Occidental Petroleum Corp (OXY) — Q3 2019 Earnings Call Transcript

Thank you, Brandon. Good morning, everyone, and thank you for participating in Occidental Petroleum's Third Quarter 2019 Conference Call. On the call with us today are Vicki Hollub, President and Chief Executive Officer; Cedric Burgher, Senior Vice President and Chief Financial Officer; Ken Dillon, President, International Oil and Gas Operations; BJ Hebert, President of OxyChem; and Oscar Brown, Senior Vice President, Strategy, Business Development and Integrated Supply. In just a moment, I will turn the call over to Vicki. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements or more fully described in our cautionary statement regarding forward-looking statements on Slide 2. Our earnings press release, the Investor Relations supplemental schedules and our non-GAAP to GAAP reconciliations and the conference call presentation slides can be downloaded off our website at www.oxy.com. I'll now turn the call over to Vicki. Vicki, please go ahead.

Thank you, Jeff, and good morning, everyone. I'm pleased to welcome you to our first earnings call since closing the acquisition of Anadarko on August 8. I'd like to thank our employees who are hard at work updating our development and capital spending plans and implementing our team-based structure across the combined organization with an emphasis on safety, collaboration, creativity and results. Our integration and value capture team is working with our business units to capture synergies at an early stage so we can deliver the full potential of this transaction for our shareholders. As we work through the integration process, we become more confident every day in our ability to fully realize annual capital overhead and OpEx synergies of $2 billion, which I'll provide more detail on in a few minutes. For those of you who know Oxy well, you'll see our third quarter financial statements include a number of changes due to the completion of the Anadarko acquisition mid-quarter. Our income and cash flow statements capture legacy Oxy results for a full quarter and include Legacy Anadarko results as well as consolidated WES results for only 53 days. WES is now consolidated in our financial statements as a fourth operating segment, and our balance sheet reflects the consolidated company, including WES as of September 30. For transparency for our shareholders, we have provided a schedule in our earnings release, breaking out key financial and operational information from Oxy and WES on a stand-alone basis. As our financial statements do not include a full quarter of Legacy Anadarko and WES results, we understand that Street consensus was not able to reconcile all of the line items affected by the acquisition this quarter, for example, DD&A, tax and interest. Going to Slide 4. Oxy's complementary assets and the alignment of our Upstream, Chemical and Midstream businesses, including our ability to compete in a low-carbon world, position us for full cycle success. Our leadership in each area where we operate, combined with our enhanced portfolio of high-return, short-cycle cash-flow-generating assets will facilitate profitable free cash flow growth, which we will utilize to reduce debt and also to return additional cash to shareholders. The substantial free cash flow we will generate in higher price environments, combined with our ability to pay a sector-leading dividend throughout lower commodity price environments, is unmatched. Post-acquisition, Oxy's diversified portfolio provides numerous competitive advantages. Oxy is now the largest oil and gas leaseholder in the United States on a net acreage basis, providing us with ample opportunities in the Permian, DJ, Powder River and the Gulf of Mexico to selectively deploy capital in a way that optimizes capital intensity. Oxy was the largest U.S. producer of oil and liquids on a combined company basis in the first half of 2019. This will allow us to maximize cash margins on a BOE basis, especially when taking our advantaged Midstream position into account. Through the acquisition, we acquired approximately 450,000 square miles of modern 3D seismic data in our core domestic development areas. This included a 40% increase in our already extensive Permian seismic inventory. The advantages that Oxy's diversified portfolio provides, coupled with our unmatched subsurface characterization ability and the execution excellence that Oxy is known for, ensures that we are positioned for full cycle success in the years ahead. As we continue our integration efforts, we are aligning WES to work seamlessly with Oxy's Upstream business. We're standing WES up as a more independent operation and to improve operating performance to benefit both Oxy's Upstream business and WES, inclusive of enabling WES to be more competitive for third-party business. We're also evaluating alternatives that could result in the deconsolidation of WES in the future. However, we expect to retain a significant economic interest in WES for the foreseeable future as we recognize the tremendous value that WES provides, and we plan to drive long-term value for both companies. Before providing additional details on synergy capture, I want to turn to the excellent operational results that our businesses continue to deliver. Since completing the acquisition of Anadarko, we continue to make quick progress towards fully achieving our post-acquisition divestiture and deleveraging goals. During the third quarter, we divested our Plains interest for net proceeds of $650 million and closed the sale of our Mozambique LNG stake for $3.9 billion. Upon completion of the divestitures contracted since May 2019, we will have essentially reached the lower end of our $10 billion to $15 billion divestiture goal net of taxes. We applied the proceeds from our closed divestitures toward reducing debt and have already eliminated our 2020 debt maturities. I'm very proud of the progress our teams have made over the last few months. We know that we have more to do on the deleveraging front, and I look forward to being able to make that additional announcement as we move forward towards the top end of our goal. Our integration and value capture efforts are progressing very well while maintaining focus on our core business, as shown by our strong operational results in the third quarter. Oxy continues to produce the best wells in the basin, having completed 25 of the top 100 wells in the Delaware Basin while drilling fewer than 7% of the total wells. We achieved this using less proppant than our competitors, resulting in lower costs for us. We have also structured our developments with a full life cycle approach, utilizing appropriate well spacing that we anticipate will yield optimal results both now and in the future. While we tend to highlight the Permian as it is a growth asset for us, all of our businesses continue to perform well. Since the close of the Anadarko acquisition, single day or monthly production records have been set in the Gulf of Mexico, DJ, Al Hosn and Permian resources for both legacy Anadarko and Oxy assets. This demonstrates the quality and expertise of both the former Oxy and Anadarko employees as they stay laser-focused on delivering superior results even during this integration process. As proud as I am of all of our teams for the operational excellence they have maintained during integration, I'm even more pleased with our outstanding safety record. Our teams are continuing to look for ways to further improve our safety performance as operating safely is and will continue to be a core value for us. Our consistent industry-leading operational results, combined with our ability to fully deliver on value capture, positions us for full cycle success and enhances our ability to generate increased excess free cash flow to reduce debt and to return cash to shareholders. Returning excess capital to our shareholders is a part of Oxy's DNA. In the third quarter, we returned approximately $600 million to shareholders. Going to Slide 7. I'm thankful to have had the opportunity to engage with many of our shareholders over the past few months to discuss the free cash flow potential of the new Oxy. Interest in our 2020 capital plan is high. While we typically do not release our full year capital budget until our fourth quarter earnings call, we're able to provide many details of our 2020 capital plan this morning. Our 2020 capital budget of $5.3 billion to $5.5 billion will deliver expected annual total company production growth of 2%. This represents an approximate reduction of $3.6 billion from Anadarko's and Oxy's combined 2019 capital budgets. When we communicated our annual synergy target of $2 billion, we also stated that capital spending would be reduced by $1.5 billion, lowering our company-wide annual production growth from approximately 10% to 5%. We have gone further than this for 2020. We anticipate that the combination of lower capital spending and production growth will generate greater free cash flow, enhanced by our industry-leading capital efficiency, which I'll touch on shortly. 