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F500-2021-183-Occidental Petroleum

Also known as "Oxy," Occidental Petroleum is an international oil producer and petrochemical manufacturer.

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F500-2020-148-Occidental-Petroleum

The oil and gas exploration and production company is headquartered in Houston.

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Global business is back. After limping through a worldwide financial crisis and economic slowdown, the 500 largest companies ranked by revenues shattered all sorts of performance records in 2013: They racked up combined revenues of $31.1 trillion, up 2.5% from 2012, and profits soared 27% to nearly $2 trillion. China’s 95 companies (up from 89 last year) posted $5.8 trillion in revenues. The U.S. has four fewer companies on the list than last year but remains (for now) the country leader, with 128 corporations on the list—including No. 1 Wal-Mart Stores—reporting $8.6 trillion in revenues. 

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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One of the largest oil and gas producers in the U.S., Houston-based Occidental Petroleum is so much more. While the heart of Oxy’s business lies in the Permian Basin in West Texas and New Mexico, Oxy also churns out volumes from the Gulf of Mexico, the Rockies, and internationally in Oman, Algeria, and the United Arab Emirates. Oxy recently doubled down on the Permian with the $12 billion acquisition of CrownRock. But the 105-year-old company is also focused on petrochemicals with its OxyChem business, and it is branching out heavily into the energy transition. By the end of 2025, Oxy will have launched the world’s largest direct air capture facility, in West Texas, designed to literally suck CO2 out of the sky.

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Occidental Petroleum (OXY): Company Profile, Stock Price, News, Rankings

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Occidental Petroleum

occidental petroleum

Good afternoon, and welcome to Occidental's second quarter 2026 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Babatunde Cole, Vice President of Investor Relations. Please go ahead.

All right. Thank you, Gary, and good afternoon, everyone, and thank you for participating in Occidental's second quarter 2026 earnings conference call. On the call with us today are Richard Jackson, President and Chief Executive Officer, Sunil Mathew, Senior Vice President and Chief Financial Officer, and Ken Dillon, Senior Vice President and President, International Oil and Gas Operations. This afternoon, we will refer to slides available on the Investors section of our website.

The presentation includes a cautionary statement on Slide two regarding forward-looking statements that will be made on this call this afternoon. We will 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 will now turn the call over to Richard.

Okay. Thank you, Babatunde, and thank you all for joining us today. Last quarter, as I started into my new role, I shared our focus looking forward was on execution and delivery from our advantaged resource position. The last few months have been productive, and we continue to deliver strong 2026 results. We were also able to advance our plans for sustainable cash flow growth, and I look forward to sharing updates on both with you today. To start, I want to frame simply how we think about our approach to value. For us, creating value is measured by our ability to increase both the return on and the return of capital through the cycle.

To ensure we are centered on fundamentals to deliver this value, we are focused on four priorities: executing from a strong balance sheet, organically improving our resources, continuing to drive cost efficiencies, and generating differentiated cash flow. This year, we are making strong progress on each. We have already reduced our principal debt to $11.8 billion. Our accelerated debt reduction lowers our go-forward annualized interest by approximately $630 million compared to 2025 interest payments. This structural savings helped enable an additional 8% increase to the quarterly dividend this year, as approved by our board and announced yesterday. We also remain on track with our 2026 cost savings targets, while operational efficiencies delivered another production beat in the second quarter.

Taken together, we expect to deliver more than the targeted $1.2 billion of free cash flow improvement for this year before the impact of higher oil prices. Looking ahead, we see a clear pathway to add over $4 billion of annual sustainable cash flow by 2030. This represents an approximate 95% annualized growth compared to 2025. Importantly, this increase is driven by durable improvements across the business, including lower cost, lower sustaining capital, and a stronger balance sheet.

Additionally, we can deliver this cash flow without increasing production and can expect approximately 85% to be achieved at even much lower prices. While production growth is not required, our quality resources and execution efficiency provide opportunities for measured growth that could further improve cash flow. Our ability to deliver on this plan is grounded in organic development.

We believe our advantaged resources, advanced resource recovery capability, and a value-based development approach are three areas that provide a differentiated capability to achieve our value plans. Today, our resources total 16.5 billion BOE and are well understood and balanced, providing more than a 30-year low-cost development runway across conventional and unconventional assets. Approximately 88% of our resources are domestic and are complemented by a select set of international assets with strong partnerships, resilient free cash flow, and future upside opportunities.

