Occidental Petroleum Corp (OXY) — Q4 2019 Earnings Call Transcript

Thank you, Elisa. Good morning, everyone, and thank you for participating in Occidental Petroleum's Fourth 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. This morning, we will refer to slides available on the Investors section of our website. The presentation includes a cautionary statement on Slide 2 regarding forward-looking statements that will be made on the call this morning. I'll now turn the call over to Vicki. Vicki, please go ahead.

Thank you, Jeff, and good morning, everyone. The integration of our business into one cohesive Oxy is progressing extremely well. We are ahead of schedule to fully capture value from our $2 billion synergy program. We have repaid approximately one third of our debt related to the acquisition, and we have the best people in place to leverage our superior assets to deliver outstanding operational results. As many of you may know, 2020 marks Oxy's 100-year anniversary. The success of Oxy's first century was driven by technical expertise, the ability to adapt quickly, and our ceaseless drive to lead our industry forward through innovative problem-solving. These same attributes, combined with our unique and defining approach to sustainability in a low-carbon world, will be integral to ensuring our leadership and success over the next 100 years. Before I touch on the fourth quarter and value-capture progress, I'd like to thank our remarkable employees who continue to work hard and responsibly deliver excellent results, whether their focus is on drilling the best wells with industry-leading capital intensity, operating our chemical plants efficiently, maximizing product margins, or delivering on our value capture and deleveraging targets. Our teams continue to lead with passion to drive positive results. Every day, our people demonstrate that they are exceptional at what they do while achieving the best safety performance in our history. Moving to Slide 3. As an innovative and sustainable energy leader, we intend to be at the forefront of our industry. The opportunity before us is immense, and our teams are energized and ready for the challenge. Our technical expertise, particularly in subsurface characterization, is a competitive advantage that allows us to maximize the value of our assets. All of our core assets are free cash flow positive and maintain dominant positions in the prolific basins or markets in which we operate. Our focused portfolio includes multiple decades of high-return short- to-medium cycle development opportunities with primary, secondary, and tertiary recovery options. The short cycle, high-return nature of our unconventional assets, combined with our low-decline conventional assets provide the flexibility to allocate capital to maximize cash margins, especially when taking into account our advantaged midstream position. Leading the industry as the low-cost operator has always been important to us as this metric will become progressively relevant in the years ahead. As secondary and tertiary methods become more attractive in recovering additional barrels from basins currently in primary recovery, our advanced technical excellence and decades of industry leadership in CO2 enhanced oil recovery position us to be the lowest-cost operator across multiple basins. As the assets we acquired are developed, we will utilize our subsurface and operating expertise to improve productivity and reduce full-cycle costs. Our diversified portfolio with decades of high-return inventory and our ability to produce high-margin barrels enables us to generate sustainable free cash flow to return to our shareholders. Foremost, in the form of our dividend, which is one of the defining characteristics of our company. As an innovative and sustainable leader, Oxy must boldly drive improvement on all fronts, including reducing emissions. Our commitment to sustainability is woven into the fabric of our organization. I’m proud that we were the first U.S.-headquartered oil and gas company to endorse the World Bank’s initiative to reduce routine flaring globally. This important effort is fully aligned with our strategic commitments. We plan for the future through the lens of being a best-in-class operator with an unmatched portfolio of assets and the goal of reducing our greenhouse emissions while executing our strategy to excel in a low-carbon world. Now moving to Slide 5. The fourth quarter was our first full quarter as a combined company, and we continued to demonstrate our position as a best-in-class operator. Our businesses outperformed across the board. Our production of 1.4 million BOE per day from continuing operations exceeded the midpoint of guidance by 78,000 BOE per day. We accomplished this while spending $400 million less than our full year combined company capital budget of $8.6 billion. This demonstrates that our long-standing commitment to capital discipline remains paramount. Pro forma production for full year 2019 also exceeded guidance by 28,000 BOE per day. And we expect to grow production by 2% in 2020 off this higher base, and we’ve lowered our already reduced 2020 capital budget by another $100 million. Spending less to produce more barrels demonstrates our industry-leading capital intensity and the value we will create for shareholders. That said, as global commodity prices have declined sharply in recent days, we are prepared to reduce our spending if the current environment does not improve. We are monitoring the situation closely and retain the flexibility to adjust our budget if needed. We continue to execute on our divestiture program. In January, we closed the sale of our South Africa block to Total for net proceeds of approximately $90 million. This follows the close of an aggregate of $1.5 billion in divestitures in the fourth quarter. We applied the proceeds from these asset sales and $500 million of free cash flow to repay $2 billion of debt, and we recently announced our 182nd consecutive quarterly dividend, an outstanding record that few companies can claim. Returning cash to shareholders through our sector-leading dividend is an integral part of our philosophy. In the fourth quarter, we returned approximately $710 million of cash, an amount we fully expect to continue to grow.

