Occidental Petroleum (OXY) Earnings Report: Q3 2014 ...s.t.st/media/xtranscript/2014/Q4/12925837.pdf · Our third quarter 2014 realized oil prices of $94.68 per barrel fell by $5.70

CompanyName:OccidentalPet ro leumCorpCompanyTicker:OXYSector:BasicMaterials

Industry:EnergyEventDescription:Q32014 EarningsCall

©2014TheStreet,Inc.AllRightsReserved Page1of 26

OccidentalPetroleum(OXY)EarningsReport:Q32014ConferenceCallTranscriptThefollowingOccidentalPetroleumconferencecalltookplaceonOctober23,2014,10:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

ChrisDegner;OccidentalPetroleumCorporation;SeniorDirector-IRChrisStavros;OccidentalPetroleumCorporation;EVP,CFOSteveChazen;OccidentalPetroleumCorporation;CEOVickiHollub;OccidentalPetroleumCorporation;EVPWillieChiang;OccidentalPetroleumCorporation;EVP-OperationsSandyLowe;OccidentalPetroleumCorporation;President-InternationalOil&GasOperations

OtherPart icipants

EvanCalio;MorganStanley;AnalystDougTerreson;ISI;AnalystDougLeggate;BankofAmerica;AnalystLeoMariani;RBC;AnalystEdWestlake;CreditSuisse;AnalystJeffreyCampbell;TuohyBrothersInvestmentResearch;AnalystRogerRead;WellsFargo;AnalystPaulSankey;WolfeResearch;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator:

Goodmorning,andwelcometotheOccidentalPetroleumCorporationthirdquarterearningsconferencecall.

(OperatorInstructions).

Pleasenotethiseventisbeingrecorded.

IwouldnowliketoturntheconferenceovertoChrisDegner,seniordirectorofinvestorrelations.Pleasegoahead.

ChrisDegner(SeniorDirector-IR):

Thankyou,Denise.

Goodmorning,everyone,andthankyouforparticipatinginOccidentalPetroleum'sthirdquarter2014conferencecall.

OnthecallwithusismorningareSteveChazen,Oxy'spresidentandchiefexecutiveofficer,ChrisStavros,chieffinancialofficer,VickiHollub,president,oilandgasintheAmericas,WillieChiangexecutiveVicePresidentofoperations,andSandyLowe,presidentofourinternationaloilandgasoperations.

Injustamoment,IwillturnthecallovertoourCFO,ChrisStavros,whowillreviewourfinancialand




operatingresultsforthethirdquarterandalsoprovidessomeguidanceforthecurrentquarter.

OurCEO,SteveChazen,willthenprovideanupdateontheprogressofourstrategicinitiativesandoutlookfor2015.

VickiHollubwillthenprovideanupdateofouractivitiesinthePermianBasin.

WillieChiangwillconcludethecallwithanupdateonOxy'smidstreamoperation.

Asareminder,today'sconferencecallcontainscertainprojectionsandotherforward-lookingstatementswithinthemeaningofthefederalsecuritieslaws.Thesestatementsaresubjecttorisksanduncertaintiesthatmaycauseactualresultstodiffermateriallyfromthoseexpressedorimpliedinthesestatements.

AdditionalinformationonfactorsthatcouldcauseresultstodifferisavailableonthecompaniesmostrecentForm10-K.

Ourthirdquarter2014earningspressrelease,theinvestorrelationssupplementalschedules,andtheconferencecallpresentationslidescanbedownloadedoffofourwebsiteatwww.oxy.com.

I' llnowturnthecallovertoChrisStavros.Chris,pleasegoahead.

ChrisStavros (EVP,CFO):

Thanks,Chris,andgoodmorning,everyone.

Wegeneratedcoreincomeof$1.2billionforthethirdquarterof2014resultingindilutedearningspershareof$1.58,adecreasefromboththeyear-agoquarterandthesecondquarterof2014.

Thedeclineincoreearningswasattributablemainlytolowerrealizedoilpricesonourworldwideproductionandthesharpdeclineintradingperformanceonasequentialquarterlybasis.

Forthefifthconsecutivequarter,wecontinuedourstrongdomesticloadproductiongrowth.Wemetourguidanceandachievedayear-over-yeardomesticoilproductionincreaseof20,000BOEperdayorabout8%ledbyourPermianandCaliforniaassets.

Wealsorepurchased4.7millionsharesofourstockduringthethirdquarterandendedoftheperiodwith$2.9millionofcashonourbalancesheet.

Oilandgascoreafter-taxearningsforthethirdquarterof2014were$1.1billion,$90millionlowerthanthesecondquarterofthisyear,and$236millionlowerthanlastyear'sthirdquarter.

Forthethirdquarterof2014,totalcompanyoilandgasproductionvolumesaveraged755,000BOEperday,anincreaseof19,000BOEindailyproductionfromthesecondquarterand6,000BOEperdayforthesameperiodayearago,whichexcludesproductionfromthatHugotonassetsforallperiods.

Ourthirdquarter2014realizedoilpricesof$94.68perbarrelfellby$5.70comparedtothesecondquarterrealizationsof$100.38perbarrel.

Inthethirdquarterof2014,after-taxcoreincomeforourdomesticoilandgasoperationswas$538million.Onasequentialquarter-over-quarterbasis,resultsatourdomesticoperationswerenegativelyimpactedbylowerrealizedpricesacrossallproducts.

Improvedvolumes,however,offsetroughlyaquarteroftheearningsdeclinecausedbylowerprices.

Onayear-over-yearbasis,domesticoperationsdeclinedby$252millionafter-tax,whichreflectedtheimpactoflowerrealizedoilpricespartiallyoffsetbyincreasedoilproductionvolumes.




ThelowerrealizedoilpriceswereimpactedbythelargedifferentialswesawinthePermianBasin.WillieChiangwillprovideamorein-depthdiscussionaroundPermiandifferentialslateroninthecall.

Totaldomesticoilandgasproductionaveraged475,000BOEperdayduringthethirdquarterof2014,up11,000BOEperdaysequentially.

Domesticoilproductionwas282,000barrelsperdayduringthethirdquarter,anewquarterlyrecordforOxy.

Domesticoilproductionvolumesincreasedby20,000barrelsperdayfromtheyearagoquarterwithourPermianResourcesbusinessgrowingitsoilproductionby26%to43,000barrelsperday.

Onasequentialquarter-over-quarterbasis,totaldomesticoilproductiongrowthwas6000barrelsperday.

Internationalafter-taxcoreincomewas$624millionforthethirdquarterof2014withresultsimprovingby8%sequentiallyduetoaliftinginIraq,whichhadnoneinthesecondquarter,andhighersalesvolumesinbothColombiaandQatar.

Incomefromourinternationaloilandgasoperationsremainedaboutflatversustheyearagoperiod.

Internationaloilandgassalesvolumesroseby4,000BOEperdayonasequentialquarter-over-quarterbasis.TheimprovementwaslargelyduetohighervolumesinColumbia,whichexperiencedfewerpipelineincidentsintheperiod.

Oilandgascashoperatingcostswere$14.89perbarrelinthethirdquarterof2014comparedto$14.68perbarrelinthesecondquarter.

Taxesotherthanonincome,whicharedirectlyrelatedtoproductprices,were$2.54perbarrelforthethirdquarterof2014and$2.80forthefirstninemonthsoftheyear.

Thirdquarterexplorationexpensewas$53million.

Chemicalthirdquarter2014pre-taxearningswere$140millioncomparedwithsecondquarterresultsof$133millionand$181millioninayear-agoquarter.

Althoughslightlybelowourguidance,thesequentialimprovementinthethirdorderwasduetohighercausticsodapricesandvolumesalongwithlowernaturalgascostsoffsetbylowervinylsmarginsresultingfromrapidlyescalatingethylenecosts.

Weexpectourfourthquarterpre-taxchemicalearningstobeabout$150millionreflectinghistoricalslowdown--seasonalslowdownduetothecombinationofmaintenanceoutages,holidayshutdowns,andsomecustomerinitiativetoreduceyear-endinventories.

Midstreampre-taxsegmentearningswere$125millionforthethirdquarterof2014comparedto$219millioninthesecondquarterand$212millioninthesameperiodayearago.

The2014sequentialquarterlydeclineinearningsresultedinmainlyfrommuchweakertradingperformancedrivenbysharpcommoditypricemovementsduringtheperiodpartiallyoffsetbyhigherincomefrompowergenerationandthedomesticpipelinebusinesses.

Inthefirstninemonthsof2014,wegenerated$8.6billionofcashflowfromoperationsbeforechangesinworkingcapital.Workingcapitalchangesdecreasedourcashflowfromoperationsby$460millionto$8.2billion.

2014year-to-datecashflowfromoperationsdeclinedbyapproximately$1.6billioncomparedtothesameyear-agoperiod.




