Occidental Petroleum Corp (OXY) — Q4 2021 Earnings Call Transcript

Thank you, Rocco. Good afternoon, everyone, and thank you for participating in Occidental's Fourth Quarter 2021 Conference Call. On the call with us today are Vicki Hollub, President and Chief Executive Officer; Rob Peterson, Senior Vice President and Chief Financial Officer; Ken Dillon, President, International Oil and Gas Operations; and Richard Jackson, President, Operations, U.S. Onshore Resources and Carbon Management. 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'll now turn the call over to Vicki. Vicki, please go ahead.

Thank you, Jeff, and good afternoon, everyone. The fourth quarter of 2021 was a fitting way to end the year where Oxy's operational and financial performance advanced from strong to stronger. Our focus on consistently delivering outstanding operational results, combined with our steadfast dedication and patience in improving our balance sheet, has positioned us to begin increasing the amount of capital returned to shareholders. Our new shareholder return framework, which we will detail today, includes a dividend that is sustainable in a low price environment. We are pleased to implement this new framework, beginning with an increase in the quarterly common dividend to $0.13 per share. The position of strength that we are in today stems from our team's hard work and accomplishments last year. Throughout 2021, we strived tirelessly to improve our already exceptional operational performance. We capitalized on efficiency improvements by embedding innovative techniques across our operations. Our focus on learning, implementing change where needed, and maximizing opportunities for improvement enabled us to accelerate time to market for our products while generating notable capital savings. We will continue to maximize operational efficiencies in 2022 by executing on the capital plan that invests in our highest-return assets to generate long-term sustainable free cash flow. This afternoon, I will begin by covering our fourth quarter and full year 2021 highlights and achievements, before detailing our 2022 capital budget. Rob and I will then discuss our shareholder return framework, and Rob will provide guidance for the first quarter and year ahead. Before turning to Q&A at the end, I will provide a preview of the Low Carbon Ventures investor update that we have planned for next month. Now to talk about delivering cash flow priorities. Those who have followed us at Oxy's journey over the past several quarters know that our cash flow priorities have centered around de-risking our balance sheet and reducing debt. We diligently delivered on these cash flow priorities throughout 2021, including the repayment of approximately $6.7 billion of debt. We now expect that our net debt will be below $25 billion by the end of the first quarter of 2022, which will mark a change in how excess cash flow will be allocated going forward. Before I detail our updated cash flow priorities and shareholder return framework, I would like to first touch on a few of the many operational and financial successes that enabled us to reach this significant turning point. 2021 was a year of continuous operational improvements, which drove record free cash flow generation, rapid debt reduction and a return to profitability. One of Oxy's core strengths is our ability to develop assets in a way that efficiently maximizes production and recovery while generating significant cash flow, and that is just what we did in 2021. Multiple drilling and completion records were set across our domestic and international businesses as our production for the year averaged 1.167 million BOE per day. That's 27,000 BOE per day higher than our initial guidance. 2021 was also a more conventional year in terms of commodity prices, operations and planning, all of which was helpful in providing a reserve update that reflects a more normalized price environment. Our reserves for year-end 2021 increased to 3.5 billion BOE, representing a reserve replacement ratio of 241%. Our reserves position means that we have a vast supply of low-breakeven projects and inventory available. We have included updated inventory information for our U.S. onshore operations in the appendix to this presentation. Over the last year, we significantly advanced our commitments toward a low-carbon future. We are proud to be one of only a few oil and gas companies with net-zero goals that are aligned with the Paris Agreement's 1.5-degree Celsius pathway. In December, Oxy became the first U.S. upstream oil and gas company to enter into a sustainability-linked revolving credit facility, which includes absolute reductions in our combined Scopes 1 and 2 CO2 equivalent emissions as the key performance indicator. We set additional interim emission targets to further refine our net-zero pathway, including a short-term target to reduce our CO2 equivalent emissions to approximately 3.7 million metric tons per year below our 2021 level and to accomplish that by 2024. We set a medium-term target to facilitate the geologic storage or use of 25 million metric tons per year of CO2 in Oxy's value chain by 2032. We also endorsed the Methane Guiding Principles and Oil and Gas Methane Partnership 2.0, a climate and clean air coalition initiative led by the United Nations Environment program. This is consistent with our commitment to enhance methane emissions reporting and reducing those emissions. Our journey towards net zero is underway, and we look forward to discussing in greater detail at our Low Carbon Ventures Investor Day next month. Now the fourth quarter highlights. The strong operational and financial performance that we delivered throughout last year continued in the fourth quarter. We set a fourth consecutive record for quarterly free cash flow generation before working capital, which contributed to generating our highest-ever annual level of free cash flow in 2021. We continue to apply free cash flow towards reducing debt and strengthening our balance sheet, repaying an additional $2.2 billion of debt in the fourth quarter. Operationally, all three business segments excelled in driving our robust financial performance. OxyChem delivered record earnings for the second consecutive quarter as performance throughout the year culminated in 2021 being OxyChem's strongest in over 30 years. The fourth quarter, which is typically lower due to seasonality, even exceeded the record third quarter. In