Good afternoon, and welcome to the Occidental's Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Neil Backhouse, Vice President of Investor Relations. Please go ahead.

Thank you, Anthony. Good afternoon, everyone, and thank you for participating in Occidental's Third Quarter 2023 Conference Call. On the call with us today are Vicki Hollub, President and Chief Executive Officer; Richard Jackson, President, Operations, U.S. Onshore Resources and Carbon Management; Rob Peterson, Executive Vice President, Essential Chemistry; Ken Dillon, Senior Vice President and President, International Oil and Gas Operations; and Mike Avery, President and General Manager of 1PointFive. 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. We'll also reference a few non-GAAP financial measures today. Reconciliations to the nearest corresponding GAAP measure can be found in the schedules to our earnings release and on our website. I'll now turn the call over to Vicki. Vicki, please go ahead.

Thank you, Neil, and good afternoon, everyone. The team and I would like to discuss 2 key topics today. First, how our portfolio of assets managed by excellent teams once again drove record performance this quarter, which flowed to the bottom line. And second, as we promised an update on 1PointFive and Direct Air Capture, which we expect to play an increasingly important role in our portfolio over time. One important note before we begin, Rob Peterson, Executive VP of Essential Chemistry will cover our financial results and guidance today. Senior VP and Chief Financial Officer, Sunil Matthew, is unfortunately attending to a family emergency. We send our thoughts and prayers to Sunil and his family. I'll begin by reviewing our third quarter performance. Our teams again performed exceptionally well with our assets this quarter and delivered strongest earnings and cash flow from operations that we've had to date this year. This positioned us to further advance our shareholder return framework and established a strong trajectory for the fourth quarter. Let's follow the molecules from producing oil and gas to moving and marketing it to where it is most valued to our African team making the products that the world needs to improve lives. And finally, returning the molecules back underground as we capture emissions and sequester them forever. First, let's review the exceptional results in oil and gas. Strong third quarter operational performance in oil and gas production exceeded the midpoint of our guidance by 34,000 BOE per day, enabling us to increase full year production guidance by 11,000 BOE per day. Our third production guidance increased this year. Production outperformance was driven by strong new well performance in the DJ and Delaware basins as well as higher uptime due to favorable operating conditions in the Gulf of Mexico.…

Thank you, Vicki. Today, I'm glad to provide a business update focused on Direct Air Capture and the carbon dioxide removal credit market. I also want to reiterate Vicki's comments on how thankful we are to welcome BlackRock as our initial investment partner for STRATOS, our first DAC facility. This is the most recent milestone in our DAC development strategy and is aligned with our execution approach, which we will discuss today. Across the Oxy, we are determined to solve challenges to both improve our business and provide essential resources for the world. Our low carbon business is an expansion of that strategy, and it's positioned to be a key value differentiator for Oxy in emerging markets. I will begin by highlighting several of our key DAC related accomplishments. As we advanced our low carbon business strategy, Direct Air Capture was recognized as both a necessary and valuable technology. Removing CO2 from the atmosphere provides a required solution for businesses across hard-to-abate emission sectors. Near term, we believe our DAC technology can provide carbon dioxide removal credits or CDRs at a lower cost and at larger scale than other product solutions, especially for businesses in the heavy-duty transportation sector that are working to hit decarbonization targets this decade. Longer term, cost-effective access to atmospheric CO2 to create innovative new fuels or other products can provide a pathway to lower carbon materials and commodities for many industries. From strategy to development, our team has been forward-thinking and deliberate with a road map to advance technology, partnerships and markets. We continue to view technology to commercial product with the lens of capability, scale and systems thinking. In the case of DAC, we believe carbon engineering created a unique and innovative large-scale carbon removal process that has a strong fit to our OxyChem…

