Hitting an all-time high in domestic U.S. energy production with shale plays as a major driver, Occidental Petroleum Corp.(Oxy) still looks to cut its natural gas production in the Midcontinent basins because of continuing low prices, CEO Stephen Chazen said Thursday.
Net income for the third quarter was $1.8 billion, or $2.17/diluted share, compared with $1.2 billion, or $1.46/diluted share, for the same period last year.
Contributing to the record production results domestically were acquisitions in the Midcontinent, South Texas, North Dakota's Williston Basin and California, Chazen said. CFO Jim Lienert noted that income growth from the record production was concentrated entirely in oil and liquids, where realized prices increased 34% and 41%, respectively, while gas stayed flat.
"Domestically, our production was 436,000 boe/d, "representing the highest-ever production volumes for the company," Lienert said. Production in California rose by 6,000 boe/d.
Noting that natural gas prices in the United States continue to be "weak," Chazen said that as result Oxy is considering cutting back pure gas drilling in the Midcontinent, which is mostly dry gas with none of the condensate play that the company gets elsewhere. He said the cutback could be expanded to other areas, too.
"I hate to give away gas at $3.50 or $4 even if you make a little money," Chazen said. "It seems wasteful to sell gas for $4 even though wells in California have a lot of condensate in them."
Oxy is not looking at any company acquisitions and it is "picky" about acreage buys, said Chazen, noting that "everyday someone shows up around here with acreage to sell. There is really plenty to buy, and we are real picky on where we buy it." He also emphasized that long term he is "modestly bullish" on oil prices and Oxy, as a company, is "long on oil."
In response to questions, Chazen indicated in California the liquids had been big contributor to the positive results in the third quarter, and that horizontal shale drilling is a key.
"We cut back on our conventional drilling so we could think about it some more relative to the shale drilling, and I think that has had a positive affect on our results," Chazen said. "I think we are more thoughtful and we're getting better results. We'll pick up the conventional as we get better results, and the results from conventional in the last quarter were pretty good.
"Our base growth comes from the shale drilling, and every so often we'll have a successful conventional well, which will boost results."
Chazen said Oxy expects to drill and complete 154 shale wells in Elk Hills, CA, by the end of this year, and he emphasized that "completing" means actually hooking them up and having oil flow.
He said he is using shale wells to drive the $3-4 gas in California, and conventional wells are "significantly" more profitable than shale. "In the case of shale, it may take you 90 days to get your money back, while in conventional well it might only take two weeks, but it is a lot less predictable," Chazen said.
While Oxy would like to drill up to 300 wells in shale annually in California, Chazen told analysts with current state permitting he is only counting on continuing at current levels, which are about half of the target through the 30 rigs they are operating in the state. He said it is difficult to predict what that state may do. Currently, Oxy has brought its shale well drilling costs in the state down by about $1 million/well to $3.5 million/well, which is totally complete from start to hook up, he said.