Earnings Call: Q1 2015

May 6, 2015

Good morning, and welcome to the Occidental Petroleum Corporation First Quarter 2015 Earnings Conference Call. All participants will be in 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 Mr. Chris Degner, Senior Director of Investor Relations. Please go ahead sir. Thank you, Rocco. Good morning, everyone, and thank you for participating in Occidental Petroleum's Q1 2015 conference call. On the call with us today are Steve Chazen, Oxy's President and Chief Executive Officer Vicki Hollub, Senior Executive Vice President of Occidental and President, Oxy Oil and Gas Chris Stavros, Chief Financial Officer Willie Chang, Executive Vice President of Operations Sandy Lowe, President of our International Oil and Gas Operations. In just a moment, I will turn the call over to our CEO, Steve Chazen, who'll provide an updated outlook for 2015. Our CFO, Chris Stavros, will review our financial and operating results for the Q1 and also provide some guidance for 2015 followed by Vicki Hollub, who will provide an update of our activities in the Permian Basin. As a reminder, today's conference call contains certain projections and other forward looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. Additional information on factors that could cause results to differ materially from the company's most recent Form 10 ks. Our Q1 2015 earnings press release, the Investor Relations supplemental schedules, our non GAAP to GAAP reconciliations and the conference call presentation slides can be downloaded off our website at www.oxy.com. I'll now turn the call over to Steve Chasen. Steve, please go ahead. Thank you, Chris. Yesterday, we announced that Vicki Hollop has been named to head our worldwide oil company and will succeed me as CEO when I retire. Both of us will be visiting shareholders either at conferences or in their offices over the next few months. My commitment is to remain in place until the Board and Vicki feel it is time for me to move on, but not any longer. Vicki has worked for Oxy for over 30 years. She has had a number of very challenging assignments over the years, including operations manager in Ecuador and Russia. In our California assets, she reorganized the business and changed its processes so that it would be stable in a wide range of product prices. She has built our Permian Resources business into a sustainable profitable growth engine for Oxy. She's an accomplished team builder, has the confidence of executives and employees throughout the business. She also has had the misfortune of officing next to me for the last couple of years. The Board of which I'm a part has worked on the succession plan for the last 2 years. The directors interviewed a number of executives and considered both internal and external candidates. In the current volatile business climate, our view is an experienced successful executive who knows our business well is the best choice. You will find Vicki to be a thoughtful, engaging agent of change for Oxy. Yesterday, we also announced a dividend increase of just over 4%. This is our 13th consecutive year that we have raised our dividend. We carefully considered our future capital needs and likely cash flows. Our current estimates are that we should be able to continue to grow our dividend for many years into the future. The new ethylene cracker which comes on in 2017 provides substantial boost in distributable cash from our already important chemical business. Our base oil business in Abu Dhabi, Oman and the Permian EOR will all support our cash flow and grow modestly over time. Without profitable growth, the company will not prosper. Higher rates of growth in cash flow and profits will come from our Permian Resources business. We remain mindful of the need to pay for close attention to drilling for profits not just volume growth. Our overall financial strength is as common as we'll be able to spend what we need in a range of product prices and still grow our dividends. I'd like to lay out our goals for 2015 and how we plan to adjust to lower commodity prices. Our principal goal for the year is to achieve cash flow neutrality where our operating cash flow covers our capital spending and dividend outlays by the Q4 of this year at around $60 per barrel oil prices. We will achieve this goal through deploying our capital and operating cost savings into further production and cash flow growth driven mostly by our Permian Resources segment and the start up of the El Hosen gas project. Year to date, we estimate that about $400,000,000 is in captured cost reductions. We expect our 2015 capital outlays to be less than our $5,800,000,000 budget and some of the savings will be redeployed into Permian Resources. In short, we are learning to do more with less and expect continued improvement in productivity through the year. The Permian Resources segment has made considerable progress over the last 6 months improving our capital efficiency. As slide 6 illustrates, we have at least 16 years of inventory with returns that exceed our cost of capital at oil prices less than $60 Through continued reduction in drilling and completion costs and improvements in productivity, we will lower our finding and development costs and increase our inventory of well locations with returns that exceed our cost of capital. In addition to improved capital efficiency, we expect to see improvement in our cash operating costs with reduced workover activity, lower energy costs and a larger base of production. This improved cost structure gives us confidence in driving production growth. In the Q1 of 2015, we grew U. S. Oil production by 9,000 barrels a day, a 5% gain quarter over quarter and 14% year over year. Production growth by our Permian Resources assets, which produced 98,000 BOE a day in the Q1 of 2015, a 46% increase year over year. Oil production growth in the Permian Resources was even stronger with a 25,000 barrel a day increase year over year. Given the strong start to 2015, we are increasing our full year guidance for the Permian Resources segment from 100,000 BOE a day to 105,000 BOE per day. The Elhos and Gas project started up in January with one train online. During the startup process, production was curtailed to modify the sulfur and NGL processing units. These adjustments were completed in late April and the plant was restarted. We expect to ramp up production through the Q2 and to average year we expect production of 35 1,000 BOE a day with the plant running at full capacity in the second half of the year. Despite a lower capital program, we expect production growth of 60,000 to 80,000 BOE a day in 2015 driven by a start up of the El Hosan Gas project and