our oil and gas segment, our Permian, Rockies and Oman teams set new operational records and efficiency benchmarks in the fourth quarter, further improving on their third quarter record. Our midstream business outperformed by maximizing gas margins during the fourth quarter. While short-term opportunities in the commodity markets are difficult to predict, our midstream team excelled at finding and taking full advantage of such opportunities when they arise. Now I'm pleased to say that our fourth quarter results continued to demonstrate the commitment of all of our employees, no matter their position or location, to find ways to further create value by lowering costs, improving efficiencies and maximizing recoveries. They truly are driving our strong financial results and providing a solid foundation for free cash flow generation. Now on to 2021 oil and gas operational excellence. On each of our last several calls, I've enjoyed highlighting the many operational achievements our teams continuously deliver. The magnitude of these achievements is striking when viewed on a combined basis over the last year. We established record drilling cycle times in the Gulf of Mexico, the Permian, Rockies and in Oman, and set new efficiency benchmarks across our portfolio in 2021. We intend to maintain our focus on continuous improvement in the year ahead as we work to maximize the value our portfolio can generate for shareholders. Now our 2022 capital plan. Our 2022 capital plan invests in cash flow longevity while building on the capital intensity leadership we demonstrated in 2021. We have sized our capital plan to sustain production in 2022 at 1.155 million BOE per day while investing in high-return projects that will provide cash flow stability throughout the cycle. We have also incorporated an expectation for inflation and a capital range to reflect the potential for fluctuations in our third-party-operated assets and our low-carbon opportunities during the year. Our sustaining capital, which we define as the capital required to sustain production in the $40 WTI environment over a multiyear period, remains industry-leading. Our multiyear sustaining capital is expected to increase from our 2021 capital budget of $2.9 billion, the reduced inventory of drilling uncompleted wells and additional investment in our Gulf of Mexico and EOR assets, to optimize the long-term productivity of our reservoirs and facilities. If the macro environment requires spending below our multiyear sustaining capital, we have the ability to reduce it further and hold production flat for shorter periods of time, as we've demonstrated. We're also investing in attractive mid-cycle projects that will provide cash flow stability through the cycle in future years. For example, these projects include the Al Hosn expansion, which began last year. And OxyChem is in the process of completing a FEED study to modernize certain Gulf Coast chlor-alkali assets from diaphragm to membrane technology. Our capital plan also includes investments to advance our net zero pathway, including reducing emissions, improving energy efficiency and developing our carbon sequestration initiative. We're allocating capital in the budget to 1PointFive to begin construction on the first direct air capture facility. We continue to make progress on both the engineering and commercial needs for direct air capture development. We're improving both of these aspects and believe Oxy's capital helps retain value for our shareholders. As the construction phase and technology of this new project advance, we will continue to consider strategic capital partnerships and structures to address financing. We'll provide a more comprehensive update on 1PointFive and direct air capture at our March 23 LCV investor update. We benefited greatly from commodity price rebound last year and appreciate how swiftly the price environment can change. The optionality that our scale and asset base provides enables us to retain a high degree of flexibility in our capital and spending plans. The majority of our capital program is comprised of short-cycle investments, meaning that we have the ability to quickly adapt to changes in the macro environment. Within 6 months or less, if necessary, we can reduce capital spending to sustaining levels. And if oil prices remain supportive this year, our intent is to follow our cash flow priorities and capital framework that we will share with you today. We have no need and no intent to invest in production growth this year. Having a flexible capital budget that includes investment and cash flow longevity provides us and puts us in a strong position to implement a shareholder return framework that will benefit shareholders over the long term. With respect to cash flow priorities, our priorities for 2022 remain largely unchanged, with a continuing emphasis on reducing debt while maintaining our asset base integrity and sustainability. The objective of strengthening our financial position remains the same: Enable us to confidently increase the amount of capital that we may sustainably return to shareholders throughout the cycle. As we expect net debt to fall below $25 billion by the end of the first quarter, our focus has expanded to returning capital to shareholders, beginning with the increase in our common dividend to $0.13 per share and the reactivation and expansion of our share repurchase program. The increase in the dividend to $0.13 per share is consistent with our intention to initially increase the dividend to a level that approximates the yield of the S&P 500. We believe establishing a framework for returning capital to shareholders through a sustainable common dividend, combined with an active share repurchase program and continued debt reduction, creates an attractive value proposition for shareholders while also improving the company's long-term financial position. For the first phase of our shareholder return framework initiated, we have the options in future years to invest in cash flow growth. We have the ability to grow oil and gas cash flow through higher production, but also have multiple investment opportunities across our other businesses. As evidenced by our guidance for 2022, we do not intend to grow production in 2022. At the point where it is appropriate to invest in future cash flow growth, we will only do so if supported by long-term demand. Any future production growth will be limited to an average annual rate of approximately 5%.