Thank you, Vicki. I'm also very pleased with how well our integration is proceeding. Completing our value capture program ahead of schedule is well within reach. And as Vicki mentioned, our teams are delivering outstanding operational results. As our integration progresses, we remain steadfast in our commitment to capital discipline and returning capital to shareholders. We demonstrated our ability to excel operationally in 2019 while spending $400 million less than our combined capital budget of $8.6 billion and lowered our operating costs on a BOE basis. Our capital intensity and value capture advancements have enabled us to lower our 2020 capital budget by $100 million to $5.2 billion to $5.4 billion for the year. Since closing the Anadarko acquisition, we have strengthened our balance sheet by repaying 32% of the new debt raised, and we will continue deleveraging as additional divestiture transactions are closed. We have already achieved 60% of annual run-rate synergies, and I am confident that our 2020 financials will illustrate the progress we are making. In 2020, we expect to fully capture $900 million of overhead savings, meeting our target a year earlier than originally stated. Furthermore, we expect to capture more than 75% of our operating and capital synergies this year. In 2020, we remain focused on maintaining our dividend by optimizing free cash flow and operating in a capital-efficient manner. We have implemented a significant oil hedging program for 2020, encompassing 350,000 barrels per day, which represents over 45% of our oil production. This will enhance cash flow in a low oil price environment. As we have previously mentioned, it will be a transition period before our financial results fully reflect our rapidly improving operational performance and synergy realizations. In the fourth quarter, we announced an adjusted loss of $0.30 per diluted share and reported a loss of $1.50 per diluted share. The difference between adjusted and reported results is mainly due to a $1 billion loss reflecting Occidental’s equity investment in WES at fair value on December 31 as well as $656 million of costs related to the acquisition. Turning to our business segments. Oil and gas adjusted fourth quarter income of $630 million represented an increase compared to the prior quarter, primarily due to a full quarter of production from the legacy Anadarko assets, and partially offset by lower international crude oil volumes as our contracts in Qatar terminated in early October. OxyChem surpassed guidance with fourth quarter income of $119 million despite scheduled plant outages and softer overall demand, which lowered production and sales volumes across many product lines. Marketing and midstream adjusted fourth quarter income of $200 million, which includes WES, decreased compared to the third quarter due to noncash mark-to-market losses, the tightening of the Midland to MEH differential and lower equity investment income due to the sale of our Plains units in the third quarter. For the fourth quarter of 2019, we reported a balance sheet without consolidating WES. Starting in the first quarter of 2020, we will present our full financial statements without consolidating WES. For the first quarter and full year 2020, we have provided guidance, which includes annual production growth of 2%. First quarter production guidance reflects planned turnarounds at Dolphin and Al Hosn as well as the timing effects of several large pad developments in the Permian Resources. As we continue to reduce debt in 2020 by applying asset divestiture proceeds and free cash flow, we will update the debt reduction tracker in our earnings presentation so investors can see our progress towards our divestiture target of $15 billion net of taxes and in deleveraging. I look forward to providing future updates on our progress. I’ll now turn the call back over to Vicki.

As Cedric said, we will provide updates over the next few quarters as our continuing improvements and enhancements become increasingly evident. For decades, Oxy has proven its ability to innovatively recover more hydrocarbons from reservoirs. We have the technical expertise to operate and develop our unique portfolio of high-quality, short- to-medium cycle assets that are perfectly positioned to ensure we will maintain our leadership as a low-cost operator. This strengthens our ability to continue our long and steady track record of returning excess cash to shareholders. This, combined with our differentiated low-carbon strategy will ensure our success and sustainability into the future. We'll now open the call for your questions.

Vicki, I have two questions if that's alright. The first one regards the progress on disposals. There's a noticeable change in the macro environment right now. Your November 14 press release indicated you might reach the upper end of your $15 billion target by mid-year. Could you share any insights or assurance regarding that timeline and target? Additionally, could you provide an update on the assets in question? Specifically, what is the status of Algeria and Ghana, given the mixed signals about the buyer's interest in those assets?