the focused development program we will run-in our Permian Resources segment. In the United States, we expect oil production growth about 8%, partially offset by declines in NGLs and natural gas production. Vicki Hollub will provide further details on the outlook for the U. S. Oil and gas business. As we capture price savings from suppliers and improve the efficiency of our operations, we are able to do more with less spending. Our capital run rate in the Q1 was higher than the 5,800,000,000 full year level and will decline through the year. Given our large acreage position, deep inventory with the flexibility of deferred drilling and appraisal activities, Although we will likely outspend our cash flow in the first half of the year, we expect that by the 4th quarter operating cash flow will cover our capital expenditures and dividend payments assuming a $60 per barrel oil price environment. We have approximately 69,000,000 shares remaining on our current share repurchase authorization. We will continue to repurchase shares subject to stock price and market conditions and expect to ultimately repurchase the entire amount. Now I'll turn the call over to Chris Stavros for review of our financial results. Thank you, Steve and good morning everyone. We generated core income of $31,000,000 for the Q1 of 2015 resulting in diluted earnings per share of $0.04 a decrease from both the year ago quarter Q4 of 2014. The decline in core earnings is primarily due to lower commodity prices for all products. Our realized oil price for the Q1 of $48.50 a barrel was down about $23 a barrel sequentially. U. S. Natural gas prices also declined down more than $1 to about $2.50 per Mcf. NGL prices also fell sharply to just under $18 a barrel a barrel in the Q1, down about 35% from last year's Q4. In response to the current price environment, we have aggressively ramped down our capital program, focusing our development activity in our core areas of the Permian Basin and parts of the Middle East with an emphasis on growing our production volumes more efficiently. We have also renegotiated many of our supplier contracts, which should result in meaningful savings this year, which Steve outlined. The combination of reduced drilling activity, the wind down of spending for the El Hozin project and improved well cost efficiencies resulted in our total capital spending falling to 1.7 $1,000,000,000 in the Q1 from $3,000,000,000 in the Q4 of last year. As Steve noted earlier, we expect to be running cash flow neutral after capital spending and payment of our dividends by the Q4 of this year at oil prices of roughly $60 a barrel. Despite the cut in capital, we continued our strong domestic production growth generated from our Permian Resources assets. Permian Resources grew its oil production 68% in the Q1 adding 25,000 barrels per day compared to the year ago period with total BOE growth of 46%. Permian Resources oil production improved by 11,000 barrels per day or 22% sequentially to 62,000 barrels a day in the Q1. Turning to the specific business segments. Oil and Gas Core after tax earnings for the Q1 of 2015 were $109,000,000 $259,000,000 lower than the Q4 of 2014 and $851,000,000 lower than last year's Q1. For the Q1 of 2015, total company oil and gas production volumes averaged 645,000 BOE per day, an increase of 29,000 BOE in daily production from the 4th quarter and 72,000 BOE per day from the same period a year ago. As I mentioned earlier, our Q1 of 2015 worldwide realized oil price fell sharply declining by 32% 51% compared to the 4th and 1st quarters of last year. After tax core results for our domestic oil and gas operations were a loss of 89,000,000 dollars compared with income of $59,000,000 in the Q4 of 2014 and income of $412,000,000 in the Q1 of 2014. Results on both the sequential and year over year basis at our domestic operations were severely impacted by much lower realized oil prices and to a lesser degree lower NGL and natural gas prices. The negative price impact was partially offset by lower DD and A rates and higher crude oil production volumes for both comparative periods. Total domestic oil and gas production averaged 320 6,000 BOE per day during the Q1 of 2015, up 5,000 BOE per day sequentially and 24,000 BOE per day on a year over year basis with substantially all of the increase coming from Permian Resources. Domestic oil production was 198,000 barrels per day during the Q1 of 2015, an increase of 9,000 barrels per day from the 4th quarter 25,000 barrels per day from the year ago quarter. International after tax core income was $200,000,000 for the Q1 of 2015 compared to 3 $55,000,000 from the Q4 and $553,000,000 from the same period last year. The decline for both periods was driven by lower realized oil prices. International oil and gas production volumes rose by 24,000 BOE per day on a sequential quarterly basis to 319,000 BOE per day in the Q1 of 2015. Approximately half of the increases to production both year over year and sequentially resulted from lower prices affecting our production sharing contracts. Commencement of production from the Alhosin gas project added 9,000 BOE per day in the quarter. Production at Alhosin for the quarter was less than anticipated as during the start up of production during the ramp we experienced some commissioning related issues on the sulfur recovery units. Modifications have now been made and we anticipate reaching full productive capacity at Al Khosn over the coming months. Our oil and gas cash operating costs fell to $13.36 per BOE for the Q1 of 2015 compared to $14.18 from the Q4 of last year due to the benefit of higher production and lower energy costs. DD and A for the Q1 of 2015 was 15 point $3.5 per BOE compared to $18.09 per BOE during the Q4. Taxes other than on income, which are directly related to product prices were $1.63 per BOE for the Q1 of this year compared to $2.45 per BOE for the full year of last year 2014. Our first quarter exploration expense was $8,000,000 Chemicals' 1st quarter 2015 pretax core earnings were $139,000,000 compared with $160,000,000 in the 4th quarter and $136,000,000 in the same period a year ago. The sequential decrease in earnings primarily reflected lower prices for most product lines and lower caustic soda volumes partially offset by lower ethylene and natural gas feedstock costs. Midstream pretax core results were a loss of $5,000,000 for the quarter for the Q1 compared to income of $168,000,000 in the 4th quarter $96,000,000 in the same period a year ago. The decline in results for both comparative periods was caused by several factors including lower marketing margins as a result of tighter Midland to Gulf Coast crude