Thefirstninemonthsof2014includedtaxpaymentsof$570millionrelatedtothegainofthesaleofthatPGPunitsandourHugotonassets,andthefirstninemonthsof2013includedthecollectionofataxreceivable.

Capitalexpendituresforthefirstninemonthsof2014were$7.3billionnetofpartnercontributions.

Ourcapitaloutlaysincluded$410millionassociatedwiththeAlHosngasprojectand$275millionfortheBridgeTexpipeline.

Duringthefirstninemonthsofthisyear,wereceivedproceedsof$1.3millionfromthesaleatourHugotonassetsandspentabout$425milliontowarddomesticbolt-onacquisitions.

Weissued$1.6billionofcommercialpaperduringthelatterpartofthequarteraspartofourshort-termcashmanagementprocess,whichhasalreadybeenrepaid.

Afterpayingdividendsof$1.6billion,buyingbackto$2.1billionofcompanystock,andothernetflows,ourcashbalancewas$2.9billionatSeptember30.

Ourdebt-to-capitalizationratiowas16%atquarterend.

Our2014annualizedreturnonequitywas12%,andreturnoncapitalemployedwasaround10.5%.

Earlierthismonth,wereceivedcashproceedsofapproximately$5billionfromthebondofferingcompletedbyCaliforniaResources.IRIrulesmandatethattheuseoftheseproceedsberestrictedtosharerepurchases,dividendpayments,ordebtretirement.

Wewillbereceivinganadditional$1.2billionofcashfromCaliforniaResourcesconcurrentwiththespinoffinlateNovember.Theuseoftheseproceedswillbeunrestricted.

Theworldwideeffectoftaxrateonourcoreincomewas40%forthethirdquarterof2014,andweexpecttocombineworldwidetaxrateinthefourthquartertoremainaboutthesame.

LastlyIwilloutlinesomeguidanceandafewpointsonourreportingdisclosuresforthefourthquarter.

DuetotherecentsharpdeclineinoilpricesandthecompletionoftheCaliforniaspinoffattheendofnextmonth,itwillbedifficultforthefinancialcommunitytopredictourearningspershareforthefourthquarter.

WhenOxycompletesthespinoffofCaliforniaResourcesattheendofNovember,wewillreclassifythefinancialandoperationalresultstodiscontinuedoperationsforourcoreresultsdisclosure.

Assuch,ourfourth-quartercoreincomewillexcludeallofCaliforniaresults,andincomeonareportedbasiswillincludetwomonthsofCaliforniaresults.

Totalyearresultsonareportedbasiswillinclude11monthscontributionfromourCaliforniaoperationsclassifiedasdiscontinued.

IncludedintheIRsupplementalschedulesisaproformatablessegregatingOxy'ssoldandspun-offdomesticproductionfromourongoingoperationsforthehistoricalquarterly2013and2014periods.

Forthefourthquarter,weexpecttoseecontinuedproductiongrowthfromthePermianResources.

Inaddition,withthestartupoftheBridgeTexpipeline,OxywillcaptureaportionofthespreadbetweenLLSandWTIMidlandonapproximately200,000barrelsperdayofoiltransportedtotheGulfCoast.

WilliewilldiscussthebenefitsoftheBridgeTexstartupinafewmoments.

WeexpectourinternationalvolumestoincreaseinthefourthquarterwiththeAlHosnGasprojectcoming




onlineandthepositiveimpactofvolumesforourproduction-sharingcontractsthataresensitivetothedeclineinoilprices.

Onago-forwardbasisexcludingCalifornia,pricechangesatcurrentglobalpricesaffectourquarterlyearningsbeforeincometaxesby$29millionforadollar-per-barrelchangeinoilpricesand$6millionforadollar-per-barrelchangeinNGLprices.

Aswingof$0.50perMMBtuindomesticnaturalgaspricesaffectsquarterlypre-taxearningsbyabout$15million.Thesepricechangesensitivitiesincludetheimpactourproduction-sharingcontractvolumechangesonincome.

Ourfourth-quarter2014explorationexpenseisanticipatedtobeabout$60millionpre-tax.

I' llnowturnthecallovertoSteveChazenwhowillprovideanupdateonsomeofourstrategicandgrowthinitiatives.

SteveChazen(CEO):

Thankyou,Chris.

Theoverallbusinessisoperatingwell,andourincreasedinvestmentandfocusinthePermianResourcesoperationisevidencedbythe24%year-over-yeargrowthintotalproduction.

Otherlong-terminvestmentssuchastheBridgeTexpipelineandtheAlHosnGasprojectshouldalsobegincontributingtoourresultsinthecurrentquarter.

Wecontinuetomakesteadyprogresstowardsfurtheringourstrategicinitiativesoutlinedayearago.

ThespinoffofCaliforniaResourcesisontrack,andweexpecttodistributeapproximately310millionsharestothenewCaliforniacompanytoOxyshareholdersattheendofOctober.

CaliforniaResourcescompleteditsdebtfinancingearlierthismonthanddistributedapproximately$5billionincashtousasatax-freedividendinOctober9.Thedividendof$1.2billioninproceedsfromthetermloancreditfacilitywillhappenconcurrentwiththespinoff.

Afterthespinoffandforaperiodlastingupto18months,Oxywillretainapproximately75,000,000sharesoftheCaliforniacompany.

Atsomepointduringthisperiod,weintendtoconductanexchangeofferfortheremainingCaliforniasharesforOxyshares,furtherreducingourownsharesoutstanding.

Overtheyears,OxyhasmadesignificantinvestmentsinCaliforniaoilandgasandhasbuiltasolidbusiness.Withtheseparationoftheseassets,theCaliforniaoperationswillbeclassifiedasdiscontinued.

Theresultingimpactexpecttoprovidelowerunitratesforcashoperatingcost,DD&A,andF&DcostforOxyaswellasimprovedreservereplacementratiosonbothahistoricalandanongoingbasis.

RegardingourinterestintheWilliston[inaudible]Basinsgiventhecurrentproductpriceenvironment,weplantooperatetheseassetswithlesscapitalinordertogeneratefreecashandshiftourinvestmenttowardsourhighergrowthandhigherreturnoperationsinthePermianBasin.

IntheMiddleEast,wecontinuetomakeprogressinnegotiationwithourpartnerstowardsapartialmonetizationwithagoaltoimprovethebusiness'sabilitytogrowprofitablyfromasomewhatsmallerbase.

Overtime,expecttoachieveasimilarbalanceinourassetmixwithroughly60%ofoilandgasproductioncomingfromtheUnitedStates.




Overtime,wealsoexpecttomonetizeourremaininginterestintheGPofPlainsAllAmericanPipeline,whichiscurrentlyvaluedatmorethan$4billioninadditiontosomeothermidstreamassetswhenmarketconditionswarrant.

WeexpecttogeneratealargeamountofcashproceedsfrominitiativesI'vementioned.

Whileexpectthebulkoftheseproceedswillbeusedtorepurchaseourownshares,wealsohopetoinvestinthebusinessthroughattractivebolt-onacquisitionsinourcoreareaofthePermianBasin.

Opportunitiesmayexistforaccretivepropertyacquisitionsthathavecurrentproductionandgrowthprospectsandalsocomplementourexistingaacreage.

Wehavenointentionofacquiringpubliccompaniessincetheircurrentpricingreflectshigheroilpricesandanear-perfectoutcomeforproduction.

Sincetheendofthethirdquarterof2013,wehaverepurchasedapproximately31,000,000sharesofthecompanystockfornearly$3billion.

Theboardrecentlyauthorizedrepurchaseofadditional60millionsharesofthecompany'sstock,leavingtheprogramwith76millionshares.

Wearecurrentlyundergoingourannualcapitalbudgetingprocessandaremindfuloftherecentdeclineinoilprices.Asignificantamountoflong-terminvestmentincludingthecapitalforBridgeTexpipelineandtheAlHosnprojectisnearingcompletion.

Weexpectouroverallcapitalprogramtodeclinein2015giventheabsenceofCaliforniaandthecompletionofmultiplelong-termprojects.

WealsoexpectsignificantdeclineinourspendingintheMiddleEastaswebegintoreapthebenefitsofsomeofourearlierlong-terminvestments.

Thevastmajorityofcapitalbudgetnextyearwillbeallocatedtoourdomesticoilandgasdrillingoperationswherewemaintaintaxabilityinourbudget.

Wealsoexpectthatsincetheservicecompanieswerehappytoraisepriceswhenoilwasgoingupthattheywillbejustashappytohavetheirpriceslowerinthefuture.

Someofthereductionintheprogramandourlong-termprojectwillbeallocatedtoprofitablegrowthopportunitiesinthePermianResourcesmidstreamandchemicals.Iflowercrudeoilpricespersistorfallfurther,wewilladjustourcapitalprogramtomanagewithinourcashflowprobablybyreducingornotgrowingasquicklyinthebackhalfoftheyear.