2020 production growth on the company level will be driven by Permian resources, while we expect production from other areas to be flat or grow at a reduced rate compared to 2019. We expect Permian Resources production to grow by approximately 5% in 2020, operating 15 gross rigs and 8 net rigs. The rough breakout for specific areas is 5 rigs in New Mexico; 6 to 7 in Legacy Anadarko, Texas Delaware; and 3 to 4 in the Midland Basin JV. In the DJ, our plan represents approximately three operated rigs. As Permian resources shelf production becomes a larger portion of our total oil and gas production, we expect our oil and gas base decline rate to increase to 25% in 2020. However, we do not expect our base decline rate to continue to increase in future years given our moderated growth rate. Similar to 2019, our 2020 capital program is dominated by short-cycle investments. At approximately $35 WTI, our 2020 program would generate a double-digit rate of return. Oxy remains flexible throughout the commodity cycle. And if necessary, in less than 6 months, we can reduce capital spending to sustaining levels. Looking past 2020, we know that capital discipline will continue to be important to investors. Our intent is to cap our annual production growth at an average of 5% as we balance the vast opportunities in our portfolio with growing free cash flow. Our planned activity in 2020 should enable us to grow production by 5% annually in 2021 with a capital budget of $6.6 billion. As for 2019, capital discipline, as always, is intact at Oxy as we remain on track to spend within our combined capital budget of $8.6 billion, excluding Africa. Since the acquisition closed, we've had the opportunity to take a deeper dive into the company that's combined, Oxy/Anadarko, and are as excited today as we have been at any time during the last 2 years about the opportunities in front of us. Through the strength of our combined companies, we've identified approximately 150 specific capital synergy initiatives across our enhanced portfolio, which we plan to incorporate into our development plans. Applying these initiatives will lower well costs by $3.1 million per well in Texas Delaware and by $600,000 per well in the DJ Basin. In drilling and completions, we are implementing efficient development concepts utilizing Oxy drilling dynamics to improve the trajectory of the bid and wellbore, which reduces drill times and costs. For example, we expect to improve our drilling rates or footage drilled per day in the Texas Delaware about 35%. The technical work completed by all of our teams to identify savings initiatives and to improve well productivity has been outstanding, and I'm extremely confident in our ability to execute and realize the full synergy targets. On Slide 10, we provide a bottom-up view of the $605 million of drilling and completion synergies based on expected savings per well and estimated 2021 net well counts to achieve annual production growth of 5% in 2021. On Slide 11, in addition to realizing $900 million in capital synergies, Oxy's best-in-class capital intensity is expected to continue to improve. This often underappreciated measure of operational excellence and competitive advantage truly sets Oxy's capabilities in the Permian apart from other operators. As a reminder, capital intensity is defined as the total net annual capital required for 1,000 net barrels per day of average annual ledge production. Fully capturing our capital synergies and improving our overall capital intensity through faster time to market and better well performance will contribute to driving efficient wedge growth, enabling Oxy to deliver expected production growth of 5% in 2021 with $6.6 billion in capital. We've been a top performer in capital intensity for multiple years, and we will substantially improve the capital efficiency of our newly combined Permian resource portfolio. We expect the largest improvement in intensity to originate from legacy Anadarko Delaware acreage, along with continued improvements from legacy Oxy acreage. Our unmatched Permian capital intensity reflects significant improvements in time-to-market through our efficient operations and SIMOPS planning, applying Oxy's advanced subsurface characterization to improve well results and limited inference to reduce infrastructure costs in our legacy acreage from the reuse of existing facilities and the high grading of inventory as well as implementing our Midland Basin joint venture with EcoPetrol. In 2020, the improvement in capital intensity was supported by a slowdown in capital spending. As we move into 2021, we expect to maintain our intensity in the low $20 million range, even as production growth from Permian Resources increases to support an annual company production growth of 5%. While this example pertains to our Permian Resources business, we are also achieving significant productivity and efficiency gains across all our business segments. We will share some of the exciting initiatives in our other areas during next quarter's earnings call. On Slide 12, overhead synergies will be derived from aligning our workforce to meet the current needs of our company and carving out costs related to assets that will be divested in reducing real estate and other costs. In terms of reducing OpEx, Permian cash operating costs continue to be at the lowest they've been in a decade, driven by our long-term, high-return investments, including facilities and infrastructure. We expect this trend to continue, especially with our large footprint in the Permian. On Slide 13, as I mentioned earlier, we have had many initiatives underway to fully capture the synergies promised. You can see on our energy tracker, we've already made progress in adding both overhead and capital synergies. While our progress in realizing synergies may not be linear, we will continue to provide updates so investors are able to clearly see our progress each quarter. Turning to Permian Resources. We again delivered the highest number of top wells in the Delaware Basin on a 6- and 12-month cumulative basis, and we continue to drive significant productivity improvements. We also continued to reach new milestones, including a record 10,000-foot lateral drilled in only 10.7 days and a record 267 completion stages in 1 month completed by one frac team. This is a record for Oxy and also for our main frac provider in the Permian. Following my earlier comment on safety, I'd like to draw attention to our New Mexico completions team, which went an entire year without a single OSHA recordable incident for employees and contractors. That includes over 2 million work hours, conducting high-pressure frac operations without an incident. This is a remarkable achievement. The next slide reinforces our unique development approach and subsurface expertise, one of the key factors that continuously enables us to deliver the best wells while using less proppant than others, resulting in significant capital savings. Oxy's combined acreage portfolio supports nearly one third of the top wells in the Delaware Basin, including Anadarko's 6 record wells. The subsurface potential in the acquired acreage is prolific, and we can't wait to unlock more top wells using our development expertise, combined with Anadarko's best practices. I'll now hand the call over to Cedric, who will walk you through our financial results and updated guidance.