Advanced recovery is another area that plays a central role in our plans. Over the last few years, Oxy has continued to build a differentiated capability to improve resource recovery and unlock more value from the subsurface with demonstrated results. Today, we're applying those capabilities across conventional and unconventional assets to support additional low-cost resource recovery and lower future decline rates.

In our plans, we are advancing opportunities across unconventional, enhanced oil recovery, and Gulf of America waterflood developments, and in exploration opportunities where our advanced recovery capabilities can add value. As important is our approach to development. We have continued to refine our integrated value-based approach that combines subsurface characterization, technology, infrastructure, and operational considerations into long-term field development plans.

By combining these important elements, we're able to optimize designs and sequencings to improve recovery and full cycle returns. Our approach is unique by basin, asset area, and often individual well, which has led to our top-tier capital efficiency in our U.S. unconventional developments. We see similar improvements with this approach across all of our operations. Additionally, we seek to integrate advancing technologies and partnerships around our key areas of CO2, power, water, and AI to further improve our results.

Together, these advantages position us well to deliver our $4 billion in incremental sustainable cash flow by 2030. As we look to the future, we believe these will further differentiate our ability to drive value. To go further into the specifics of our sustainable cash flow growth. We note four areas of improvement with several milestones to mark our progress. First, we will continue to improve capital efficiency and reduce costs across the business.

Over the last several years, our teams have consistently reduced costs to deliver more than $2 billion in savings since 2023. We are on track for this year's targets and expect to further extend our savings by 2030. We have clear initiatives underway with new milestones, including U.S. onshore, new well cost reductions, lower domestic LOE and transportation costs, and improving workforce efficiency through simplification and technology deployment.

Second, we expect lower sustaining capital by $900 million through continued improvements in capital efficiency and from a lower total Oxy base decline. This base decline improvement is driven by our advanced recovery projects, which are expected to support a decline rate reduction from approximately 25%-20% by 2030. Third, we will continue to see the benefit from corporate savings as we further strengthen the balance sheet.

Continued debt reduction is expected to lower principal debt to a $10 billion milestone and reduce annual interest expense by roughly $740 million compared to last year. Additional savings from the redemption of our preferred equity also contribute to our corporate savings milestone. Finally, we will see a reduction in low-carbon ventures capital spending. With Stratos moving from development to operations, approximately $400 million of LCV capital will fully roll off beginning next year.

At Stratos, we're making good progress on the non-technology-related repair and commissionings of Trains 3 and 4. Based on our current outlook, we expect full plant commissioning to begin around the end of the year as we transition to operations in 2027. Altogether, our team has done an outstanding job building our sustainable cash flow improvement plan. They have taken a bottoms-up approach, identifying and now executing many detailed projects and initiatives to drive our organic improvement.

We see this as a new baseline, with opportunities to add and accelerate value as we go beyond our milestones. Additionally, continued portfolio optimization, measured and efficiency-led growth, and stronger oil and gas prices can all further increase our cash flow beyond the baseline that we are sharing today. In addition to our significant cash flow inflection, we know it's important to execute from clear and disciplined allocation priorities.

We recognize market and operational conditions will continue to evolve, and believe these priorities, with the right considerations, enable us to improve value through cycles. We begin with a clear set of foundational priorities that are designed to support a stronger business and return of capital capability. Beyond that, we have subsequent opportunities to further add value.

These include debt reduction, the redemption of our preferred equity, opportunistic share repurchases, and disciplined investment in opportunities that can improve sustainable cash flow and returns. As we consider future reinvestment for growth, we appreciate we have a deep inventory of advantaged, well-understood resources for low-cost development. However, when we invest for growth, we want to be thoughtful. Simply put, it must be measured, efficiency-led, and clearly value additive. There are multiple considerations to help guide our decisions to deliver and improve our baseline plans.

Ultimately, our plans are set to build a fundamentally stronger business where we can sustain production at lower oil prices with a sustainable and growing dividend. At higher prices, we have opportunities to add further value both for the business and our shareholders. I'll now turn briefly to second quarter highlights. Our teams have delivered another strong quarter operationally and financially. Production exceeded the high end of guidance, reflecting strong operational performance across our assets.

