Occidental Petroleum's Low-Carbon Initiatives and Market Outlook
2023-07-30
Company executives and analysts from financial institutions gathered for an earnings call meeting to discuss the performance and operations of the company. The focus of the meeting was on the company's activities in the Permian, Oman, and Gulf of Mexico regions.
One of the key topics discussed was the company's production performance and outlook, with a particular emphasis on the Rockies region. The executives provided updates on the company's low-carbon business and its progress towards Direct Air Capture (DAC) in the Permian Basin. Construction of DAC 1, now known as Stratos, has already begun, indicating the company's commitment to reducing carbon emissions and investing in sustainable technologies.
Richard Jackson, the President of Operations, shared further updates on the company's low-carbon progress. In addition to DAC 1, they are also working on sequestration hubs in the Gulf Coast and improving their understanding of subsurface conditions. The company has submitted Class VI wells for the hubs and Permian operations, highlighting their focus on carbon capture and storage.
The company's plans to drill stratigraphic test wells in the King Ranch area demonstrate their efforts to prepare for development in both point source and DAC areas. This comprehensive approach to low-carbon initiatives showcases the company's long-term commitment to reducing environmental impact.
Overall, the company's focus on low-carbon business and progress towards DAC in the Permian Basin reflects their dedication to sustainability and aligning with global climate goals. These strategic initiatives have the potential to make a significant impact on the market and the environment.
The market outlook summary provided during the meeting indicated a switch from backwardation to contango in the market, resulting in a decrease in realizations by about $1.50 per barrel. Refineries undergoing turnarounds on the Gulf Coast and an outage in the DJ Basin further impacted realizations, causing a drop of about $3.50 and $1 per barrel, respectively. These factors have had a significant impact on oil realizations.
In terms of the low-carbon business, the company has made progress with the DAC 1 project in the Permian Basin, which is already under construction and named Stratos. The company is excited about the project and its development. They are also progressing with sequestration hubs in the Gulf Coast and have submitted Class VI wells to support their Permian operations. The company is actively preparing for development in both the point source and DAC areas.
The company's key drivers of the business include investments in low-carbon ventures, extensive acreage holdings, potential asset sales, and the quality of assets and past performance. They have plans to develop a plant called NET Power, which aims to decarbonize power and utilize anthropogenic CO2. The company also intends to continue funding for the development of direct air capture projects. In terms of financial investment, the company plans to allocate funds for oil and gas development, chemicals, midstream, and share repurchases. They expect significant EBITDA growth in the chemicals sector by 2026.
During the meeting, the executives primarily focused on operational performance and production updates in the DJ Basin and Rockies region. They discussed aspects such as strong base production performance, optimization of production systems, gas lift implementation, new well performance, down spacing, profit concentration, efficiency in fracking, time to market, and well delivery plans. However, specific Key Performance Indicators (KPIs) related to revenue growth, profit margins, or return on investment were not explicitly mentioned.
The company's outlook for the quarter and year includes an anticipated decrease in reported production due to a finalized production sharing contract in Algeria. However, it is not expected to have a significant impact on operating cash flow. In the second quarter, there will be a reduction in oil mix to around 52% due to lower oil production in the Gulf of Mexico and Algeria, and increased gas production at Al Hosn. The company expects the oil mix to recover in the second half of the year and align with their full-year guidance once maintenance in the Gulf of Mexico is completed. Maintenance work and lower volumes in the second quarter will contribute to an increase in domestic price operating costs before exceeding on a BOE basis in the latter half of the year. Despite the anticipated decrease in production levels in the second quarter, the company is confident in raising their full-year production guidance.
The company has made progress on strategic initiatives by starting the NET Power project, considering funding for future projects, and aiming to provide updates on market growth and project capitalization. The CEO emphasized the importance of investing in the company itself and aligning capital programs with established priorities. Additionally, the company has allocated a significant portion of available cash to debt reduction, share repurchases, and capital programs.
The company's capital spending plans range from $500 million to $600 million per year for their low-carbon ventures. If they secure a partner, they are considering the possibility of having a lower spend.
The meeting involved various participants, including the Vice President of Investor Relations, the President and Chief Executive Officer, the Senior Vice President and Chief Financial Officer, and analysts from different financial institutions. The participants discussed the company's operations and performance, highlighting the focus on improving production and productivity in the Permian and Oman operations, as well as in the Gulf of Mexico. The company expressed confidence in the quality and performance of its teams.
In conclusion, the earnings call meeting provided insights into the company's low-carbon initiatives, production performance, and market outlook. The company's commitment to sustainability and reducing environmental impact through projects like DAC 1 and sequestration hubs demonstrates their dedication to aligning with global climate goals. With strategic investments and a comprehensive approach to low-carbon business, the company aims to make a positive impact on the market and the environment.