Occidental Petroleum Corp (OXY) — Q3 2021 Earnings Call Transcript

Thank you, Eileen. Good afternoon, everyone, and thank you for participating in Occidental's Third Quarter 2021 Conference Call. On the call with us today are Vicki Hollub, President and Chief Executive Officer; and Rob Peterson, Senior Vice President and Chief Financial Officer. This afternoon, 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 afternoon. I will now turn the call over to Vicki. Vicki, please go ahead.

Thank you, Jeff, and good afternoon, everyone. Our strong operational and financial performance continued in the third quarter. Consistent with prior quarters this year, we generated a record level of free cash flow before working capital, which we apply towards reducing debt and strengthening our balance sheet. Operationally, our business has excelled, driving our robust financial performance. OxyChem had its strongest quarter in over 30 years, and our Permian, Rockies, Gulf of Mexico and Oman teams set new operational records and efficiency benchmarks. As was the case last quarter, our cost structure and capital intensity leadership served as catalysts for our strong financial results and provided a solid foundation for free cash flow generation. Our Gulf of Mexico and OxyChem operations were impacted this quarter by Hurricane Ida. Our primary focus was the safety and well-being of our employees and contractors, and we were relieved to hear that our people remained safe during the storm. We are working closely with those that were impacted, and I could not have been more pleased with how our teams overcame the challenging events triggered by the storm. The Gulf of Mexico and OxyChem operations that were affected by Ida are back online with no lasting impacts. I'd also like to pass along our best wishes to our coworkers in Oman's capital of Muscat and to all the people of Oman as they recover from the devastation recently caused by Cyclone Shaheen. This morning, I'll cover our third quarter operational performance and divestiture progress; Rob will cover our financial results and balance sheet improvement as well as our fourth quarter guidance. Our guidance for the fourth quarter and full year includes an increase in production and an improvement to earnings guidance for Midstream and OxyChem. The commodity price environment continued to be supportive in the third quarter as our focus remained on generating free cash flow and maximizing margins. This is the third consecutive quarter that our operational success and capital intensity leadership have produced a record level of free cash flow. In fact, our third quarter free cash flow was the highest it's been since at least the turn of the century. As you know, that time frame included several periods of significantly higher oil prices. Total production for the quarter reached the high end of our guidance, which is a noteworthy accomplishment considering the extended downtime in the Gulf of Mexico. Hurricane Ida's impact on third quarter production and the costs associated with safely shutting in production, evacuating and then restarting the platforms and ongoing projects resulted in higher-than-expected domestic operating costs for the quarter. Our fourth quarter domestic operating cost guidance reflects normalized conditions and is relatively in line with our previous expectations for the year. On our last earnings call, we highlighted OxyChem's many strengths and consistent free cash flow generation. OxyChem's third quarter earnings were the strongest since 1990 and are a great example of what the business is capable of delivering. While Hurricane Ida disrupted third quarter operations, the impact to OxyChem's Louisiana-based facilities was temporary. The storm reduced production capacity during a period when market inventories were already fairly tight by historical standards. OxyChem continued to benefit from supportive PVC and caustic pricing, resulting in stronger-than-anticipated earnings. Our Midstream and marketing business benefited from the timing of export sales during a rising crude price environment and a healthy market for the sulfur produced at Al Hosn. The marketing team was able to capitalize on natural gas price volatility during the quarter by directing gas towards transportation solutions, yielding high spreads. In summary, our team was once again able to utilize existing contracts and their expertise to maximize margins by delivering product to the markets that needed it the most. We continue to make notable progress in reducing debt and strengthening our balance sheet. We exited the third quarter with approximately $2.1 billion of unrestricted cash following