There are three major plays that have the full attention of Occidental Petroleum Corp.’s (Oxy) strategy to significantly grow its U.S. drilling operations — California, the Permian Basin and the Bakken — and they each have their different timetables and challenges, said Oxy CEO Stephen Chazen.
Speaking on an earnings conference call with analysts Thursday, Chazen and other executives said they particularly like the Permian where the returns 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.”
On a question regarding Oxy’s claims of seeing a 1.5 million bbl/well in its Elk Hills shale drilling program, Chazen was asked how much this will improve the economics in California?
“In California we are doing well, but we’ve got more to go in that play,” Chazen 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 [1Q2013], 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, and that 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.”
As he often is asked, Chazen said in response to another question that as far as permitting goes in California, there has been some improvement, but it is certainly “not North Dakota.” The permitting process in the state, however, continues to make “a lot of progress,” he said. “It is also hard to predict from quarter to quarter. We built a program this year that doesn’t depend on getting more permits.”
For the Bakken, Chazen said Oxy has “more work to be done.” Oxy plans six or seven rigs operating in the Bakken 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,” Chazen 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.”
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