Okay, Doug, I'll let Oscar actually give a full update on our divestitures.

Thank you, Vicki. Doug, to start with Africa, we are definitely continuing our collaboration with Total and the governments of Ghana and Algeria to reach a positive outcome regarding the divestitures. As you've noted, there is an increased risk related to timing and certainty of closing. We'll share more information once we have substantial updates. It’s important to mention that we are limited in what we can discuss beyond what is publicly available. In Africa, we remain committed to our definitive agreement with Total regarding these assets, but we also understand that these assets hold significant importance for these countries, and their interest in retaining foreign investment is sensitive to various stakeholders. We need to tread carefully with that in mind. That said, I can share a few points. The assets in Ghana and Algeria are high quality and generate considerable cash flow, which we have used to reduce our debt. Particularly regarding Algeria, since announcing our deal with Total, the country has elected a new president and established a new administration, making that situation notably dynamic. Overall, we are actively engaged in multiple sales processes, and our commitment to achieve the $15 billion in asset sales remains steadfast, regardless of the outcomes of the divestitures in Africa. For instance, one asset sale that has been mentioned in the press is the land grant located mainly in Wyoming. This asset encompasses over 1 million surface acres and more than 4 million mineral acres, generating revenue from various sources, including trona, oil, gas, coal, and surface activities like wind farms and grazing. Although the state has expressed considerable interest, the process is competitive, and numerous qualified bidders are involved. The winning bidder would become one of the largest land and mineral owners in the United States. We have a strategy to protect value, so we prefer not to disclose too many specific pursuits. Nevertheless, we are determined to reach our $15 billion target. It’s crucial for us to focus on value and to remain flexible regarding our timeline in this market environment. That said, we still adhere to our initial announcement—aiming to complete these transactions within 12 to 24 months from closing. We are currently about eight months post-acquisition, and I am confident in our ability to achieve the $15 billion within the original timeframe. Our focus remains on value and closing certainty as we work with our counterparts on all divestitures. We are optimistic because we possess over $100 billion in assets within our portfolio and have a capable team with a strong track record. I hope this provides some clarity.

That's very thorough. My follow-up, Vicki, is really just on the synergy number. First of all, there's been pretty rapid progress on achieving the operational synergies. I know it's only about eight months since the acquisition, but I can't help but ask if you've done it quicker than expected. I'm wondering if you're seeing other opportunities, and if there's a chance to reset that synergy target at some point. If so, when do you anticipate that happening? I'll leave it there.

I believe we can revisit the synergy target at a later date, but our current focus is on realizing the synergies we have set as our goal. I'm pleased to report that the progress has been remarkable. One key factor contributing to this success is the quick completion of our organizational structure. As you know, we've spent time refining our company, our operations, and our approach to business, including our strategies related to Shell and EOR, among others. We had a robust business model in place that we felt was effective. Consequently, we integrated the Anadarko assets into our framework and initiated collaboration with their business units. We consolidated operations in the Gulf of Mexico under Ken Dillon, who oversees our international operations and major projects, bringing extensive offshore experience to the role. We also enhanced our team with talented individuals from Oxy and retained an exceptional Gulf of Mexico team from Anadarko. Additionally, we established a new business unit for the Rockies under Robert Palmer's leadership as part of our domestic operations. Right off the bat, we integrated the organization, but we also quickly began to work on the culture. Thankfully, we discovered that the Anadarko employees we retained shared a similar cultural alignment with us, which I credit to Jim Hackett. This has significantly contributed to our rapid synergy realization. It's not only the outstanding performance of Permian Resources, led by Jeff Bennett, that has accelerated this process, but it’s also about taking ownership of the integration. While some companies may rely on external consultants, we have formed an internal team of ambassadors who are actively engaging throughout the organization. They ensure that our business units are informed about our progress, goals, and key metrics, which we monitor weekly. Our board is deeply involved as well, particularly through the integration committee led by Dick Poladian, who has been instrumental in diving into details and driving quick progress. We are on track culturally and organizationally, and while synergies are materializing sooner than expected, positive developments are also taking place in other business units. While they may not fall under the synergy banner, we are enhancing our technical capabilities within our operations and in the newly acquired Anadarko assets. Now, I'd like to hand it over to Ken Dillon to elaborate on some of these developments, which I believe we will quantify and share with you over time.