Weplantoprovidemoredetailedacapitalprogramfor2015duringthefourthquarterearningscallearlynextyear.

ExcludingCalifornia,weexpecttoseeanaccelerationoftotaloilandgasproductiongrowthin2015giventheampleopportunity[inaudible]capitaldeploymentinthePermianResourcesandtheramp-upofproductionfromAlHosn.

IntheUnitedStates,weexpectPermianResourcestodeliverproductiongrowthofatleast20%in2013primarilyfromoil.Weexpecttheresourcesbusinesstoexit2014atover80,000BOEadayandtoexitnextyearatover100,000BOEaday.

OurtotaldomesticproductionexcludingCaliforniashouldgrow5%to8%reflectingamodestdeclineinnaturalgasandNGLvolumes.




IntheMiddleEast,firstproductioninAlHosnGasprojectisanticipatedlaterthisquarter.Oxy'snetshareofproductionisexpectedtoramptowards60,000BOEadayduringthefirsthalfofnextyear.

Company-wideandexcludingCalifornia,weexpectourtotaloilandgasproductiontogrow8%to10%nextyear.

Whiletherecentsharpdeclineinoilpricesmayprovidesomeheadwindstothebusinessin2015,ourcommitmenttoaconservativebalancesheetwithlow-costoilproductiongivesusconfidenceinouroperationsandthecapacitytomaketargetedpropertyacquisitions.

Weexpectourcashbalancetoexceedourtotaldebtbytheendofthisyear.OxyisbuilttothriveinanenvironmentwherecorepropertiesinthePermianEORbusinessandproduction-sharingcontractsintheMiddleEast,whichproviderelativelystablecashflow.

FollowingtheexecutionoftheCaliforniaspinoff,Oxy'sphilosophyofdisciplinedcapitalallocationwillcontinue.

Ourcorebusinesswillcontinuetofocusondeliveringmoderatevolumegrowth,generatinghigherearningsandcashflowpercentaswellasimprovedfinancialreturns.

OurPermianResourcesbusinesswillrepresentakeyareaofgrowthwithinourdomesticoperations.

I' llnowturnthecallovertoVickiHollubforanupdateonouractivitiesinthePermianResources.

VickiHollub(EVP):

Thankyou,Steve.

Inlastquarter'scall,Idiscussedourprogresstowardsreaching120,000barrelsofoilequivalentperdayofproductionin2016byachievingthefollowinggoals.

First,correlatingrockandfluidpropertiestoproductionperformanceacrossOxy'sentirePermianacreageposition,second,optimizingdevelopmentstrategyanddesigntounlockfullprimarydevelopmentpotential,andthird,efficientlyacceleratingfull-fielddevelopmentandproductiongrowth.

Wemadesignificantprogressonthesegoalsinthethirdquarterandcontinuetoimproveandoptimizeourstimulationdesignsforeachbuildandbench.

Inadditiontotestingslickwaterandhybridfluidsystems,wearetestingandanalyzingotherkeyvariablessuchaspumpingrates,padvolumes,proppanttype,proppantconcentrations,surfactants,clustercountandspacing,clustersperstage,andalternatetechnologiestoplugandperforate.

OureffortsaredrivingsignificantimprovementsinwellproductivityinourDelawareandMidlandBasinassets.

Inthethirdquarter,PermianResourceshaddailyproductionof77,000BOEperday,whichisa7%increasefromthe72,000BOEperdaythatwereproducedinthesecondquarter.

Weproduced43,000barrelsofoilperdayforthethirdquarter.Thisisa26%increasefromayearagoandan8%increasefromlastquarter.

Duringthethirdquarter,ourcapitalexpenditureswere$472million.Weoperated24rigsunderold75wellsincluding44horizontals.Weplaced71wellsonproductionincluding36horizontals.

Thenumberofwellsdrilledandplacedonproductionwasadverselyimpactedbydelaysattributabletoflooding,whichoccurredinSeptember.Thisimpactreducedthenumberofhorizontalwellsplacedon



©2014TheStreet,Inc.AllRightsReserved Page8 of 26

productionbyapproximately10.

We'veincreasedthenumberoffracspreadsinthefourthquartertoaddresstheadditionalcarry-inwellinventory.

Inthefourthquarter,weplantooperateanaverageof30rigsandexittheyearwith30forwardrigs.Weexpecttodrill80wellsandplace75wellsonproductionsincluding48horizontals.

Beforediscussingthethirdquarteractivityingreaterdetail,Iwouldliketosharesomemoreinformationregardingthedrillingpotentialweseeonouracreage.

Oxy'sunconventionalplaysinthePermianarespreadacross2,000,000acresintheMidlandBasin,CentralBasinPlatform,NorthwestShelf,andDelawareBasin.

Ourteamscontinuetoutilizeourextensiveknowledgeandappraisalworktocharacterizeperspectivebenchesandtargetlandingzoneswithineachbench.

Todate,we'veidentifiedapproximately7,100potentialwelllocations.Overall,morethan92%ofthelocationsarehorizontal,andourresultsconfirmtheeconomicsofhorizontalwellsexceedmostverticalwells.

IntheDelawareBasin,wehavecurrentlyidentified4,250horizontallocationswith1,450intheWolfcampAandBbenches.

ThemajorityoftheselocationsareinouroperatedareasinReevesCounty.

TheBoneSpringpotentialisequallyassignificantwith1,500potentiallocations.TheseareprimarilylocatedinNewMexicoandcouldincreasewithfurthersuccessinTexas.

IntheMidlandBasin,we'veidentified23horizontallocations,and1,050oftheseareinthedevelopmentphasetargetingtheSpraberry,WolfcampAandBbenches.

Wearehighlyencouragedwithrecentresultsinthesebenchesachievedthroughourfracdesignoptimizationandincreasesinlaterallength.

IntheDelawareBasin,weoperated11horizontaldrillingrigsandoneverticaldrillingriginthethirdquarter.Wedrilled41wellsandplaced40onproduction.

InourBarillaDrawacreage,weplacedeighthorizontalwellsonproductionintheWolfcampAandBbenches.Thesewellsachievedapeakrateof1,355BOEperdayanda30-dayrateof1,067BOEperday.

Our[Rodman]14-5Hwellachievedanaveragepeakrateof1,600BOEperdayanda30-dayrateof1365.

WecompletedourfirsttheDelawarezipperfracontheAnnaKatharine5Hand5Hreducingcompletioncostsby$700,000duetotheefficiencygainfromsimultaneousoperations.

Thesetwowellsachievedanaveragepeakrateof600BOEperdayandanaverage30-dayrateof1,225.

Theproductionratesachievedonourwellsplacedonproductioninthethirdquarteraresignificantlyaboveourfirsthalf2014rates.Thisincreaseisdirectlyattributabletothebreakthroughsweareachievinginouroptimizationprogramincludingincreasingsandconcentration,lengtheninglaterals,andoptimizingclusterspacing.

AdditionallyourWolfcampAwellsarematchingthe900,000BOEtypecurveandproductionfromourhorizontalwellsintheDelawareBasinisaveraging89%totalliquids,77%oil.

OurappraisaleffortsinthesecondBoneSpringandWolfcampCbenchesintheDelawareBasincontinued




inthethirdquarter.We'reexcitedtoseeenhancedperformancefromtheBoneSpringandanticipatefurthergainsasweincorporatelearningsfromthefullcoreweacquiredinthethirdquarter.Theselearningswilldriveimprovementsin2015.

AdditionallyweareencouragedbyrecentresultsachievedintheWolfcampC.Our[inaudible]206-Hwellachievedanaverageinitialrateof1,356BOEperdayanda30-dayrateof912.

IntheMidlandBasin,weoperatedeighthorizontaldrillingrigsandfourdrillingrigsduringthequarter.Wedrilled34wellsandplaced31onproduction.

WeareveryencouragedwiththeresultsintheSpraberrybenchandplantoacceleratethedevelopmentofthisbenchin2015.

Duringthethirdquarter,weplacedtheSouthCurtisRanch3526-Hwellonproduction.ThiswelliscompletedinthelowerSpraberrybenchandachievedanaveragepeakrateofninethe34BOEperdayandanaverage30-dayrateof913.

WehavetwoadditionalSpraberrywellsonflowbackwithinitialproductionresultsthatlooksimilartotheSouthCurtisRanch3526.Thesewellsareexceedingthe700,000BOEtypecurve.

IntheSpraberryWolfcampAandWolfcampB,weplaceda11horizontalwellsonproductioninthethirdquarterwithapeakrateof731BOEperdayandanaverage30-dayrateof541.Productionfromthesewellsaveraged91%totalliquids,81%oil.