oil differentials lower gas plant income, which reflected sharply lower NGL prices lower pipeline income due to a turnaround at the Dolphin plant as well as lower third party gas sales combined with the impact from our reduced ownerships in the Plains Pipeline GP after the Q4 sale of a portion of these units. Our cash flow from continuing operations before working capital changes was approximately $1,100,000,000 for the Q1 of this year. During the Q4 of 2014, our accrued capital spending and operating expenses were based on a work program that was significantly higher than the Q1 of this year. As we ramp down activity in the Q1, our capital accruals declined and our net working capital declined. We used about $1,000,000,000 in the Q1 of 20 15 for payments related to the higher capital operating expenses that were accrued at year end 2014. As we continue to reduce activity in the Q2, we expect to see further working capital usage as we reduce our accounts payables. However, we expect this to be at a lower rate. This trend is normal in a commodity down cycle and one that we would expect to dissipate by the 3rd quarter as we reach a more stable level of capital spending. Should we see a continued recovery in crude oil prices and increase our drilling activity, we would expect this trend to reverse and see positive working capital movements. Total company capital expenditures for the Q1 of 2015 were $1,700,000,000 and we expect our quarterly expenditures to continue to ramp down through the year. Oil and Gas spent $1,500,000,000 with Permian Resources expenditures comprising nearly 50 percent of the total with the remaining $200,000,000 split about evenly between Chemicals and Midstream. Based on our lower pace of spending in the Q1 and continued cost efficiency gains, we expect our total capital spending for the year to be below our original guidance of $5,800,000,000 Our Q4 2015 exit rate of capital would imply an annualized spending level of approximately $4,000,000,000 We paid cash dividends of $557,000,000 in the Q1 and purchased 2.7 of our shares for $207,000,000 Our cash balance at the end of the Q1 of 2015 was $5,400,000,000 As a reminder, we currently hold shares in the Plains GP and California Resources Corporation with an aggregate value of about $3,000,000,000 With respect to CRC, we continue to own 71,500,000 shares currently valued at about $600,000,000 We are required to dispose of all of these shares within approximately a year through either a dividend to our shareholders or in an exchange for either Oxy shares or debt. Our debt to capital ratio was 17% at the end of the Q1 of 2015. The worldwide effective tax rate on our core income was 75% for the Q1 of 2015. The increase in the rate reflects a higher proportion of international income for the Q1. With respect to our oil and gas production domestically, we expect our oil production for the 2nd quarter to grow by 5,000 barrels per day the increase coming from Permian Resources. Permian Resources is expected to grow its overall volumes by more than 7,000 BOE per day in the second quarter. Our Mid Continent gas production is expected to decline from 1st quarter levels resulting in an overall domestic sequential growth rate of at least 4,000 BOE per day. We expect our international production volumes to increase by about 15,000 BOE per day in the second quarter. The increase should come primarily from improving production rates at Al Hosn, which we expect to be about 25,000 BOE per day and offset by the loss of production in Yemen due to the civil unrest and security issues in the country. Although the contract was set in Yemen was set to expire at the end of this year, 20 15. For reference, Yemen contributed approximately 9,000 barrels per day in the Q1. As Steve mentioned in his opening remarks, we have raised our full year 2015 guidance for production growth to a range of 60,000 to 80,000 BOE per day, an increase of 20,000 BOE per day versus our previous guidance. We expect full year production in Permian Resources to be in the range of 105,000 BOE per day, a year over year increase of more than 40%. BOE per day, a year over year increase of more than 40%. Overall, domestic volumes are expected to increase to over 300 and 25,000 BOE per day at least 5% higher than 2014. Internationally, we expect full year volumes from Alhosin to be approximately 35,000 BOE per day. Should oil prices move higher, our production volumes could be negatively impacted by our production sharing contracts. Price changes at current global prices affect our quarterly earnings before income taxes by $30,000,000 for $1 per barrel change in oil prices and $7,000,000 for $1 per barrel change in NGL prices. A swing of $0.50 per 1,000,000 BTUs and domestic gas prices affects quarterly pretax earnings by about $15,000,000 Our Q2 2015 exploration expense is anticipated to be about $35,000,000 pretax. We expect our Q2 2015 pre tax chemical earnings to be about $185,000,000 and 2nd quarter midstream earnings should be in the range of $100,000,000 pre tax as we anticipate higher gas sales from the Dolphin Pipeline and improved marketing margins as a result of wider inland versus Gulf Coast crude oil price differentials. We expect our interest expense to rise to about $42,000,000 in the second quarter from $28,000,000 in the first quarter as the start of Alhosin reduces our capitalized interest. Using current strip prices for oil and gas, we expect our 2015 domestic tax rate to be 36% and our international tax rates to remain at about 65%. To summarize, we've demonstrated strong year over year production growth of nearly 13% in the Q1 bolstered by our Permian Resources unit. The performance of this business combined with growing volumes from Alhosen provides us with confidence to raise our guidance on 2015 production growth. We expect the growth in our volumes combined with on our capital spending and improving efficiencies to lead us to a cash flow neutral position by the Q4 at oil prices of around $60 I'll now turn the call over to Vicki Holl, who will provide an update on our operations in the Permian Basin. Thank you, Chris. Today, I'll first review the highlights of our Permian Resources and Permian EOR activities in the Q1 and then I'll provide guidance on our program for the remainder of 2015. I'd like to highlight a few key messages. 1st, Permian Resources performance is exceeding expectations. 