Thank you, Vicki, and good afternoon. As Vicki mentioned, the first phase of our shareholder return framework consists of the debt reduction; an increase in the common dividend to $0.13 per share; and the reactivation, expansion of our share repurchase program. With net debt expected to be below $25 billion by the end of the first quarter, we are ready to begin returning more capital to shareholders, but we'll continue to prioritize debt reduction to focus on our medium-term goal of regaining our investment-grade credit rating. We place high importance on debt reduction for the reasons I highlighted last quarter, mainly that as debt is reduced, our company's enterprise value rebalances to the benefit of our shareholders. We recognize that oil prices are uncertain and may remain volatile, particularly in the current environment. We then prioritized retirement of an initial $5 billion of debt to drive our net debt towards our next milestone of $20 billion. When this milestone is achieved, our balance sheet will improve significantly even from where we are today. We intend to provide our shareholders with a competitive common dividend while maintaining a long-cycle cash flow breakeven at $40 WTI or less. The long-term sustainability of our dividend will be enhanced by continued deleveraging and share repurchases as well as our best-in-class capital efficiency and a deep low-cost portfolio of assets. As debt is retired, our cash interest payments will decrease, freeing up cash that can be used to support future common dividend growth. In addition to increasing the common dividend to $0.13 per share, we intend to purchase approximately $3 billion of outstanding shares of common stock. Maintaining an active share repurchase program with the benefit of a healthy balance sheet will potentially enable us to grow the dividend on a per share basis at a faster rate. As evidenced by our progress reducing debt last year, debt retirement remains a higher cash flow priority than our share repurchase program. We intend to make substantial progress towards retiring an additional $5 billion of debt before initiating share repurchases. It is our goal to reward shareholders with the triple benefit of: A sustainable common dividend, an active share repurchase program and a continuously strengthening financial position. We believe the shareholder return framework we have detailed this afternoon delivers these in a manner that is transparent for shareholders. I'll now turn to our fourth quarter results. In the fourth quarter, we announced an adjusted profit of $1.48 and a reported profit of $1.37 per diluted share. Our adjusted income improved significantly through 2021, with the fourth quarter being the strongest quarter of the year. The increase in earnings was primarily driven by higher commodity prices and volumes as well as OxyChem's excellent financial performance. Our domestic oil and gas expenses experienced a sizable reduction on a BOE basis from the previous quarter and reflected a more normalized environment absent any significant weather disruptions. The strong performance of our businesses, combined with the benefit of a healthy commodity price, enabled us to deliver another consecutive quarter of record free cash flow. On our third quarter call, we announced the completion of our large-scale divestiture program, but reiterated our intention to continue seeking opportunities to optimize our portfolio to create shareholder value. In November, we completed a bolt-on acquisition to increase our working interest in EOR assets that we'd operate. And in January 2022, we divested a small package of Permian acreage that had yet no immediate plan to develop. The purchase and sale prices of these transactions largely offset each other, while the EOR acquisition added approximately 5,000 BOE per day of low-decline production as well as increasing our inventory of potential CCUS opportunities. We exited the fourth quarter with approximately $2.8 billion of unrestricted cash on the balance sheet after repaying approximately $2.2 billion of debt in the quarter. In total, last year, we paid approximately $6.7 billion of debt and retired $750 million of notional interest rate swaps. Our debt reduction continues to drive a pronounced improvement in our credit profile. Since our last call, both Fitch and S&P upgraded our credit ratings to BB+, one notch below investment grade; while Moody's assigned us a positive outlook on our debt. Reducing the amount of cash that is committed to interest payments today places us in a stronger position for a sustainable return of capital in the future. We estimate that the balance sheet improvements executed in 2021 will reduce interest and financing costs by almost $250 million per year going forward, which will fund approximately half of the increase in our common dividend. Our business incurred a negative working capital change in the fourth quarter, primarily driven by a higher accounts receivable balance due to higher commodity prices and, to a lesser extent, an increase in inventories, including a higher number of barrels on the water at year-end. The oil and gas hedges we had in place rolled off at the end of the fourth quarter, and we are now positioned to take full advantage of the current commodity price environment. We recognize the possibility of a swift change in commodity prices always exists. The debt maturity profile we have today is far more manageable than it was 2 years ago, and our liquidity profile remains robust. In addition to cash on hand, we have $4.4 billion of committed unutilized bank facilities. We continue to believe that reducing debt and maintaining maximum flexibility in our capital plans is the most effective long-term solution to managing risk while providing shareholders the benefits of commodity price gain. We expect our full year production to average 1.155 million BOE per day in 2022. Production in the first quarter of 2022 is expected to be lower than the fourth quarter of 2021 due to the timing impact of wells that were brought online in 2021, severe winter weather in the Permian earlier this month and the impact of significant planned international turnaround activities this quarter. Algeria, Al Hosn and Dolphin are all undergoing scheduled maintenance in the first quarter, which is reflected in our international production guidance. The downtime associated with Al Hosn is notably larger than typical years as the plant is undergoing the first full shutdown since its inception to substantially complete the tie-ins associated with the expansion project and to enhance plant sustainability and reliability. Additionally, a portion of our international production is subject to production-sharing contracts, where we typically receive fewer barrels in a higher-price environment, the impact of which is captured in our full year and first quarter guidance. The Permian activity we added late in the fourth quarter is expected to replace the production benefit received in 2021 and complete our inventory of DJ Basin undrilled, uncompleted wells in the early part of last year. Our 2022 Permian capital allocation is expected to provide benefits that will last into 2023. We anticipate that our activity this year will provide us the flexibility to either hold Permian production flat at our 2022 exit rate for similar capital next year, or spend less capital in 2023 to hold production relatively flat to our 2022 average. We also expect that our production in 2022 will increase throughout the year to achieve our full year guidance as our international operations will resume their normal production levels and our activity in the Permian brings new production online. Additionally, the trajectory of operating production is anticipated to offset lower production in the Rockies this year as our activity in the DJ Basin is tapered, reflecting development planning timing to ensure efficient operations as new permits are obtained. Partially offsetting lower Rockies production with higher Permian production, combined with an increase in EOR activity, will result in a slightly higher domestic operating expense as the DJ Basin has one of the lowest operating costs on a BOE basis in our portfolio. The increase in Permian production is expected to result in domestic cash margins improving in 2022 as the company-wide oil cut increases approximately 54.5%. The mid-cycle level of capital we intend to spend this year provides flexibility to sustain production in 2023 and beyond at our multiyear sustaining capital level of $3.2 billion in a $40 price environment. We expect that OxyChem's 2022 earnings will exceed even 2021. OxyChem continues to benefit from continued demand improvement for caustic soda, while PVC pricing remains strong. Additionally, as I mentioned on our last call, we expect chlorine markets to remain tight as chlor-alkali producers seek the highest value for their products. OxyChem's integration towards multiple chlorine derivatives enables us to optimize our production mix to supply the products the market requires, whether this is for chlorine for water treatment, vinyls or PVC, for example. This year, we will make an incremental capital investment as we complete a FEED study for the modernization of certain Gulf Coast chlor-alkali assets from diaphragm to membrane technology. Modernizing these assets would result in a material energy efficiency improvement but will also lower the carbon intensity per ton of the product produced and delivered. The project would also provide the opportunity for a significant expansion of our existing capacity to meet growing demand for our key products. We expect to reach the final investment decision later this year, at which time, we will be prepared to share additional details. To assist investors to reconcile our guidance with our segment earnings, we have made a change in how we guide midstream going forward. Our midstream guidance now includes income from WES, which is a change to how we've guided midstream previously. Quarterly guidance now includes Oxy's portion of WES income using the average of the previous four publicly available quarters. Our annual guidance now includes Oxy's portion of WES income using the sum of the previous four publicly available quarters. As we look to the year ahead, we will work to continue to improve on the numerous operational and financial successes of 2021, including making additional inroads on reducing debt, implementing our shareholder return framework and advancing our low-carbon aspirations. I'll now turn the call back over to Vicki.

