Occidental Petroleum Earnings Call Insights: Production Outlook and California

Occidental Petroleum Corporation (NYSE:OXY) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Production Outlook

Leo Mariani – RBC Capital Markets: Just a quick question overall on production. It looks like just kind of looking at overall company going to be sort of flattish in 2013 versus 2012. Obviously, you’ve got a lot of new initiatives in California going here, looks like that’s going to accelerate next year. I know you guys also increased your Permian rig count earlier in the year. Should we expect much better growth on production overall for Oxy in 2014 and maybe any kind of ballpark number we could look for, for growth next year?

Stephen I. Chazen – President and CEO: Well, of course. I think the oil production will continue to do well in the back half of the year and into next year because almost all of the drilling is focused on oil. California will do much better as the year progresses and into next year. International production, Iraq aside, sort of flattish because of the cost recovery issues. So, if you look at just the oil, I think, you’ll see reasonable growth and better growth next year. We won’t have the turnarounds we had this year in the plants, so we should do better that way. Gas is a different issue. Gas production, it’s hard to justify spending a lot of money on gas production. So, on a BOE basis, I think you won’t see much on to the gas, probably some decline. But I don’t think we’re spending money on gas. It’s a money well spent at this point.

Leo Mariani – RBC Capital Markets: Any price out there, you think you need to spend money on gas…

Stephen I. Chazen – President and CEO: Vicki talked about $5 in California. California is probably the – California and maybe South Texas and maybe a little bit (indiscernible) highest return, but I think you probably need around $5 to excite us. And the margins are pretty good in oil right now. I think if you look at sort of $100 oil, you make the huge margins and so trying to squeeze a few more bucks out of gas just to make some BOE strike to me is not money well spent.

Leo Mariani – RBC Capital Markets: And how about the Bakken, is that an area where you guys have started to pick up at all, given the strength in oil?

Stephen I. Chazen – President and CEO: I think Bill can answer that.

William E. Albrecht – VP; President, Oxy Oil & Gas, Americas: Right now we’re running five rigs in the Bakken and adding another rig in August will go up to six. But I don’t see much of an increase beyond six rigs for the rest of the year.

Leo Mariani – RBC Capital Markets: And how about Al Hosn, is that still on track for production kind of late 2014?

Stephen I. Chazen – President and CEO: Sandy can answer that.

Edward A. Lowe – VP; President, Oxy Oil & Gas, International Production: Yes, the Shah Field gas will come on at the end of 2014. We expect to see pretty much full production in 2015.


Paul Sankey – Deutsche Bank: Steve, the comment you made on the strategic business review, seems to indicate that you qualified directly in the case, so we won’t get the plans until later – much later this year. I was thinking we would have more of an update on, for example, the Middle Eastern sales process. Potentially, it seems to be that you are teeing up for California spin here. And then ultimately I thought there were some fairly clear plans about your intentions for the (Remainco). Can you just go back through how we’ve ended up here with these things, there’s now a number of different options and where things may be different from the way I’ve seen them to be potentially.

Stephen I. Chazen – President and CEO: Well, one of the things that was easiest was the plains, the partial sale and ultimately full sale. So, there is fairly a large number in that. We didn’t say anything it changed. I think as you enter in discussions with people about various things, I think its best that those discussions not be in the public domain and rather be handled privately. And so when we have a definitive thing to talk about in the Middle East, we will talk about that when it’s definitive. As far as the rest of it goes, you can make your own judgments about California based on what Vicki said.

Paul Sankey – Deutsche Bank: Yeah, so I guess we could continue to consider that that will become a separate standalone company that seems to be the…

Stephen I. Chazen – President and CEO: Well, it’s certainly one of the options. I didn’t mean to imply that there were now 400 options. We are just considering various options. The board has really just been exposed to this in detail at one meeting, and so it will take a little while and we want to consult fully with them and weigh all the alternatives for them. But clearly, some things are going ahead quickly…

Paul Sankey – Deutsche Bank: I mean, I guess, we still assume that the overall process needs to be complete before you close your career at Oxy at the end of ’14?

Stephen I. Chazen – President and CEO: That wouldn’t be my hope.

Paul Sankey – Deutsche Bank: My final question on this would be towards the end of the year timing, I guess, that’s conservative. It just seems that you don’t have a huge amount of time to complete this process and…?

Stephen I. Chazen – President and CEO: Well, it doesn’t mean that the process wouldn’t proceed without an announcement. So, I mean, some things we could do without – I prefer to announce things that are not ideas, but well along in the process. So, you could move ahead on any of this without some formal announcement.

Paul Sankey – Deutsche Bank: My understanding is that things – you visited the Middle East, things went well. You may be selling more of the Middle East business than previously. I think it had been the idea of 20% to 30% sales and not less than $25 billion total value. Are those reasonable?

Stephen I. Chazen – President and CEO: I don’t want to comment on discussions we might have with those – over there. The trip went well and they were very pleased with our people and our operations and they want us to stay in the region and want to do things to help us to stay in the region.

Paul Sankey – Deutsche Bank: And then my final question is just as regards to California, it feels a little bit like the movie that we saw in 2010. You described a lot of upside and potential in California at Analyst Meeting. It didn’t really deliver. We’ve seen volumes down here sequentially in California. How can we get conviction that this enormous upside potential will be delivered when the recent track record has that that we think…

Stephen I. Chazen – President and CEO: I think actually we’re up sequentially this quarter, but all you just have to see the production as it goes.

A Closer Look: Occidental Petroleum Earnings Cheat Sheet>>