Thanks, Vicki. If we talk a little bit about Gulf of Mexico synergies with renegotiated contracts to date, we potentially see a reduction between 8% and 15% this year in the cost of the capital program. We've started to roll out Oxy Drilling Dynamics, and we're already making savings on the first wells with optimum sequencing. We expect a reduction in shutdown durations of 20% this year. The Oxy maintenance programs will lead to a further 20% improvement next year in uptime. And recently, we were delighted that members of the Oxy Board of Directors visited the Deepwater Horn Mountain spar to emphasize commitment to HSE per staff and our contractors offshore, and this follows their visit to Safa' in the desert in Oman last year. Moving to Oman, we saw records this year in block 62 of 29,000 BOE per day, and we've developed new tools in-house for something we call Oxy jetting. It's a new completion technique, which we piloted on 15 wells. So far, we've seen improvements of between 200% and 300% on IPs of new wells for an increase of 5% in the D&C costs. It's not tracking, and I'm looking forward to being able to talk more about it on future calls. We previously talked about the Oxy field optimizer in Mukhaizna. So our high-speed reservoir models are now running in the cloud. The system is making actual recommendations for steam allocation at Mukhaizna to the engineers. In the pilot area, which covered 3% of the field, we saw increases in oil production of about 1% with a decrease in steam of 14%, and we continue to increase the pilot area. In Colombia, we increased the production at Llanos by 17% year-on-year, and we kicked off the Teca continuous steam flood project. So far, we've drilled 16 wells, and we're optimizing the development plans with our good partner, Ecopetrol. In exploration, our teams delivered 52 million barrels of resources at a binding cost of $3 a barrel in 2019. So if you look over the last 3 years, they've added 200 million barrels of resources to our portfolio. Abu Dhabi, we saw record production at Al Hosn of 86.6 MBOE per day as part of our winter plant trials. And on schedule, we awarded the feed this quarter to AMAC in the U.K., so we're on track for increasing capacity to 1.45. So overall, a good year with the HES performance, peak production, and continue to innovate and break records.

And just one last thing on the divestitures. Remember, we're repaying 3% debt with proceeds and have no 2020 debt maturities. So while we share, certainly our investors' sense of urgency around lowering the debt. We do have flexibility as it pertains to retaining cash flow, for example, the Africa assets are generating right now around $700 million of annual cash flow at $60 Brent. So we do have some flexibility with that.

Vicki, the investment case for oil heavily focuses on the dividend, and that holds true for Oxy as well. Can you confirm that maintaining the dividend is your top priority, especially given the challenging environment? Would you consider reducing CapEx in order to continue paying it?

Thanks, Paul. Our dividend policy has remained consistent for the past 20 years. We base our approach on our cash flow priorities, starting with maintaining our operations. After that, we focus on dividends and capital share repurchases. We have the flexibility to make adjustments to our cost structure to ensure we can continue paying our dividend. Our goal is to balance cash flows, and with the flexibility afforded by our extensive portfolio and the efforts of our teams to enhance efficiencies and reduce costs, we are in a favorable position. We do not anticipate this situation persisting, but we have the capability to manage through it.

Understood. And just to be clear, could you talk a bit more about your flexibility to cut? I mean, at the moment, you're growing, obviously, you could conceivably go growth flat or growth negative. And if you could just talk about some of your flexibility because it is important for people. Secondly and finally, could you just reiterate on the divestment program because I think that's the other very important thing to people? Obviously, you've gone through it line-by-line. But to be clear, you're reiterating that by midyear, you will have done the $15 billion. Is that what I've read or already said, sorry, then seen re-reported online?

I'll start with the dividend. You're correct that we have developed a scenario based on the current environment. We are unsure how long the impact of the coronavirus will persist. Therefore, we have implemented our business continuity plans and explored various scenarios for a potentially prolonged downturn. We have the ability to adjust our growth strategy, starting from slowing growth to a complete halt. Furthermore, we can also decrease our production while still maintaining operations. As we’ve mentioned before, due to our high-growth assets, we could even tolerate a slight decline in production if the lower prices result from an external event. It's important to note that prior to the coronavirus, prices were above $55. We believe the current situation will not drag on for so long that we can't manage it effectively. We’ve planned for these scenarios and set timelines for when we will make decisions. We are well-prepared to tackle this. Regarding divestitures, we are confident in reaching the $15 billion target. However, given today's circumstances, every company is reevaluating their plans and determining necessary adjustments. We expect to achieve the expected synergies, but I will hand it over to Oscar. I believe our timeline may be affected by travel restrictions preventing some interested parties from participating fully. Oscar, could you provide further insight on that?