Wecontinuetogatherandevaluatecores,cuttings,advancelogs,microseismictracers,andpressuredatatolinkreservoircharacterizationtowellperformance.

Wehaverecentlyacquired474feetofcontinuoushorizontalcorefromoneofourWolfcampBwells.Thiswillallowforbetterdefinitionoflateralreservoirlithologiclogicvariationsandenableustotunethosedifferencestoopen-holelogstooptimizeplacementofpreparationclustersandimprovefracdesign.

We'remakingsignificantprogressinourdesignoptimizationeffortsandareconfidentthiswilltranslateintofurtherimprovementsinwellproductivityinupcomingquarters.

Forexample,atDoraRoberts,wedrilleda10,000footlateralintheWolfcampBbench.Thiswell,theDoraRobert4027-Hachievedapeakrateof1,437BOEperdayanda30-dayrateof671.Thiswellisexceedingthe650,000BOEtypecurve.

AdditionallywerecentlydrilledtheHendrix1-HwellatQatarthatachievedanaverage30-dayrateof775BOEperday.

Inclosing,Oxy'sprogramin2014isdesignedtodelineateandappraiseouracreageinordertomaximizebothultimaterecoveryandfinancialreturns.

Wecontinuetomakerapidprogresstranslatingtheknowledgegainedinourappraisaleffortstocreatevaluefromourunconventionalacreage.

Wehaveinpositiontherequiredresourcestoexecuteaccelerateddevelopmentin2013butmaintaintheflexibilitytooptimizeourportfolioandpace.

We'reontargettodeliver15%to18%productiongrowthin2014andremainconfidentthatwewillachieveourtargetof120,000BOEperdayin2016.

I' llnowturnthecallovertoWilliewhowillprovideyouanupdateonthePermianmarketingstrategy.




WillieChiang(EVP-Operations):

Thanks,Vicki.Goodmorning,everyone.

I'dliketojusttakeafewminutestobrieflyupdateyouonourmidstreammarketingstrategiesinthePermian.

It'sparticularlyimportantintoday'smarketenvironmenttomaximizerealizedvalueforproduction,andourstrategytodosoisprimarilybyensuringaccesstomarkets.

NowIspentsometimelastearningscallonourmidstreamstrategytoshowyouhowwe'retryingtodevelopandsecuretakeawaycapacityinthePermianBasin.

Ihaveaslight29thatshowsourstrategy,whichisreallyfocusedontwonewtakeawaypoints:ColoradoCity,whichistheoriginoftheBridgeTexpipeline,andMidlandSouth,whichistheorigintokeythird-partypipelines,LongHornandCactus.

Thesetakeawaypointscomplementourcenturiangatheringsystembyprovidingustheadditionalaccesstomultiplemarkets.

Nowasyouareaware,theBridgeTexpipelinecommencedservicethisSeptember,andtogetherwiththestartupofsomeadditionalpipelinesinthenextfewmonths,weexpectdifferentialstoreturntolevelsthatwillreflectthemarginalcostoftransportation.

Slide30showsthepricingdifferentialsforMidlandWTIversusLLS.

Duringtakeawayconstrainedperiods,youcanseetheLLSMidlanddifferentialwidento$30perbarrelandasaveragedapproximately$16abarreloverthepastfouryears.

In2014,theLLS-Midlanddifferentialhasaveraged$12year-to-dateandtodayiscurrentlyroughly$10abarrel.

OuruniqueupstreamandmidstreamperspectivetothePermianBasinhasenabledustobeadrivingforcebehindtheconstructionofnewpipelineinfrastructureaswellastakeawaycapacityfromthebasin.

Slide31showshowweviewthekeyvaluecomponentsforinfrastructureprojectssuchasBridgeTex.

Asastand-alonepipelineinvestment,welookatcareoftariffrevenuetoensureasolidreturnconsistentwithourtargetedrateofreturnfordomesticmidstreamprojects.Thiscangeneratecashofroughlyadollarto$3abarrel.

Secondvaluedriveriswhenweenterintolong-termandcostadvantagetransportationcommitmentsonpipelinesasashipper.Thisgivesussufficientaccesstomarketscomparedtoothertransportationroutesandoptions.

Dependingontheproject,advantagetariffscanaddanotherdollarto$3abarrelofincrementalvalue.

However,thepointIwanttomakeisthatthecriticalvalueforOxyisreallytoavoiddiscountedpricesthatresultfrominfrastructureconstraintsandunplannedoutages.Thevalueissignificantandifyoulookatthepastfouryears,canbecomedollarsabarrelormore.

NowoursignificanttakeawaycommitmentonBridgeTexisagreatexampleofhowwecapturethisvalueandintoday'smarketisroughly$1millionadayforOxy.

OurPermianBasinstrategyutilizesallthesevaluedriverstoreachmultiplemarketsm,andwehavesecuredaccesstolong-termtakeawaycapacityofroughly3timesourcurrentproductionfromthebasin.




Nowthisreallypositionsuswelltocontinuetogrowourproduction,maximizerealizedprices,andcapturemarketopportunities.

I' llturnthecallbacknowtoChrisDegner.Thankyou.


Hey.Thanks,Willie.

AndDenise,wearereadytotakequestions.

QUESTIONS&ANSWERS

Operator:

(OperatorInstructions).

ThefirstquestionwillcomefromEvanCalioofMorganStanley.Pleasegoahead.

EvanCalio (Analyst-MorganStanley):

Hey.Goodmorning,guys.

Steve,myfirstquestionismostofyourlarge-cap[inaudible]areincreasingly[inaudible]withincashflowormorelimitedbythebalancesheets.

GivenOxy'sunder-leveredbalancesheetversusanybodyotherthanasupermajor,wouldyoubewillingtooutspendcashflowinadownturnasamethodtoright-sizeyourbalancesheet,orreallyIguesswhatistherightortargetedcouplestructureforOxymovingforward?

SteveChazen(CEO):

Well,first,Iwouldarguewe'rebettercapitalizedthanthemajors.SoIthinkthereover-leveragedmyself.

Butanyway,IthinkasChrispointedout,we'regoingtohavealotofcashattheendoftheyearfromavarietyofsources,mostlyfromtheCaliforniabusiness.Someofthat,ofcourse,willbeusedtoreduceoursharecount,maybethebulkofthattoreduceoursharecount.

WecontinuetolookforopportunitiestogrowthebusinessinthePermianthroughinvestment.

Sotosum--whileourdrillingprogrammaybeinlinewithcashflow,ifweseeotheropportunitiesto--smallpropertyacquisitionsorevenmedium-sizedones,we'lluseourbalancesheettodothose,andthosewouldeffectivelybeeffectivelyanincreaseintheprograminexcessofcashflow.

SoIthinkwe'vealwayshadabalanceofdrillingandacquisitions.It'smoreshiftedclearlytodrillingnowbecausewehavesomuchtodo.

But--soIthink--Idon'tthinkyou'llseemassivechangesinourleverage,butyouwillseeobviouslylessequityinourequitycountaswebuydownalotofstock.

SoIthinkit' llalwaysbeabalance.Iftherewasasharpreductioninoilprices,createdmorebuyingopportunities,wewouldn'thesitatetoincreaseourleveragetogrowthebusiness.

SoIthinkthatfromourperspective,thisissortofgoodtimes.Isortofknowwhattodoat$75oilorless,butIhavenoideawhattodowith$120.

SoIthinkthisisreallygoodtimesforus.Itmaynotbegoodtimesforpeoplewhouseusasaproxyforoil




price,useourstocksasaproxyforoilprice,butasafundamentalbusinessmatter,thesecyclicaldownturnsiswhereyouusethebalancesheettobuildthebusiness.

AndIthinkthat's--I'mhoping--alotofhappytalknow,especiallyfromservicecompanies,abouthowthisistemporary.Idon'tknowhowanybodyknowsthat,butifIcouldpredictoilprices,I'dbesittingonabeachinGalveston,wouldn'tcometowork,andwouldn'tmesswiththisproductionbusiness.

SoIthinkthatasapracticalmatter,yougotto--thisisavolatiletime.Theremaybearecessionworldwide.Idon'treallyknow.Idon'tseethat.

ButalittleloweroilpricesIthinkcouldtakesomeofthebuoyancyoutofitandgivesussomeopportunitiestoaddtoourbusiness,soourgoalistogrowourearningspershare,ourreservespershare,cashflowpershare,throughacombinationofsharereduction,andhopefullybuildingthebusinesseitherthroughdrillingoracquisitionsandmaybeboth.


Clearlywell-positionedforadownmarket.

Maybearelatedquestion,butonbuybacks,youusedtohavetheslidewhereyoubuiltup100millionsharebuyback--andIguessthere'stwoquestions--isnotincludedtodayifthere'sanychangeinthoughtthere.