the repayment of $4.3 billion of debt and the settlement of $750 million of notional interest rate swaps. We are pleased to have delivered such a sizable reduction in debt in a single quarter. In a healthy commodity price environment, we expect to continue reducing debt in future quarters as we delever and take the necessary steps to move towards returning additional capital to shareholders. Our oil and gas teams continued to demonstrate a consistent drive for efficiency as we never tire of setting new operational records or generating record levels of free cash flow. I continue to be impressed by how our global teams are able to deliver outstanding results. I want to highlight several examples of operational excellence in the third quarter. I'll start in the Permian, where we drilled our first 15,000-foot lateral wells in the Midland Basin with impressive results. One of the first wells was delivered in less than 10 days from spud to rig release. In the Delaware Basin, year-to-date, we are drilling 16% faster than we were just a year ago. The efficiency gains that our teams are recording extend well beyond the Permian. Our Rockies teams set a new Oxy daily drilling record in the DJ Basin with over 9,700 feet drilled in 24 hours. In the Gulf of Mexico, we set a new cycle time drilling record, and our hosting platform achieved a record production in 10 years. In Oman, we set new multiple drilling records and completions efficiency records as our teams continued to leverage new technologies and drilling techniques to improve performance. Another significant milestone reached by our international business was Dolphin, delivering its tenth Tcf of natural gas in the third quarter. The impressive efficiency gains we have highlighted in the last few earnings calls are translating into tangible financial results. Our innovative approach to drilling and completion techniques, coupled with supply chain optimization, will enable us to deliver higher production than initially planned this year. I want to point out we are accomplishing this all while maintaining our commitment to capital discipline. We continuously seek new ways to work with our partners to lower costs in a socially and environmentally responsible way, and we're pleased to have been able to do that in the third quarter. Through our partnership with a leading midstream company, we increased by about 30% the capacity of the water recycling plant that supports our Midland Basin, South Curtis Ranch development. This expansion has enabled us to recycle and utilize higher volumes of water from the plant. In addition to lowering costs, we have not disposed of any water at the South Curtis Ranch development since August. Across our U.S. onshore assets, our transition to using dual fuel frac fleets and drilling rigs has saved over 6 million gallons of diesel year-to-date, lowering costs and reducing emissions. As Colorado's new permitting process became effective at the beginning of this year, we worked closely with regulators to adapt to the new process and requirements. As members of the communities where we operate, our goal is to serve as a resource and educate stakeholders on Oxy's approach to responsible development. Our inclusive approach has been helpful in securing DJ permits. In September, we were pleased to see the process move forward for Oxy with the approval of additional permits in Weld County. Our engagement with and support from communities remain strong, as does our commitment to responsible development as we work to secure additional permits. The momentum that our oil and gas business has generated throughout 2021 has helped position us for a strong start in 2022. We recently completed our large-scale divestiture program with the sale of our Ghana assets for $750 million. As many of you know, we have been working closely with our partners in Ghana to complete this divestiture and have successfully closed the transactions with both buyers. For the Ghana divestiture, we have completed our goal of divesting $2 billion to $3 billion post Colombia, marking the end of our large-scale ongoing divestiture program. We have now divested approximately $10 billion of assets since August of 2019, and including the debt that was repaid in the third quarter, we have repaid approximately $14 billion of debt. As we maintain our focus on shareholder value, we'll continue to seek opportunities to optimize our portfolio. We will continue to complete acreage trades or bolt-on acquisitions if they create value for our shareholders. I'll now hand the call over to Rob, who will walk you through our financial results for the third quarter and guidance for the fourth quarter.

