuff. And certainly, Export barrels will eventually hit their final destination. So I would think a lot would come back, but just walk us through that. Yes. Sure, sure, Neal. Happy to do that for you. So if you look at a typical Q1, We would historically see somewhat a significant draw in the Q1 because of the but it was something more sizable in the Q1 of this year. We go back to 2018 Q1 withdrawal was about $700,000,000 20.19, it was about $900,000,000 And for the opposite reasons, in this quarter, 2020 was about $200,000,000 draw because we price going in the opposite direction, obviously, in March when the pandemic hit and with the price wars going on. So regardless, the $1,300,000 draw we experienced in the Q1 does and it is exceptionally large. The majority of that was driven by the change in commodity prices. It was the timing difference between revenue recognition and cash received. So at the end of 2020, WTI was about $48 a barrel and it was $61 a barrel at the end of March. And so this price increase around 30% Impacts both our AR balances and our inventory significantly, especially when you consider our midstream business and how many barrels are on the water at any given point in time. And even that's a bit exacerbated because we discussed a bit last time that Europe essentially has been shut down the significant cargoes of oil from the Gulf since the Q3 of last year. And as a result, we've had to change our mix or portfolio of export shipments, which are now, For the most part, heavily weighted to if not exclusively weighted to shipments to Asia, which is longer voyages, more crude in the water and longer because of the transit time. And then obviously compared to other years, we have a pretty modest capital budget and so we're not creating this significant amount of payables or capital spending. So when you look at the combination of the price impacts, payments from property taxes, we made a significant contribution to the ABC Pension plan during the Q1 and then so we can put it all together. We do expect, as you pointed out, as Receivables start to come in as some of that will reverse as the year goes on. Is it fair to assume Q2 should be at the working cash Working capital cash flow will all be quarter. I guess it's convinced largely on what happened with the price going into the 2nd quarter also. And we would expect it. And the follow-up is just on the chemicals business. Obviously, margins are really strong, but just Get your guys' big picture view of where we are in the chemical cycle and how your business fits into that. Yes. So absolutely nothing happy to do than talk about our chemical business, which had an excellent start to the year. When you look at the chemical business, it has both some impacts from Winter Storm Yuri to some extent, but also because how Winter Storm Yuri impacted the overall business itself. And so chlor alkali production struggled significantly in March Post storm, if you think about Erie, it had a much wider impact than an individual hurricane would have had in the past. And so you still had a lot of inspections, etcetera, going on and restarts in the month of March. And that has extended into after a very difficult Hurricane season last year. And so going into the end of 2020, we already had a pretty tight supply demand balance in the second half of the year. And that was coupled with a pretty significant amount of demand. As you know, building products are in very high demand right now. So our PVC demand and margins were significant already going into the year. And so if you look at our operating rates as an industry, they're only about 71.5% for the Q1 of 2021, Whereas last year, they were 89%. And so the combination of the stronger demand coupled with the production offline to Start the year has already tightened up and already tight supply demand balance. And so in the case of PVC, construction investments very strong, Demand expected to range strong with the housing starts outlook, low mortgage rates, a lot of emphasis on remodeling, etcetera, right now that is driving PVC demand. So PVC demand domestically is up almost 5% compared to the same period in 2020, which drives The amount of PVC that's actually being exported and exports are actually down about 30% compared to the same period last year. And so with resin type in the domestic market, We're able to expand margins just like we would in our commodity under our site supplydemand balance. And then what we're seeing in the caustic soda business is whereas previously when we guided, we anticipated to start we're seeing caustic soda bottom And we thought we would start seeing improvements in the second half of the year. Yuri has pulled that forward and a bit and so now we're seeing caustic soda prices improve in the Q2 as we move forward. So we're just getting more of that as the year goes on. And so we're expecting not only continued high margins in the PVC business and Resilient demand through the balance of the year as construction continues to pull. I mean, it's no different PVCs really different. We're seeing prices of wood and everything else. We'll also see caustic soda benefit from that process at all. And as Vicki mentioned, Oxy's significant amount of other derivatives beyond just PVC that is the company a lot more variability in the molecules that it can sell, produce additional caustic soda and produce additional Other parts of the chlorine chain, which is going to expand our ability to increase the value delivered by the business. It's the reason why we talk about how much value is locked in the chemical business and why when people talk to us about the chemical This is a lot of times and why we don't do something different with it is because it's just hard for people to grasp with a small commodity chemical business They can churn out these types of cash flow on this asset base, and it's really it's a remarkable business. The next question will come from Jeanine Wai with Barclays. Please go ahead. Hi, good afternoon, everyone. Thanks for taking our questions. My first question probably maybe for Rob. I just want to make sure I heard your comments right in the