Oil production is growing in the Permian Basin and headed to higher, more profitable levels, according to Occidental Petroleum Corp. (Oxy) senior executives, who reported 2Q2015 results Thursday that were back in the black after losses sustained in the first quarter.
Led by the Permian results, everything was up in the second quarter -- production volumes, well performance and product prices -- compared to 1Q2015, although lagging way behind 1Q2014. At that time, Oxy still had its California operations, which were spun off as California Resources Corp. at the end of 2014 (see Daily GPI, Dec. 2, 2014).
CEO Stephen Chazen said Oxy is continuing "to manage our business to be profitable in this current environment by improving margins and increasing production through improved well performance." Newly named President Vicki Hollub underscored the importance of the Permian, relative to Oxy's other U.S. holdings.
Second quarter production was up 13% overall and increased 78% for oil, totaling 658,000 boe/d, compared to 580,000 boe/d in 2Q2014, Hollub said. Permian production hit 109,000 boe/d, a 51% uptick with an added 31,000 boe/d for the quarter.
"In the Permian, we have shifted our resources business to a focused development program, drilling and completing wells at a faster pace and accelerating our time to market," Chazen said. Noting that Oxy has flexibility in a wide range of product prices in the Permian, Hollub added that "the advantages our portfolio provides cannot be duplicated in the Permian Basin."
In 2Q2015, Oxy drilled 47 wells (42 horizontal) and placed 71 on production, including 53 horizontal wells, and for the second half of this year it will operate 12 rigs and drill and complete at least 100 horizontal wells, Hollub said.
"This is higher activity than previously planned, but we believe investing efficiency gains back into Permian Resources is a prudent action to take," she said, adding that Oxy expects to produce an average of 117,000 boe/d in the Permian the second half of this year. Through a combination of the Resources unit and its high-volume enhanced oil recovery operations, Oxy expects to continue to grow in the current low commodity price environment.
"We feel very comfortable that we're going to have a stronger program going into 2016, but the level of capital expenditures depends on market conditions," Hollub said. "Our teams are getting really good in a lot of different areas -- not just in drilling, where there have been significant improvements."
Noting there is a "good possibility" Oxy can get below its current $6.2 million average cost/well, Hollub said the company's teams in the field are "making really good progress" on bringing down costs in both the Delaware and Midland basins within the Permian, and new modeling and 3-D seismic tools will help drive down costs in 2016. Chazen said running 12 rigs looks "reasonable" for next year.
In response to questions from analysts, Hollub said Oxy continues to increase lateral lengths in the horizontal drilling program -- 4,500 to 10,000 feet, averaging 6,800 feet in the Midland and up to nearly 8,000 feet in the Delaware with an average lateral of 4,500 feet. She reiterated that the Permian and some liquids potential in South Texas are the main U.S. production areas for Oxy.
"The assets we would still consider noncore in the United States are the Williston and Piceance basins, and the South Texas assets are great when prices are good," Hollub said. "We have a lot of work we could do in South Texas [workovers and drilling prospects], but the teams in all of the areas are optimizing base production with minimal expense of any kind.
"We still continue to see a lot of potential in South Texas, but Williston we simply want to monetize; it can't compete with our Permian Basin assets, and we don't think it ever will, so we do want to monetize it, along with the Piceance."
Hollub said Oxy has no intention of selling any of its acreage in the Permian that is designated as "non-focused" currently. The focused assets are ones being developed or considered ready for development; while the non-focused ones are still in what Hollub called "appraisal mode."
"We don't have any acreage [in the Permian] that we would consider for sale today," Hollub said. "The good thing is we have a tremendous inventory, but the challenge for that is we're always looking for ways to accelerate, while doing it in a way that doesn't destroy value."
For 2Q2015, Oxy reported core income of $165 million (21 cents/share), compared with $31 million (4 cents) in the first quarter this year, and $1.1 billion ($1.38) for 2Q2014. Overall, 2Q21015 profits were $176 million (23 cents), compared to a $218 million loss (minus 28 cents) for the first quarter, and $1.4 billion ($1.82) for the second quarter last year.