Thank you, Vicki. In the third quarter, we generated a record level of free cash flow as commodity prices remained healthy and our businesses performed well. We exited the third quarter with approximately $2.1 billion of unrestricted cash on the balance sheet after repaying $4.3 billion of debt in the quarter. Through September 30, we have repaid $4.5 billion of debt and retired $750 million of notional interest rate swaps. We estimate this will reduce interest and financing costs by $170 million per year going forward. Our consistently strong operational results, in combination with the current commodity price environment, are driving improved profitability on top of our already robust free cash flow generation. In the third quarter, we announced an adjusted profit of $0.87 and a reported profit of $0.65 per diluted share, following a return to profitability on an adjusted basis in the second quarter. Similar to previous quarters this year, our reported results were less than our adjusted results primarily due to the mark-to-market impact of derivatives. As commodity prices improved throughout the third quarter, we made payments of $14.2 million on the remaining oil hedge position and $24.1 million under our gas hedges. We recognize that shareholders appreciate our leveraged oil prices and the recent uplift in natural gas prices. Our current oil and gas hedges will expire by the end of this year, and we have not added any new hedges for future periods. As Vicki mentioned, the sale of our Ghana asset marks the completion of our large-scale divestiture program. These assets were classified as discontinued operations in our financial statements, so there will be no impact on ongoing production. We will apply the cash from this divestiture and any cash generated from future portfolio optimization towards our cash flow priorities, which are currently focused on reducing debt. We have raised our full year production guidance to 1.155 million BOE per day for 2021, while our full year capital guidance of $2.9 billion remains unchanged. Last quarter, we raised our full year production guidance shortly before Hurricane Ida temporarily disrupted our Gulf of Mexico production. Even taking into account the impact of this sizable storm, we met the high end of our company-wide production guidance for the third quarter. Our fourth quarter capital spend is expected to be higher than the prior quarter this year primarily due to the timing of maintenance activities in all three of our business segments. In oil and gas, for example, a portion of the capital spending in the Gulf of Mexico was moved from the third to the fourth quarter due to Hurricane Ida, and we plan to accelerate the start of two rigs in the Permian, which I'll touch on shortly. Company-wide fourth quarter production is expected to be 1.14 million BOE per day, which represents a 5,000 BOE per day increase from the guidance provided on our last call. Our fourth quarter guidance, which is slightly lower than our third quarter results, takes into account production sharing contract price sensitivities, planned maintenance and our activity schedules. We expect to exit 2021 at approximately the same average quarter production as we exit 2020 with. We have updated our activity slide to include two additional Permian rigs that were originally scheduled to start early next year and will now begin operating in the fourth quarter in Texas Delaware and New Mexico. Similar to the activity change we announced last quarter, this adjustment will be fully funded through cost savings and optimization of capital projects gained through efficiency improvements and will not increase our 2021 capital budget. Texas Delaware and New Mexico are two of our highest return assets, and introducing activity in the fourth quarter will place us in a stronger position for 2022. We expect that the market dynamics that drove Midstream and marketing performance in the third quarter will continue in the fourth quarter. We have increased forward guidance to reflect improved differentials benefiting the gas marketing business and robust sulfur pricing at Al Hosn. We have increased earnings guidance for OxyChem for the third time this year, reflecting year-to-date performance and continued strong product demand. Not only do we expect 2021 to be a record year for OxyChem, we also anticipate the fourth quarter will be even stronger than the record third quarter. We believe the market recognizes and appreciates the value being delivered to shareholders through debt reduction and balance sheet improvement. As we work to repay additional debt, we expect that shareholders will continue to benefit in several key ways. First, we expect that the additional debt reduction will translate into share price appreciation. We acknowledge that healthy commodity prices have played a role in the improvement of Oxy's enterprise value over the last 18 months. Assuming the enterprise value of our company remains stable or improves, equity will become a larger portion of enterprise value over time as debt is reduced. The interest and financing costs saved on a go-forward basis lowers our cash flow breakeven. We expect that a lower cash flow breakeven will result in additional discretionary cash being available to allocate towards our future cash flow priorities, including returning capital to shareholders. As we stated previously, we want to ensure that returning additional capital to shareholders, including any increase in the dividend, is sustainable and predictable throughout the cycle. Reducing the amount of cash committed to interest payments today places us in a stronger position for the sustainable return of capital in the future. Finally, lowering fixed costs in the form of interest or interest rate swap payments improves our flexibility and optionality at any point in the commodity cycle. Our balance sheet improvement efforts have placed us with a clear runway for the next few years, and we are taking a thoughtful approach to repaying additional debt in a manner that is opportunistic for Oxy. Executing additional tenders or exercising attractive make-whole provisions are just two of the solutions we are considering. We may also choose to retire the remaining interest rate swaps, which have an uncollateralized value of approximately $400 million and could be another opportunity to improve cash flow by approximately $45 million per year at the current interest rate curve. As we advance our cash flow priorities, we expect Oxy's financial position to strengthen, aided by our deleveraging efforts and our strong liquidity position. As we near the end of 2021, we are preparing for the year ahead with the underlying focus on safe, responsible operations and financial discipline, which we believe will create value for our shareholders. I will now turn the call back over to Vicki.