I completely agree, Vicki, and you've expressed it well. We have visibility into midyear and our ongoing processes, but we need to be mindful of the current environment, including travel and commodity volatility. Our focus remains on value, and if that requires slightly adjusting our timeline, it's a reasonable request for flexibility, which I believe you would also support.

But I would say that if we believe we will continue to work the process with Algeria and Ghana, we do have alternative plans. We can implement these alternatives and replace the proceeds we would have received from Algeria with other asset sales that essentially have a similar cash flow impact.

So I wanted to build on some of the questions that were already asked around synergies, specifically. And I was hoping if you could comment on, given the reduction in capital spend that you've already made here for 2020 versus the original plan and the fact that you are on track to achieve your synergies ahead of the original schedule, how that impacts the kind of capital budget ranges for 2021? I understand it's far out to give preliminary guidance there, but you previously talked about $6.6 billion of spend for 5% growth. And then also talked about a maintenance CapEx scenario there. How have those ranges? Or how has that range changed based on what you’ve been to achieve so far in terms of synergy realization?

The $6.6 billion figure we mentioned for 5% growth was based on the synergies we anticipated capturing within that timeframe. As you noted, this timeline has been expedited. We haven't outlined what that scenario will look like just yet, but we are currently working on it. We are confident that we can achieve the 5% growth at $6.6 billion, and we also see the potential to reach that 5% with significantly lower capital. We just haven't determined that specific number. We want to observe how some of these other ideas and opportunities develop. Overall, I feel very optimistic about 2021 and what we can accomplish based on current observations.

Got it. Great. That makes sense. And I wanted to ask as my second question, a bit of a longer-term one, and it relates to some of what you're doing on the Low Carbon Ventures front. And I think Oxy is in somewhat of a unique position, given the large CO2 enhanced oil recovery business you have. And I like the proactive approach with the Low Carbon Ventures and work to use anthropogenic CO2 in that business. But I was wondering if you could talk specifically to the opportunity set that you see there, kind of the return profile of some of those investments, and how you're thinking about that fitting into the business in a more meaningful way longer term.

Longer term, we believe this will be a business that generates significant cash flow and earnings for us. Our team is observing a lot of interest in partnerships with companies that lack the capability to reduce their carbon footprint. There are many such situations. While I can't disclose specifics for competitive reasons, there is immense interest from various companies, leading to opportunities where we can have partners who will invest and/or we can sell CO2 offsets. Additionally, we can produce our own electricity at a lower cost to support our CO2 operations, or supply electricity to others through the technology we've invested in. By combining anthropogenic carbon from industry with net power generating lower-cost electricity for our CO2 operations, along with direct air capture—which we are currently conducting a FEED study on and expect to begin construction in late 2021 or 2022—we see many opportunities. With the interest from others wanting to invest or purchase offsets, we are well-positioned to establish this as a business line. At this moment, I can't provide further details, but we plan to share more information as it becomes available, and I anticipate having exciting updates by the end of the year.

I have a couple of follow-up questions. You've discussed the divestiture program and the importance of maintaining the dividend during this time. What do you perceive as the trade-offs or drawbacks of focusing solely on maintenance capital expenditures until debt reaches a specific level over several years? How do you balance the modest growth you are aiming for in the medium term against the possibility of accelerating debt reduction? Additionally, what are the advantages and disadvantages of pursuing a more extensive divestiture program to decrease debt more quickly and allow for discussions about growth in distributions?

I believe Oscar can elaborate further on the potential to exceed the $15 billion mark shortly. To begin, we are focused on reducing our debt significantly. Our goal is to lower our debt to about a 1.5% ratio at a $60 WTI. However, we must remember that our investment in organic growth yields excellent returns. We are trying to strike a balance between delivering returns to our shareholders and improving our balance sheet. We believe it is possible to achieve both objectives over time. Our divestitures are specifically aimed at accelerating debt reduction, and based on our current portfolio, we are confident we can accomplish this. Oscar, would you like to add anything?