prepared remarks. So Getting down to the mid-twenty billion dollars range on gross debt, that's where you think you need to be to hit IG That is at mid cycle prices and I think ultimately that's an important goal for you all. So about $10,000,000,000 more to go from there. Can you just remind us what your view of mid cycle prices are at this point? And how does this jive with your Prior target of 3 times leverage as the trigger for growth, which I think was also at mid cycle prices? Yes. It's around $50 range. And if you look at the price decks that are being used by a lot of the rate agencies, they're in the high 40s Right now, they're close to $50 They're not so they don't move their price decks with the current environment of being in the mid to high low stakes fees. So that makes a significant difference on where that breakeven location is at. So is it exactly $10,000,000,000 Obviously, there's a lot of different things that factor in as I indicated in my remarks, but it's somewhere in the neighborhood of that. It's somewhere it's obvious other things will go into that that It could mitigate it to be a little higher than that would be possible or even a little lower than that. But obviously, there's a lot of things that go into it, but it's somewhere in that range. Even though that you can probably move forward and get pretty close to that or below that 3x in your model for the second half of the year, by the end of the year based on oil prices were to Continue. It's not that price deck that we're going to be considered for investment grade. Okay. Got it. So in terms of the moving pieces on my follow-up is in terms of the moving pieces on the medium term goals, there's a There is the sustainable dividend. There is growth capital. Now we kind of have a bogey roughly on Gross debt. So how do we think of the trade off for all of those things? And it will take some time to reduce the debt. We've got the preferreds, But you do have like very healthy oil prices as well as asset sales that are coming in. So I'm just Kind of wondering when we're looking at our free cash flow profile and the new debt targets, when we can kind of revisit the growth conversation versus the dividend And paying off other things? Yes. So Jean, I would say that obviously, as was in Vicki's remarks, We're squarely focused on the leverage reduction right now and looking at the opportunity to get down to that investment grade type level. Embodied in that is going to be using the proceeds both from the free cash flow from the business, using the proceeds of any divestitures that take place and combine those two things together to reduce the cost what we have outstanding. And that can be through a host of different things as I discussed in my remarks between what we're evaluating near term on an ability to put that cash to work to reduce debt. That conversation will eventually rotate over into medium term priorities focusing on the dividend. But we haven't established a policy of what the dividend might look like. It's going to need to be sustainable as we've indicated in our priorities. So it could be a combination of something that's fixed and some variable component. We haven't decided on that at this point. But that conversation will come at the after we've made more progress on our debt reduction. I would just add to that. We have this Great production profile right now. And with the production profile that we have, the chemicals business supporting it, Yes. What we're really focused on is margin expansion. We have lots of opportunity for that and that's what we're most excited about. So there will be Continuing shareholder value growth but through margin expansion. The next question will come from Devin McDermott with Morgan Stanley. Please go ahead. Hey, good afternoon. Thanks for taking my question. So my first one kind of builds actually on that last point, Vicki, on margin expansion and just the comments you had in the prepared remarks As well on cost reduction, you had said that, you were able to identify some cost reduction opportunities in the quarter that Offset some of the winter storm impacts. I was wondering if you could comment as to whether that was deferrals or more structural reductions? And then As part of that, as we think about the margin expansion opportunities going forward, are you still identifying things like upside synergies from the Anadarko transaction? Or maybe said another way, is there still more room to run on reducing the cost structure here? And where are some of the levers to drive that cost structure down? Yes, you're right. There's more opportunities to continue to reduce our cost structure in both capital and OpEx. And one example I'll give is we went back recently and took a look at our drilling performance between 2015 up through what we're doing in 2021. And I can tell you, we rolled out our physics and logistics space Oxy Drilling Dynamics in our domestic operations in 2015 and then and rolled it out internationally in late 2016. And I think I've said before, we haven't seen an area where we've rolled this out that we haven't had about a 20% to 30% reduction in our cost. And the exciting thing in looking at our data today is we've decreased our drilling costs from $200 a foot back in $2015 to $135 a foot in 2021 for our global drilling. That's everything around the world. And so We've individually pointed out the performance improvements in the Permian, but we've not only seen it in the Permian, we've seen it in the DJ, in the Powder River. And now Oman is seeing a lot of good things happening there by using this process and it's proprietary to us, we developed it. So it's making a difference. We've also started applying it to the Gulf of Mexico and seeing some good things there that we'll be able to quantify and report on here in the near future. So it's drilling on the drilling side. It's Jill, and I will say before I leave drilling, some people might say that you probably got all of that. And right now, we're not improving. From 2019 to 2020, even in a downturn, we improved by 14% what we were doing there. So there's The improvement is happening even today. So far this