Andsecondly,whenyoudidthe100millionsharepotentialbuyback,itwasdeterminedwouldOxywas$100ashare.Itis$89today.Allthingsbeingequal,it' llbelowerfollowingtheCRCspin.

Atthesametime,theelementsthatarefundingthebuybackarelargelyflat,right.

SoIguessisthere--howdoyouthinkaboutthat,whichisitapproximatelyabout$1billionDelta,orisit--listento...

SteveChazen(CEO):

Wedenominatethisstuffinshares,becausethat'sthewaywethinkaboutit.Howmanysharesarewebuyingback?

We'refairlysomewhatdisciplinedinmakingsurethatwedon'tbuysharesatpricesthatimply--thatareexcessofourfindinganddevelopmentcost.

SoIthinkthat'sthewaywesortoflookatit.

Weannouncethesharerepurchasesasweactuallyhavethecashinhand.It'snotintendedasaforecastofwhatwemightultimatelydo.Asmorecashcomesinhand,youshouldexpectthatsharerepurchaseauthoritywouldrise.

SoIdon't-the60millionshareswe'veadded,sowegot76,Ithink,roughlylefttogo.Youshouldviewthatissortofthecash-in-handnumber,nottheultimate.Theultimatewilldependentonthepaceofproceedsfromvariousthings.

SoIthink--we'renottryingtoforecast.We'regoingtosay,"Thisiswhatwe'vegotinourhandnow."

Ifitturnsoutthatwehaveexcessmoneybecausethepriceofstockistoolow,we'lladjustthesharerepurchasetohighernumbers.


Gotit.




Howwouldweconsideratimetable?Isthat--forthebuybackgivenitssignificantlyhigherthanalevelhistorically,orisitstilljustgoingtobealevel-drivenprogram?

SteveChazen(CEO):

It'sdrivenprincipallybythestockprice.Sowelookforbuyingopportunitiesinthemarketwhenpeoplebecomeirrational.


Gotit.Appreciateit,guys.Thanks.

SteveChazen(CEO):

Thankyou.

Operator:

OurnextquestionwillcomefromDougTerresonofISI.Pleasegoahead.

DougTerreson(Analyst-ISI):

Goodmorning,everybody.

SteveChazen(CEO):

Goodmorning.


Steve,Ihaveacouplequestionsaboutthe[inaudible]business.

First,fromastrategicperspective,there'sbeencommentaryaboutdivestituresinOmanandothercountries,sowhetherornotyoucommentonassetsindividuallyorthepositionsingeneral,Iwantedtoseeifwecouldgetanupdateonlikelystrategicoutcomestheirandortheenvironmentformonetizationingeneralwhichyou'vetalkedaboutinthepast.

ThenthesecondquestionisyouguysmentionedthatAlHosn'sgoingtostartupontimeinthecurrentquarter,whichisgood.Sothesecondquestioniswhetherit'sgoingtocomeinonbudgetaswell.

Sotwoquestions.

SteveChazen(CEO):

Thesecond--we'llhaveSandyanswerthebudgetquestion.It'sasortofone-wordanswer.

Andso--butontheoverallreduction,it'ssortofoneatatime,butourobjectiveisthesame,onewayoranothertogetvalueoutoftheMiddleEastbusiness,somebysellingitandmaybesomebyspeedingupthecashoutoftheassetwhereit'smoredifficult.

Soonewayoranother,wearebasicallyusingthebusinesstodownsizethesizeofthatbusiness,makeitlessimportantinthecompany.Stillanimportantpart,butit'sgoingtobe--alotofcashisgoingtocomeoutofthatbusinessonewayoranotheroverthenextfewmonths.

AndsoIthinkwearegoingalongslowerthanIwouldlike,ofcourse,buttosomeextentbyshowing--beingtooanxioussometimes,yougetaworseresultthanyoumightgetsomeotherway.




So--soSandywillanswerthequestiononbudgethere.


Okay.

SandyLowe (President-InternationalOil&GasOperations):

Theanswerisoneword.Yes,weareonbudget.It'sawell-plannedprojectandwell-tended.Thestartupsequencehasbeeninitiated,andweexpecttohavesomeproductsalesinthequarter.


Great.Thanksalotguys.

SteveChazen(CEO):

Thanks.

Operator:

OurnextquestionwillcomefromDougLeggateofBankofAmerica.Pleasegoahead.

DougLeggate (Analyst-BankofAmerica):

Thanks.Goodmorning,everybody.

Steve,Ialsohavetwoquestions.IguessmyfirstoneisforVicki.

IreallywanttotalkaboutthePermianoraskyouaboutthePermiangrowthtrajectorythatyouprovidedforus.

Yourrunratesinceyourampeduptherig[inaudible]about5,000barrelsperdayperquarter,andIrealizeit'sverysimplicityjusttolookattheabsolutemovesequentially.Butyouaresignificantlyacceleratingtherigcountandthebacklog,itlookslike.

SoI'mjusttryingtoreconcileasubstantiallyhigheractivitylevelwithasimilarquarterlyrateofgrowth,atleastimpliedbyyourprojectionsforthenextcoupleyears.

That'smyfirstquestion.I'vegotafollow-up,please.

SteveChazen(CEO):

I' llletheranswerthequestion,butIthinkIwouldn'tconfuseourexpectationswithourpromises.There'sprobablyawidedifferencebetweenthem.

Goahead,Vicki.

VickiHollub(EVP):

Yeah,Doug.Originallywehadnotplannedtoreachtheexitratethisyearwith34rigs.Butwe'veacceleratedourdevelopmentalittlebit,andasyounoticed,wearealittlebitbehindonsomeofourwellscompleted.

Butwe'veaddedanothercoupleoffracspreads,sonowasof1ofNovember,wewillbeatseventoaddressthewellinventory.

Andwithrespecttotherigsgoingforward,westillintendtostaysomewhataspertheschedulethatwehad




showedinourlastpresentation.Wearejustseeingalittlemoreopportunityheretogetalittlebitaheadofthegame.


Sothisisaworkinginterestissue[inaudible]Vickiintermsofsubsequentwellsfromherehavingalowerworkinginterest.Maybeyoucouldgiveusanideaofwhat[inaudible]interestin.

Thanks.

VickiHollub(EVP):

Well,wekindofgaveyouanindicationontheslideinthepresentationthatfortheMidlandBasin,generallyspeaking,ourworkinginterestiscloseto92%overallandthentheDelawareBasinaround76%generallyspeaking.


Okay.Thanksforthat.

Steve,myfollow-upisreally--Irealizewe'regoingtohavetowaitonthecapitaltotheendoftheyear,butjustasanorderofmagnitude,Iwonderedifyoucouldhelp,givenallthemovingpartsofCaliforniagone,BridgeTexandAlHosnlargelydone.

AndwhatI'mreallytryingtogetatishowyouthinkaboutbalancingspendingwiththedividendasopposedtoassetmonetizationfundingthebuyback.Howshouldwethinkaboutdividendpolicyandmaybeabroadscaleofspendingfornextyearifyoucould?

Thankyou.

SteveChazen(CEO):

It'shardtodothebudgetrightnow,becausethere'sanumberofmovingparts,andwehavetotalkwithourpartnersintheMiddleEastaboutthesizeoftheprogramthere,andI'djustassumenottelegraphourthoughtsrightnow.

ButIthinkourPermianprogram,certainlyforthefirsthalfoftheyear,willbewhatwetoldpeopleitwouldbe.Idon'texpectanyrealchangeinthat.

Someoftheotherstuffmaybetweakedalittlebit,andsomeoftheotherprograms.Wejustdon'tknow.

Butasfarasthedividendsareconcerned,Ithinkyougobacktotheslidewe'veonlyshownforIwanttosay10years,butIthinkChrisisshakinghisheadthatit'smore.

Itsaysaftermaintenancecapital,whichismakingthecompanysafe,thenextlineisdividendsbeforegrowth.Andsoweviewourcommitmenttotheshareholdersondividendstobepartofouroverallcommitment.

Howmuchexactlyyou'regoingtoraisethedividendbyremainstobeseen,andthere'sobviouslyalittleconfusionwiththeloweroilprices.

ButIthink--Idon'tthink--we'veraisedthedividendsIthinkforadozenyears.Idon'tthinkwe'regoingtobreakthesteamnextyear,andsoIassumethedividendswillgoup.

We'vegotalotofcashandalotofprojectstofundalmostanythingwewanttodo.AndsoIdon'tthinkanybodyshouldbeconcerned.




Ithinkwearefocusedonmakingsurethatthedrillingprogramdeliverstheresultsit'ssupposedtodeliver.Ifitdeliverstheresultsit'ssupposedtodeliver,there' llbeplentyofmoneyoverthenexttwoorthreeyearsfordividends--dividendgrowth,continueddividendgrowthandsharereductionandlotsofgrowthinthebusiness.