Thank you, Rob. When we launched Low Carbon Ventures in 2018, we recognized early the importance of creating a carbon management business to help lower global emissions while also benefiting our operations. At that stage, we focused on essential technologies and projects aimed at reducing Oxy's emissions and fostering a sustainable future. Today, we have developed that vision further and fully understand the extensive potential of carbon management, along with the cross-industry collaboration available to us. In previous earnings calls, we talked about various initiatives that Low Carbon Ventures is pursuing and Oxy's goal to reach net zero by 2050. We have been advancing key technological developments and addressing significant commercial needs to propel LCV's projects, which are now positioned to move forward, allowing us to elaborate on our low carbon business and how it aligns with achieving our net-zero goals and enhancing our long-term operations. On March 23, we will host a Low Carbon Ventures investor update, where we will provide a detailed update on our low-carbon strategy, with a focus on the technology and commercial development of carbon-capture projects, specifically direct air capture. The event, which we expect may last up to 2.5 hours, will be accessible through our website. As I've said before, we are excited about our unique position and capabilities as a company. We value our broader low-carbon and business partnerships that are growing, and our workforce is energized to advance this immense opportunity before us.

Our first question is on the gross debt reduction. We're assuming that the $5 billion that you're planning on getting through, that can be executed through tenders. And so just any idea on what the timing of that could look like for you to complete that, given what you've seen in the market. And do you need to get through the full $5 billion of tenders before you begin the buybacks? We were looking back at your prior tender, and you almost got the whole thing done, but that was only about $1.5 billion.