Thanks, Vicki. As we move forward as a combined company, our commitment to capital discipline and returning capital to shareholders remains unchanged. We remain on track to spend within our full year pro forma combined capital budget of $8.6 billion, excluding Africa. Furthermore, we have established a capital budget for 2020 that we expect will fully optimize free cash flow and position us to grow production in a capital-efficient manner while maintaining the safety of our dividend. In the third quarter, we returned $660 million of cash to shareholders through our dividend, protecting our dividend as a top priority, and we look forward to continuing to return significant capital to our shareholders. Continuing with our third quarter results, taking into account the mid-quarter completion of the acquisition, we announced adjusted earnings of $0.11 per diluted share and reported a loss of $1.08 per diluted share. The difference between adjusted and reported results is mainly due to the $969 million of one-time costs related to the Anadarko acquisition and $325 million of oil and gas impairment charges. With respect to our segments, oil and gas adjusted income decreased in the third quarter compared to the prior quarter, mainly due to lower international production and lower realized oil prices. Total third quarter reported production from continuing operations of 1.1 million BOEs per day included contributions from legacy Anadarko operations of 377,000 BOEs per day. As Vicki mentioned, all of our U.S. upstream businesses are performing exceptionally well, with several single day or monthly average production records having been set since completion of the acquisition. Oxy's legacy Permian resources operations exceeded guidance with production of 300,000 BOEs per day due to best-in-class well results and execution. Actual production of 655,000 BOEs per day for Anadarko's legacy U.S. businesses exceeded guidance of 585,000 to 630,000 BOEs per day due to improved operability in the DJ, Permian and Gulf of Mexico. To assist investors with reconciling reported and pro forma production for the third quarter, we have included a table in the appendix of this presentation, breaking down actual total company production of 1.4 million BOEs per day by operating area. OxyChem surpassed guidance with income of $207 million for the third quarter despite vinyl margins coming under pressure from increased ethylene costs, which were driven higher by industry-wide ethylene cracker downtime. Higher ethylene costs were offset by stronger sales and production across most product lines. Our Marketing and other Midstream business reported third quarter adjusted income of $155 million, excluding $111 million gain on the sale of our Plains interest driven by a Midland to MEH differential of approximately $5.30. Compared to the second quarter, the decrease in earnings was largely driven by the narrowing of the Midland to MEH differential impacting Marketing margins. As the differential compresses and impacts Marketing income, currently, 70% of the impact will be realized as an income benefit to the Upstream business. For the fourth quarter, we have provided guidance on a combined company basis and expect Permian Resources growth to slow as we have begun moderating our capital spend going into 2020. Fourth quarter international guidance reflects the termination of the Idd El Shargi North and South Dome contracts in Qatar in early October. The continuous improvements we are making are evident in our operational results and outlook. Our revised fourth quarter production guidance represents an increase of 28,000 MBOEs per day compared to the implied fourth quarter guidance provided in Oxy's second quarter earnings call and the updated guidance we released for legacy Anadarko operations in early August. Pro forma production guidance for full year 2019 is included in a table in the appendix to this presentation. As has been the case in previous years, fourth quarter guidance for OxyChem is not representative of our full year outlook as the chloro vinyls market is typically subject to seasonal factors in the fourth quarter each year. In the third quarter, we applied the proceeds from our sale of Mozambique asset and Plains interest as well as free cash flow from Algeria and Ghana, to pay down $4.9 billion in debt. We have now retired all of our debt maturities for 2020 and will apply proceeds from future sales to retire debt due in 2021 and beyond. As we continue to apply asset divestiture proceeds and free cash flow to debt reduction, we will update the debt-reduction tracker shown on Slide 20 so that investors can see our progress in meeting our divestiture target of $10 billion to $15 billion net of taxes and in deleveraging. I look forward to continuing to provide updates on our progress on both of these fronts. I will now turn the call back over to Vicki.

