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    OXY
    Earnings call· Dec 2024(Q4 FY24)

    OCCIDENTAL PETROLEUM CORP /DE/ OXY

    Feb 19, 2025 Source

    Executive summary

    Occidental Q4 FY24 — Record Production and Accelerated Deleveraging

    Occidental delivered a strong Q4 FY24, capping a year of strategic execution marked by record production and accelerated debt reduction, achieving its near-term target ahead of schedule. The company is balancing continued deleveraging with strategic investments in short-cycle, high-return assets and major projects like STRATOS, while also advancing its low-carbon ventures and AI initiatives for future growth and efficiency.

    Highlights

    5

    • Generated $4.9 billion of free cash flow in 2024, enabling $800 million in common dividends and a 22%+ dividend increase.

    • Achieved near-term debt repayment target of $4.5 billion seven months ahead of schedule through asset sales and organic cash flow.

    • Reached highest annual U.S. oil production and record total company production at 1.33 million BOE per day in 2024, exceeding upper end of guidance.

    • Increased year-end proved reserve balance to 4.6 billion BOE, the highest in Oxy's history, representing 230% all-in reserve replacement.

    • OxyChem business exceeded original guidance midpoint with over $1.1 billion in pretax income in 2024.

    Concerns

    3

    • Reported a loss of $0.32 per diluted share in Q4, primarily due to an increase in long-term environmental remediation liability.

    • OxyChem's Q1 income expected to be lower due to winter storm impacts, an unplanned outage at Ingleside, and increased raw material costs.

    • Midstream earnings expected to be slightly lower in 2025 as gas transportation optimization opportunities narrow with increased takeaway capacity.

    Guidance & targets

    9
    CategoryTargetConfidence
    Total Capital Investment
    $7.4 billion - $7.6 billion
    high materiality
    High
    Full Year Production
    1.42 million BOE per day
    high materiality
    High
    Oil Volumes Growth
    nearly 3% increase
    medium materiality
    High
    Permian Production Growth
    more than 15%
    high materiality
    High
    CrownRock Average Production
    over 170,000 BOE per day
    medium materiality
    High
    OxyChem Pretax Income
    $1 billion
    medium materiality
    Medium
    Midstream Earnings
    slightly lower
    medium materiality
    Medium
    Crude Transportation Contract Savings
    $200 million
    medium materiality
    High
    Net Debt Target
    $15 billion
    high materiality
    High

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    Oil and Gas
    Outperformed across all three segments in 2024, with record U.S. and total company production. Strong well performance and operational efficiencies drove cost reductions. Achieved highest ever proved reserve balance.
    Global production Q4: 1.46 million BOE per dayGlobal production FY24: 1.33 million BOE per dayU.S. quarterly production Q4: Record highU.S. annual production FY24: Record highDomestic lease operating expenses per barrel FY24: Reduced by 9%Well costs across unconventional basins FY24: Lowered by 12%Year-end proved reserve balance FY24: 4.6 billion BOEAll-in reserve replacement ratio FY24: 230%Organic reserve replacement ratio FY24: 112%Average well breakeven: Improved by 6%
    		————
    OxyChem
    Exceeded original guidance midpoint for pretax income in 2024. Q4 benefited from better realized prices and volumes in domestic and international markets. Q1 2025 expected to be lower due to winter storm, unplanned outage, and higher raw material costs.
    Adjusted income Q4: $280 million
    		———Pretax income FY24: Over $1.1 billion
    Midstream
    Exceptional performance throughout 2024, surpassing original full-year guidance midpoint by approximately $600 million. Q4 benefited from gas marketing optimization in the Permian and higher sulfur pricing for Al Hosn production. Expected slightly lower earnings in 2025 due to narrowing gas transportation optimization opportunities.
    		———Adjusted pretax income Q4: Outperformed guidance by $104 million
    Gulf of America
    Busy year ahead with two platform turnarounds in Q1, six new wells, and production engineering activities. A Q4 turnaround is also planned. Commencing Gulf of America 2.0 projects including waterfloods and artificial lift at Horn Mountain 2.0.
    Production guidance FY25: 141,000-150,000 bbl/dProduction increase from Q1 turnarounds: 16,000 bbl/dProduction increase from 6 new wells: 18,000-22,000 bbl/dProduction increase from engineering activities: 4,000-7,000 BOE/d
    		————
    Rockies
    Lower activity levels in 2025 due to efficiency gains and infrastructure investment in the Bronco area of the DJ Basin. Decision to adjust gas processing to ethane rejection expected to increase revenues and improve margins. Announced divestiture of non-operated interests will lower production.
    Production guidance FY25: Essentially flat from FY24 (adjusted for divestitures and ethane rejection)
    		————