Yes, that’s a great question, Jeanine. First, I’d like to comment on the tender we conducted at the end of December. We were quite aggressive with the premiums offered in that tender because we had an additional $700 million of callable debt available. We were pleased with the outcome. Since then, we have many opportunities to reduce our debt. Last year, we managed to reduce $6.7 billion of debt with only a 1.5% premium. Notably, $4.7 billion of that was focused on maturities in 2024 or later. Looking ahead, we have already retired the final January maturities from 2022 for $101 million, completed this month. We have tenders and make-whole provisions in place. We can build cash on a net debt basis as maturities arise. We have the option to settle the February '23 notes, which represent the majority of our 2023 maturities, and they will be callable in November. Overall, our current debt is actually cheaper than it was at the end of the previous year, mainly due to rising interest rates. Consequently, our next investment will be directed toward debt reduction. Based on our cash position at the end of the year and the cash we are generating this quarter, it is likely that we will initiate that process soon. We don't need to complete all of this before we start buying back shares, but we do need to have it largely finished or a clear path to completion before we begin repurchasing shares.

Okay. Great. That's really helpful information. Maybe just going forward a little bit beyond that on your future cash flow priorities. Oxy has got a real high-class problem. Assuming oil prices stay anywhere close to where they are today, you'll be building a significant amount of cash on the balance sheet over the next few years even after you do the $5 billion of debt reduction and the $3 billion of buybacks. So I guess, have you started to assess the next steps in capital allocation after hitting your debt goals and the buyback? And I guess specifically, do you have any thoughts on potentially trying to tackle the preferreds early and doing that versus either other debt reduction or production growth? And just how you're thinking about the preferred.

So we have discussed previously provisions with regards to the Berkshire agreement related to shareholder return, enabling us to begin redemption of the Berkshire to $4 per share common dividend to our shareholders. Assuming we repurchased $3 billion of shares in a 12-month period and then you combine that with $0.52 of dividend payments over 4 consecutive quarters, we still won't have distributed enough to reach a $4 per share distribution trigger. It would be about $3.72 at that point. But I want you to know, the Berkshire common provision isn't a limit on our ability to return value to shareholders. It simply means, if the circumstance arises and the macro puts us in a place where we have exceeded $4 per share on a trailing 12-month basis, we would just be in a position where we have to redeem an equal portion of Berkshire at a 10% premium as we return to shareholders above and beyond that. And so as we sit here today in February, agreeing that, yes, there's a lot of potential for elevated oil prices over an extended period of time to create a constructive macro for going beyond our debt focus. But it's a little too early, I think, to speculate on what we would do at that point in time.

Yes, I guess just a follow up on that question around the net debt, the $20 billion next step, so to speak. What is the ultimate goal with the balance sheet? Is it $10 billion to $15 billion? I mean, how do you think about that today?

Yes, Bill. We've seen in notes from various rating agencies that their expectations for investment grade are in the mid- to high teens. Our goal is to reduce net debt to $15 billion or less. This would position us favorably, although it also depends on their long-term price outlook. If we reach a net debt of $20 billion at a $60 price, it would bring us close to a 2 multiple, depending on year-over-year EBITDA. We recognize that we need to go a bit further to gain consideration for investment grade.

Okay. That makes a lot of sense. And then, Rob, you made a comment just about the Permian exit rate in '22 and into 2023. And I was just wondering, where do you stand in terms of the CapEx carry with the EcoPetrol JV? Is there any spending in 2022 that kind of moves into the full 50-50 split? Or is that a 2023 event? I'm just curious, based on your comments you're making, how you incorporated how that could flip to the 50-50 and when?

Based on the activity level we have planned for this year, we would probably consume the balance of the carry this year, but we don't anticipate really flipping in 2022.

Rob or Vicki, I wonder if I could follow-up first on the buyback just so I understand it correctly. So $3 billion, is that an annual number that, depending on when you start the buyback, would you still expect to execute the full $3 billion in 2022? Irrespective of when you hit, you get that line of sight, which I'm guessing is a matter of months. And I guess related, you're kind of front-running yourself a little bit. And one could argue, taking the stock is heavily discounted because of your capital structure, why not consider something like an ASR?

So Doug, to start answering your question, once we initiate the share repurchases, we will do so both in the open market while it’s operating and through a 10b5 program when it's not. The stock is very liquid; we can easily buy $1 billion in shares within less than 14 trading days, which is close to 15% of the average daily trading volume. This means that over a relatively short period, we could reach a $3 billion goal if we choose to do so. However, this goal will depend on our free cash flow generation, which is largely affected by commodity prices. Currently, with our hedges rolled off, we are allowing our shareholders full exposure to commodity prices, which we believe will provide the most value to the company and shareholders over time. At the same time, we're aware that macro conditions can change due to various risk factors, potentially leading to unfavorable price changes. Therefore, we cannot put ourselves in a situation where we have acquired stock prematurely, and then market conditions shift, leaving our debt unaddressed. That's why we understand that throughout the year, we might end up paying more for the stock to retire it. We believe that aligning risks and opportunities for shareholders is the most prudent approach.