Soifwedelivertheresultsthatwearedoingsofarandourplansareprettymuchontarget,there' llbeplentyofcashflow,andIdon'tthinkanybodyshouldworryaboutwhereit' llbeacoupleofyearsfromnow.

Nextyear'sgoingtobeamessyyear.Yougotcomparisonsagainstthecompanywithadifferentsetofassets.Theyaregoingtohavesomesalesofthingsnextyear.

Andthesharecountisgoingtobereallyconfusing.Forexample,theproformaisnow,forthisyear--usetheaveragesharesoutstandingfortheyeartodotheEPScalculation,whichisalotmorethanthesharesoutstandingrightnow,nevermindattheendoftheyear.

Soalotofconfusingnumbersoverthenextyear,butIthinkifyoufocus--ifIwerelookingatthecompany,IwouldfocusonourprograminPermianResourcesandourcashgenerationintherestofthebusiness,andwegotalotof--andIthinkwe'venowfixedtherealizationissueoutofthePermianBasinwefacedthelastthreeorfouryears.

Unfortunatelywemayhavefixeditforeverybodyinthebasin,butwecertainly--wefixeditforourselves,soI'mprettyoptimisticaboutwherewearenextyear.


Great.Thanksalot,Steve.

SteveChazen(CEO):

Thankyou.

Operator:

ThenextquestionwillcomefromLeoMarianiofRBC.Pleasegoahead.

LeoMariani(Analyst-RBC):

Hey,guys.

Iwaswonderingifyoucouldaddressalittlebitmorethecommentthatyouallhavemadeaboutpotentiallymoderatingactivity.Ithinkthephraseyouguysusedasisifoilpricesstayhereormovelower,andyoukindofreferredtothesecondhalfof'15.

Isthereanykindofmoregranularityyoucangivearoundthat.Irecognizethebudget'snotdoneyetandthere'smovingparts.

IknowyouhaveambitiousplanstowrapuptherigcountinthePermian.Isthereanyscenarioyoucansortofpaintwhetherornotyoustoprampingrigsinthesecondhalfoftheyear?Wouldyouactuallydroprigs?Canyoumaybejusttalkthroughthatalittlebit?

SteveChazen(CEO):

Idon'tthinkwehaveanyplanstodroprigs.Theramprateiswhatwewouldfoolwith,becausethebusinessiswecontinuetodrillwells,putthemonstream,generatecash,morecashthansomepeopleareoutlooking.

AndsoIthinkwe'llbeokay,andwecertainlyhavethefinancialflexibilitytoweatherthat.




Onalong-termbasis,wearefairlyoptimisticaboutoilprices.Overthenextyearortwo,Idon'tknow.

ButIthinkinthelong-termbasis,theindustry--despitewhatpeoplesay,theUSbusinessisnothealthy.It's$70oil,andsoIthinkhigheroilpricesareinthecardsovertime.


Okay.

AndIguessjustinthePermian,couldyouguysmaybetalktowhattypeofwellcostsyouareseeingontheMidlandsideaswellastheDelawareside?

SteveChazen(CEO):

Vickicanprobablyanswerthat.

VickiHollub(EVP):

Yeah,dependingonthedepth,intheMidlandBasinwe'reseeingwellcoststhatareinthe$7millionto$7.5millionrangeforourSouthCurtisRanchandsomeoftheareasaroundthat.

AndtheDelawareBasininTexas,we'reseeingwellcostsintheneighborhoodof$8.6millionto$8.7million,andourdrillingcostshavebeenimprovingthroughsomeofourefficiencyinitiatives,butit'sreallythecompletioncoststhataredrivingourtotalwellcostrightnow.

Whatwe'vedonerecentlyisincreasedthesizeofourfracjobs,whichisgivingusbetterproductivityandbetter--whatwethinkwillbebetterultimaterecoveries,sowhenyou'reseeinghigherwellcostsforus,it'sbecauseweareincreasingthesizeofourfracs.


That'shelpful.

Isthereanykindof,like,approximatelaterallengthyoucansortofputaroundthosewellcostsatall?

VickiHollub(EVP):

Aroundthe$8.6millionto$8.7million,that'sgenerallyalaterallengthofabout4,500through5,000,andinSouthCurtisRancharea,ourlaterallengthisaround6,100.


Okay.That'shelpful.

IntermsofyourBakkenandPiceanceassets,Iguessyouhadinyourslidesthatyouplannedtolimitcapitalthere.Couldyoutalkaboutlonger-termplansforthoseassets?

Iknowyou'dspokeninthepastaboutsomeoftheBakkenpropertiesandalsoputtingthePiceanceassetsintoaJVformaybeaneventualIPO,andIguessyoualsotalkedaboutadditionalmidstreamsaleswentmarketconditionswarrant.

Couldyoumaybejusttalkthroughstrategicallyhowyou'rethinkingaboutthoseassets?

SteveChazen(CEO):

Well,theissueintheBakkenisitsimplydoesn't--can'tcompeteforthereturnsthatarebeingearnedinthePermian.It'snotthatthey'rebadassetsoranything.It'sjustnotcompetitiveinourportfolio.



©2014TheStreet,Inc.AllRightsReserved Page18 of 26

So--andthePiceanceisallgas,andgasistoughtocompeteinthisenvironment.So--andIdon'tseeanywayof--I'mnotbullishaboutgasprices.Idon'tseeanyrealwaytochangetherelativecompetitivenessofNorthDakotaversusthePermian.

WecanmoveoiloutofthePermianbypipeline.That'samuchmoreefficientwaytomoveoilthanbytrain.

SoIjustthinkthatit's--justwillnot--forourportfolio,won'tbeabletocompete,soultimatelywe'llhavetodealwiththat.


Allright.Thatkindofappliesthateventualdisposition,Iwouldassumeatsomepoint.

SteveChazen(CEO):

Yeah.Imean,yeah.Sure.

Rightnow,it'salittlenoisy,soit'sprobablynottheperfecttimetobedoingthat.


Okay.Makessense.Thanks,guys.

SteveChazen(CEO):

Thanks.

Operator:

OurnextquestionwillcomefromEdWestlakeofCreditSuisse.Pleasegoahead.

EdWest lake (Analyst-CreditSuisse):

Yes.Goodmorning.

Anintriguingfromyouthere,Steve,justonsayingcashflowsbeingunderestimated.Imeanobviouslyoilpricesmakealotofvolatility,butmaybesomecoloronthat.Isthatbecauseyouthinkyourpromiseisgoingtobeexceededbyyourexpectationonvolumes?Doyouthinkit'sbecausecashmarginsarebeingunderestimatedasyoushifttodrillinginthePermian--isitAlHosn,orisitallthreeandsomethingelse?

SteveChazen(CEO):

GenerallyIthinkpeoplehaveunderestimatedthecashflowthat' llcomeoutoftheassets.Theybasicallytakewhatwedidthisyearandadd2%orsomethingtoitandthenadjustforprice.

TheAlHosnprojectwillcertainlyadd.There'sotherthingsthatIthink' lladd.

ButIthinkweshowyou--Ithinkinthis--there'sadifferencewithout--welookdifferentwithoutCalifornia,andwegiveyousomenumberstohelpyoumodelthat.Wedon'tknowwhattheDD&Aratewillbenextyear,becauseitdependsonreserves.

ButtheunderlyingDD&Arate,forexample,withoutCaliforniainUnitedStatesislower.

Andso--andsamethingwithoperatingcostsandotherthings,soIthinkthere's--peoplearejustsortoftakingtheoldnumbersbecausethat'sreallyalltheyhad.ButIthinkasyoulookatit,maybealittlebitmorecarefulmodelingwiththenewnumbersmightbemorehelpfulforpeople.





Okay.Great

AndthenaquestiononthePermian--ImeanobviouslyifyoulookattheMidlands,you'veoutlinedDoraRoberts,SouthCurtis,maybe.ImeanthesearesweetspotsinthenorthernMidland.Butit'snotahugeamountofacreage,butitwillbeveryproductive.

AndthenintheReevesBarillaDrawarea,yougotthisfantasticresultsagain,andthat'sobviouslyalargeracreageposition.

Sothatdrivesgrowthoverthenextfive,maybesix,seven,maybeevenlongeryears.

WhenIlookattherestofthePermianandparticularly,say,ifoilpricesdidhavealongerexcursiontothedownside,howdoyouthinkthereturnsstackup?AndI'mparticularly,say,lookingattheNewMexicoDelaware.What'sthesortofbreak-evenorpriceyouneedforgettinganacceptablereturntodrillthat?

SteveChazen(CEO):

Well,Igettotakealongerview,Iguess,becauseit'sasmallerproportionofmyage.