Thank you, Richard. We posted an adjusted profit of $1.18 per diluted share and a reported profit of $1.20 per diluted share. The difference between adjusted and reported earnings was primarily driven by gains on sales of noncore affluent assets, partially offset by derivative losses in the premium paid on preferred equity redemptions. During the third quarter, strong operational execution enabled us to generate over $1.7 billion of free cash flow before working capital, and we concluded the third quarter with over $600 million of unrestricted cash. We experienced a modest negative working capital change during the period, partially driven by an increase in commodity prices. In October, we received $341 million in cash in the environmental remediation settlement we mentioned in the last earnings call. As Vicki highlighted, each of our domestic assets exceeded the midpoint of third quarter production guidance, including in the Gulf of Mexico, where favorable weather contributed to production exceeding the high end of guidance and a higher-than-expected company-wide oil cut. Oxy's outperformance, coupled with a portion of Gulf of Mexico planned maintenance moving into the fourth quarter, resulting in better-than-expected domestic operating expenses of $10.20 per BOE for the third quarter. Capital spending in the third quarter was approximately $1.6 billion, representing a slight decrease from the second quarter. We further advanced our shareholder return framework during the third quarter through the repurchase of $600 million of common shares, including $175 million, which settled at the start of the fourth quarter. Additionally, we have now redeemed over 15% of deferred equity with $342 million deferred equity redemptions triggered and redeemed during the third quarter. As of November 7, rolling 12-month common shareholder distributions totaled $3.12, falling below the $4 preferred equity reduction trigger. It is unlikely that cumulative distributions to common shareholders will be…

Thank you, Rob. As Richard explained earlier, we expect DAC to play a more important role in our premier and diverse portfolio of assets. We believe tremendous additional potential exists there. Joining us today for the Q&A session, as Neil had mentioned earlier, will be Ken Dillon, who is Senior VP and President of International Oil and Gas operations but also manages our major projects part of the -- of our business -- the major projects group. So he can answer questions with respect to the construction of the DAC. And Mike Avery, President, General Manager of 1PointFive, as was mentioned earlier. He will answer questions about the business aspects of how we're running and we'll run the DAC and some of the other projects surrounding 1PointFive. So with that, I'll now turn the call over to the moderator for questions.

[Operator Instructions] Our first question will come from Nitin Kumar with Mizuho.

I want to start, Vicki, with the topic to your and the industry M&A. I know Oxy has a deep bench of inventory that you highlighted. But obviously, with some deals out there recently, there's been a focus on consolidation. So just wanted to get your thoughts on how you see Oxy fitting into that trend going forward.

Well, Nitin, I do want to reiterate that we were early consolidators in our industry with the Anadarko acquisition. And we did that because we saw significant synergies there. And those were obvious to us, and they were in the acreage was in an area that made it possible for us to understand the subsurface and to gain those synergies. Now that we've done that, and we more than doubled our production with that acquisition. We've more than achieve the $2 billion of synergies that we had forecast. And now it's considerably strengthened where we are today. But the good thing is we don't have to do acquisitions. Therefore, while our BD group keeps up with and is aware of what's happening in our industry, we see -- we feel no need to have to do anything or be a part of it.

That's very helpful. Vicki, I want to go back. I know the focus is on LCV today, but last quarter, you talked about the strong performance in your Permian well productivity. There's been some talk around improving technology and really focusing on improving recovery rates in the basin, you do as much technical work as anybody else. So just curious if you have any technology if you are deploying or seeing being deployed that could lead to a step change in recovery factors?

I think I really feel like we've already had a step change in our recovery factors. And if you go back and look as far back as 2014 and '15, the improvements that we've seen have been dramatic but most of those improvements have been around understanding the subsurface better and being able to better design frac jobs and also our wellbore configuration so that we can not only get the most out of the subsurface from a modeling perspective for the design, but also from an operating standpoint. We have an operations team that is doing a lot on the surface and with artificial lift to take advantage of AI and other things to ensure that we get the most out of the wells from an operating perspective. And then we continue to access that by using artificial intelligence, lowering our bottom hole pressures and making sure that we're the best we can be on the subsurface with respect to efficiencies. Now, Richard and others would chomp at the bit to be able to talk to you about all the technical work we're doing, but I consider that to be proprietary. And I really feel like we've disclosed a considerable amount in the past and that's enabled some others to follow some of what we're doing. So to be honest, I'd just rather keep the proprietary stuff to ourselves for now. And from a technology perspective, we have mentioned some things that we're doing internationally to recover more out of our wells in Oman. But I'll just leave it at that. Richard really want to do just a couple of minutes. And probably what you're going to say is you also have to be careful with the definition of recovery, right?