2nd, our core Permian unconventional programs generate strong returns in the current environment and we believe that we'll get even stronger through our focus on execution excellence. Finally, our Permian portfolio is unmatched in the industry. The combination of our assets and Permian Resources and DOR along with the expertise and commitment of our teams will allow us to grow the business and live within cash flow in a $60 oil environment. In the Q1, Permian Resources achieved daily production of 98,000 BOE per day, which is a 17% increase from the 84,000 BOE per day that were produced in the 4th quarter and a 46% increase versus the prior year. With regard to oil, we produced 62,000 barrels per day for the Q1. This is a 68% increase from a year ago and a 22% increase from the previous quarter. We would have achieved even higher production, were negatively impacted by approximately 4,000 BOE per day by winter weather events in January. During the Q1, our capital expenditures were $728,000,000 We operated 25 rigs and drilled 86 wells, including 61 horizontal wells. We placed 126 wells on production, including 67 horizontals. This is an increase of 20 horizontal wells from the previous quarter. At the end of the quarter, 16 wells were on flowback and 48 were not yet completed. Permian Resources has a large inventory of profitable wells to develop in a low price has a large inventory of profitable wells to develop in a low price environment and we are successfully implementing 4 actions that are reducing the economic hurdle point of our inventory. First, we are investing in reservoir characterization and optimization to improve well productivity. 2nd, we are applying enhanced manufacturing principles to improve time to market and reduce cost. 3rd, we are aggressively working with our suppliers to lower costs. Lastly, we are enhancing base management and maintenance operations to maximize production at minimal operating cost. In the Q4 of last year, we began transitioning from appraisal mode to a targeted development program utilizing a manufacturing approach combined with integrated planning and engineering. This has reduced non productive time, maximize the efficiencies of pad drilling, including the use of zipper fracs and has reduced infrastructure costs. As a result of these efforts, we have achieved significantly improved well delivery and well costs. In the Delaware Basin, our Wolfcamp A 4,500 foot well cost decreased by 24 percent from 20 fourteen's cost of $10,900,000 to a current cost of $8,300,000 We reduced our spud to rig release time by 17 days from 20 fourteen's average of 43 days to March's average of 26 days. In the Midland Basin, we reduced the cost of our Spraberry 10,000 foot wells by 19% from 20 fourteen's cost of $9,700,000 to our current cost of $7,900,000 In New Mexico, we reduced the cost of our Bone Spring wells by 14% to $5,700,000 These reductions were achieved by implementing design enhancements such as 2 string casing design, optimizing bottom hole assemblies and bits, utilizing drilling dynamics to improve rates of penetration. Additionally, we continue to achieve reductions in our commercial rates. Based on the results achieved so far, we are confident that by the end of this year, we can achieve an average well cost that is 20% to 25% lower than in 2014. In the Delaware Basin, we've currently identified 4,600 horizontal development locations. We have 1500 horizontal locations ready for development, including 800 sites in the Wolfcamp A bench. The majority of these locations are in our operated areas of Reeves County. In New Mexico, our Bone Spring potential is equally as significant with 1500 potential locations. And in the Delaware in Q1, we operated 10 horizontal drilling rigs and 2 vertical rigs. We drilled 45 wells and placed 64 wells on production. In Barilla Draw, we placed 18 horizontal wells on production in the Wolfcamp A benches. These wells achieved an average peak rate of 13.71 BOE per day and a 30 day rate of 10.17. In the last call, I discussed the Tex State 258 6H well, which achieved a 30 day rate of 17.60 BOE per day. I'm excited to report this well is still producing over 1,000 barrels of oil per day after 4 months of production. We continue to achieve encouraging results with our efforts to improve landing zones, optimize cluster spacing and increase sand concentrations. For example, our Eagle State 2086H well achieved an average peak rate of 2037 BOE per day and 30 day of 14.70 BOE per day. Additionally, our Peregrine 20 7 8H well achieved average peak rate of 17 68 BOE per day and 30 day rate of 13.09 per day. In New Mexico, the performance of our Bone Spring wells continues to exceed our expectations. Recently, our Cedar Canyon 15 Federal 5H was placed online with an average peak rate of 13.22 BOE per day and a 30 day rate of 11 27. In the Midland Basin, we currently identified 2,500 horizontal well locations with 10.50 in the Spraberry and Wolfcamp A and B benches. In the Q1 here, we operated 11 horizontal drilling rigs and 2 vertical rigs. We drilled 41 wells and placed 62 wells on production. Now I'd like to update you on Merchant, which is a new area in the Midland Basin that we mentioned last quarter. We launched into development mode early in this area and are drilling multi well pads along with zipper frac completions. Our Wolfcamp A and B have achieved an average peak rate of 14.08 per day, a 30 day rate of 11.45 and a 60 day rate of 8.44. Our current well cost is $7,900,000 but we expect to lower it to 6,900,000 The Merchant 1411A well that we discussed last quarter achieved 6 months cumulative oil production of 100,000 barrels and equivalent production of 108,000 BOEs. I'd also like to provide an update on our Permian EOR business, which provides a stable and low decline base to our production at an advantaged cost. As we discussed last quarter, our Permian EOR business remains profitable in the current downturn we are continuing to make investments in these projects that significantly increase oil production from our portfolio of large conventional reservoirs. The EOR business is expected to generate free cash flow this year even in the current oil price environment. Continued investment in these long life projects during the current market will result in more efficient construction costs, which will yield a strong base for future growth and resources. During the Q1, we authorized the first portion of the North Hobbs Phase 2A expansion project. The project will develop $13,700,000 BOE of reserves for development cost of $13.82 per BOE. The Phase 2 project builds on the success of the North Hobbs Phase 1 project where CO2 flooding has added a sustained 5,300 barrels of oil per day that had a peak of 7,000 barrels of oil per day to the unit's production since the project began 12 years ago. Another significant AOR project currently in progress is the Denver Unit Battery 5 redevelopment, which will yield $21,000,000 BOE of