Q3 2024 Earnings Summary
- Strong operational performance and synergies from CrownRock integration: Occidental has reported exceptional operational performance, particularly with the integration of CrownRock assets, which is driving production efficiencies and substantial synergies.
- Advancement in Direct Air Capture (DAC) technology with significant funding: The company is making great progress on its DAC projects, expecting the first unit to be operational by mid-2025, and securing up to $500 million in funding from the U.S. Department of Energy. This positions Oxy as a leader in carbon capture technology, which could be a significant value creator and cash flow generator in the long term.
- Flexible capital allocation and preparedness for market conditions: Occidental is ready to adjust its capital spending and has multiple options, including asset disposals, to manage its balance sheet effectively, demonstrating financial discipline in a volatile commodity environment.
- Dependence on Government Support for Direct Air Capture (DAC) Projects: The company's DAC projects, like STRATOS, rely heavily on government funding and subsidies, such as the up to $500 million awarded by the U.S. Department of Energy. Changes in political leadership or subsidy environments could impact the economics and progress of these projects.
- Increasing Capital Expenditure Beyond Previous Guidance: The full-year CapEx is expected to be about $7.1 billion, approximately $200 million higher than previous midpoint guidance. This increase may strain financial resources or indicate cost overruns.
- Acknowledgment of Potential Softening in Oil Prices and Conservative Outlook: The company recognizes the possibility of declining oil prices and is planning a conservative capital spend for 2025. This conservative stance may limit growth opportunities and reflects concerns about the macro environment.
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Production growth in the Permian | Discussed consistently in Q2, Q1, and Q4 (2023) with focus on high-margin barrels, well outperformance, and CrownRock acquisition impact. | New record for U.S. production with strong well performance and emphasis on secondary benches. Integration of CrownRock assets bolstered the Permian footprint. | Recurring topic with bullish sentiment and steady operational gains. |
Cost improvements and operational efficiencies | Consistently highlighted in prior calls (Q2, Q1, Q4 2023) with focus on well cost reductions, LOE improvements, and operational discipline. | Integration of CrownRock driving $10 million in expected savings. Achieved 10% drilling cycle time improvement in the Permian. | Ongoing initiative with positive and consistent improvements. |
CrownRock acquisition and integration | Featured prominently in Q2, Q1, and Q4 2023 calls as a transformative deal, expected to unlock operational and financial efficiencies. | Integration is progressing smoothly; teams identified roughly $10 million in synergies for Q1 2025. CrownRock assets contributed to record production. | Sustained emphasis with positive impact on growth and efficiency. |
Debt reduction and reliance on divestitures | Consistently discussed across Q2, Q1, and Q4 2023, with proactive deleveraging supported by divestitures and free cash flow. | Repaid $4 billion of debt in Q3, meeting 90% of near-term commitments. Divestiture proceeds remain central to achieving the $15 billion target. | Key financial priority with continued progress in strengthening the balance sheet. |
Declining oil cut in Permian production | Briefly noted in Q1 2024 due to Gulf of Mexico shutdown, but no significant discussion in Q2 2024 or Q4 2023. | Mentioned shift toward secondary benches, causing a slight decline in oil mix. Oil cut expected to stabilize in the latter half of the year. | Intermittent topic; reemerged in Q3 with a neutral-to-watchful sentiment. |
Increased capital expenditures | Referenced in Q2, Q1, and Q4 2023 calls; CapEx adjusted for CrownRock integration and long-cycle developments, with ongoing focus on balancing short-cycle and mid-cycle investments. | Chemical capital budget to increase by $200 million in 2025, reaching $900 million as major projects ramp up. | Steady mention reflecting rising investment for future growth. |
Midstream contract roll-offs | Addressed in Q1 2024 and Q4 2023 as key opportunities for lowering transportation costs by 2025–2026. | No mention in Q3 2024. | Not mentioned this quarter; previously seen as an important cost lever. |