Thank you, Cedric. As a leader in our industry, Oxy must drive improvement on all fronts, including reducing emissions. In the coming quarters, we will provide updates on the progress our Low Carbon Ventures business is making and supplying anthropogenic or man-made CO2 to the Permian for the purpose of carbon utilization and sequestration. While Low Carbon Ventures is leading our strategy to produce the lowest carbon barrel of oil, we are also reducing greenhouse gas emissions. We are doing so by working to eliminate routine flaring, monitoring infrastructure for methane emissions and reducing miles driven by transporting supplies into the Permian via rail through our Aventine Logistics Hub. On an annualized basis, we reduced 1.9 million truck miles per year, which is equivalent to 1,700 metric tons of CO2 reductions. Also in this quarter, in the Permian Basin, we brought online the largest solar facility in the state of Texas that directly supports oil and gas operations. The latest publicly available emissions data shows that on a like-for-like basis, Oxy is a leader in greenhouse gas emission intensity in the Permian. While we are pleased to be ahead of peers on this metric, we are not satisfied with where we are, and we're committed to continue working on reducing emissions across all of our assets. Going to Slide 23. To Oxy, being an innovative and sustainable energy leader means maintaining leadership in each area that we operate. Our teams are relentlessly focused on value creation through the application of advanced technical excellence, applied technology, breakthrough innovation and operations and capital execution, all of which helped to make us a lower-cost operator and will translate into higher-margin free cash flow growth. The cash will be used to delever in the near term and to return more cash to shareholders through a balance of our dividend and share repurchases in the future. Sustainability also means planning for the future, which we do through the lens of a best-in-class operator with an unmatched portfolio of world-class assets. Our focused portfolio includes multiple decades of high-return, short-to-medium cycle development opportunities that will include primary, secondary and tertiary recovery options. The diversity of our enhanced portfolio strengthens our strategy to operate profitably in a low-carbon world. The combination of technical and operations excellence applied over a vast set of diverse assets and a strategy to lower our carbon footprint sets us apart from other energy companies. This will enable us to further strengthen our value proposition and ensure our success and sustainability long into the future. In closing, I want to stress how much potential our newly combined company now has in terms of what we can achieve both financially and operationally. There is much to look forward to for our shareholders and for Oxy. And now we'll open it up for questions, and while we're lining up the questions, I do want to give a shout-out to our DJ Basin team for also achieving record production. Our DJ Basin team achieved almost 301,000 barrels a day just here recently, so we're excited about what they're doing and the improvements they're making and the commitment they have to operational excellence.

