With plans to spin off its California operations by the end of this year, Occidental Petroleum Corp. (Oxy) senior executives on Monday outlined plans to step up the company's U.S. unconventional plays elsewhere with a focus on its 2 million acres in the Permian Basin.
Oxy's U.S. focus will be centered on its "significant leading position" in the Permian, according to CEO Stephen Chazen, who made the comments as part of a conference call reporting 1Q2014 earnings that were essentially flat ($1.4 billion, or $1.75/share, compared with $1.4 billion, or $1.68/share, for the same period last year). Overall U.S. production hit 274,000 b/d, a 10,000 b/d increase, Chazen said.
"The Permian resources are the cornerstone of our domestic business," Chazen said. "Our substantial acreage position [there] gives us significant resource development potential. We will use our geologic knowledge and experience in the area to gradually shift our drilling to unconventional, horizontal plays in an efficient manner."
Chazen said the Permian production could increase 13%-16% this year, and up to 20% annually in future years. Oxy is off to a good start in the Permian this year, increasing production 5% quarter over quarter to 67,000 boe/d, according to Vicki Hollub, executive vice president for Oxy's U.S. oil/gas development.
"We expect to double our rig count in two years [in the Permian], going from 23 this year to 46 in 2016," Hollub said. Of those totals, 21 horizontal rigs will be in operation by the end of the year, and that number should double by 2016, she said.
"In the Texas Delaware Basin, we expect to drill more than 1,000 Wolf Camp wells, depending on the productivity of some of the benches we have yet to test," said Hollub, noting that the estimate is based on the "benches we feel pretty confident in." In the Midland Basin, she said Oxy expects to double its acreage covering three different areas.
Chazen also stressed that Oxy has decided to keep its 20,000 b/d Bakken assets in the Williston Basin in North Dakota because they are worth more to the company than the estimated proceeds they could bring via a sale in the current market. He also stressed that Oxy is unlikely to be making any acquisitions in the Williston or elsewhere in the United States.
"Generally, [U.S.] acquisitions are not accretive; the public markets are well ahead of the cash markets," Chazen said. "Right now, I don't find acquisitions to be particularly interesting, so I think any acquisitions are unlikely."
With the cash market being weak, Oxy has pulled its previous plans to sell its Bakken assets and has restarted its development program in the Williston, said Chazen. He expects the assets to "grow modestly" over the next two years. "We'll just see what the markets give us going forward,” he said.
Oxy previously decided to sell its assets in the Williston because of their relatively small scale. A more sustainable level would have to provide 40,000-50,000 b/d of production, Chazen said. "The scale is below what we really want, but the business has really done better over the past year than it had done historically."
In the Piceance Basin, Oxy continues discussions with a privately held operator to create a joint venture. "Our plan is to put our assets together, run it as a private business for a while and then at some point when it had enough scale, go public," Chazen said.