Okay. So just to be clear, so if you started the buy back in May, you'd still expect to get $3 billion done this year? That's just for clarity, that's not my follow-up.

Well, the timeline is going to be dependent upon the availability of cash, Doug. That's what's going to be the driver of it. But in terms of ability to execute, with the liquidity of the stock, a timeframe of being we complete it in the second half of the year, even if we didn't initiate until the second half of the year, would not be a challenge.

My follow-up is a resource question. Vicki, I assume this was intentional, but you've outlined the inventory depth for the onshore portfolio, which is currently about 15 years at this rate, assuming minimal growth. What about the Gulf of Mexico and the rest of the portfolio? Can you provide an update on how you perceive the resource depth or sustainability in relation to the sustaining capital number you mentioned?

Yes. I'll let Ken answer that. He's got his team actually working on that in view of some of the challenges we've had with the recent lease sale. Actually, we have a great new story on that.

Doug, regarding the Gulf of Mexico, we have recently completed our field architecture studies. We hold 179 blocks, with 90 designated for exploration. When we evaluate the risk portfolio and the opportunities ahead, we see significant potential with hundreds of millions of risk barrels available. We have a robust lineup of projects, currently working on three: the Caesar Tonga expansion, the Mountain expansion, and A2 subsea pumping. As Vicki mentioned, our recent attempt to secure leases aimed to acquire acreage near our existing infrastructure to facilitate quicker tiebacks. However, this does not limit us. We possess a vast portfolio and feel confident moving forward with the plans outlined in the slides.

The first question is about the production profile. Vicki, you mentioned that for the long term, you are aiming for growth between 0% and 5%. How do you view the long-term profile in this context? Given your perspective on what is normal, that is a significant range. Where do you see your plans fitting within that range?

It really depends on the projects. We always aim to design our capital programs to deliver the best returns. As we develop our areas, we keep that in mind to build facilities at a pace that maximizes returns. Our growth might be a bit uneven at times. The Gulf of Mexico can be inconsistent, and in the shale play, the growth can vary depending on whether we’re starting a new area. However, we believe our capital intensity will continue to be the best in the industry over time. The level of development we achieve, whether at 0% or 5%, will depend on how we structure our programs to maximize returns. We have inventory onshore, in the Gulf of Mexico, and some international projects that could bring value. Additionally, as I mentioned earlier, there are opportunities for growth in our chemicals business. The efficiencies and opportunities we see will really depend on how we can arrange everything to deliver the best possible return.

Certainly an evolving situation. Let me ask you about chemicals, Vicki, because the '22 guide was stronger than what we anticipated. I think a lot of investors expected chemicals to be sequentially lower. Just talk about some of the moving pieces that allows for some profitability to improve year-over-year. And what are the biggest risks to actually achieving the guide?

Yes, Neil, I'll address the chemicals. First, I want to highlight that you are well aware of the business. If you look at Slide 39 in the presentation, the two main profit drivers are the PVC and caustic soda businesses, both of which saw significant improvement throughout 2021. When conditions are favorable in these areas, the earnings impact is quite substantial. Currently, in the PVC market, the supply and demand balance is very tight. We estimate that industry operating rates were around 80% to 81% in January. Demand for PVC in January 2022 was slightly higher compared to January 2021, by less than 1%, but still an improvement. Producers are trying to build inventory ahead of planned outages, but they are starting with low inventories and demand from the construction sector remains strong. Therefore, while there are efforts to increase inventory, demand continues to be robust. We anticipate that demand in the PVC sector will stay strong throughout 2022, buoyed by a favorable outlook for housing starts, low mortgage rates, and a thriving remodeling market. On the export side, January saw about 250 million pounds exported, which is roughly 30% below 2021 levels, reflecting the current shortage of available product. We don't expect inventory to rebuild or exports to bounce back until likely the latter part of the second quarter, when resin supply may stabilize following the outages, assuming no unexpected outages occur during that time. In the chlor-alkali sector, we are experiencing a very tight supply and demand market primarily due to production challenges. We expect operating rates in the industry to be around the low 80s for the first quarter. There are numerous planned outages scheduled from now until May 2022, along with a significant number of unplanned outages affecting product availability. Regarding chlorine, we anticipate growth of at least 3% to 4% this year. The sector markets are strong, similar to those for PVC, which relies on the chlor-alkali side of the business. We believe this will be further supported by improving travel and business expenditures, as well as a return to office work driving demand for pulp and paper use of caustic soda, among other factors. Overall, we see many positive developments ahead. On the international side of the caustic business, rising natural gas prices and availability in Europe and Asia have affected operating rates for chloro vinyl producers overseas, which is increasing values. The most significant change year-over-year might be surprising because conditions in 2021 were so exceptional. At the start of 2021, caustic soda was still recovering from the low values that followed the post-COVID drop in 2020. PVC rebounded quickly in the construction sector, but caustic was gradually improving from the lows experienced during 2020. Caustic prices increased each quarter throughout 2021, which is why earnings for the segment in the fourth quarter were significantly higher compared to the first quarter. We are entering the new year with much more momentum, which is why our guidance for the first quarter of the chemical business is strong. We are not predicting that these conditions will last the entire year, but we will start from a higher point. The duration of these conditions will affect whether our guidance might increase later in the year, should they last longer than expected. We anticipate that things will start to normalize around the middle of the year.