net reserves for development cost of $4.80 per BOE. This project is typical of many opportunities to develop and commingle both the main oil column and the residual oil zone in the same wellbore. The Battery 5 project includes the deepening of almost 150 main oil column producing wells to the residual oil zone. Year to date, EOR is ahead of plan in meeting our aggressive cost improvement targets, which includes a $65,000,000 reduction in well maintenance. By applying manufacturing concepts to well repair, we have reduced our rig hours per repair by 20%. This is allowing us to reduce operating cost while maintaining our base production. In closing, we will continue to execute a focused development strategy in 2015 and we'll also continue to pursue step changes and well productivity and cost structure. For the remainder of 2015, we plan to operate an average of 13 drilling rigs to drill 100 and 50 wells in Permian Resources. This is a higher activity level than previously planned, but we believe investing the efficiency gains is the prudent action to take. As Chris said, we expect to produce an average of 105,000 to 108,000 BOE per day in 2015, which exceeds our previously stated target of 100,000 BOE per day. Strong production growth from our resources business along with a high volume, low capital intensive EOR business keeps us well positioned to not only meet the challenges of this lower price environment, but also to profitably grow our combined Permian businesses. Now I'll turn the call back to Chris Degner. Thank you, Vicki. I think we'll now open the call up for questions. Thank you, sir. We will now begin the question and answer session. And our first question comes from Doug Leggate of Bank of America Merrill Lynch. Please go ahead. Thanks. Good morning, everybody. And Vicki, congratulations. It's nice to get that issue behind us. Looking forward to seeing what you're going to do next. I guess, I've got 2 questions, if I may. The first one is the Al Hosn guidance. I just wonder if you could explain the difference between what you suggested at the beginning of the year and what you're looking at now in terms of the reduction through your expectations? And I've got a follow-up please. Yes, Doug. This is Sandy Lowe. Plant started up and we have 25% sulfur recovery there. And some of the sulfur units weren't working quite properly, so we took them offline made some modifications. Today, the plant is back up to 45% of production, which is about 25,000 BOEs to us. And we should be back up at the peak production of $1,000,000,000 a day 1,000,000 a day sorry at the end of the month beginning of next month. So the guidance is given already by Chris should be good for the year. I guess I had a couple of other issues I was going to touch on Sandy taking advantage of you being there. Maybe I'll make my second one on your region if I may. Sure. There's been a fair amount of chatter around both the ADNOC concessions. Obviously, your the slowdown it seems in terms of asset monetization in the region. And finally, the prospect of extensions in the Oman contracts. I'm just wondering if you could give us a kind of general update as to how those things stand and I'll leave it there. Thank you. Well, I can guide you only as to what you see in the press on the ADNOC concessions. Everybody who's involved is still bound by a confidentiality agreement. The press has been reasonably forthcoming in that respect. As far as asset monetization, this when the price of oil dipped like it is, we have kind of 2 issues that people want to pay less for it and also they don't have quite as much money to get into it. So things are somewhat held in advance at the moment in that regard. And the last question I believe was about Oman. We're discussions at the moment. We're now at record breaking production in our Block 9 which is the one under discussion and of over Any Any timeline? Because I believe that contract expires this year, Sandeep. So what's the prognosis if you don't get it done in the next 6 months? I don't think there'll be an issue with that. So it'll be if it weren't quite complete, I'm sure they would extend this. All right. Steve maybe we'll just squeeze one more in given that you jumped in there. The pace of buybacks given that your stock has lagged, just curious on your thought process and I'll then I will leave it there. Thank you. We continue to buy the stock back on weakness. And so you should expect that we'll return we'll buy back shares over the next year or so and eventually get to our target. The exact date or that number each quarter, it's hard to tell. All right. Thanks a lot everybody. Our next question comes from Evan Kallo of Morgan Stanley. Please go ahead. Hi. Good morning guys and congratulations as well to Vicki. My first question is a strategic question. Oxy was in the midst of a restructuring and successfully unlocking value prior to the cycle turn and to position you well with large cash position into this downturn. I know there's some leadership transition here yet. How has the cycle changed your restructuring outlook? I know you just mentioned the MENA asset divestiture or partial divestiture. But does it alter your view as it relates to midstream or chemicals? And given the balance sheet and does it change your willingness to add resource and accelerate that shift here? It's sort of a complicated question. The downturn in the cycle of course is we expect if it stays volatile whatever that means, we'd expect opportunities to show up during the cycle either to repurchase our stock or to buy other assets just depending on what's going on. Right now the asset market is expensive. So there's no reason to believe we'll do much of that. As far as the Middle East assets are concerned, they fall into 2 classes of asset, those that are where we've already spent the money and we're clipping coupons, which seem fairly attractive in a more volatile oil price environment. And those that are more volatile and follow normal trends would seem less attractive in this environment. So I think that's where we are. Some of those assets should require some work and probably in the end divestiture or discontinuation of work there. The as far as the chemical business is concerned, the chemical business once it's the ethylene cracker is on and the business becomes fully integrated with ethylene, its cash flow will be substantially larger than it is now. And I think that would be appropriate time to look at whatever makes sense to do. I think if you do it too early, you're going to wind up undervaluing the asset. So I think we're a couple of years away. Of course, I'll be watching that from the beach. But and so you could