My first question is about the synergy targets, and it looks like you have made significant progress since the integration. The additional details regarding the specific drivers of synergies are quite helpful. It seems you have identified many clear items that will help you reach the overall targets. My question focuses on what you have observed a few months after the deal closed, particularly any opportunities that might be above or different from your initial expectations. I am also interested in whether these could lead to upside over time. Additionally, I would like you to address the differences in capital efficiency between some of the legacy Anadarko Permian wells and Oxy. How much improvement in productivity is included in the synergy targets and the guidance for 2020?

We incorporated into our synergy targets the known factors and opportunities we observed. In the Permian Basin, we had sufficient data to recognize the potential for significantly lowering costs through our drilling expertise and subsurface characterization. Our teams have thoroughly explored this, which gives us strong confidence in the synergies we outlined for the Permian resources. We believe we can achieve these synergies. In the DJ, not only have we assessed our Oxy drilling dynamics, but we've also been very impressed with the performance of the local team in terms of drilling and completions. They have started to implement a different approach to completions and are adopting best practices that we find highly advanced. We see potential for further improvements by applying our subsurface characterization to the resources business. Operationally, the team is excelling, as evidenced by their recent record production of nearly 301,000 barrels over the past couple of weeks. We are enthusiastic about the collaboration between our two teams, resulting in additional synergies. Initially, we anticipated a certain level of synergies, but we are already exceeding those expectations, and we included a margin of safety to ensure we deliver on our promises. I am particularly excited about Anadarko's expertise and the value it will bring, and I believe we will have exciting news to share once we quantify its impact. One area of note, unrelated to shale, is their impressive seismic interpretation, which we plan to apply to our international operations.

Got it. Great. And just to clarify on the Permian operation. So as we think about the 2020 plan, how quickly can you implement some of the Oxy best practices, subsurface characterization, drilling techniques into the Anadarko development program. When might we see some of those productivity improvements show up as we move through 2020 and beyond?

Well, what we have found is that the subsurface work, that's going to be pretty immediate because those guys are starting to work that now. So from a completion cost perspective, that will start happening right away. Now the results of that, the improved recovery per well, you'll see that have a bigger impact from a production standpoint next year, but we'll see the efficiency improvements in using less proppant to still manage to frac and complete more effectively. That will start happening as we start drilling on the Anadarko acreage in a big way. The Oxy drilling dynamics, everywhere we've rolled it out, even internally, it takes a little while to get the teams used to it so that they can start to make it happen and work for them. There's always a little bit of a learning curve with that, but we do expect that we will achieve that process by the first quarter of 2020 for it to start taking hold. And so by the mid to later part of 2020, you'll start seeing, I believe, some improved drilling in the Permian, along with the efficiencies of the completions by midyear. So that by the end of the year, I'm quite confident that, that drilling and completion program will be much improved.

Excellent. I look forward to seeing the progress there. And I have one more on a separate topic, and that's just on some of the asset sale and leverage reduction targets. So I mean, you've achieved the lower end of the $10 billion to $15 billion target so far. I was wondering if you could comment just on the overall market or backdrop for these additional divestitures, what your thinking is on the opportunities there. And then I understand it might be hard to comment, but any additional color on how you see that deconsolidation of WES potentially playing out with the intention of, as you mentioned, containing or retaining a large economic ownership but deconsolidating some of the debt and overall financials there.

We want to emphasize that we are seriously focused on completing our asset sales because reducing our debt is essential for us. This is an internal goal that we discuss daily. Our entire organization is rallying around this priority, and I believe most of our employees would agree that our highest priority is to save every possible dollar and to operate as efficiently as we can, as quickly as possible. It’s crucial for us to secure funds, either from cash flow or asset sales, to reduce our debt. When we initially outlined our plan to achieve cash flow neutrality at $40, we aimed for completion in two years and committed to our shareholders. As you know, we accomplished that six months early thanks to our dedicated teams focused on delivering results. We are applying that same intensity to reducing our debt. We are pursuing asset sales with great determination, but we are not willing to compromise on the value we can obtain from these assets. We are striving to maintain a balance in this process. I am confident that our intensity and creativity in approaching these asset divestitures will yield positive results. There will be some unexpected elements in our strategy, though we cannot disclose specific details at this time that might hinder our ability to achieve our goals. I appreciate your understanding. Regarding WES, I'll pass it to Oscar to share more about our perspective on that.