Just the first question on the DJ Basin. You mentioned in the prepared remarks some timing around permits. Just curious if you could provide some context on the permitting process as it stands today. And is this a good level of development to think about for next year? Or should we expect a rebound in the DJ in 2023 as it relates to drilling?

Matt, this is Richard. I'll take that one for us. So with respect to the permits in the DJ, really have had good progress over the last few years is how I would describe it. Just looking at some of the permits in hand, we've had about 46 wells permitted, which takes us through really past half the year. And so what we've really put in place is optionality in our program. So you dig into sort of our onshore plan for this year, we have plans to pick up a second rig in the year. And really, that's based on confidence with where we're going with our permit. So as you know, last year, some changes in terms of the process happened. And so we've been meaningfully engaged over the last year, importantly, at the stakeholder level and communities and then now with the state. But we've seen our own pads approved as well as other operators. And I think the feedback that we've received, and we continue to work on together, is continuing to improve technology and things that we know that can really place us in a good place for development. So I guess, in short, we're optimistic. We've got a rig plan to come in, in the second half of the year, but have optionality within the program to be able to adjust as needed.

Perfect. And maybe a follow-up on the marketing side. I know as an organization, you guys have been very thoughtful about this process through the cycle. The basin, it looks like there's possibly some solutions on the horizon for incremental gas takeaway. And just curious how you all might be thinking about potentially adding to your takeaway portfolio from a gas marketing perspective. And then maybe dovetailing into that. On the crude oil side, could you just remind us when some of those contracts start to roll over? And if there's any tailwinds to the financials kind of moving forward over the next few years around crude oil marketing.

Yes, Matt, we have sufficient gas capacity that meets our current needs in light of our growth profile. Regarding oil, the contracts begin to roll off in 2025 for the oil portion. We have ample capacity, but it will likely take a couple of years to reach a point where all contracts are fulfilled.

Vicki, my first question maybe for you. You mentioned just a couple of minutes ago here that you thought you maybe would ramp the chemicals. And obviously, as a finance guy, that just continues to be. I know when I saw Rob in December, and it just continues to get better and better. I guess my question is, as a financial guy, how much can you grow that? And would that grow in conjunction with your low carbon mission? I know you talked about that in the past. I'm just wondering how much could you push that business, given it just continues to hit the ball out of the park on that one?

We will discuss this further as we delve into the project and the investment we're making to switch from diaphragms to membranes, which will enhance efficiency in those areas. This change will allow us to increase our capacity, and we plan to provide more detail in the next earnings call. Currently, we are working on the FEED study for this initiative. As for other opportunities, we will keep exploring potential partnerships that align with our goals, particularly in supporting Low Carbon Ventures. We aim to be strategic in the chemicals sector, ensuring we don't expand without solid product demand. Throughout this process, we are identifying opportunities for synergies and growth between our chemicals and low-carbon ventures, which will contribute to our overall growth.

No, that's great to hear. Regarding the DJ, my understanding is that some of the Perm production is expected to replace DJ this year. Will this be the case moving forward? Is it because, as Richard mentioned, the permitting is all in order? I’m curious about the reasoning behind not expanding both of these.

Yes. It really depends on the permitting process because we have strong inventory in the DJ Basin as well. As we move forward and navigate the process, if we make progress on the permitting, we would consider adding one or two rigs to the DJ.

Thanks for all the details today, Vicki and team, and congrats on the visibility to $20 billion of debt. I wanted to ask just on the sustaining capital. There were lots of in and out, particularly around the Gulf of Mexico and the EOR catch up, some normalization of Rockies DUCs. I guess, when we think about that delta between the $2.8 billion or $2.9 billion that you guys had talked about last year, kind of in the $400 million increment this year, how do we think about that sustaining capital level progressing into the out years now? Does it have some upwards pressure on it because of catch ups? Or should we look at this as a catch-up year, and that should moderate, potentially decline, along with base declines moderating?