Low Carbon Ventures (STRATOS direct air capture) | Recurring focus in Q2, Q1, and Q4 2023, featuring large offtake agreements, DOE support, and long-term value tied to net-zero barrel production. | STRATOS construction progressing, with first phase nearly 90% complete. Expect 250,000 tonnes capacity by mid-2025 and another 250,000 tonnes the following year. | High-impact, repeatedly emphasized as a key future growth driver and decarbonization solution. |
Gulf of Mexico discoveries (Ocotillo and Tiberius) | Only detailed in Q2 2024, when Oxy noted tiebacks for each discovery and approaching Final Investment Decision. | No mention in Q3 2024. | No new updates after Q2 2024 mention. |
Ecopetrol JV changes | Discussed in Q2 2024 regarding JV structuring (51% Oxy / 49% Ecopetrol if JV ends), and a potential CrownRock deal that was not approved. | No mention in Q3 2024. | Short-lived discussion, not reaffirmed. |
Reserve additions in the Permian and Algeria | Highlighted in Q4 2023, primarily from Permian EOR and Algeria contract extensions. | No mention in Q3 2024. | Previously noted in Q4 2023; no further discussion. |
OxyChem project expansions and delays | References in Q2, Q1, and Q4 2023 point to ongoing expansions (e.g., Battleground) and some delays caused by supply chain/inflation. | On schedule for 2026 completion; chemical CapEx rising by $200 million in 2025. Expect an $325 million earnings uplift once expanded capacity is online. | Consistent updates; incremental positive progress with occasional scheduling shifts. |
Production guidance and rig count updates | Repeatedly discussed in Q2, Q1, and Q4 2023. Guidance often exceeded on strong well performance. Rig counts adjusted for efficiency and acquisitions. | Q4 production midpoint raised to 1.45 million BOE/day, with an additional 9,000 BOE/day from CrownRock. Maintaining a 5-rig program heading into 2025. | Ongoing topic reflecting stable growth and flexible rig strategy. |
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Macro Outlook and Capital Plans
Q: How will Oxy adjust capital plans amid macro uncertainty?
A: CEO Vicki Hollub explained that the company regularly reviews macro factors, noting that 2026 will be better than 2025 due to expected declining growth rates in U.S. shale and Brazil. Oxy plans to recommend a conservative capital plan to the Board, maintaining activity levels in the CrownRock area while slightly lowering capital in other oil and gas areas. They are prepared to adjust activity levels based on price trends but will not increase capital expenditure even if prices rise. -
Debt Reduction and Deleveraging
Q: What are Oxy's goals for debt reduction in the next 12–18 months?
A: Vicki Hollub stated that Oxy believes they have already achieved significant success with over $4 billion in debt reduction. Even in a lower-price environment, they expect to generate cash flow and proceed with divestitures, continuing debt reduction efforts through 2025 regardless of oil prices. -
Permian Production Mix and Secondary Zones
Q: Is the lower oil percentage in the Permian a structural change?
A: Richard Jackson noted that the increase in development of secondary benches, especially in the Delaware Basin, led to a higher proportion of NGLs. The company increased secondary bench development from 20% in 2023 to 40% in 2024, adding value despite a lower oil cut. This strategy is expected to continue into next year, with the oil percentage leveling off in the second half of the year. -
Direct Air Capture (DAC) Project Progress
Q: What is the status of the DAC project, and how might the election impact its economics?
A: Vicki Hollub stated that the DAC project will be a value creator and cash flow generator, with ongoing cost curve improvements. Kenneth Dillon reported that the first phase is nearly 90% complete, with mechanical completion expected by the end of the year. Regarding the election, Hollub believes that support for DAC and related funding will continue regardless of the administration, highlighting bipartisan backing for initiatives like the 45Q tax credit. -
Capex Guidance and CrownRock Integration
Q: What is the incremental Capex from CrownRock next year?
A: Oxy expects to allocate approximately $900 million to $950 million in capital to CrownRock in 2025, maintaining a five-rig program. The increase in full-year Capex guidance for 2024 is entirely due to CrownRock. -
Divestitures in the Rockies
Q: What are Oxy's plans for assets in the Powder River Basin?
A: Vicki Hollub explained that Oxy sold the southern part of the Powder River Basin to focus on contiguous acreage where they can optimize value. The sold assets are better suited for development by the acquiring company, and Oxy will concentrate on the core part of the basin, which they believe will create significant future value.