year, we've improved by about 4%, only 1 quarter into it. This is as we were picking up rigs. So this is what we're doing there is working. But also on the completion side, we're still setting records for how How many fracs we can do in a 24 hour period? And so that's improving. The other thing we're seeing is that Our Permian team, every one of them actually is continuing to work on the subsurface model. This has been a point of extreme emphasis for us, because of the variation in the shale play. So we started Really enhancing our subsurface expertise about 6 or 7 years ago and working hard to get that to where we needed it to be. We have some incredible people in house that now do that work. And that what we've learned in The shell play, we've extended also to looking at conventional and to doing more with seismic and part of that was driven by The good efforts that the Anadarko staff had accomplished and achieved with some of the 3 d seismic and our team, Some of our domestic people started looking at how others were doing things and taking what others are doing and made it better. So every phase of what we're doing, we're trying to do better and we're seeing still continuing improvement. Oman is using what they call an oxy jetting system where in existing wells, they can go in and Jet with a process that ensures maximum contact with the reservoir through each phase of the jetting process, both in vertical and horizontal wells. That's delivering better recovery, from the existing reservoirs too. And to me, the more you can get out of a reservoir that you've developed, the better off you are and even better when you can go back into existing wells and get more out of those. So I'm quite confident that we will continue on both the OpEx side and the drilling side, Completion side and facilities to continue to lower our costs, our teams are driven to do it and did it even during this pandemic I did it in a big way. So, I think in New Mexico, they in several of the areas that they worked really hard there, they lowered Our breakeven on some of those areas by $10 a barrel. So all of that's incredibly encouraging for what we have going forward considering the footprint that we have and the areas that we know the best. And I think I'll just add to that. I mean, it's just I think that when you hear all the exciting things underlying the business that Vicki talks about, and I know externally the Thesis of paying down debt seems incredibly boring for an external thesis. That's part of the reason why we're working so hard and committed to this and getting it behind us. So that Truly that we can focus on the story of the company being beyond that, what it's going to be. We do fully expect as that goes down, it will translate into equity value in the total enterprise value, which is good for our shareholders. But we understand that talking about reducing debt doesn't seem totally exciting, but There's so many other exciting things going on and at times we miss the fact of all the great things that we continue to break through, what we thought was the best we could do before we beat it Successively since the acquisition. Yes. No, that all definitely makes a lot of sense. And And the progress forward and line of sight on the debt reduction is definitely a good story as well. And maybe then shifting focus to some of the other initiatives. I know carbon capture and low carbon has come a few times already, but I'd have one follow-up there. As we think about the milestones from here to reaching FID on some of these potential projects, Including the direct air capture project in the Permian. Just walk us through what's remaining there? It sounds like policy And financing isn't one of the milestones at this point, but what are we looking for in order to bring that project to fruition? Well, we the big step was to select our engineering and construction partner. We did not So the fee process is ongoing now, the front end engineering. So we're working that now. We expect to have FID early next year and start construction by the end of next year. So I don't see That there would be anything barring some weird macro thing happened to us that would change our schedule right now. Our teams are what they have done, our major projects team led by Ken Dillon as along with Worley, they've put together a sub team that as the front end engineering is happening, They're looking for ways to already ways to optimize the designs as they're in progress. And so I'm really excited that the First one, I believe, is going to be surprising to some people in terms of its design and how we're going to be able to build it. There are some things already in process around deciding how do you do this on a at a faster pace and on a larger scale as we go forward, some of that work But I do expect that there's that we will begin construction at the end of next year, and I don't see anything in the way of Stopping that right now. The next question will come from Leo Mariani with KeyBanc. Please go ahead. Guys, wanted to share, looks like your Q1 CapEx did come in Quite a bit below expectations and if you just annualize that number, it looks like it's quite a bit below budget on the year. Just wanted to get a sense what was driving the lower 1st quarter CapEx and just wasn't sure if maybe there were some costs or some spenders that shifted from 1Q into Other quarters and kind of how you guys are feeling about this $2,900,000,000 budget? Part of it was driven by the ramp up and We will have our highest spend capital quarter next quarter. So if you average the 2, it's going to that's going to be the first half Spending will be about the same as second half spending, maybe slightly less. But generally speaking, mover parts, this is part of the startup process. And then we had a little bit of a delay on some of our activities as a result of the storms and some things moved from Q1 into Q2. Yes. So, Leo, look what Vicki said when she said next quarter Q2 would be our highest Hi, it's Sven. And you can see that with Permian where we only spent a couple of $100,000,000 in the Q1 of its $1,200,000,000 So You can definitely see that. Okay. That's