SoifIlookbacktwoorthreeyearsago,whatwethoughtaboutthePermianBasinandwhatwethoughtinternally--forgetwhatotherpeopleweresaying--andIlookattheprogramsthathavebeenproposednow,itdoesn'tevenlooklikethesamecompany.

AndIthinkasweprogress,wecontinuetofindnewthingsthatwedidn'tthinkofbeforethatwilladdconsiderably.

Ithinkthebusiness--ultimatelyifoilpricesstayedlow--whateveryouwanttocallthecurrentpriceoratthislevelorlower--forextendedperiodoftime,marginshistoricallyhaveadjustedbythereductionofservicecosts.

Youarenotgoingtogetanenvironmentwhereoilpricesstayat,say,$75orwhateveryouthinkforfourorfiveyearsandservicecostsaregoingtobethesame.Itjustisn'tgoingtowork.

Andsopartofthegainsharingandlosssharingherewillbefrombothparties.Soallthemoneyisn'tjustgoingtogointoservicecompanycoffersandwe'regoingtoworkforfree.AndIdon't--notjustwebuteverybody.

SoIthinkintheend,itwillequilibrateandwillgenerateacceptablereturns.

Wethinkthere'salotofeconomicoilat$75,economicmeaningthatweearn15%,16%,17%returns.

DoIthinkthere'salotofeconomicoilat$50?No,Idon't.Andsomewereinthatrange,butitalsodependsonservicecosts.

Andso--butifoilpricesgobackto$100orwhateveragain,servicecostswillreboundwiththat.

SoIjustthinkthatthisthingwilltake--workitselfoutoveraoneortwoyearperiod.

AndI'm--Ihatetosaythiswaybutsortof--Ilookforwardtoalittlestressandsomeofthecrazystuffsortofgoesawayforawhile,andthatgivessortofrationalpeopleanopportunity


Andthenafinalquestionjustonthe2015productionoutlook--that'sforhelpful--8%to10%,andyoucan




seeobviouslythegradesconservationfromAlHosn,whichwillprobablystillhavealittlebitoftailendcontributionmaybeevenin'16aswell.

Doyou--Imean,andobviouslyreducingactivityintheMid-con,doyouthinkthePermian--itseemsfromthewellresultsandtheactivitylevel,doyouthinkthePermiancanprovideanoffsettokeepthatproductiongrowthsortofatasimilarpacein2016,ordoesitjustnaturallyslowasAlHosncomesdown?

SteveChazen(CEO):

AlHosnwon't--well,AlHosnwillbeeventuallyflattened.

ButIthinkatAlHosn,Ithinkit'spossiblethatoverthenextfewyears,theplantislargerthanitneedstobeforthedelivergas.Andso--andthecountrycontinuestoneedgasthereandtheresultingliquids,ofcourse.

SoIthinkovertime,there' llbeanexpansionprobably--it'sreallyuptothelocalgovernment--andsothere' llbe--AlHosnisnotthrough.

SoIthinkaswelookat'17and'18and'19,we'llseemoregrowthoutofAlHosn.Atsomepoint,it' llleveloff.That'strue.

ButIthinkit' llcontinuetogrowand--becauseonceyou'vespentofbasemoney,theincrementalcapwillhavereallygoodreturns,Ithink.

SoIthinkthat' lldobetter.IthinkthePermianresourcebusinesshasthepotentialtocover--tocontinuetogrowandmaybegrowbettergoingforwardasweworkthroughsomeofthehistoricalissues.

SoIthinkwe'vegotmoreacreageandmorewillproveup.TheBarillaDrawdidn'treallyexistayearago.Imean,thelanddid,buttheconceptdidn'texist.

AndsoIthinkthere'salotofgoodconceptsoutthere.Somewillworkandsomewon't,andsomeare,Ithink,over-promotedbysome.Butit'shardtoimaginethaton100,000acres,you'regoingtohave4billionbarrelsofreserves.

ButIthinkrationalexpectationsaregoodforthebaseline.IthinkPermianBasinisthebestbasinintheUnitedStatesandwillbeforthenext20or25years.


Thanksverymuch.

SteveChazen(CEO):

Thanks.

Operator:

ThenextquestionwillcomefromJeffreyCampbell,TuohyBrothersInvestmentresearch.Pleasegoahead.

Jef f reyCampbell(Analyst-TuohyBrothersInvestmentResearch):

Goodmorning.

FirstquestionIwantedtoaskreferstoslide27,theSCR3526-HSpraberrywell.Istheearlyshallowdeclineconsistentwithyourexpectations,anddoesthisearlypositiveresulthaveanyinfluenceoveryourSpraberryappraisalplansgoingforward?

VickiHollub(EVP):




Yeah,we'restillevaluatingtheSouthCurtisRanch3526,andtheshallowdeclineonthatissofargoodnewsforus.Butwestillwanttoseealittlemoreproductiondatafromthattodeterminewhat'scausingthat.


Great.Thankyou.

Andjustasabroaderquestion,justlookingatyourplanasit'sunfoldedinthePermianoverthelastseveralquarters,itdoesn'treallyappeartoencompassestheCentralBasinplatformwheresomepeershavedrilledsomenoteworthyhorizontalwells,Iwaswonderingifyouhaveanyhorizontalexplorationpotentialinthatarea.

VickiHollub(EVP):

WefeellikewehavealotofpotentialintheCentralBasinplatform,andthat'sjustoneoftheareasthatwehaveyettogetto.

We'reworkingonafairlystructuredplanto--withrespecttoourexploration,ourappraisal,andourdevelopmentprograms.

Andsowhatweshowedyouontheslidethathasthebreakoutofthezonesthatarecurrentlyunderappraisalandcurrentlyunderdevelopment,thatlistdoesnotincludewhatwe'redoingfromanexplorationstandpoint.

Soourexplorationgroupis--oneoftheirkeyareastofocusonoverthenextcoupleyearswillbetheCentralBasinplatformwherewedohavesignificantacreageandwethinkthereisalotofpotentialthere.Soitjusthasn'tgotteninthequeueyet,butit'ssomethingthatwe'reoptimisticabout.


It'saniceproblemtohave.Thanksverymuch.

Operator:

OurnextquestionwillcomefromRogerReadofWellsFargo.Pleasegoahead.

RogerRead(Analyst-WellsFargo):

Thankyou.Goodmorning.HopefullyI'mon.

Anyway,quickquestionontheOpExside,acoupleyearsagostartedanOpExreductionefforts.Obviouslyitwassuccessful.

ThistimearoundtalkingaboutOpEx,andthenlastnightonthecallwiththeCRC,theytalkedabouthighergasprices.

Iwaswonderingex-CaliforniaifyoucouldwalkusthroughwhatsortoftheOpExissuesarehereandhowmuchofthatisduemaybetojusttemporarygaspriceincreasesandhowmuchofitisafunctionofmaybechangesinwhatyou'redoinginthePermianResourcesarea.

SteveChazen(CEO):

JustasyoulookatOpEx,Ithinkthere'stwo--there'sthecostofenergy,whichisburiedinOpEx,becauseweusealotofelectricity.Torunpumpsandsuch.

Andsosomeofthat'sinenergy,andsomeofitisinthe--basicallydrivenbytheEORbusiness,whichuses-




-wherethegas,theCO2wastiedtooilprice,andtheyusealittlemoreCO2andexpensethat.Itlooks--showsupasanoperatingcost.

Andsomeofitis--weincreasedtheworkoveractivityprincipallyintheEORbusiness,sowhenyoulookatournumbersforoperatingcostintheUnitedStates,thedriver--theoverwhelmingdriveristheEORbusiness,whichisbasicallyalowcapitalbusinessbutalittlehigheroperatingcostbusinessthan,say,theresourcesbusiness,whichisahighcapitalbusinessandalowoperatingcostbusiness.

SowhatyouseeisasweputmoreCO2intheground,aswetrytorepairthewells,yougetmoreoperatingcost.Andwetrytooptimizethat,andwhatwelookatisthebase--theunderlyingoperatingcost,notsomuchwhatweredoingfromquartertoquarter.Wecan'tdoanythingaboutCO2pricesoranythinglikethat.

SoIthinkit'samixofthings,butthedriverforoperatingcostfortheOxyexcludingCaliforniaistheEORbusiness,whichisalargebusinessandit'sprincipalexpensesarenotcapitalbutratheroperatingcosts,soitjustlooksalittledifferentthanyoumightbeusedto.


SowithCalifornia,it'ssoontobegone.

SteveChazen(CEO):

Weactuallyshowyousomewhere--Chris?


Yeah,wegaveyouaproformaslidetableintheIRschedulesthatshowsproformawithoutCaliforniaandtheHugotonforcashoperatingcost,DD&Aandsomeothermetricsandalsoproduction,soyousortofcangobackandmodelitoffofthat.You'llseewhathappenedoverthatperiodoftime.