Thank you, Rob. We understand that there's a high level of interest in our 2022 plan, which we'll announce in our next call. But now we'd be happy to take your calls for this segment of the call.

Our first question is perhaps on the balance sheet and growth. When do you see Oxy getting to the net debt of about $25 billion for that marker? Depending on oil prices, our model suggests you can achieve that by about year-end. And if that's the case, is it just a matter of waiting for the macro to give you the all-clear sign in order to begin layering some growth capital?

Certainly, we are achieving a line of sight towards getting to that net debt target of $25 billion. So we're going to get there sooner than we expected. But in terms of what we would do with the cash flow after that, we'll follow our commitment to our cash flow priorities, and the next in line would be to start to increase our fixed dividend. So that would be, in terms of orders of priority, our next target. We really don't feel like we need to provide growth at this time from the standpoint of where we are today with respect to our cash flow generating capability. So future growth for us would really be in support of growing a dividend, not growth for growth's sake.

Yes. And Jeanine, I'll add to Vicki's comments on that. Just as we get to that, we've discussed feathering in the dividend at $25 billion. We're not going to stop our debt reduction at that point. We're continuing to put cash flow into our debt reduction priorities beyond our other top priority of maintenance capital.

Okay. And then maybe we can pivot to a different kind of growth. The role of carbon capture, it's going to be absolutely tremendous in the energy transition. And Oxy clearly has core competency in this area. And Vicki, in the past, I think you've sized the potential of Oxy's carbon capture business as rivaling that maybe of your other businesses over time. So if you have any comments or update on that, that would be great. And if overall, you can just discuss your updated view on Oxy's future as a carbon management company?

We still believe and are working towards becoming a carbon management company, which we see as essential for the energy transition. We are addressing a gap in this area compared to what others are doing. A lot needs to take place in the energy transition for us to successfully limit global warming to 1.5 degrees. Some companies in the oil and gas industry are progressing towards renewables, which is important, while others are focused on reducing emissions from their existing operations. We are concentrating on lowering our current emissions but not pursuing renewables. Our expertise in handling CO2, especially for enhanced oil recovery, positions us to fill a unique gap. The need for this gap is clear: CO2 must be removed from the atmosphere, and the necessity of direct air capture is indisputable. This approach not only facilitates CO2 removal but also allows for the production of net zero or net negative carbon oil. This capability is essential for hard-to-decarbonize sectors like aviation and maritime, providing them with net zero carbon fuels. Building direct air capture technology serves two purposes: atmospheric CO2 removal and producing those fuels. Its versatility lies in the ability to construct it in various locations. Given the global impact and the requirement for thousands of these systems, we see a significant opportunity to lead in this technology's development. While the transition will take time, over the next 10 to 15 years, we anticipate substantial progress towards becoming a net carbon management company and a key provider of CO2 offsets.

And welcome to the end of earnings week, Vicki, thanks for closing us out, I guess. I've got a couple of questions, specifically around the return of cash comments. If you can indulge me for a minute, I'd like to kind of lay out my thinking here. Your share price is lagging pretty badly today despite extraordinary free cash flow yield in our numbers and a clear line of sight to deleveraging. So there's something the market is not acknowledging, obviously. Our feedback, I guess, is that you're the only company not giving meaningful cash returns back to investors. So my question is, how do you think about the right level or the appropriate mechanism to return cash when your stock has such a high free cash flow yield? Let's assume that persists. That's my first question. And my second question is Pioneer and NOG, one has practically no net debt, the other is targeting no net debt. Where do you think the right level of debt is once you surpass your $25 billion target? Where do you want it to be?

Well, as you know, our target is to get to around $25 billion in net debt. And as Rob mentioned earlier, now that target is in line of sight and, again, much sooner than we expected. Once we achieve that, then we'll begin to layer in some of the other things that we can do with our cash, most notably and primarily to grow a fixed dividend. Beyond that, I don't see capital growth until we've gotten to a point where we need to make that happen. I think we've talked about it over the last couple of years that we feel like it's very important to keep our breakeven around $40. As we establish a fixed dividend and move forward, we would grow our cash flow to match the growth in the dividend rate. So that will happen, but it will happen over time.

Doug, I want to add that what we've done aligns with our messaging since we began the deleveraging process. We've informed the market, as Vicki mentioned, that we would aim for a net debt level of $25 billion before we think about increasing returns to shareholders. We have a clearer view on this now, and it's closer than we expected due to our efforts to manage cash and stronger than anticipated commodity prices. If this trend continues, we might reach that goal sooner than thought. However, we haven't reached it yet, which is why we are not increasing shareholder returns; we want to remain consistent with our messaging and the plan we've shared with our shareholders.