ask Vicki at the time what she wants to do so. Great. That's helpful. Let me ask a different question. It's kind of I guess the reverse direction in which we're just headed. Prior to the downturn, you discussed going to 54 horizontal rigs in the Permian by the end of 2016. You're at I think 21 active now. I know you just de ramped. How are you approaching a potential re ramp in activity given your potentially higher long term goals? I mean is it is incremental free cash flow how you will drive that rate of incremental spend? Okay. 1st. I'm going to answer it first then we'll let Vicki answer. You might get 2 different answers. But I think generally in the most attractive asset we have at almost any product price environment is the Permian business, maybe some in the EOR business, but also in the resource business. Any money we have that's excess is going to wind up there. We've already I think Vicki mentioned it, we've changed a number of rigs we're going to run by the end of the year. We're still looking at that. We've got a lot of locations that work in a $60, $65 environment. If we start a well today, we won't see the production really till the 3rd late in 3rd or 4th quarter. And we've gotten a lot better at bringing the stuff to market faster because the times have really shortened. That's why we're having a hard time keeping up with our estimates. I think our estimates are still have room. But I mean I think what we're going to try to so we may put some more rigs to work depending on the environment. Our view on this is different than maybe some others. You get if you put the stuff on production, these wells work. There's no issue about the returns or whatever. If oil prices move up, you'll get 90%, 95% of that change in that well because you have a little bit of production and it's just oil prices are higher next year, you're going to get 90% of that. I think this if there is a boost in prices, I think in the end, the completion costs will start to rise not fall. But we may be at the part where you want to finish the wells. And I don't buy when you got a lot of locations, you got thousands of locations, any locations that you put off for now, you've delayed drilling for 10 years from now effectively because you've moved them to the back of the line. So our view is that you drill through this environment, you reap the returns that are there now. Oil prices move up you're going to get the bulk of that. I think delaying your production because you know what oil prices are going to be next year seems to me to be if they do if people do know, I wish they'd send me an email so I could get rich. I think I'll go with what Steve said. But just to build on that, I'd like to say that we're certainly keeping our team intact and ensuring that everybody is has the resources necessary to prepare us to be able to maximize our flexibility. We're continuing to work on development plans in the areas that are not our core areas. There's certainly a lot of opportunities where with increased prices, we could start to ramp up and have lots of opportunities available beyond the core areas we're currently developing. So what we're doing is laying out those plans, evaluating those and more efficiently than we have in the past. And more efficiently than we have in the past. And just to have one last. Any comment on an optimal pace to retain your the efficiencies that you're realizing today? That's what one of the things we're trying to do is make sure we maintain a minimum level of rigs to in order to continue improving our efficiency. Because you make a good point, you can't really get efficient if you're not actually out doing the work. And that's one thing that's provided us a lot of benefit here. In all the areas that we have continued operations, As you've seen on the charts, we've gained significant efficiencies. And at merchant where we that's kind of a new startup, we don't have those efficiencies yet, but we're starting to see those coming as well. So we think it's critically important to maintain a certain level of activity with not only rigs, but the frac companies that you're using and the other service providers as well. Great. Thanks. And our next question comes from Guy Baber of Simmons and Company. Please go ahead. Good morning, everybody. Congrats on a nice quarter and Vicki, congratulations to you as well. My first question was on cost structure, but obviously you've been very successful in reducing your cost structure in recent months. You mentioned $400,000,000 savings. Can you discuss where you are in that process? Where you see that number potentially going? And then if you could also just discuss for us how much of that you see as structural and permanent versus temporary and what might reverse when prices begin to rise again? Just trying to understand how that outlook might be structurally proving on the cost front? And then I have a follow-up. The structure that we're trying to get to is, we currently have some of our contracts with suppliers tied to oil prices. So some of those contracts will go up with oil prices. However, the majority of our contracts for the drilling rigs and for our frac providers are not necessarily tied to an oil pricing index. So what we're really trying to do is get more efficient. And we expect that the cost structure that we're going to achieve by Q4 is going to be one that does have some exposure to flexibility in prices. But I don't believe that more than 60% to 70% of our cost structure improvement will be associated with oil price changes. Okay, great. And then I had a follow-up on I wanted to talk a little bit more about the Permian and capital allocation. But obviously results in the Permian have improved very rapidly and considerably just in the last 6 months or so. So the question is, does that rapid improvement really change your view of capital allocation relative to what you would have thought 6 months or a year ago? Meaning, are you much more likely now to commit incremental discretionary capital to the Permian or perhaps even look for acquisition opportunities and bolt ons as opposed to the buyback versus 1 year ago. Just hoping you could elaborate on most recent thoughts there and what that those improvements to the Permian really mean? Well, the Permian is obviously doing well. And we continue to put what's prudent into it. And we'll continue to focus on it. But as it generates better results, it generates more cash. And that cash a lot the bulk of that was reinvested in continuation of that as long as it does what it's currently doing. I mean, fracs are we the reason we sort of are running ahead of our outlook was simply because we didn't think we would be quite