Oxy Eyeing 12% Permian Oil, Natural Gas Production Growth as ... - Natural Gas Intelligence

Oxy Eyeing 12% Permian Oil, Natural Gas Production Growth as CCUS Projects Advance - Natural Gas Intelligence

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Oxy Eyeing 12% Permian Oil, Natural Gas Production Growth as CCUS Projects Advance

Occidental Petroleum Corp. is targeting substantial growth in Permian Basin production volumes while continuing to advance its carbon capture, utilization and storage (CCUS) business, according to management.

Houston-based Occidental, better known as Oxy, is among the largest U.S. oil and gas producers, with domestic operations focused largely on the Permian and Rockies regions, as well as the Gulf of Mexico. Its other business segments include midstream, low-carbon ventures, and the OxyChem petrochemicals subsidiary.

CEO Vicki Hollub hosted a conference call on Tuesday (Feb. 28) to discuss fourth quarter and full-year 2022 results.

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Oxy has set a capital expenditures (capex) budget of $5.4-6.2 billion in 2023, representing a roughly 29% year/year increase at the midpoint.

“We anticipate that inflation will continue to be a challenge for our industry this year in 2023,” Hollub said. “We expect an approximately 15% inflation impact on our domestic oil and gas business compared to 2022. As always, we will continue our efforts to reduce and offset inflation by leveraging our supply chain competencies and focusing on continued capital efficiency.”

The company has allocated $2.3-2.6 billion of capex for the Permian, where it plans to run about 10 net drilling rigs on average and bring online 380-410 gross operated wells.

“Our Permian unconventional assets are the best place to deliver production growth to offset marginal declines elsewhere in our portfolio,” Hollub said.

U.S. oil and gas production is expected to average 934,000-984,000 boe/d, representing a 2.3% year/year increase at the midpoint.

Permian output is expected to average 560,000-590,000 boe/d for the full year. The midpoint of that range would be a 12% increase from 2022.

In the Rockies, Oxy plans to run two net rigs on average and bring online 90-105 operated wells. The Denver-Julesburg Basin would account for over three-fourths of the wells, with the remainder planned for the Powder River Basin.

CCUS Projects March On

This year’s capital budget also includes $200-600 million for the emerging low-carbon businesses and net-zero pathway initiative. The wide range “relates to optionality of third-party funding” for the firm’s Direct Air Capture 1 (DAC 1) CCUS project in the Permian.

Construction launched in August on DAC 1, with operations expected to begin by mid-2025. “The timing is a few months later than our original target,” Hollub noted.

The capital plan also “includes investments in our carbon sequestration business, both through the development of the Gulf Coast hubs we previously announced, and through drilling appraisal wells,” Hollub said. “Investments in other projects that reduce Oxy’s Scope 1 and 2 emissions will also continue.”

Oxy also is planning to work with Energy Transfer LP to develop a carbon dioxide pipeline network from point source emitters in the Lake Charles, LA, area through Oxy’s Magnolia sequestration site in Allen Parish, the CEO noted.

“This pipeline will support our point source carbon capture and sequestration business, which we intend to develop along with our DACs, to help medium- and long-term greenhouse gas emission reduction goals for Oxy and our customers,” Hollub said.

Record Productivity

“Our fourth quarter of 2022 performance capped a year of strong results, in which we set operational records across our U.S. onshore, Gulf of Mexico and international oil and gas businesses, while OxyChem delivered record earnings,” said Hollub. “Our operational success drove the financial achievements that enabled us to complete our $3.0 billion share repurchase program and deliver substantial balance sheet improvements.”

She added, “Our teams are well positioned to maintain this operational success, as we continue to focus on delivering value for our shareholders in 2023 through our recently authorized $3 billion share repurchase program and a 38% increase to our sustainable dividend.”

In the Permian’s Delaware sub-basin, Oxy brought online 191 wells, which averaged 30-day initial production rates above 3,000 boe/d. In the Permian Midland, Oxy drilled its longest ever lateral at more than 18,000 feet in about 12 days. Net Permian production overall rose by 90,000 boe/d from the first quarter to the fourth quarter of 2022.

Oxy’s oil and gas capital expenditures (capex) totaled $3.84 billion in 2022, up from $2.41 billion in 2021. Broken down by business segment, the Permian accounted for the largest share at $2.25 billion. It was followed by the Rockies and Other Domestic ($426 million), Gulf of Mexico ($406 million), International ($439 million) and Exploration Drilling ($323 million) segments.

Oxy’s sustainability efforts drove a 33% decrease in company-wide estimated methane emissions from 2020 to 2021, and a 24% decline in the methane intensity of its marketed gas production, Hollub highlighted.

Net U.S. production during 4Q2022 averaged 987,000 boe/d, up from 952,000 boe/d a year earlier. Output comprised 1.24 Bcf/d natural gas, 542,000 b/d oil and 238,000 b/d natural gas liquids (NGL).

Full-year 2022 U.S. production averaged 937,000 boe/d, versus 933,000 boe/d in 2021.

The Permian accounted for 565,000 boe/d or 57% of total production in 4Q2022, followed by the Rockies and Other Domestic and Gulf of Mexico regions at 272,000 boe/d and 150,000 boe/d, respectively.

Oxy fetched average prices of $4.45/Mcf natural gas, $82.41/bbl oil and $25.43/bbl NGL for its U.S. production during the fourth quarter. These prices compare with $4.64/Mcf, $75.78 bbl and $37.43/bbl, respectively, a year earlier.

Revenue totaled $8.33 billion for the fourth quarter, versus $3.35 billion in the same period of 2021. Full-year revenue was $37.1 billion in 2022, versus $16.3 billion in 2021.

Oxy reported net income of $1.73 billion ($1.74/share) for the fourth quarter, compared with profit of $1.34 billion ($1.37) in 4Q2021. Full-year net income rose to $12.5 billion ($12.40/share) from $1.52 billion ($1.58).

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