Yes, that's right. I'll stay on point. The thing I wanted to highlight is just obviously, recovery factor is core to what we're doing. We're really proud of the slides that we keep in our appendix, which shows year-on-year the improving performance for our wells and not over a few days. We look at it on our 1-year [indiscernible]. And it's not only in the Permian, it's in the Rockies. And as Vicki alluded to, we were talking earlier, Ken had some great advancements in the Middle East as well. The other thing I wanted to say was our appraisal success. So highlight this quarter on the Wolfcamp B well that came through the record well. The ability to go engineer and do those technical things for these new benches is core to what we believe is important as we go forward. And so really proud of that appraisal success. The appraisal wells that we drilled this year, we've already replenished the planned drill wells for this year. So and they're doing it at very low breakeven in terms of adding inventory. So I just wanted to add those 2 things to give recognition to our team and the progress they're making.

I thought I was going to have to cut them off there for a second but he did good.

And I was just hoping that you wouldn't, Ricky, but great job, guys.

Our next question will come from Neil Mehta with Goldman Sachs.

Yes. It's really helpful update around LCV. I wanted to take you up Vicki, on that offer to talk about construction and how that DAC plant is building towards the mid-2025 start? What are the biggest gating items to get it to completion? And how do you feel about your ability to mitigate those risks?

Okay. We'll pass that to Ken then.

So far, I'd say construction is going very well. While we are performing extremely well in engineering, procurement and construction phase of the project is basically -- we're moving through the [indiscernible] phase where we've got around 550 people at site into the different trades and we'll move up to about 1,200 people at site by the end of Q1. So far, we've had no issues of paying labor on the field in terms of procurement. We're meeting construction needs at the moment, and we've committed around 90% of the material value that we need. So prices are locked in at the moment. So things are going very well. I think Worley's engineering capabilities are such that we saved quite a bit of money in construction and also, we designed the system so that we can replicate that based on the engineering that we're carrying out today. We're building a digital twin and we're using AI going forward. On supply chain, I'd like to highlight the visionary vendors. We talked about that early on. We're basically working with companies who have aligned CEOs who are truly supportive and that's made a huge difference for us. As you know, over the last couple of years, there's been huge pressure on electrical and instrumentation equipment. I'd like to highlight Siemens Industries in the U.S. have really helped us out. They've really been committed to this project. And what it means Technip Energies are also very supportive all the way to the CEO. And we've received many suggestions from the visionary vendors on how to reduce the cost of their packages going forward right down to very detailed specifications. I don't know if I can give one example, but one vendor that we visited to assembly lines, one for bespoke equipment and one for standard equipment and they do our attention to, we change one thing in our specification, we could save an awful lot of money. The experience is you don't gain any extra reliability for doing that. Safety performance has been exceptional, so. We're now through 1.2 million man-hours. So overall, things are going as well as expected and in terms of materials that are out with the required on-site dates, we don't really have any. So generally working well together with vendors, broadly fabricators, we have built materials of sites. We built piping racks. We did this as a pilot to reduce fabrication, labor at site. That's worked very well. We'll definitely do that on future decks and that takes you into the mode of, can you get the point where you build a dactyere or you can generate piping materials, air contactor frames without doing all the work at site. So overall, project doing well and getting a lot of help from vendors.