Okay. This is a quick follow-up, and I'll jump off. I'm looking at the Apache example. We've come out basically given a framework where they are saying essentially, like you guys, the free cash flow yield is extraordinary. And so we're going to buy back a bunch of stock. That's really what I'm driving at here. Your capacity for potential buybacks is pretty material. Can you offer any kind of thoughts as to why that might not be the case and what the limitations are around the preference shares as it relates to whether share buybacks would be practical? I'll leave it there.

I would say, Doug, we're not at the net debt of $25 billion yet, and we want to see what the macro conditions are and what's happening with our stock at that point. So since we're not there, it's really hard to provide any direction right now on what we would do. The one thing we can tell you is that we will follow our cash flow priorities, which is the fixed dividend first, before we would do anything else. Share repurchases are a longer-term possibility for us, but not in the nearest term. The nearest term would be to grow the dividend.

Vicki, the first question is just around sustaining capital, recognizing you're going to provide a little bit more clarity on '22 here in the coming months. But can you just talk about how you see that trending as we move into '22? And what are the tools that you have in place to mitigate the natural cost inflation that should arise as oil prices stay at elevated levels?

I'll take the second one first. Our teams have worked hard to try to establish the right kind of contracts and business situations with service providers and material providers to mitigate inflation. We don't think we would mitigate all of it. We're just not sure right now what inflation will be. We know that our efficiencies and our established relationships and business situations will help to mitigate some of it. We're hoping to continue also to further improve our efficiency so that we can mitigate more than what we would see today. There's a lot of work going on around that, especially with respect to how we manage our supply chain and the strength of our position not only in the U.S. but around the world. So we're leveraging that as well. With respect to the sustainability capital, I will say that inflation, whatever amount we can't mitigate would be on top of what we have today. In 2022, we won't have as many DUCs to complete as we did in 2021. We completed about 100 DUCs this year. Additionally, we'll have some capital investment that we'll need to make in two other areas, both of which we mentioned before. Al Hosn, we'll begin the expansion of that in 2022, and we'll have those costs. We'll also have some incremental costs in the Gulf of Mexico. So it will be higher than the $300 million we had this year because the Gulf is a little bit lumpy in terms of capital investments. We'll have those things to consider when putting together our final plan for 2022.

That's helpful. And just the follow-up is the composition of the portfolio. As you evaluate the different upstream buckets, the Permian, Rockies, Gulf of Mexico, Middle East, how do you see that evolving over time? Is there an area where you see is going to represent a disproportionate amount of the incremental capital beyond what you've already laid out?

The Permian will always see a bigger portion of the growth capital or even the maintenance capital than anywhere else. As we're starting to continue offsetting declines, there may be some of our areas that do decline. That would typically be made up by the Permian Basin. However, all of our areas play a role in what we're doing. The Middle East, for us, is very helpful to continue development there because the contracts provide us some protection in a down market; the PSCs do. So Oman is important to us from that respect. We do have a low cost of development there, and we get our cash back fairly quickly. So that's the good part of Oman. It delivers good returns. Al Hosn is a low decline asset for us; it plays that role. We want to continue building on our low-decline assets. A lot of the growth for that will be going back to EOR at some point to start building there as we get this anthropogenic CO2. So EOR in the Permian will play a bigger role in the future. But low decline assets are important to us, and the bulk of our dollars beyond sustainability ultimately would go to the Permian.

The first question is a follow-up on the shareholder return. Could you remind us why you believe it is more appropriate to begin by increasing the dividend rather than starting the shareholder return with a large buyback program, considering that it seems we all agree you are somewhat undervalued? Wouldn't it make more sense to initiate the previous buyback program?

The reality is that there are multiple things that we could do with our cash. We believe that restoring the dividend, not to the prior level but continuing to increase it over time, is a better and more predictable value creator for our shareholders. We have always been a dividend-paying company. It's important for us to get back to that and make it a level that is more meaningful to our shareholders, but we always want to evaluate buybacks. I'm not saying that we would never do it or never consider it; we're just not at the point now where we have all the data to be able to make that assessment. For example, today, we're not at $25 billion net debt. When we get there, we will take a look at all the things that are available to us to do. But starting to grow the dividend we have today is a high priority because of the fact that we did have to reduce it significantly; we want to start restoring it. Any cash we have beyond that will be available, and we will do the value calculations to determine whether it makes sense given the other opportunities for us to buy back shares. It's always a consideration.

