Los Angeles-based Occidental Petroleum Corp. (Oxy) set a record U.S. production at 478,000 boe/d in 1Q2013, its 10th consecutive record quarter, the management team said last week.
CEO Stephen Chazen, however, declined to answer questions about ongoing succession planning and the board’s search for his replacement.
“As I have said before, I remain committed to staying throughout the succession process,” said Chazen. “We do not have anything to add beyond our public announcements…”
The board recently issued a statement to clarify the current relationship between Chazen, who has run the company since 2010, and former CEO and current executive chairman Ray Irani, who plans to retire at the end of 2014. The succession process was initiated in 2010, but there’s no word on whether Chazen is moving up or out.
Chazen reiterated that the company is continuing to work toward a goal to produce 1 million boe/d worldwide.
“I think we will continue to grow nicely; 1 million boe/d is a reasonable objective,” he said. “I think you will see that the strategy of building a large domestic business together with a highly profitable international business will work for us. That’s the vision right now.”
Income from continuing operations was down slightly from the same period last year ($1.4 billion, or $1.69/diluted share, vs. $1.6 billion, or $1.92/diluted share, in 1Q2012), they said. Total production in the latest quarter was 763,000 boe/d.
Oxy highlighted a 19% drop in U.S. well and operating costs in 1Q2013 from a year ago. “Overall, we generated cash flow from operations of $2.9 billion before changes in working capital for the first quarter of 2013 and invested $2.1 billion in capital expenditures,” Chazen said.
Domestic operations will continue to ramp up in California, the Permian Basin and the Bakken Shale, with a particular emphasis on the Permian, where the company plans to invest $1.9 billion, two-thirds of which will be for new oil plays involving about 300 wells. About 90% of the funds are to focus on emerging trends, including the Wolfberry, Delaware Sands and Wolfbone.
Returns in the Permian are averaging 15-20%-plus across all plays. “The key to the Permian is costs,” Chazen said. “You need repeatable low drilling costs. I think we’re driving the costs down and doing real well in the Permian.”
In California, operations are “doing well, but we’ve got more to go in that play,” he said. “We are just in the early phases of cost reduction in California; we’re trying to get the costs down to lower, sustainable levels, which will be lower than we’re showing [in the 1Q2013 results]. We’ll build the program up from there.
“I am very optimistic about the capital, well costs, the 19% cost reductions, but it would be disappointing if what we’re seeing now is all that turned out in this.” Chazen added that Oxy has not always been able to drill where it wanted to drill in California, which has created some inefficiencies and well costs got markedly higher than the company would like.
“We have shifted the focus to more conventional drilling to get less declines; I think the declines are what we’re trying to fight against,” he said. “It’s been more than we originally thought.”
For the Bakken, Chazen said there’s “more work to be done.” Oxy plans six or seven rigs this year.
“We will be able to do more work with six or seven rigs this year than we might have done last year with nine or 10,” he said. “The goal is to get the organization and the people in place to get more efficient with the rigs before you add more. A lot of this game [in the Bakken] is having the best crews on the rigs, so as you add to the number of rigs, you may diminish the quality of the crew. The goal here is to make the company as efficient as possible before we do any major increase in spending.”
As far as obtaining drilling permits, Chazen said there’s been some improvement in California, but it is “not North Dakota,” where officials are working with industry to speed the process. The California permitting process, however, continues to make “a lot of progress. It is also hard to predict from quarter to quarter. We built a program this year that doesn’t depend on getting more permits.”
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