I'd just like to build on what Ken was saying about the visionary vendors. What's been very helpful for us is that as we went through and interviewed the various vendors selected those that we felt like were more visionary. We also found that these more visionary companies also were very committed to making this work because what they realize and what's important to them is to do something that benefits the world. And if you look at the CO2 going into the atmosphere today, it's about 35 gigatons and of that 35 gigatons going into the atmosphere, 8 from stroam and that's 23% comes from transportation and that's what Richard was getting at earlier. It's really hard to do anything to decarbonize transportation unless it's a sustainable aviation fluids, SAF, like you mentioned, which is not completely emission-free or using our carbon reduction credits. And when you look at 8 gigatons, that means thousands of these Direct Air Capture facilities must be built and no matter what model you look at, that's credible around the globe with respect to climate transition and climate change. There's no model that would show that you can cap global warming to 1.5 or 2 degrees without dealing with getting more CO2 out of the atmosphere, both for transport and just because there's too much in the atmosphere today. So that makes us a necessary technology and one that's important, as I said, for the world. And it's important to distinguish between the CO2 that goes into the atmosphere from power generation. Power generation can be addressed by wind and solar to some degree and ultimately, fully if we can -- if a battery or some sort of industrial battery can be design and build to aid it. But this Direct Air Capture is not a replacement for wind or solar. That's for a totally different type of CO2 emission. So with that, just now Neil, move to your second question?

That was great, Vicki. And the follow-up is just around '24 capital considerations. I won't get it on the fourth quarter call, I recognize, but can you just talk about the range from '23 to '24 and last quarter, you annualized it looks like a $6.4 billion of CapEx. Is it crazy to say that's a good starting point? And any thoughts on that would be great.

No, it wouldn't be crazy to say that. I'll go back to what Rob said in his script, and that is that our upstream oil and gas, especially in the U.S. will have the same activity level next year that it's had this year. In addition to that, we'll have $100 million for incremental for Battleground in 2024, and we'll run those 2 drillships in the Gulf of Mexico. So I think that gets you to work to that or above as you go in total all of that. And we'll have more guidance on that, hopefully, the first part of next year.

Next question will come from Paul Cheng with Scotiabank.

Two questions on -- maybe this is for Richard. Have you seen any meaningful inflation rate in the construction side? And also, does the higher interest rate impact your growth plan and the business model? That's the first question.

Sure. I'm going to start -- I'm assuming the inflation is oil and gas. But if I -- we need to go more broadly we can help with that. We -- I'd say a few things, and maybe this goes back a little bit to the prior question as well. As we sort of hit the end of this year, a couple of things that we've been doing and seeing success is really optimizing our resources specifically rigs and frac if you'll kind of follow our trajectory over the last 2 quarters, we're down 2 rigs and 2 to 3Q and then down another 2. And that's really allowed us to optimize with our contractors, the right rigs, the right crews and seeing some early returns for that with quite a bit better foot per day in both the Rockies and the Delaware. I think as we hit the kind of the fourth quarter, we're not ready to project anything into next year. But we are seeing some areas of improvement, I'd say, across our rigs, also things like oil country tubular goods, sand, fuel these things are leading to a little bit of softening, which we hope can play forward. But our focus really has been on that optimization on efficiency. So -- maybe I'll stop there and make sure you we answer that question.

Yes. And can we also expand not just on the oil and gas, but also to the low carbon business that are we seeing the inflation rate very different and is actually hitting up that does look like a lot of people is moving in that direction. And also that the high inflation also want to look at is on the low carbon ventures and how that impact on that business model? And that may as well ask my second question, which is you have signed some deals with financial institute that bind the CDR, can an you share that what kind of term is it offtake and you say fixed price and even it is fixed price, what kind of pricing that we may be referring to right now?

Great. I'm going to -- I think the way we'll do this, maybe you can start a little bit on inflation as it relates to DAC and then certainly, I want to have Mike talk about the market and what we're seeing with offtake. I think that's an important part of our message.

It's Ken. Yes, we did see increases in the STRATOS cost estimate, mainly related to general industry inflation, so not specifically because of the back but we also increased cost as a result of incorporating learnings from the CEIC. And I would say it was probably 50-50 in terms of impact of moderate inflation on DAC and it's just general industry inflation, steel prices, materials, et cetera. We're now at the point of the project where we basically locked in pricing. So we feel pretty good and the optimizations were designed to give us improved efficiency for the DAC long term, included heat recovery systems, solid handling upgrades, filtration systems upgrades and electrical upgrades also. so a number of things of not only inflation, I would say, and not -- definitely not specific to DAC.

