Occidental Petroleum Corp. will need to spend more capital in 2022 to maintain oil production at 2021 levels, CEO Vicki Hollub said.
Hollub discussed the plans of Occidental, better known as Oxy, during a conference call to discuss fourth-quarter results.
Houston-based Oxy is one of the largest U.S. oil producers, with a leading footprint in the Permian and Denver-Julesburg basins, as well as in the Gulf of Mexico (GOM). Internationally, Oxy has operations in the Middle East and North Africa.
Oxy expects oil and gas capital expenditures (capex) to total $3.2-3.4 billion in 2022, up from $2.41 billion in 2021.
The firm is allocating $1.7-1.9 billion of the capex total to the Permian, up from $1.09 billion last year. Another $500 million is earmarked for the GOM, along with $500 for the international segment and $400 million for the “Rockies and other” segment in the Lower 48.
Oxy is targeting flattish oil and gas production, however, at a range of 1.14-1.17 million boe/d in 2022 with a roughly 54.5% oil cut. Comparable production in 2021 was 1.17 million boe.
“Our 2022 capital plan invests in cash flow longevity while building on the capital intensity leadership we demonstrated in 2021,” Hollub said. “We have sized our capital plan to sustain production in 2022 at 1.155 million Boe per day while investing in high-return projects that will provide cash flow stability throughout the cycle.”
Hollub added, “We have also incorporated an expectation for inflation and a capital range to reflect the potential for fluctuations in our third-party-operated assets and our low-carbon opportunities during the year.”
Oxy expects sustaining capital, which it defines as the capital required to sustain production in a $40/bbl West Texas Intermediate oil price environment over a multiyear period, to increase to about $3.2 billion in 2022 from $2.9 billion in 2021.
The expected increase is driven by Oxy’s reduced inventory of drilled but uncompleted wells, along with additional investment in its GOM and enhanced oil recovery assets “to optimize the long-term productivity of our reservoirs and facilities,” Hollub said.
She added, “If the macro environment requires spending below our multi-year sustaining capital, we have the ability to reduce it further and hold production flat for shorter periods of time, as we’ve demonstrated.”
Permian Carbon Capture
In the Permian, Oxy is developing what it touts as the world’s largest direct air capture (DAC) facility to remove carbon dioxide (CO2) emissions from the atmosphere. Oxy is partnering on the facility with developer 1PointFive Inc. through its Oxy Low Carbon Ventures unit.
Hollub said Oxy is “one of only a few oil and gas companies with net-zero goals that are aligned with the Paris Agreement’s 1.5-degree Celsius pathway.”
Oxy has set a medium-term target to facilitate the geologic storage or use of 25 million metric tons per year of CO2 equivalent in the company’s value chain by 2032.
“Our capital plan also includes investments to advance our net zero pathway, including reducing emissions, improving energy efficiency and developing our carbon sequestration initiative,” Hollub said. “We are allocating capital in the budget to 1PointFive to begin construction on the first direct air capture facility.”
She explained that, “We continue to make progress on both the engineering and commercial needs for direct air capture development. We are improving both of these aspects and believe Oxy’s capital helps retain value for our shareholders.”
Hollub added, “As the construction phase and technology of this new project advance, we will continue to consider strategic capital partnerships and structures to address financing.”
The company has scheduled a March 23 investor update for the Low Carbon Ventures unit, at which time management would speak in more detail about the DAC project, Hollub said.
Record Cash Flow
In the United States on a net basis, Oxy produced 506,000 b/d oil, 225,000 b/d natural gas liquids (NGL) and 1.32 Bcf/d natural gas during the fourth quarter. These figures compare to 477,000 b/d, 208,000 b/d and 1.29 Bcf/d, respectively, in 4Q2020.
The Permian and GOM accounted for about 56% and 24% of net U.S. oil production, respectively, in 4Q2021. The “Rockies and other domestic” segment supplied 52% of net U.S. natural gas output, followed by the Permian at 42%.
In the United States, Oxy reported average realized prices of $75.78/bbl for oil, $37.43/bbl for NGLs and $4.64/Mcf for natural gas in 4Q2021. These prices compare to $40.54/bbl, $14.50/bbl and $1.55/Mcf, respectively, in the corresponding 2020 period.
“Occidental’s focus on operational efficiencies in the fourth quarter enabled us to leverage the increases in commodity prices to further improve our balance sheet and liquidity position, and set us on a path toward continued debt reduction and the implementation of a new shareholder return framework in 2022,” said Hollub. “Our employees delivered strong operational results, setting new records and efficiency benchmarks in the Permian, Rockies, Gulf of Mexico and Oman in 2021.”
Hollub cited that in the Permian’s Delaware sub-basin, Oxy drilled 13% more feet per day in 2021 versus 2020.
Oxy generated record free cash flow of $2.9 billion in the fourth quarter, management said.
Oxy reported net income of $1.34 billion ($1.42/share) for the fourth quarter, versus a net loss of $1.31 billion (minus $1.41) in 4Q2020. Full-year net income was $1.52 billion ($1.62/share) in 2021, compared to losses of $15.68 billion (minus $17.06) in 2020.
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