this good. So and we continue to run ahead of outlook in our plans and we so I think there's still room there. I think the buyback question is quite a different one. We need to reduce the number of shares outstanding over time and we'll do that. But just as important, we need to increase our cash flow, so we can continue to have more free cash flow to for dividends and share repurchases. I mean that's really and the purpose I think I in the very beginning I said, you have to focus on the fact that you can't just save and cut back and that's going to make it better. If you don't invest and you start to decline, you're going to have a hard time recovering from it because you have a decline curve and you're declining against it and you're starting up again. So our objective is to continue to grow the volumes through the year and to the extent we can't unless you get a collapse in product prices. And then the free cash flow that that will generate over the next year can be used to enhance the dividend or repurchase shares. That's very helpful. Thanks for the comments Steve. Thanks. And our next question comes from Ed Wechtelig of Credit Suisse. Please go ahead. Yes. Congratulations, Vicki. Two questions again on the Permian. It's probably going to be a theme. You have a great slide in the deck just in terms of drilling days and getting from your 26 days down to a target of 16. What's the key thing you're doing differently? Is it just as simple as just getting to an efficiency mode? Or is there other things you need to do to get to the best in class? And then I've got a question on completions. In terms of the drilling days, one of the things our team is doing is, they're taking an evaluation of the formations that we're drilling through and modeling what it takes in terms of the weight on our bit and rotation of the bit to really design exactly how much we should do, how fast we should rotate the bit and how much weight we should put on it by interval. And it's a process that's called mechanical specific energy and that's one of the processes that's helped us to significantly reduce our drilling days. That along with the fact that we're better managing our mud systems and we've seen a lot of improvement there. We're seeing a significant reduction in non productive time during our drilling operations. So and part of that a good part of the non productive time reduction is due to the efficiencies of our teams and the scheduling. Some of that is due as well to the fact that the Permian is not as stretched in terms of the support system now that activity is lower. So it's a combination of a lot of things. But the thing I'm most excited about is the engineering that our teams are doing on the wells and that's sustainable. So the drilling day reduction is one of the things cost from a cost structure standpoint improvement that's sustainable and that's we haven't been able to apply that everywhere yet like in merchant. That's one of the things that's going to help us to further improve our drilling efficiency in merchant. So it's really based on some incredible work by our teams, especially with respect to the engineering aspect of what we're doing. And then my second question on completions, I was down at the Offshore Technology Conference, which I may as well call the Onshore and Offshore Technology Conference. And obviously, there's a lot of new technology. Give us a sense of any pilots or new solutions which you see driving EUR improvements or lowering the cost? One of the things that we've been trying and we are not prepared yet to talk about the results, but we've used several different techniques to isolate how we inject and place our proppant within the horizontal section of the well. And we feel like that that's the next area that we feel has the most opportunity for improvement and that's getting the most contact with your proppant to the formation. So it's getting the most surface area contact in our stages with just single clusters rather than 2 to 3 to 4 clusters per stage that we could more efficiently frac the formation. So we've tried some of that and we've tried various types of tools to help us do that. We're in the process of evaluating those results now and hope to have some things that we can share in the next 3 to 6 months. Thanks very much. Good luck. And our next question comes from Brian Todd of Deutsche. Please go ahead. Great. Thanks and congratulations Vicki. Maybe another follow-up question on the Permian. You have some slides in there that update on well cost deflation in the Permian. Can you with the 2014 level, a current level and a target level, I guess can you talk a little bit about where the current level of well costs are relative to what you implied in the 2015 budget? And then is the target well cost kind of a year end 2015 target? Is that eventually full blown development program target? And I guess can you maybe talk a little bit about and how much of that is from service cost deflation versus improved efficiencies? Yes. The target that we're trying to achieve, we already have achieved that with some of our wells. So the current cost where I'm saying we are there is that's basically an average of what we're seeing? That is actually our plan numbers were a little bit higher than what certainly our target is and sort of in between our target and our current. So and but in terms of where we expected to be for Q1, we're ahead of schedule, because we're implementing these things as we go. And so the target was where we expect to be by year end, but we think we'll be ahead of that. Great. That's helpful. And then I it's not I don't know if you you addressed costs a little bit earlier and I wasn't clear whether you addressed this point or not. Last quarter you had targeted $500,000,000 of cost savings. You said you captured $400,000,000 to date. Any update on whether you expect greater than $500,000,000 at this point? Or is that still a reasonable target for the year? Yes, Steve. I think it's a reasonable target for the year. I think we'll sort of get there. But I think it's I don't it could be more than that. But I think right now we'll stick with that. Great. I appreciate it. I'll leave it there. And our next question comes from Roger Read of Wells Fargo. Please go ahead. Yeah. Good morning and congrats Vicki on your new role there. Kind of coming back around to the Permian Resources for the obvious reasons. As you talked about guidance and being in a situation where you could potentially still exceed that, can you quantify at all how much of that is the well not getting the wells in the ground sort of that if you spud today whether or not you can get it started late Q3 or if it