Paul, this is Mike Avery here. So I'll give an update on the sales process and progress that we've made for STRATOS. And so what we're getting here is a lot of momentum building in the market with a strong sort of pipeline of buyers that are growing now. We attribute this to the market beginning to realize the importance of how Direct Air Capture is going to fit within their portfolios. I think there's also a growing recognition that Direct Air Capture is not sitting out in the future. It's a technology that's ready to go now at commercial scale. And that is actually more affordable than people think when placed next to some of the other alternatives out there. I think the market has also been moving towards these higher integrity solutions as the carbon markets have been maturing. And so to date, we've announced deals with Airbus, Amazon, ANA, TD Bank, NextGen, the Houston Astros and the Texans. There's a range of terms on the CDR sales. They range from 1 year to 10 years. They are fixed price agreements. And so if we look at the deals that we've announced to date, and we couple that together with the mature negotiations where we have got price volume and term agreed, STRATOS net capacity is sold out to about 65% to 70% to 2030. And then there's a strong pipeline behind that of earlier stage negotiations that's also growing that takes us up to about 85% net capacity sold out to 2030.

Our next question will come from Doug Leggate with Bank of America.

Vicki, I wonder if I could ask you about the business plan or the strategy for that going forward. Clearly, you've given up some working interest now, which I think you'd signaled before. But I think -- I don't want to misquote Richard here, but I think you said our first partner in STRATOS, where do you see your working interest? How do you see it in DAC 2? And where does license revenue fit into the capital efficiency of the DAC strategy? And I've got a follow-up, please.

Well, we have a lot of confidence in this technology and a lot of confidence that it fits very well with our strategy on a go-forward basis. Not only are we going to benefit from the sale of carbon reduction credits as a part of this technology and our strategy. Ultimately, we also -- while we're continuing to provide sequestration and sailing reservoirs for our customers. We also want to provide CO2 as a product to customers to convert to sustainable aviation fluids. So that's another part of the revenue -- potential revenue stream. And the other thing that we want to do with the CO2 that we extract out of the air is used it in our enhanced oil recovery reservoirs because that's the truest form of emission-free on a net basis oil that can then deliver the fuels that maritime and aviation need. Sustainable aviation fluids, as Richard said, is a necessary thing that we have to develop, the world needs it, and we're going to support developing it by providing products and then potentially doing it through one of our investments that we've made. So that's important. But it's really the thing that's going to change the whole cost curve or the climate transition is for people to ultimately understand that you can use CO2 to generate net zero oil. The way that happens is you inject more CO2 into the reservoir than the incremental oil created or produced by that CO2 will limit when use. That's critically important because that generates a net zero oil that then can be converted to jet fuel and maritime fuels. The thing that's so important about that is not only is it emission negative or on a net basis or emission equal. What it does is that of itself is…

Yes. Vicki, just to clarify, so these obviously very ambitious growth plans going forward. It doesn't require that it's Oxy capital, I guess, was my point. Am I right in thinking that outsourcing the capital once the technology is proven has potential to be a revenue stream as a -- like a license revenue. That's what I was really getting at?

Yes. That's incredibly important to us. There's absolutely no way that we would have the capability to provide all of the capital. We can't do it. We're going to continue to be an oil and gas business because oil and gas is also important for the world. We'll continue our investments in oil and gas and grow our oil over time because our oil will be carbon neutral or carbon negative ultimately. And so that's to me the last barrel of oil produced in the world should come from an enhanced oil recovery reservoir using CO2 from the atmosphere. So we will be doing that. But you're right, Doug, in that we will be licensing a lot of this out. And we've talked about regional concepts, having partners around the world that can manage and drive their own construction of these facilities as we go. And what would come back to us would be those licensing fees.

Our next question will come from Neal Dingmann with Truist Securities.

My first question is on your Permian plan, specifically. Just wondering, will you all turn to more co-development in the Dell or maybe just discuss your future broader completion plans there?

[indiscernible]?