Maybe we'll start with onshore and speak to that a little bit. I think you've got it right. I think if you look over the last couple of years and what's happened, certainly, 2020 had a significant reset for us in terms of activity levels. And so preserving cash investment at that point and really dropped activity levels almost completely. And so coming on the back half and into 2021, we had things like the DUCs in the DJ that allowed us that ability to add production and maximize cash flow for 2021 with a lot less capital investment. And so what happened last year was really, as we think about the transition, it went from transitioning from DUCs as we restored activity, really to drilling and completion, which is a much more steady-state pipeline for our production delivery. And so the way that played out was really, at the end of the fourth quarter, beginning of the first quarter, we were able to pick up our drilling in frac cores to sustain the production for this year, which did a couple of things. One, it was good because as we head into inflationary period, we were able to gain activity and create that stability within our capital program. But what it does is it did create a bit of a lump that we have most of our wells online really starting late in the first quarter, and then you hit more steady state in the second and third quarter. And so as that projects into the end of the year and into 2023, you can tell from our first quarter guidance to total year that we do have an increase in production. But those type events as well as restoring activity, really from a cash investment perspective and EOR, adding low-decline production barrels really gives us a much more sustainable production level across the cycle. And so I think we're restoring, as you said, a much more normal steady-state activity level and a much more robust or sustainable free cash flow capability.

I think, considering the rest of the portfolio, we don't see a lot of upward pressure for the $3.2 billion as a whole.

And David, just to add to your point, I mean, on top of what Richard and Vicki just went through, I mean, from a decline standpoint, as you know, we improved the base decline from 25% 2 years ago to 22% last year. And it's the same this year, it's at 22% as well. But given the things Richard said, that gives potential to flatten that out in the future.

I appreciate all the details on that. If I could just ask a quick follow-up. So, just to clarify, there was $400 million attributed to the difference between the low end and high end of the capital guidance, which I believe relates to Low Carbon Ventures spending that could be potential in OBO. For the Low Carbon Ventures spending, would that be about accelerating some projects, or is it more of a contingency for initiatives you are considering but aren't sure about pursuing right now? How should we think about that allowance that's factored into the difference between the low and high ends?

Yes. This is Richard again. I think you've got it right from the standpoint of really the LCV capital's certainly focused meaningfully on our direct air capture plant 1. So there is a project timeline associated with that, where engineering is going great. The commercial aspects of the project continue to be supportive. And so there's a little bit of uncertainty there, but that component, we'll have more visibility and be able to talk more about even with you next month. In addition to that, what's happened is really beyond strong engineering progress, we continue to have good commercial support, whether that's global policy recognition for carbon capture or even direct air capture in particular, or even with strategic net-zero businesses. And so these things support commerciality. And so what's happened is we do see additional opportunities for direct air capture. For example, we had an opportunity in Canada to look at, with a developer, direct air capture with air-to-fuels. And so a bit of that money is, as these projects become more opportunistic, we would allocate some feasibility capital to be able to look at these other types of projects. The final piece is really our CCUS. And you've probably seen some pieces around projects that we're involved with. And so those continue moving beyond into commercial development. And so we have some capital associated to continue those. But that, again, will be able to share more in March around that, but look forward to these projects advancing meaningfully this year.

The first one is related to your EOR business. Could you maybe tell us a bit more how production in this division has trended since you stopped reporting it as a single entity? And also, I was wondering if the extra CapEx you will throw at this business is solely to stop decline, or whether you intend to restart growing this business as well.

I will begin by discussing the Enhanced Oil Recovery (EOR) aspect briefly. Over the past couple of years, we see a significant opportunity to address any declines we've experienced. This relates to our operational expenses, specifically the restoration of maintenance and downhole maintenance. Allocating some of our cash investment to restore production is one of the most effective uses of our funds, yielding high returns even at mid-cycle prices. We anticipate being able to add some well service rigs that will increase production by up to 6,000 barrels a day by year-end. This effort will restore the normal backlog and maintenance schedule we had established back in 2019. Thus, this represents the most important change we are making in the EOR business this year.

Excellent. And my follow-up will be actually on Algeria. I see that you're going to have some activity there in 2022. I was wondering if you could tell us a bit more what you have in store for this part of the world, knowing that we in Europe are going to need much more gas from other suppliers. And it will be great if you had some projects, some gas projects in Algeria, for instance.

It's Ken here. First of all, I'd say the operations team had a great year last year and achieved a 50,000 barrels a day milestone. On the contract side, we spent the time optimizing the future development plans that you're sort of alluding to. And we worked through the legal framework around the new hydrocarbon law, which is designed to encourage foreign investment in the country. This year, we'll drill 4 wells. There'll be 2 injectors, and 2 producers. And we've now started negotiations with Sonatrach and we're in the early stages. It's a large American company with state-of-the-art shale capabilities. We think we have a lot to offer the country going forward. And hopefully, that helps in Europe also. And we'll keep you updated on our progress at the next call.

Thank you all for your questions and for joining our call today.