In midstream and marketing, adjusted pre-tax income exceeded the segment's previous record performance. We also generated approximately $3 billion of free cash flow during the quarter, our highest level since the third quarter of 2022. Across the business, execution remains strong to deliver in 2026 and to progress our new plans. Through a relentless focus on efficiency, we're continuing to outperform.

The consistency of these results continue to reflect the quality of our team and the strength of our assets. I'll now turn the call over to Sunil to discuss the financials.

Thank you, Richard. In the second quarter, we generated adjusted earnings of $2.40 per diluted share and reported earnings of $2.75 per diluted share. The difference was largely driven by mark-to-market gains in marketing and crude hedges, along with a dilution gain in equity investment income.

Strong operational execution and cost discipline, combined with higher commodity prices, resulted in approximately $3 billion of free cash flow before working capital. This is our highest quarterly free cash flow since the third quarter of 2022, which included OxyChem. We ended the quarter with approximately $4.2 billion of unrestricted cash, giving us additional flexibility as we continue to advance our cash flow priorities. As Richard discussed, Oxy continued its track record of strong operational performance.

Total production for the quarter averaged 1.43 million BOE per day, exceeding the midpoint of guidance by 23,000 BOE per day. Domestic outperformance was driven by strong base and new well performance in the Permian and higher uptime in the Gulf of America, which more than offset lower international volumes due to Middle East disruptions. We also continue to execute on our cost efficiency targets.

Domestic lease operating expense was $7.80 per BOE, a 6% improvement versus guidance, supported by higher production across our domestic assets and maintenance schedule optimization in the Gulf of America. Midstream and marketing outperformed in the quarter, setting a new quarterly record with adjusted earnings of approximately $960 million, which was more than double the midpoint of guidance.

This was driven by gas marketing optimization, strong accrued marketing margins due to timing of cargo sales and fluctuations in commodity prices, and higher sulfur prices at Al Hosn, partially offset by lower sulfur sales. Let's turn to the balance sheet. We have continued to make significant progress on de-leveraging. Since our last call, we reduced principal debt by $1.5 billion to $11.8 billion, the lowest level since the second quarter of 2019.

This brings our go-forward annual interest run rate to approximately $760 million, which is approximately $630 million lower than our interest payment in 2025. Net principal debt is now $7.6 billion, reflecting the $4.2 billion of cash we have built. This progress highlights the strength and durability of our free cash flow and our continued commitment to disciplined capital allocation.

Near-term debt maturities remain low, with only $414 million due through the end of 2029. This provides meaningful support through periods of market volatility and gives us flexibility as we continue to strengthen the balance sheet and prepare for the preferred redemption in 2029. Our continued progress on deleveraging and structural cost improvements has strengthened the balance sheet and improved financial flexibility, supporting the board's approval to raise the quarterly dividend by 8% to $0.28 per share.

As previously shared, our immediate cash flow priority remains to reduce principal debt to $10 billion. After we achieve the $10 billion principal debt milestone, our focus will be to further reduce net debt. We will balance additional principal debt reduction with building cash ahead of the preferred equity redemption in August 2029, taking into account the macro environment.

Share repurchase actions will remain opportunistic, any continuous share buyback program will be a lower priority until the redemption of the preferred. Any increase in reinvestment would be measured and efficiency-led, supported by clear macro conditions. Richard spoke earlier about the work underway to improve cash flow and the sustainability of that progress.

By 2030, we expect to deliver $4 billion of annual sustainable cash flow improvement relative to 2025. In oil and gas, this will be driven primarily by cost efficiencies and reduced sustaining capital, resulting from a lower decline rate. The oil and gas efficiencies targeted beyond 2026 largely reflect our ongoing expansion of cost savings initiatives. The remaining cash flow improvement will come from midstream savings, a reduction in LCV capital, and corporate cost savings.

These are largely structural improvements across the business that should expand margins, strengthen resilience, and further differentiate Oxy's ability to generate durable leading cash flow over time. Importantly, approximately 85% of the improvements are expected to be delivered even at lower prices, reflecting the durability of the underlying operational improvements, rather than reliance on higher oil prices.