Yes, we've stated that we have processes in place or are ready to initiate exceeding $15 billion, regardless of whether we finalize the deal in Africa. To clarify, we have indeed taken the steps you mentioned. We are positioned with more assets in the market than necessary to remain competitive, allowing us to adjust our portfolio as needed, such as letting go of assets we don't prefer while retaining those we value. The land grant is particularly noteworthy as it remains stable despite fluctuations in the oil and gas market; its worth lies in different areas. We will focus on advancing these opportunities where we can safeguard future value. If current market volatility delays some initiatives, it may affect a few, but overall, we are adopting a portfolio strategy and making significant efforts.

Okay. And maybe one, you have a slide in the presentation where you run through the kind of the multiyear timing outlook on a number of your conventional assets around the world. What sort of timing requirements do you have on the various conventional assets globally? I mean, is there a limit to how far you can defer activity in places like Oman, Abu Dhabi, and Colombia?

We are currently meeting all of our commitments on all of our international conventional assets. So I think we're doing a very good job of that. We work very closely with the governments and our partner companies in those areas to make sure that we're delivering what we said we would do, and we optimize where we can, and some of the activity that Ken talked about in Oman, in particular, is delivering better results with less capital than we had originally anticipated. So I think that we're doing well with all of our conventional asset commitments.

Yes, it's Ken here. I think I walked through quite a few of the ones on the sheet earlier. I think we're on track for 2019, 2020, 2021. We studied the well in Abu Dhabi. Things are going well there, Shah expansion, our Al Hosn expansion is going well. White Energy project is moving ahead, targeting 40 million scalps per day. It's in design with a company we like working with. We've got plenty of places to put the CO2, which takes you through the 2020-2021 timeframe. In Oman, seismic has gone well. We're interpreting the 3D seismic we captured last year on the main blocks. Exploration wells. We've got a 75% technical success rate there, just under 50% commercial success rate, and our binding costs are about $3 per barrel. That's going well. So overall, I think for all of the items listed, Colombia, we kicked off Teca. First 16 wells, drilling costs coming down facilities, well mapped out, moving ahead. I'd say generally meeting everything on that Slide 21 in terms of dates, which is the on-time, on-budget is one of our mantras.

Vicki, just curious that, once that you get your debt under control. Is there a target ratio of how much of the cash flow you want to reinvest, and how much is going to return to the shareholder? I'm not talking about the next month or 2 years, obviously, the way the debt repayment is going to be the priority, that may change it. But in the longer term, how should we look at the business model? How are you going to use the cash flow? Is there a ratio that you are targeting?

In the current scenario, we anticipate that a 5% growth is the maximum we aim for over time. Regardless of the oil price being $70 or $80, we believe we do not need to exceed a 5% growth. Any excess cash after covering our organic investment needs to achieve that growth would typically be allocated to share repurchases or similar investments. From both a capital and growth perspective, we consider 5% to be adequate. While I cannot specify the exact ratio, it is likely to evolve over time.

Okay. And the net is under, say, call it, $55, $60 Brent price, what will be the target growth rate for you guys then?

$55 to $60 still indicates a 5% growth. We will not increase our organic capital investment as oil prices rise. Instead, we will manage the business at an optimal investment rate that typically supports that 5% growth. We want to ensure we do not rush into maximizing the net present value of our developments.

When you said a few months ago that you will reduce your stake in Western midstream to less than 50%, the yield on Western midstream units was maybe 10% or so. To date, it's almost 20%. Given how distressed those units are trading, does it make sense to divest any of them under current conditions?

It's Oscar. I'll take that one. No. Generally, no. But that's a short answer. But clearly, we've got a commitment in terms of what we've done and then standing less up independently and deconsolidation and all of that, where we do need to get below 50%. But we do have timing flexibility on that as well. It's not something that necessarily needs to be done right away. But we agree; we're the largest shareholder. We pay the price as much as anybody more. So probably, having some patience around that is clearly something that would make sense.

Okay. One more on the decarbonization aspect to the story. Most other companies that have put out a net 0 target have given a timetable, 2050 or something else. Realistically, when do you anticipate being ready to give a timetable for your net 0 status?

Our teams have developed a detailed strategy for achieving our goals, which is based on a defined program rather than being just an aspirational goal. This plan includes a timeline with milestones for the development of direct air capture of anthropogenic CO2 and the installation of net power over time. Based on the latest information, we may achieve carbon neutrality in the 2040 to 2045 timeframe, although we are not officially stating this as a target.