slides well into Q4? Currently, it's principally performance execution. It's accelerating the well delivery. However, we do have a couple of areas where we're seeing improved performance. You'll notice that the graphs on the Delaware Basin, we're still seeing strong performance versus our peers in the Wolf Bone and the Brilla Draw area. There are other areas where we're seeing improved performance in terms of our program design. So we're still seeing opportunities to increase our per well performance and we're seeing and then the main thing that we're doing there is targeting better landing zones. So I would say that right now just to go back and then bottom line answer the question, it's incredible execution on the part of our teams to get the wells on faster. And part of it is a little bit of improved recovery on a per well basis, but we still expect there will be more of that to come. Okay. Thanks. And then Yemen, as you said earlier that was going to go away anyway. But I was wondering what was the, I don't know, margin or cash margin per unit that that impacts you? I don't remember. Chris has got it. It was generating about $15,000,000 a quarter after tax if you want to think about it that way. Okay. Appreciate it. Thank you. Our next question comes from Paul Sankey of Wolfe Research. Please go ahead. Good morning, everyone and congratulations Vicki. Steve, you start your slides in a differentiated way with talk about dividend growth. And I think and I assume Vicky will continue this as the primary ultimate aim of Oxy. Can you square the circle because as I said that's a differentiated strategy from most other if not all other U. S. E and Ps? Does it mean that you have better geology costs, lower growth? How is it that you're going to be able to deliver a higher dividend growth than others in essentially the same place? Thanks. Well, most of them don't have any dividends. So I mean comparing against an environment with so we're sort of so tall midget here. So I think dividends, if there is a religious activity here I think that's it. It provides discipline to the management. Otherwise you print shares do all sorts of wealth destructive things. The dividends give you discipline. We have a more diverse business than the typical E and P. We've got the sort of stable stuff that we've already spent the money on in the Middle East to generate cash. We've got the chemical business, which always generates cash. We have a midstream business, which generates cash. So it's and we have less debt relatively. So all that provides more cash than the typical. And what we do with the cash is we buy in some shares and we pay more dividends. You have to have something that you can't be at our size, you can't be you can't try to compete with somebody who makes 10,000 barrels a day in growth. So we think that our long standing acreage position that's also part of it is that we didn't just acquire the acreage last month or last year. We got the EOR business which generates a lot of cash. In economic terms, those are called monopoly profits. And that's really what you're saying. It's the same thing you see at the large integrated. So I mean that's what differentiates it. The other guys have a different strategy. Nothing wrong with their strategy. It's just different. But we think that we think the cash here will be full strong and we invest sometimes on top early by the way in things that will generate a lot of cash for a long period of time. And so we always are thinking about how we're going to grow the dividend. She can speak for herself, but I think Vicki and Chris have the same basic belief because they've been hearing it for a long time. So it's and that's and Chris is planning on Vicki will certainly set the strategy. Well, I'm glad to hear that Vicki is not planning to fire Chris. Could I guess theoretically you let's slightly skip over your politically incorrect comment and just say assuming that you're not comping against other E and Ps, but I would assume an above inflation rate of growth, right? Otherwise, you're not growing the dividend. Would that mean that ultimately given that the assets that you listed are all more or less zero growth once we get through some of the project startups, Would that mean that we align your long term volume growth with your long term dividend growth? Yes. That's probably about right. These are 5 plus percent but not 10%, I guess. That's right. And some it's hard to say exactly You have the chemical business which is a little different and that's going to generate a sizable amount of free cash out here. I'm sure it will generate $1,000,000,000 in free cash and so that will cover a fair amount of the dividend without doing anything and some growth there. It's sort of a GDP grower when all is said and done on its cash flow. So that provides the base. And we just the dividends are the cost of keeping the shareholders, it's cost to capital however you want to say it. And without that sort of discipline, you do all kinds of crazy stuff. Yes. And just finally, would it be fair if Harsh to say that the other element here is that you're coming off a lower base in terms of your operational performance in the Permian and that provides the potential for greater growth? And I'll leave it there. Thanks. I don't know what's maybe. But I think growth is growth. We spent a lot of time building to this so that we wouldn't be in the same situation that a number of other companies are. We spent money and time. And so we started the acceleration when we knew what we were doing mostly. And that's really what and I think we told you that in the past which nobody listened to. Okay. Thanks, Steve. And our last question comes from John Herrlin of Societe Generale. Please go ahead. Yes. Hi. Just a quick one for me. Steve, nobody would accuse Oxy as being a chondroplastic. But regarding the Permian, you're going to drill in the Resources division, I guess Vicki 150 wells. Could you give me a sense of what the split would be, Delaware, Central Basin and Midland? And that's it. Yes. Of the 150 wells, none of them will be on the Central Basin platform. It will be almost split half and half between the Midland Basin and the Delaware Basin. Okay, great. That's it for me. Thank you. Thanks, John. And thank you. This concludes our question and answer session. I'd like to turn the conference back over to Mr. Degner for any closing remarks. Hi, yes. Thanks everyone for participating. I know it's been a busy day for you. Please give us a call if you have any follow-up questions. Thank you, sir. Today's conference has now concluded. We thank you all for attending today's presentation. You may now disconnect your lines.