    Operational metrics

    22
    Adjusted Profit per Diluted Share
    $0.80
    Q4 FY24

    Reported loss of $0.32 per diluted share, difference primarily due to increased long-term environmental remediation liability.

    Debt Repayment
    $4.5 billion
    FY24

    Achieved near-term debt repayment target through asset sales and organic cash flow.

    Capital Spend
    $6.8 billionlow end of guidance
    FY24

    Driven by capital improvements and operational efficiencies.

    U.S. Onshore Inventory Locations
    Increased
    FY24

    Increased even after accounting for wells drilled and divestitures.

    Unrestricted Cash Balance
    $2.1 billion
    Q4 FY24

    After repaying $500 million of debt in the quarter.

    Oil and Gas Capital Program
    Roughly equivalent to 2024
    FY25

    When adjusting for a full year of CrownRock in the portfolio.

    OxyChem Investments
    $900 millionincrease
    FY25

    2025 represents the peak year for construction at Battleground.

    Low Carbon Ventures Spend
    $450 milliondecrease
    FY25

    Majority for continued build-out of STRATOS, remainder for South Texas DAC hub and Gulf Coast sequestration projects.

    Oil and Gas Capital Allocation
    Over 75%
    FY25

    Allows flexibility to adapt to commodity price fluctuations.

    Permian Oil Cut
    52%increase from 2024
    FY25

    Driven by growth out of the Permian and U.S. offshore portfolio.

    Midstream Adjusted Pretax Income
    $600 millionsurpassed midpoint of original guidance by
    FY24

    Demonstrated exceptional performance throughout the year.

    Crude Transportation Contract Savings
    $400 million
    Annual

    Expected annual savings from revised contracts, with $200 million benefit in 2025.

    Debt Repayment
    $500 million
    Q4 FY24

    Part of ongoing deleveraging efforts.

    Divestiture Proceeds
    $1.2 billion
    Q1 FY25

    Proceeds to be used for debt reduction.

    Midland Basin Well Cost Improvement
    $1 million
    Q4 FY24 onwards

    Identified through integration with CrownRock, expected to continue into 2025.

    Drilling and Completion Cost Improvement
    12%vs 2023
    FY24

    Across all assets, including Rockies.

    Drilling and Completion Cost Improvement
    7%
    FY25

    Focused on continuing to deliver the performance component.

    Time to Market Improvement
    10%vs last year
    FY25

    Expected improvement on CrownRock acreage.

    Well Cost Decrease
    7%vs last year
    FY25

    Expected decrease on CrownRock acreage.

    Rockies Breakeven Locations
    140
    next 3 years

    Available for prosecution over the next 3 years, supported by infrastructure investment.

    Gulf of America Exploration Wells
    2
    FY25

    One well underneath an existing facility with two targets.

    EOR Production
    similarslight decline over last 3 years
    current

    Production levels are similar to prior run rates, with slight decline due to lower capital investment in recent years. Business delivers great efficiency on cost and is leveraged to OpEx.