I wanted to start with a couple of follow-ups on questions from earlier. First, with regards to a lower commodity environment, given the low cost of debt from your financing round last summer. How would you weigh going to no growth going to decline versus taking on additional debt to keep the dividend sustained? And then separately, since you brought up the land grant, can you characterize where you see free cash flow coming from there right now?

We will not take on debt because we don't see the need to do so. We believe that our flexibility allows us to manage almost any situation, especially since we have hedged 350,000 barrels a day. Additionally, $40 oil is not sustainable for our industry over time, giving us the opportunity to navigate through this period. We are willing to let our production decline slightly, particularly with our Permian Resources business, the DJ Basin, and eventually, the Powder River, which are strong producers that provide quick cash flow recovery. Thus, we can recuperate from a decline in production, which would not have been feasible when we only had conventional assets. Consequently, we will not incur debt to maintain the dividend; instead, we plan to reduce our organic capital investments.

It's Oscar. We haven't shared the cash flow details related to the land grant, but I view its value as tied to the assets. There is significant value in both the surface and the various minerals, both hard and liquid, as well as in the potential for future development and the inherent value of these assets. This potential value offsets the current cash flows, which leads us to believe that the asset's value could be greater than what is typically seen in conventional asset sales.

Great. And then my follow-up is with regards to two plays within the E&P portfolio, the Permian and the Powder River Basin. On the Permian on Slide 28, you highlight the significant increase each year in well performance and wondered what your outlook is for 2020 and the extent to which longer laterals will drive well performance versus other measures? And then just any milestones that you expect in the Powder River Basin this year and now you see that play developing within the portfolio?

On the Permian Resources business, I was quite surprised. I had predicted that the improvement from 2018 to 2019 would be in the 5% to 10% range, and they clearly achieved that. With some of the strategies our team discussed today, including differences in our lateral placements and the way we conduct our frac jobs, I believe there is still potential to enhance the near wellbore area along the entire lateral to access more near wellbore reserves. I think they can implement some changes to facilitate this over time. While I hesitate to put a specific number on it, I do expect us to make further improvements. I don’t think we will reach a plateau from 2019 to 2020; instead, I anticipate improvements this year and continued progress into next year. Regarding the Powder River, it's an area of great potential. We have conducted appraisal work there. The team, along with the legacy Anadarko experts in the Powder River, is highly skilled. They have analyzed what the offset operators are doing and have shared their insights with our internal team in the Permian Resources, allowing for mutual learning. I believe this team will generate significant results in the Powder River. However, we will not be very active there this year and will likely increase our activities toward the middle to later part of next year.

This is Jeanine. My first question is on Permian maintenance CapEx. We've had a lot of discussion on that play so far. Can you or maybe quantify how Permian maintenance CapEx trends over the next couple of years? So I mean, we're thinking depending on the growth rate, the decline rates could moderate and potentially facilities-related spending could also decline, and both of those would be tailwinds.

The way we look at that really is from a capital-intensity standpoint, and we see that our capital intensity right now is down in the low 20s. And so we believe that with the efforts that we can make around optimizing our base production. And designing our fracs so that they are recovering more ultimate reserves from essentially the same sort of designs, I think that the maintenance capital shouldn’t significantly increase over time. Jeff, do you have any numbers around that?

Yes. I mean, what Vicki said, and Jeanine, I think is what you're getting at is, the maintenance capital, obviously, as your base gets bigger, that drives maintenance higher. But what's going on is, with the lower growth rate, you get a lower decline. And then with what Vicki said, with the capital intensity continuing to improve, we wouldn't expect maintenance capital for Permian Resources to go up significantly even on a much larger base, which normally you would expect that to happen. We shouldn't see that because of the improvements in performance, lower decline. And as you mentioned, we will get lower facility costs with time because you're not opening up new areas or new fronts; you're able to leverage the facilities that are already in place. So that business will continue to get better on that front.

Okay, great. That's really interesting. My second question is just on activity, and Vicki, following up on your prior comments about willingness to respond to a potentially lower-for-longer scenario. You said that you could go ex-growth or maybe even decline a little bit, depending on the environment. Does that imply that there really isn’t any non-D&C CapEx could be pushed off and that reducing CapEx for the year with just all the non-D&C activity? So we noticed that in the oil and gas CapEx budget, facilities and exploration between the two of those, it's about 24%. So maybe there's potentially a scenario that you could push some of that off and still kind of keep the machine going.