Yes. I'd answer that a couple of ways, I think. I think one that's been really important to us, and we've tried to highlight is again back to some of the secondary benches in the way we think about those developments. We've been pretty precise in terms of how we put together our DSUs with those in mind. I would say this year, we have increased our -- I'll generalize completion intensity, but it's really frac intensity. And some of that was some of the capital that we put back into the Permian that delivered increasing cash flow for us this year. So I'd say a good portion of that capital increase was due to our increased completion intensity. So as we think about playing it forward, I think over the next several years, we're going to continue to be methodical in the way we develop those secondary benches. They'll ultimately become a bigger part of our portfolio. But we've seen with these positive surprises, the ability to optimize really the next kind of 3- to 5-year type programs some of the success, I would say, even in the Midland Basin that we've seen in the secondary benches, as we looked into this year, I think we changed about half of our development plan due to improvements in our appraisal activity there last year. So I think we'll continue to do what we do, which is really focused on the subsurface. We want to make through our recovery is outstanding, and we want to really DSU across multiple benches to be fit for purpose for the geology for that area.

And then second also on the Permian. The second largest earthquake in the Perm was reported this morning. I'm just wonder is probably too early to know if you had any direct impact? I'm just wondering, could you all discuss the continued disposal process and if that has changed in recent years?

I'm sorry, Neal, I didn't get that -- the first part of that question.

This morning, there was announced the second largest earthquake. Hit the -- it looks like it hit the...

Earthquake.

And I'm just wondering -- I'm not asking for the impact too early there, but just wondering maybe if you could discuss -- I know you had changed some disposal process and things in the past. If you could maybe just hit that quickly.

Yes. Our plans continue to leverage really the work we've done around water recycling, just in general, I'd say, independent of any of the hazards. We just believe that responsible use of water is a big part of what we should do. we actually had a trip here recently to the Permian, got to revisit the large recycling facility that we put together with our partner there in the Midland Basin. And that continues to be helpful not only for Oxy but actually some of our offset peers. So we're expanding that into the Delaware. It's actually a very nice link as you think about other carbon capture projects that we have. Responsible use of industrial water is a technology that we really think is important for the future. So aware of some of what -- you're asking about in some of the hazards that's been identified. But again, we're trying to get out in front of that just in general and recycle more water in all areas of our operations.

Our next question will come from Matt Portillo with TPH.

I wanted to start out on the Gulf of Mexico. You mentioned you'll be running 2 drillships there next year. Just curious if you could just give an idea of key projects you're progressing in 2024? And maybe expand a little bit on the depth of the tie-in opportunities and potential, I think, Vicki, you commented last quarter for possible growth out of the asset in the second half of the decade.

Yes. I would just reiterate, we're really excited about not just what we're doing from a capital perspective and the new development, but also what we're doing with the development that we have and Ken has some really good things to share with you about that.

If I start off with the first part of your question, as part of the development initiatives, we plan to drill and complete 5 wells includes proximity to our facilities tied back to existing subsea manifolds with available capacity. We also do test on 2 promising exploration opportunities in the Eastern [indiscernible] probably have a working interest of around 40%, that aligns to our sort of approach of more shots on goal through partnering. If I can maybe give some context to Vicki's comments on the last call, we basically see gone through 3 portfolio lenses. One is primary production with base optimization and drilling, including horizontals and stimulation; second aspect is secondary recovery, which is one of Oxy's strengths as a company worldwide with water flooding and artificial lift, including subsea pumping and ESPs. On these assets, very little has been done on water flooding in the past for our reservoirs, and we see significant upside including reservoirs that already have direct analogs nearby. And that's been part of the success of some of the majors in Gulf of Mexico in terms of adding long-term low decline production and reserves to the base. And an exploration, we've now built a new portfolio with a significant new partner base, as you saw in the recent announcement that came from [indiscernible] that looks like a successful approach going forward, and that could be easily tied back quickly to Lucius. So we see this as a way of moving capital between these 3 legs of the stool going forward and we see tremendous upside on the secondary recovery option.

And that concludes our question-and-answer session. I would like to turn the conference back over to Vicki Hollub for any closing remarks.

Thank you all for your questions and for joining our call today. Very much appreciate it. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.