Sure. And as Vicki made earlier comments, obviously, we're focused on the integration right now and helping WES improve operations and really become more competitive, not only with the supporter of Oxy's upstream operations, but with third-party operations. So all that's ongoing. We've been working with our auditors to focus on the accounting deconsolidation of WES. So there's some work to do, but we think we can do that pretty quickly. That really not changed too much our ownership interest in WES. And so as Vicki said, we have the option to retain a substantial stake in WES economically both in terms of ownership, but also, obviously, we're tied together as their largest customer going forward. So all that's progressing just fine, and we hope to have some news on that in the near future.

I am very enthusiastic about the new management team at WES. They have a strong focus on operations and are dedicated to enhancing efficiency and improving our ability to compete effectively with other midstream companies in the Permian.

Great. Maybe to follow-up. At a high level, is it fair to characterize the large cuts to the 2020 program as an effort to demonstrate your priorities in terms of deleveraging in dividend and the 2021 plus outlook as a normalization of the business? And if that's the case, what sort of checkpoints would you have to see to normalize things again versus staying in belt-tightening mode? Is commodity price hitting certain checkpoint on debt metrics? What would you have to see to kind of renormalize in 2021? Or not?

Todd, thank you. You just answered the question for me. So thank you for that, but it really goes more beyond just trying to get back to normal. What we really would need to look at and evaluate when we get closer to 2021 is how oil prices look, what we've achieved on the debt reduction and what we've achieved with respect to the synergies and also how well our teams are performing from an efficiency standpoint. All of those factors will be considered as we go and move toward 2021 because the reality is that we don't have to be at the 5% right away. What we wanted people to know is that, over time, the 5% is what we believe is the right growth percentage to enable us to, not only start to grow our dividend more meaningfully again, but to also be able to, at the same time, return cash to our shareholders through buybacks.

Okay. And on the leverage side, is there anything that you're looking at to say kind of until we get to this place, we'll probably keep things tight.

I would say that we have aggressive internal targets, and if we haven't met those, then that would play a big role in what we do in 2021.

Okay. And maybe a follow-up on the 2020 plan. I mean, should we think about everything outside of the Permian resources as being held roughly flat from a production point of view with all the growth coming from the Permian Resources? And if that's the case, under a normalization to $6.6 billion in 2021, do some of these other assets, Rockies, EOR, et cetera, kind of return to growth? Or does the majority of that incremental capital will just go back to Permian? I guess on a multi-year view, should we think of ex Permian resources as being largely held flat? Or will we see growth outside of the Permian?

Internally, we encourage our teams to compete for capital by presenting projects capable of outperforming those in the Permian. We believe that some projects in Oman, Abu Dhabi, Colombia, the DJ basin, and potentially in 2 to 3 years the Powder River, as well as in the Gulf of Mexico, have strong potential. Based on the current data and performance, including margins and returns, our investments are yielding double-digit returns at $40 or more. This showcases the value of our diverse portfolio. We have a wide range of options and flexibility. The teams need to ensure their projects are competitive enough to secure funding. Looking ahead to a $6.6 billion environment in 2021, we expect growth in nearly all areas except for the Gulf of Mexico and possibly the Powder River, due to the quality of projects within their existing inventory.

Vicki, you mentioned that from your viewpoint, 5% is the broad growth rate. Can you explain why you chose 5%? Considering the company's current size and the long-term demand growth appears to be around 1% or less, I believe the market would actually prefer a growth rate of 3% instead of 5%.

Commodity prices play a significant role in determining our growth rate. A better way to express this is that we aim for an average growth rate of 5% over time. During periods when commodity prices drop due to weaker demand, our growth may be slower. We will adapt accordingly. In the past, we presented a chart illustrating how our growth potential varies with changes in oil prices, indicating a cap on growth above certain price points. This scenario will continue. As we reduce our debt and approach conditions that allow for growth opportunities at the 5% cap, we will reevaluate those metrics and share them with you. Ultimately, our approach is influenced by commodity prices, operational efficiencies, and our leverage position. What I want to emphasize is that after analyzing all the variables and running different scenarios, it comes down to a value calculation, and we will pursue whatever generates the most value and returns for our shareholders.

