Reflecting current low-price realities, Occidental Petroleum Corp. (Oxy) is hunkering down in 2015, with a focus on the Permian Basin and no spending in the Williston Basin, CEO Stephen Chazen said Thursday during a conference call with analysts.
The write-down of the assets totals more than $5 billion, Chazen said.
The outlook is for U.S. oil production to grow about 6% this year, but that should be offset by the same level of declines in natural gas liquids and natural gas production for the year, Chazen said.
Oxy reported 4Q2014 net income of $560 million (72 cents/share), compared with $1.2 billion ($1.46) for the same period in 2013. For the full year 2014, income was $3.8 billion ($4.83), compared with $4.6 billion ($5.76) for 2013. Oxy completed its spin off of its California operations, California Resources Corp., at the end of November.
Noting that the company continued to increase its emphasis on domestic U.S. operations, U.S. production in 4Q2014 increased by 19,000 b/d over the same quarter in 2013. Operations in the Permian Basin led the charge with 42% quarterly growth, with production jumping to 75,000 boe/d from 65,000 boe/d.
"Although we have a large inventory of opportunities as well as the financial capacity to spend more capital, we think it is imprudent to accelerate some of these opportunities in the current low product price environment," said Chazen. Capital expenditures for the year are to drop by 33% to about $5.8 billion, with two-thirds assigned to maintenance programs.
Instead, Oxy plans to focus on reducing costs, including renegotiating supplier contracts to reflect the weaker oil prices. Service companies have cut their charges somewhat, but Chazen thinks they need to cut them considerably more.
Oxy has virtually eliminated its capital spending in the Williston Basin and some overseas plays "as they have unacceptable returns in the current price environment,” Chazen said. "As the result of a thorough portfolio review, we have reduced the carrying value of the assets in these areas where we are minimizing development activity, resulting in an after-tax one-time charge of $5.1 billion, and these charges will not affect our cash position. Our policy has been, and will continue to be, to write down assets to fair market value when we believe the impairment is other than temporary."
Oxy achieved production of 84,000 boe/d in the Permian in 4Q2014, a 9% sequential increase from the third quarter. While spending $791 million in the Permian in the 4Q2014, Oxy operated 29 rigs, drilling 85 wells, including 56 horizontal wells. At the end of the year, 70 wells were in production, including 44 horizontals.