    Industry KPIs

    6
    MetricValueDetails
    D c efficiency rig activity12%%
    Sanctioned expansion backlog140 locationslocations
    Basin level production volume1.33 million BOE per dayBOE/d
    Cost of supply unit cash cost9%%
    FCF shareholder distributions$4.9 billionUSD
    Weather event volume earnings impactimpacted production and restricted access to market

    Deals & partnerships

    4
    CrownRockAcquisition of Midland Basin assets

    Closed on the acquisition in 2024.

    EcoPetrolExtension of Midland Basin JV

    The extension was a key driver behind identified scale efficiencies and design improvements with potential to lower well costs across the remaining Midland Basin program.

    WorleyConstruction partner for STRATOS

    Worley has been instrumental in the construction of STRATOS, with teams highly impressed by their work.

    TerraLithiumDirect lithium extraction technology development

    Progressing from a pilot to demonstration plant to explore the commerciality of TerraLithium's patented DLD technology.

    Capital programs

    2
    STRATOS Phase 1underway
    Spent to date: 94% complete overall, 98% complete on construction

    Benefit: Initial capacity ramp-up through year-end

    Construction of trains 1 and 2 completed in December. Central processing facilities expected to be completed in Q2. Commissioning on trains 1 and 2 in parallel. Expected to be commercially operational this year.

    Battleground Modernization and Expansionunderway

    Benefit: Increased cash flow through improved margins and higher product volumes

    Project is advancing, expected to increase OxyChem's market position for key ingredients. 2025 is the peak year for construction spend, reverting to maintenance levels in 2027.

    Risks & headwinds

    6
    Increased long-term environmental remediation liabilityLong-term, extending over multiple decades

    Primary driver of $0.32 per diluted share reported loss in Q4 FY24

    Mitigation: Appealed the Federal Court ruling and will seek cost recovery from all potentially responsible parties. Annual remediation and potential cash outlays not expected to materially increase over the next several years.

    OxyChem Q1 2025 income headwindsQ1 FY25

    Expected to be lower than prior quarter

    Mitigation: Temporary cost pressures from winter storm, unplanned outage, and higher raw material costs are expected to ease early in Q2 once ethylene suppliers are back online.

    Oversupplied chemicals marketH1 FY25

    Slight decrease in OxyChem's full-year earnings guidance to $1 billion

    Mitigation: Rationalizations are expected to occur in the second half of the year, which should help to rebalance the market and improve pricing.

    Narrowing gas transportation optimization opportunitiesFY25

    Slightly lower midstream earnings expected in 2025

    Mitigation: Upstream businesses will benefit from improved realized prices in the Permian due to increased takeaway capacity. Partially offset by improvements in crude marketing out of the Permian and lower transportation costs.

    Negative working capital changeQ1 and Q2 FY25

    Expected

    Mitigation: Typical for this time of year due to interest payments, property tax, and compensation plan payments. Also includes two upcoming 2024 tax payments as part of the Federal Disaster Relief Program following Hurricane Beryl.

    Uncertainty around IRA and infrastructure bill for LCVFuture

    Discussed, not quantified

    Mitigation: Company believes CO2 is needed for U.S. energy independence and EOR. Engaging with Congress and cabinet members to explain the business case for 45Q and DAC technology. Optimistic about reducing DAC costs faster than originally thought, even if government support is not as expected.

    What to watch in Q1 FY25

    5

    STRATOS commissioning progress

    Q2 FY25
    Current94% complete overall, 98% construction complete
    TargetCompletion of central processing facilities, start of commissioning on trains 1 and 2

    Why it matters

    Successful commissioning is crucial for the commercial operation of the first direct air capture facility, validating the technology and its potential for future carbon management.

    Construction on the central processing facilities is expected to be completed in the second quarter with commissioning on trains 1 and 2 in parallel.

    Q&A highlights

    7

    What is the quarterly production trajectory for the Gulf of Mexico in 2025, including maintenance and project contributions, and what is the long-term outlook?