But just my two cents is that given the increasing number of the journalists, there's a concern about the long-term oil demand outlook and correspondingly, that the longer-term commodity prices. The notion saying that we grow at 5%, I think the easy way to look at it is that most investors today probably one burn on hand and 2 burn in the bushes. The second question, quick one on Permian, how much is your percent of your land position, just in the federal land? And how much of your production today is in the federal land?

So in the Permian Resources business, we have a very low percentage of what is total federal lands. I can't remember overall. I think our overall percentage is about 2%. Let me hand this to Jeff. He's got those numbers.

Yes. So domestically, of our 14 million acres, 2 million of that is federal, but half of that is offshore. So if you think of onshore, about 1 million acres is federal. And if you go to the Permian, about 270,000 acres across the Permian. And then if you continue to narrow that down into the Delaware Basin, that's where people want to talk about the most, approximately 20% of our acreage in the Delaware Basin is on federal land. And if you look at the DJ, it's less than 1%. It's very, very small there.

On the low-carbon initiatives, as I look at the slide breaking out your 2020 CapEx, if it's there, it seems awfully small so I thought I would just ask. What level of funding you're planning to allocate to the low-carbon effort this coming year?

Our strategy for Low Carbon Ventures focuses on setting targets and goals for our activities and what we aim to achieve. How we address this from a capital perspective is managed by the Low Carbon Ventures team. Our strategic initiatives aim to identify the best ways to fund these efforts. I am genuinely excited about this business because it presents a win-win-win scenario. We will be able to reduce emissions both in the United States and in other regions where we operate while also capturing anthropogenic CO2 to boost oil production. This creates value for royalty owners, states, and the country where we operate. Moreover, I believe we can develop this into a business that generates cash flow and earnings for our shareholders. The methods we plan to employ at this time are somewhat proprietary in nature, but we are confident in our approach. This is a win-win-win situation, and our team is doing an excellent job of making it happen.

That's helpful. And then lastly, on the Board changes or the changes in the charter that you outlined at the very end of your slides today. Do these proposals that will be voted on next year potentially settle the disagreement with Icahn?

When Mr. Icahn raised his concerns, they were part of a larger issue that prompted us to take action. Our goal isn't to settle matters but to do what is best for our shareholders. We recognized an issue he highlighted that needed our attention, and the Board acted on it. Additionally, the Board has gone beyond this initial response. We are not only addressing shareholder feedback regarding the two proposals aimed at reducing the percentage needed for a special meeting but also modifying the process for written consent votes. I'm particularly excited about the formation of a new committee that focuses specifically on ESG matters, which will help the Board engage more effectively with shareholders. This proposal has been overlooked, but it aims to tackle ESG issues that bridge the Health, Environmental, and Safety Committee and the Governance Committee. By establishing this committee, we are addressing the ownership of these ESG initiatives that do not fit neatly into safety or governance categories. This committee will be dedicated to these efforts while also ensuring greater engagement with shareholders about both ESG topics and portfolio management. We're committed to understanding shareholder perspectives and addressing their concerns directly, which marks a significant change for us and should positively impact all our shareholders moving forward.

With regards to the Permian, you talked about the rig split earlier. But can you talk a little bit more with regards to how you view the Anadarko Permian properties competing relative to the legacy Oxy Permian properties? And to the degree that you were to ramp back post 2020 to deliver a 5% growth rate, would that ramp-up occur more from Anadarko side versus the Oxy side?

I think our Southeast New Mexico area still remains, I believe, the top and the best that we have. And I believe the legacy Anadarko acreage is going to be very close in line, not even a second, maybe a 1B in terms of the priority. The acreage is really, really good. Subsurface is excellent. So I would say that our Texas Barilla Draw area would be probably second. And so behind 1A in Southeast New Mexico, 1B in legacy Anadarko acreage.

Great. To follow up on the earlier question regarding WES, I recall that Oxy mentioned improving operational performance could be achieved by early 2020. Is that still the plan? What do you anticipate in terms of the scope of improvements and how will you measure success? Additionally, you mentioned the possibility of deconsolidation while maintaining economic interest. Does this imply that you would sell a portion but keep some of your interest in seed control? I apologize for the numerous questions.

I will handle the operations aspect and then pass it to Oscar for the structural side. From an operations perspective, a significant change has been the collaboration between our field upstream operations, the facilities team, and the WES team. They initially decided to adopt a team approach to how we conduct business, how WES operates, and how we engage with each other, examining ways to streamline processes and enhance efficiencies. They've identified specific areas that require attention. We were somewhat taken aback by the downtime that WES experienced, which is unacceptable for us. By combining the current management team's insights with their designated counterparts and collaborating with the Oxy team, these groups have devised strategies to significantly reduce the downtime. This reduction in downtime translates to inexpensive barrels, ensuring our uptime is optimized. It's the fastest and most straightforward way to increase production, and while we need to make some infrastructure adjustments first, we expect to see these improvements starting in the first quarter of 2020. Oscar?