Turning to guidance, we expect the second half of the year to reflect continued operational momentum. For the third quarter, we expect production to range between 1.4 million-1.44 million BOE per day, supported by the strength of our U.S. onshore program and continued execution across the portfolio. In the Permian, production is expected to increase, adjusted for a non-recurring second quarter production uplift, supported by higher activity and resilient base performance. In the Rockies, third quarter volumes are expected to decline as a result of activity timing.

In the Gulf of America, a planned shift in maintenance timing, along with a weather contingency, is expected to impact third quarter production. Internationally, we anticipate normalized volumes while recognizing the situation in the Middle East is fluid. For the full year, we are raising total company production guidance. A stronger outlook for new well and base performance across our domestic assets is expected to offset marginally lower international volumes.

For domestic lease operating expense, we expect third quarter costs to be $8.75 per BOE, reflecting the planned shift in maintenance activity and weather contingency in the Gulf of America. For the full year, we are maintaining domestic lease operating expense guidance of $8.10 per BOE, with efficiency gains and disciplined cost management helping to offset increasing CO2 cost pressure related to higher oil prices.

In midstream and marketing, we expect third quarter income to decline as the Waha to Gulf Coast natural gas spread narrows. While the narrowing spread reduces midstream income, the impact is expected to be largely offset by stronger upstream gas realizations. Given the segment's strong year-to-date performance, we have increased full-year guidance by $300 million. We remain well-positioned to capture commercial opportunities as market conditions develop.

On capital, the program remains aligned with our full-year plan, with weighting towards the first half of the year. We are maintaining our full-year capital guidance range of $5.5 billion-$5.9 billion. Looking to 2027, as we mentioned in the previous calls, our starting point for capital spending is expected to be $5.9 billion. That level includes mid-cycle projects that help reduce base decline and sustaining capital over time. At that level of investment, you can assume relatively flat production in line with 2026.

In summary, we believe Oxy remains extremely well-positioned to deliver durable value and through-the-cycle returns. In a highly dynamic macro environment, our outlook is supported by a stronger balance sheet, a more efficient cost structure, and a portfolio that gives us flexibility across price environments.

Our U.S. onshore assets provide short-cycle optionality, while our lower decline mid-cycle investments in the rest of our portfolio support cash flow durability over time. We will continue to allocate capital with discipline, prioritize debt reduction, and preserve the ability to return additional capital as we make progress on our cash flow priorities. I will now turn the call back over to Richard.

Thank you, Sunil. Before we open it up for questions, I'd like to thank our employees around the world for their dedication and their commitment to excellence. Special thanks to our Middle East teams and our partners for their resilience and teamwork as we continue to support each other across the region. The work we're doing across the business is making Oxy stronger.

The benefits of a stronger balance sheet, improving cost efficiency, and lowering sustaining capital continue to build a significant value inflection ahead of us. I'm encouraged by the progress we've made and believe our best results lie ahead as we execute our plans. With that, let's open it up for questions. As a reminder, we have Ken and Babatunde here with us today for Q&A.

We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Please limit questions to one primary question and one follow-up. If you have further questions, you may reenter the question queue. At this time, we will pause momentarily to assemble our roster. The first question comes from Nitin Kumar with Mizuho. Please go ahead.

Hi. Good afternoon, Richard and Sunil. Thanks for taking my question. Certainly a big day for Oxy with this cash flow improvement plan. I want to focus on slide six and two aspects. First, could you talk through the ratability and progression of the cash flow inflection? Some of the initiatives that you mentioned are already in flight. Just wondering how we should think about how quickly you could get to the end goal. The second piece was just, you briefly mentioned the oil and gas efficiencies, but if you could maybe unpack that a little bit more.

Yeah. Appreciate the question. I'm going to start to just frame a little bit. Sunil is prepared to go into some of the details and timing as this. I know that's important. I think I just wanted to say in the top, the way we're looking at it, this sustainable cash flow, we think is important. It really drives the fundamentals of the business. If you think about the levers we have, you increase cash from operations, driving the cost efficiency, the productivity of what we do.

Really, then the focus on the sustaining capital both from a new well cost and then, as we're highlighting and believe not only our assets, but our capabilities drive those advanced recovery. That really delivers the available cash to then couple with good cash flow priorities to drive value.