    Q1 will see two platform turnarounds adding 16,000 bbl/d upon return. Six new wells will add 18,000-22,000 bbl/d, and production engineering activities will add 4,000-7,000 BOE/d. A Q4 turnaround is also planned. Total 2025 production is guided to 141,000-150,000 bbl/d. Beyond 2025, the goal is to stay flat, with projects like waterfloods, exploration, and unconventional opportunities expected to add hundreds of millions of barrels at low F&D costs.

    “Our drilling activities this year involve six wells. This wedge should add between 18,000 to 22,000 barrels a day for the year. Our production engineering activities, including stimulation along with OBO should add another 4,000 to 7,000 BOEs per day, and we will carry out platform turnaround in Q4.”

    asked by Arun Jayaram · answered by Kenneth Dillon

    2 min read7 chapters

    Detailed Narrative

    01

    Strategic Execution and Deleveraging Success

    Occidental achieved its near-term debt repayment target of $4.5 billion seven months ahead of schedule in 2024, utilizing asset sales and organic cash flow. This commitment to balance sheet improvement is coupled with investments in future growth. The company also announced $1.2 billion in divestiture proceeds in Q1 2025, which will be applied to 2025 debt maturities, with excess cash flow directed to further reduce 2026 and beyond maturities.

    02

    Record Production and Operational Efficiencies

    In 2024, Occidental achieved its highest annual U.S. oil production and a record total company production of 1.33 million BOE per day, exceeding guidance. This was driven by strong well performance in U.S. onshore basins (Delaware, DJ, Midland, Powder River) and contributions from Al Hosn. Domestic lease operating expenses per barrel were reduced by approximately 9%, and well costs were lowered by roughly 12% across unconventional basins.

    03

    Reserve Replacement and Inventory Enhancement

    Occidental increased its year-end proved reserve balance to a historic 4.6 billion BOE in 2024, achieving an all-in reserve replacement ratio of 230% and an organic ratio of 112%. The company also expanded its operated inventory of U.S. unconventional well locations with sub-$50 breakevens and improved average well breakeven by 6%, demonstrating continuous portfolio high-grading.

    04

    Advancing Major Projects: STRATOS and Battleground

    STRATOS, the direct air capture facility, is progressing on schedule for commercial operation in 2025, with construction of trains 1 and 2 completed in December and central processing facilities expected in Q2. Commissioning and ramp-up will continue through year-end. The Battleground modernization and expansion project is also advancing, expected to complete in mid-2026, aiming to increase cash flow through improved margins and higher product volumes for OxyChem.

    05

    Innovation and AI Integration

    Occidental is fostering a culture of innovation, leveraging AI to improve supply chain management, asset integrity, and reservoir characterization in its Gulf of America operations. An AI center of excellence has been created to accelerate business value. The company is also progressing direct lithium extraction technology with its JV partner TerraLithium, moving from pilot to demonstration plant stage.

    06

    2025 Capital Plan and Production Outlook

    The 2025 capital plan is set between $7.4 billion and $7.6 billion, primarily focused on short-cycle, high-return assets. Full-year production is expected to average 1.42 million BOE per day, with Permian production projected to grow over 15%. Investments in OxyChem will increase to $900 million, peaking for Battleground construction, while low-carbon ventures spend is set at $450 million, mainly for STRATOS and the South Texas DAC hub.

    07

    Gulf of America and International Growth

    The Gulf of America is expected to have a busy year with two platforms undergoing turnaround, adding 16,000 bbl/d, and six new wells adding 18,000-22,000 bbl/d. The region's production is guided to 141,000-150,000 bbl/d for 2025. Beyond 2025, the company aims for flat production, with projects like waterfloods and advanced seismic exploration in Algeria and Oman contributing to long-term, low F&D cost barrels.

    AI-generated summary of the company’s earnings call. Not investment advice.