Sure. It's Oscar. On the deconsolidation front, one of the key things is that WES has matured significantly over the years. Everything Vicki is discussing to enhance operations and, most importantly, position the company to aggressively pursue third-party business aligns with our vision for it to operate independently. The convenience for us lies in the deconsolidation aspect on the accounting side. We're still coordinating with our auditors regarding how much control Oxy will need to relinquish and whether there is a need to sell down some economic interest in the company. The important point is that the company is moving towards having its own employees and officers, robust operations, and it complements our businesses. Furthermore, the real growth potential for WES, beyond what we will continue to support through Oxy, lies in the third-party business, which presents great opportunities. More updates will follow, but that's our current stance.

I just wanted to, I guess, review a little bit on the capital efficiency or intensity disclosures you provided on the Permian Resources business. I'm just curious how you think about the ability to maintain that level of capital intensity, the 2020 level, as you think about kind of reentering more of a normalized or growth-type scenario in 2021. Is that a kind of a sustainable level? Or is that being kind of dragged down by the slowdown in 2020?

We considered how lowering our capital would impact 2021 when making that decision. We plan to onboard rigs if activity increases in 2021, and we will choose the right time to ensure our teams can manage the transition effectively. Shutting down a rig and releasing crews presents challenges in bringing those crews back and restoring their efficiency. We're aware of this issue, which is central to your question. We have developed a more robust process to address it, as it has always been a concern for us. We are currently working on optimizing the restart of an idled rig to make it more efficient. As we move toward 2021, we will take necessary steps to ensure that any rigs we bring on will start up smoothly and maintain efficiency. Did you have any additional thoughts on this, Ken or Jeff?

Yes. To add to your point, and as Vicki mentioned earlier, we anticipate that in 2021, along with the capital intensity, our figures will be in the low 20s. As synergies come into play, we expect to maintain that level moving forward. If you consider our leadership in the Permian resources, they have very clear objectives aimed at reducing costs further. I believe this will define our new normal.

That's helpful. And then I guess, continuing on this thread. What's the base decline on the Permian Resources business, I guess, exiting 2019 pro forma, the combined businesses? And then how that looks coming out of 2020 as you look at it in these capital intensity figures?

Yes. So without doing decline curve analysis on how it applies at cap intensity, I'll give you a couple of quick numbers. So the base decline exit-to-exit for Permian Resources is in the mid- to high 30s. So say, about 37%. But as you know, that's an exit-to-exit number. And when we do the capital intensity calculation, we use the real decline, which is exponential. So it's not straight. It's kind of concave. So just for easy math, if you think about the wedge we're adding in Permian Resources next year, there's about 105,000 barrels a day. So if you take the 2.2 billion, 105,000, that's what gets you to the $21 million capital intensity number. Is that answer what you're looking for, Michael?

Yes. And I guess I was also trying to understand like how that changes as you exit 2020 into 2021. It seems that, that would be a tailwind to the...

Actually, it improved.

Yes, that's kind of what I was getting at. I'm just trying to understand how...

Yes, there are a couple of other topics we want to cover before we finish. First, I would like to hand it over to Ken, as there have been some questions about the Gulf of Mexico that he can address.

Good morning. Thanks, Vicki. So far, we're really excited about both the people and the assets. The subsurface characterization opportunities, we believe, can lead to being able to extend the plateau with modest cost over a long period. Our latest K2 well come in with really good logs, and it'll be on stream in Q1. Next year, we plan to spend $100 million on near-field exploration and also drill development wells from platforms. Artificial lift synergies are something we didn't build into our thoughts, and it's something we're working on together as a team here, and we see that as real potential upside to come. We see Ghana as a long-term steady cash flow business that has great significance, and everything we've seen so far supports that.

In closing, I want to emphasize that we are positioning Oxy for long-term success. The acquisition of Anadarko has enabled us to address the three most critical issues facing our industry today: climate change, geopolitical volatility, and the regulatory environment in the U.S. With our current position as the largest handler of CO2 for enhanced oil recovery in the world, we plan to utilize our status as the largest acreage holder in the United States, much of which includes shale play, to implement CO2 enhanced oil recovery in the shale. This aligns perfectly with our Low Carbon Ventures strategy and allows us to maximize the potential of shale better than anyone else over time. We believe these assets complement our conventional projects in Oman and the UAE. I am truly excited about our portfolio. We have the opportunity to move into the future with the right portfolio, structure, team, and sustainability to withstand oil price fluctuations while maintaining a social license to operate globally in a low-carbon world. Thank you for your questions and for participating in our call. Have a great day.