Yes. And that would be the first to go. We've tiered our capital so that as we go through this, and we start having to having lower capital, the less productive capital goes first. Now that would mean that there could be a point in the future where our facilities CapEx could be a higher percentage. But given where we are in optimizing our developments in this kind of scenario, that's exactly what we would do.

I guess, one thing I'd like to touch on, if possible, on the Gulf of Mexico on the chart or Slide 21, you mentioned the Eastern Gulf of Mexico exploration discovery, and then obviously, targeting additional exploration in the out-years. As we think about the sensitivity of CapEx in a, call it, lower-for-longer period here with oil prices, where does the exploration need in the Gulf fit in with the general idea that you were going to keep production relatively stable there in the Gulf, sort of that question that's been asked about the Permian and maybe overall in the company? How do you manage constraints on one end with goals on the other and keeping that business on a sound footing?

It's Ken. I'll take that one. Essentially, it's not only about maintaining production levels but also about the Gulf of Mexico generating a significant amount of net free cash flow. Our goal is to establish a 10-year plan focusing on keeping the net free cash flow relatively stable during that period. As I mentioned in a previous call, we have a strong appreciation for Horn Mountain, which remains one of our assets and continues to improve. Central Gun looks very promising as well. We see excellent opportunities for near-field tiebacks and are engaged in ongoing activities that allow us to consolidate in those areas. Our aim is to maintain long-term, steady net free cash flow from high-margin barrels that can compete effectively within our portfolio. We have a great team with a long history going back to Oxy from years ago.

Okay, great. And then a follow-up question. You mentioned, obviously, the change in the Board structure that's gone on, some of the other things in terms of accessibility for shareholder initiatives and all that. Since the next time you have an earnings call, we’ll probably be deep into the proxy season. I was just curious, has there been any change on that front you'd want to comment on? Sure. Recently, we announced that Andrew Gould would join our board, that's going to be effective March 1. And we think that adding Andrew complements the addition of Bob Shearer to the board in July of last year. Andrew's decades of operational and financial execution leadership in the industry will further strengthen our Board of Directors. So those two adds were part of a process that we feel like we're really excited about that's brought some new and different experience to our Board. And also as a part of the independent chair succession plan, the board approved last year, Gene Batchelder will step down as chair after this year's annual meeting, and he’ll be succeeded by Jack Moore, who is our Vice Chair this year. Accordingly, Gene has indicated that he will not seek reelection to the Board. But I do appreciate Gene and Jack, as they’ve gone through this process, this has probably been the first formal succession to the chair role that Oxy has ever had. So that process has worked well this year. Additionally, Spencer Abraham has served us for a while now, has indicated to the board that he has decided not to stand for reelection. So we're grateful for both Mr. Batchelder and Mr. Abraham for their contributions and their service to the board. And then the other thing I wanted to highlight is I already mentioned that the 2 new committees this year. I mentioned that Dick Poladian was leading the integration committee. He’s also our audit chair. So he’s been a big part of helping us structure the metrics and follow the integration and make that as successful as it's been. But I also want to highlight that Peggy Foran has been appointed Chair of the Sustainability and Shareholder Engagement Committee. Peggy's proactive shareholder outreach and thought leadership on key governance issues has earned her really global recognition as a leader in corporate governance, and we appreciate the leadership and expertise that she brings to this committee and to our Board. That committee, we want that committee to help us be much more engaged and further proactive around shareholder concerns and engagement.

There have been several questions regarding the timing and scale of the one-time costs and some confusion that we aim to clarify concerning when these costs are recorded as expenses and when they are actually paid in cash, as the timing differs. In the fourth quarter, we incurred about $1.6 billion in integration-related costs, which is an expense item. This year, we anticipate incurring an additional $400 million to $500 million in integration costs. By the end of the fourth quarter, $868 million was paid out in cash, and the remaining balance is expected to be paid out this year. We believe the paybacks from these initiatives are quite favorable. By incurring these costs earlier in the process, we can realize the associated benefits on our bottom line sooner than initially expected. As Vicki mentioned, we are significantly ahead of our plans and timelines, which is very exciting, and we believe that our financials will reflect this starting this year.

Okay. I'll close with another thanks to our employees and to all of you who participated in our call today. Thanks again, and have a good day.