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Oxy Eyeing More Rigs in Permian at Sustained $50/bbl Prices, CEO Says

While not bullish on prices or a fast production recovery, Occidental Petroleum Corp. (Oxy) CEO Vicki Hollub said Wednesday the company expects to add two rigs in its extensive Permian Basin operations in the fourth quarter and possibly increase to as many as 15 rigs next year.

Hollub discussed the outlook and 2Q2016 performance during a conference call. The key is oil priced at $50/bbl or above, Hollub said.

Permian production rose by 17,000 boe/d in 2Q2016, but natural gas and natural gas liquids (NGL) output fell in the South Texas operations by 12,000 boe/d.

"We're not as bullish as some people, so we're taking a conservative view," Hollub said. "Prices will have to be fundamentally above $50/bbl” before rigs are added. "We have the capability to increase production [in the Permian] significantly.

“We have the ability to put much more infrastructure in the Permian; at one time we were operating 25 rigs there and if prices were right, we could get back to that. But bear in mind that back when we were running 25 rigs we were not as efficient as we are today. Now we could get the same productivity with half as many rigs."

She doesn't see Oxy going back to 25 rigs in the Permian unless the company expands its operations and its footprint.

"We could easily go back to somewhere in the neighborhood of up to 15 rigs reasonably," she said.

The Permian is the only play for Oxy that is to be expanded in 2017 for sure, according to Hollub. She was less sure about the company's other domestic and foreign plays. The Permian growth should be in the range of 4% to 6%.

The CEO reaffirmed that Oxy is looking at expanding its portfolio by acquiring assets in the Permian, but it may be through a series of smaller deals rather than one large chunk.

Vice President Joseph Elliott, who runs the domestic oil/gas operations, said the company is particularly bullish for parts of the Permian in southeast New Mexico.

"It is more than a sweet spot," Elliott told analysts. "We're encouraged by southeast New Mexico across the board for its multi-bench development.

Oxy's prospective added rigs would likely be in southeast New Mexico and the Delaware sub-basin he said.

In 2Q2016, Oxy reported a net loss of $139 million (minus 18 cents/share), compared with year-ago net income of $176 million (23 cents).

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