Great. One extra question on OxyChem, the results in Q3 were excellent, and your guidance in Q4 is nothing short of amazing considering there is always seasonality in this business. And usually, Q4 is not as strong as Q3. So can you maybe tell us a bit more about the market dynamics in terms of supply and demand? When do you think we should expect some sort of normalization of your chemical business?

Yes, I'm happy to discuss it, Raphaël. Currently, the chemical business is experiencing strong conditions in our vinyl operations and steady improvements in the caustic sector. While we typically enter a seasonally slower period, we're not seeing that so far. Looking at the year overall, the industry, which was already tight in supply at the start of the year, lost nearly two months of production due to the freeze in the Gulf states in February and the impact of Hurricane Ida in the third quarter. This combination has kept the supply-demand balance tighter than historically expected at this time of year. The main profit drivers for the business, as outlined in our presentation, will come from both the PVC and caustic soda businesses. Year-to-date operating rates are over 80% in PVC despite the storms and production losses. Domestic demand has increased by over 13% compared to the same time last year, even with last year's post-COVID recovery. The construction sector remains robust, with inventory levels still low. Inventory tightness is evident as exports are significantly lower than historical levels, down over one-third compared to last year, even taking into account that last year was impacted by COVID. The exported PVC resin is mostly for long-term contractual sales from U.S. producers with overseas relationships, which means that spot resin is not reaching the market. This situation will keep prices and margins elevated, continuing through the rest of the year. On the chlor-alkali side, chlorine is also very tight as producers seek the highest value outlets. OxyChem's extensive portfolio of derivatives strengthens our position since we produce all three components of the vinyl chain and sell into a domestic market that includes exposure to polyurethane, TiO2, and other sectors beyond just water treatment and chloromethanes. All these markets are experiencing strong demand, and supply-demand balances remain tight. We expect that after a challenging operational year for the industry, there will be ongoing efforts to rebuild inventories and a return of pent-up demand as circumstances normalize post-pandemic. Specifically, caustic soda demand globally is anticipated to improve as manufacturing activities resume in South America, Asia, and Europe. While we are seeing steady improvements in caustic, we haven’t yet reached record prices like we have with PVC; however, prices in Asia have surged to unprecedented levels. Both businesses are strong currently. We anticipate a seasonal slowdown in domestic caustic due to transportation constraints on the Mississippi River during winter, but we don't expect it to significantly impact the industry, as inventories are very tight. We believe that January and February will be slower months for the industry, but with tight inventories, we will likely resume strong activity in the spring.

Vicki, could you discuss your current approach regarding the balance between growth and capital discipline? I know Rob mentioned adding a few Permian rigs, but could you please share your perspective on this matter today?

Yes. For us, production growth is not a priority right now because if you examine our cash flow generating capabilities and our strategy moving forward, reaching our net debt target of $25 billion is not our endpoint. As Rob mentioned, we aim to continue reducing our debt beyond that point. However, there is no immediate need for significant growth at this time. Once we reach the $25 billion target, we will provide more details about our next goals regarding debt reduction. Our primary focus will be on resuming dividend growth. The only time we would truly need to increase production would be in the future when we want to sustain dividend growth. We do not require additional production growth over the next couple of years to increase the dividend, given our expectations for the macro environment and the anticipated rise in our dividend. We believe we can achieve that without any production growth for at least the next couple of years. We will continue to maintain our operations and production levels, and we may undertake occasional projects that extend beyond sustainability capital, like the Gulf of Mexico and Al Hosn in the coming years. Aside from that, our focus will be on the dividend and further debt reduction.

And I assume your low decline helps with all that.

Yes. That's why it's important to have these low decline projects that enable us to execute on this strategy.

Absolutely. And then one last one, if I could. You mentioned hoping to get more than just the 45Q tax credit to help you and others potentially expedite some of your plans in that low carbon area. I'm just wondering if this is still something you think is needed to help you and others expedite clients with low carbon. If you did end up expediting this, would that come at the expense of cash going towards the upstream business?