very clear. And then just a question on the midstream for the year. Obviously, a very strong Q1 and you guys enumerated some of the reasons why in the press release and the prepared comments. But just looking at your second quarter mid Obviously, it's pressing a loss. When I look at it, it's not a big loss, kind of a small one. If I just add kind of the 1st quarter Benefit to the 2nd quarter loss, you're expecting, let's call it roughly breakeven. When I look at your full year midstream guidance, you're still expecting a very large loss, kind of implying Significant loss in the second half of twenty twenty one. Can you kind of just explain a little bit the dynamic there in terms of what you might be expecting later this year? Sure, Leo. I think if I understand what you're saying, if you look at the Q1, we beat our guide by 234,000,000 And then we raised the full year outlook $200,000,000 So basically, last quarter to this quarter, we're expecting Deterioration of about $34,000,000 on the remaining three quarters. And basically, what's driving that is our view Yes, gas differentials and on our oil export differentials. So if you look at and I think we've talked about this a bit before, Yes, when differentials collapse, that helps our upstream business because realizations get better, but it hurts our midstream business. And so that's the piece you have going on. So most of the benefit of the Q1 rolls through to the year and then you get a little bit of change for the remaining quarters, Primarily driven by that differential collapsing. Okay. Thank you. The next question will come from Rafael Du Bois with Societe Generale. Please go ahead. Hello. Thank you very much for taking my question. It's about the DSC plans that you intend to FID. You mentioned a couple of calls ago that you will benefit through OxyChem. Can you maybe share with us How what quantity of caustic soda will be required for this very first plant? And looking forward, do you think it could be any issue to access caustic soda to deploy this technology? Vicki and I can kind of tag in this a little bit. But I would say, so first of all, The working fluid in the direct air capture unit is caustic potash, not caustic soda. So it's AOH, not any AOH, but we haven't disclosed Utilization or what that first fill volume might be or like the 1st direct air capture unit moving forward? Yes. Just to repeat, we're still in the engineering phase of that and still optimizing it. So, we probably would not have that information until the end of this year. The other thing I would mention to you is the other piece is the majority of the infrastructure inside the actual direct air capture unit is also PVC, which obviously there's a synergy with the Oxy Business on the amount of PVC that goes inside the direct air capture unit. Great. Thank you very much for the clarifications. The next question will come from Paul Cheng with Scotiabank. Please go ahead. Thank you. Good morning, guys. We can in Permian, I think one of your competitors are talking about They're going to move more into the B Miles wells. Just curious that in your plan, Is that something that you guys were trying to do or that you don't think is suitable for you? And also you talked about On the CO2 flooding in the unconventional side, so when we're looking at your prospect inventory, what percentage Your inventory that you think is applicable in here. So that's the first question. The second question is that At some point that you would bring down your debt. And once you reach that mid-twenty $1,000,000,000 range, What's the objective for your Oman, Algeria and Gulf of Mexico operation? Is that you're trying to just maintain the production, relatively steady or you're trying to grow over there? Thank you. Paul, could you just clarify for me, when you were asking the first question, you mentioned that Our competitors are doing something and then you were asking if we were doing the same. Could you clarify what that was again? At least one of your competitors is talking about they are drilling the lateral length that the 3 miles or 15,000 feet well. So just curious that given your position, is that something you guys find that Yes. Capital efficient and productive for use to push for the free miles or that you don't think it's applicable to you? I think that it's always important to not put yourself into a box to think that 5,000 feet is the right answer, 10,000 feet is Right answer. I really think that in all cases, you should do an engineering model. You should really look at what is The right design for maximizing recovery from the wells and what does your acreage position allow? And what are the risks of drilling the 3 miles versus 1 mile or 10,000 feet? So I think that there are cases where there may be situations and scenarios where longer lateral than 10,000. In fact, we drilled 15,000 ourselves. We did at least 1 or 2 of those, and we've drilled more than 10,000. In other cases, they didn't go all the way to the 15,000, but I think it really depends on the reservoir and all The things that you have to take into consideration, again, your acreage position, your full field development plan, how you intend to complete it, You intend to what kind of artificial lift you intend to use. So there are a lot of variables involved, but I wouldn't I certainly wouldn't say that we would never consider doing our 15,000 foot wells again. It's always under evaluation, Not only in the Permian, but anywhere we drill horizontal wells. So we wouldn't rule it out. And with respect to CO2, we expect to use in both the conventional and the unconventional. And in the conventional alone, there's 2,000,000,000 barrels of additional resources that could be developed with what we expect to be much lower or no cost CO2 in the future and then the enhanced oil recovery of the shell as well. So we're excited about that. In the interest of time, this concludes our question and answer session. I would like to turn the conference back over to Vicki Hollub for any closing remarks. Please go ahead, ma'am. Just want to thank you all for your The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.