Okay.Willdothat.

AndthentheotherquestionIhadwasalongthelinesofcatchinguponthewellcompletionsandtheadditionofthefracspreadsinWestTexas.

Anychanceforupsideperformanceintermsofproductionthererelativetotheguidance,oristhatallfullyincorporatedinthenumbers?

VickiHollub(EVP):

Thatisincorporatedinourprojectionsforproduction,sowedoexpecttocatchup,andwe'veaccountedforthat.

SteveChazen(CEO):

Ithinkwhathe'saskingishavewebeenconservativeinthenumberornot?

VickiHollub(EVP):

I'dsaythatthat--basedontheperformancewe'veseenthusfar,I'dsaythat'sofconservativenumberactually.It'sanachievablenumber.


Okay.That'sforhelpful.Thankyou.




Operator:

AndourfinalquestionwillcomefromPaulSankeyofWolfeResearch.Pleasegoahead.

PaulSankey(Analyst-WolfeResearch):

Thankyou.Goodmorning.

SteveChazen(CEO):

Goodmorning,orwhateveritis.


Yeah,afternoon,Iguess.

Acoupleofhigh-levelstrategicquestions.

Firstly,doyouthinkyou'vebeenbehindtechnicallyinthePermian?Dothinkyoucangetahead,anddoyouthinkanykindoftechnicaladvantageissustainableinUSunconventionalgiventhecommoditizationoftheactivity?

SteveChazen(CEO):

We'llstartwith--yeah,we'rebehind.

Ithinksomewhatearlier,IsaidifIlookatwhatthepresentationsinternallyweretwoyearsagoandIlookatthequalityandthedetailofthecurrentpresentationsfornextyear'sprogram,itdoesn'tevenlooklikethesamecompany.

SoIthinkwe'vemadealotofprogress.Weareblessedwithgoodacreage,whichcompensateforwhatevertosomeextent.

SoIdon'tthinkit's--Idon'tthinkthere'smuch--Ithink--Ialwaysbelievethatit'stheacreageorthereservoirthatoverwhelmsovertime.Technologyspreadsquickly.

SoIdon'tthinkthere'ssome--there'snosecretsaucethatlastsverylong.SoIthinkasapracticalmatter,we--Ithinkwe'rewhereweneedtobeintechnology.

There'salwaysgoingtobeimprovement.Whetheryouhaverelativeimprovementagainstotherpeople,Idon'tknow.Butovertime,thetechnologyspreadsveryquickly,andso--becauseweseelotsofwells,soit'snotreallysomethingthat'shiddenfromus.

SoIthinkwhereweneedtobefromaskillsetrightatthispoint.Wewerebehind.There'snoargumentaboutthat.

Butwearefortunatethatwehaveanexceptionalacreageposition,which--intheend,thereservoirsmatter.


Iguesstheargumenttherewouldbethatyouwereinearly,relativelyspeaking,andpaidless,butaboveall,theearlyallowedyoutogetthebetteracreage?

Isthereanyotherproved,bytheway,thatyouhavebetteracreage?Howcanweshowthat?

SteveChazen(CEO):




MaybeVickicantellyouaboutthat.

VickiHollub(EVP):

I'dliketobuildonSteve'scommentswithrespecttoyourfirstquestion,initially.

TechnicallywehaveteamsherewithOxythatIthinkcouldcompeteorbeatanyotherteamsinthePermianBasinatthistime.

Fromasuccessstandpointintheunconditionalplays,oneofthecriticalthingsistounderstandwhatthereservoirisandwhatthereservoir'stellingyou.

Wedon'tbelievethattheseplaysshouldbecalledstatisticalplays.Wethinkthatyou'vereallygottounderstandwhatthereservoiris,andbasedonwhatthereservoiris,youdesignyourcompletionsandyourfracjob.

AndIthinkrightnow,we'reprobablyone,ifnottheonlycompany--oneofthefewcompaniesthat'sactuallytakenahorizontalcoreandalongwithourverticalcores--our3Dseismic,ourmicroseismic,andalltheadditionalworkthatwe'redoingaroundreservoircharacterization,Ithinknobodyinthebasinisanyfurtheralongthanwearewithrespecttothat.

ButIthinkwiththatsaid,theindustryasawholestillhasalottolearn.We'reallveryearlyinthis--inthedevelopmentoftheseunconventionalplaysinthePermian.

SoIstillthinkthatwe'regoingtocontinuetolearn,technologywillcontinuetoadvance,andIthinkthatasitdoes,Iexpectovertimeforcoststocomedownon--atleastfromthedrillingstandpointandpossiblyfromthecompletionstandpoint.

We'vegotsomeplansinplaceoverthenextsixmonthstodosomethingsIthinkthatcouldhavesignificantimpactonourproductivityandultimaterecoveries,butit'sjustamatterofworkingthosecoststomakesurethatthey'reeconomicforwhatwewanttodo.

AndasIsaid,technologyovertime,thecostcomesdown,andsoIthinkwewillbeabletodosomethingsthatwillcertainlyhelpsomeoftheareasthatpreviouslyhavenotbeenasgoodasourDelawareBasinarea.

SoI'msorry.NowI'veforgottenyoursecondquestion.


No,Iwasjustsayingifthere'ssomewaythatwewouldbeabletoshoweasilythatyouracreageissuperiortosomeoneelse's?

SteveChazen(CEO):

Well,we'vegotsomuchofitthatsomeofit'sgoingtobebetterandsomenot.Imean,ifyoucompareittosomebodythat'sgot100,000acresandthat'shiswholeposition,whoknows?

ButIthinkifyoulookattheoverallresultandyousaywestartedfromastandingstarttwoyearsago--andwe'llpass80,000attheendofthisquarter,andwe'llpass100,000attheend--bytheendofnextyear,forsure.

SoI--Ijustlookat--fromastandingstarttwoyearsago,we'llbeoneofthebiggestproducersinthisunconventional--innotime.ButourwholebusinesshistoricallyhadbeenanEORbusiness.

SoI--youknow,I--it'swhateveryouwanttothink,butIthinkthere'salwayssomebodywho'sgot40,000acresthat'srealgood.Thequestioniscanyouhave2millionacresthat'srealgood?




AndIthinkwe'vegotenough40,000acrepiecesthatwecancompetewithanybody.Ifwetookoneofour40,000acrepiecesor100,000acrepieces--andpeopleweresayingwhatawonderfulcompanyitis.It'sasgoodasthesnakecompanyorwhateverit'scalled.


Gotacoupleofquickones,Steve.

TheinvestmentinmidstreamissimultaneouswiththeselldownoftheGPSPlainsAllAmerican.Iassumethatmeansthatyouwouldn'tbecontinuingtowanttoowntheassets,longterm.

Andfurthertothat,doesthedeliberatenamingofPermianResources--ringsabellwithCaliforniaResources.Iwonderedifthatwasapotentialspincandidate,andI' llleaveitthere.

Thankyou.

SteveChazen(CEO):

Onthemidstream,ourgoalisto--IthinkasWilliepointedout,ourgoalistomakesurethatwegetthebestpossiblepriceforourproduct,andwearenotdisadvantaged.We'vegonethroughseveralyearsofdisadvantage.

Ifwecandothatwithoutspendingcapitaltobuildpipelines,we'rehappytodothatbycommittingforspaceandreapingtheadvantagesofowningspace.

AndsoIthinkyoushouldviewitasitspurposeisbasicallytomakesurewegetgoodpricesforoil.

Ifwecanmonetize--takebacksomeofthatcapitalsomewayandputitsomewhereelsewithhigherreturns,we'redefinitelygoingtodothat.

Asfarasthenameisconcerned,that'ssortofanaccident.Iwasn'tallthatwildabouttheCaliforniaResourcesname,butIthink--Idon'tthinkyoushouldviewitasaspinoffcandidateatthispoint.

Itneedsrightnowthecashflowfromtherestofthebusinesstoaccelerateitsdrilling.Andit'sunlikeCalifornia.Californiaactuallyisagoodbusiness.Itjust--butit'sinamaturephasewhereitcanbeself-financing.

Theresourcebusinessneedscashtogrow,andit'sjustnottherighttimetoeventhinkaboutsomethinglikethat.


Thankyouverymuch.

SteveChazen(CEO):

Thanks.

Operator:

Ladiesandgentlemen,thiswillconcludeourquestionandanswersession.

IwouldliketoturntheconferencebackovertoChrisDegnerforhisclosingremarks.





Hi.Yes.Thankyou,everyone,andpleasegiveusacallifyouhaveanyfollow-upquestions.Haveagoodday.

Operator:

Ladiesandgentlemen,theconferencehasnowconcluded.Wethankyouforattendingtoday'spresentation.Youmaynowdisconnectyourlines.

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