I believe it is essential for the world to accelerate direct air capture, not just our facilities but also the overall carbon capture and retrofitting industry. This needs to occur. The only way to achieve it at the necessary pace is for the U.S. to support it. The U.S. has the capacity to do so, and the most effective way is through the 45Q tax credit and direct pay 45Q. This is crucial for us; without it, the U.S. will struggle to meet the targets set in the Paris Agreement. Therefore, 45Q must be implemented, and it needs to be direct pay to avoid significant challenges. Regarding our efforts, there will likely be a carbon price since many companies are committed to achieving net neutrality. It’s becoming clear that without incentives like 45Q, a price mechanism on carbon will be necessary. Many corporations are working to anticipate this, including United, which we have announced is committed to investing in direct air capture and purchasing net-zero oil. We are receiving substantial interest from other companies in direct air capture as a result. I truly believe there will be enough growth and commitment to ensure our initial efforts succeed, but we will require an even faster acceleration to achieve our long-term goals.

One follow-up question just around the dividend situation. You talked about wanting to have a $40 WTI breakeven. I just wanted to get some clarification on how you would calculate where we are today. It sounds like you would want to grow the dividend multiple years up to the $40 WTI breakeven as opposed to call it once. So just a clarification around that, please.

Yes. Currently, we're near breakeven in the upper 30s, not counting the preferred. We're very close to our target and plan to maintain that. As we look to restore the dividend at a moderate level, we will do so in a way that allows for its growth over time, though likely not at the same rapid pace as before. It will be moderate growth, but it will represent a significant dividend, as we have always aimed to uphold.

Okay. So are you willing to go above the $40 WTI breakeven for the dividend? Or do you want to keep the dividend within that, just to be clear?

Ultimately, we want to keep it within that. There’s going to be some discussion and evaluation of how we start out that dividend growth, but we'll determine that when we get to the $25 billion net debt. We'll see what will be supported by mid-cycle and what would be supported by a $40 breakeven.

Yes. From the standpoint, this year we don't anticipate any material cash taxes. Based on our viewpoint of 2022, we don't see that happening again also. We expect to become a U.S. cash taxpayer in a meaningful way in 2023.

Vicki, two questions, please. Shell had just sold their Permian asset to Conoco. Just want to see if you see that as maybe an additional opportunity for you guys to work with different partners and see either asset swap or other opportunity associated with that. Or do you think that this is just business as usual given that you are the operator and that doesn't really change anything? That's the first question. On the second question, I think the focus has been that nothing is new about when you're going to increase your CapEx in the oil and gas sector, and you made it very clear not in any time soon. But how about in the chemical? In the chemical, you guys have a very unique position. You're not in the typical olefin chain. That has been doing quite well or much better than before. So do you have any intention to expand and grow that business? And that may also be good in terms of energy transition. I want to see that your overview is in terms of growth prospects for that.

Okay. I'll start with the Shell assets. We are always looking for opportunities to core up while we operate. Asset swaps have been a big part of helping us to increase our working interest in the areas we operate over the last few years, and that's been very successful. We will continue to try to do that. We'll be working with Conoco and any other partners that are in our current operations or nearby what we have to make swaps that work because those are always better for each company. Those are win-win scenarios. We're doing the same with Conoco. Regarding the OxyChem business, Rob knows this better than I do, but OxyChem has been very opportunistic in the past to mitigate market risk by working with partners for opportunities to build and grow without taking market risk. Do you have more to add?

Yes. I'd just add that if you look back at the history of projects, whether it was the chlor-alkali plant adjacent to the CO2 plant, or the cracker that we built at Ingleside, or any of the relationships we have, what we've been able to do is build long-term partnerships with our downstream customers that gives us a sort of pseudo integration into markets. We don't want to build into like CIO2 or polyurethanes, etc., and partner with the leaders in those industries. We'll continue to evaluate that. There are probably a dozen projects that end up on the drawing board to get one good one that works out. There’s a lot of growth in the chlorovinyl sector as a building product, and the advantage the United States has versus the rest of the world is significant. We'll continue to evaluate those. If something comes together, we'll be happy to share it with the market.

You're right, Paul, that it is really an important part of our transition story. OxyChem will be a key player in that, and certainly, we're open to opportunities from any of our existing partners and new partners to help with that.

Yes, it's hard to say. I think it depends on the timing of investments and what opportunities are out there. We're constantly evaluating that and would integrate it into our portfolio if it made sense, but I would be purely speculating to give timing on when we might make the next significant investment in OxyChem.

Thank you all for your questions and for joining our call. Have a great day.