As we think about it going forward, we feel like this is a durable framework that we continue. Hopefully, we're being clear in terms of the cash flow priorities. As Sunil said, it really is focused for through the cycle. This capability really drives sustainable production dividend, which we were able to make this increase this quarter. At higher prices, it's being thoughtful about where we allocate the cash.

Maybe the last point I'll say before we get to the timing is just, we recognize too, a bit of this is free cash flow focused. We are able to make these incremental mid-cycle low decline investments, but this preference towards allocating cash to net debt was an important thing to get out.

Again, driven by structural improvements, driven by things like oil and gas efficiencies, and the teams are really lined up to get behind it and drive these results. Turn it over to timing person, Sunil.

Thanks, Richard. Hi, Nitin. In terms of timing, as Richard said, we are currently on track to achieve the greater than $1.2 billion of cash flow improvement in 2026 relative to 2025, which we had outlined earlier this year. Looking at 2027 sustainable cash flow improvement relative to 2026, a couple of items to highlight.

One is on the midstream side, there is the roll-off of Stratos capital that's around $200 million. On the corporate side, it's mostly around interest expense savings. Once we get our principal debt down to $10 billion, our go-forward interest rate is approximately around $650 million.

From an interest savings point of view relative to 2025, that's around $740 million, of which we expect to recognize around $400 million in 2025, and the additional $340 million, the $400 in 2026 and the remaining $340 in 2027. That is purely a function of timing as to when we do the debt repayments. The other thing I want to also mention is we've assumed a $10 billion principal to debt as just a milestone, and that's what we've assumed in terms of the expected interest savings for this cash flow improvement. We are likely to lean towards more principal debt reduction if the macro is supportive to reduce that net debt.

Talking about oil and gas, like Richard said, it's largely a continuation of our operating efficiencies we have seen in 2026, both on the CapEx and OpEx side. The teams are still working through the 2027 plan and incorporating some of the expected benefits.

Cannot give a specific number at this point, but considering the roll-off of LCV capital, the expected interest savings once we get our principal debt down to $10 billion, and some of the expected oil and gas savings, it's going to be around $700 million-$800 million in 2027 relative to 2026. Between '26 and '27, it's going to be around $2 billion, which is approximately or close to 50% of the $4 billion savings.

As you think beyond 2027, there is $700 million of the preferred redemption in August 2029, and that leaves around $1.3 billion, which we expect to achieve between 2028 and 2029.

sounds like it's a pretty readable program, perhaps a little bit front-end loaded if you take out the preferred redemption. As my follow-up, I like the term efficiency-led growth that you and Richard mentioned. Could you help us unpack that a little bit? The macro environment is obviously very supportive right now, and with this improved cash flow, you have a better ability to lean into growth. How are you thinking about growth right now for 2027 and maybe the longer-term?

Yeah, no, appreciate that follow-up. Again, a bit biased to free cash flow in the near term just to achieve, feel like that allocation gives us the most direct path to value. efficiency-led growth means a few things. One, we continue to drive efficiency this year, in terms of outperforming. We were in the U.S., our production has fully offset the disruptions of our production in the Middle East. we want to continue to challenge our teams to do that.

we wanted to list considerations on that slide six to just think through a few things. Clearly returns, you got to start there if you think about a reinvestment. things like cost efficiency, we want to continue to see the cost efficiency that we've seen and that we're now outlooking.

we'll be thoughtful that any additional activity changes, whether that's growth or not, is maintaining that capital efficiency. The free cash flow timing is important, especially in the near term. as we think about constructing the short cycle and mid-cycle projects, we want to see those work together. Decline rate is important. again, the timing of the cash flow also comes with a decline rate. balancing that so that we're hitting that milestone important.

We continue to advance technology, things like our unconventional EOR. you want to time those sort of investments to fit that. just macro, obviously got a lot of volatility at the moment, and making sure, especially as we're making more mid-cycle type investments, we want to be very thoughtful that we have a firm understanding of what those scenarios look like.

all of those mean something. We've also run internal scenarios and maybe Sunil can provide a little color there.

Yeah. As Richard mentioned in his prepared remarks, this was a true bottoms-up submission in terms of a long-term plan, and we looked at multiple scenarios. What we have outlined today is sort of a sustaining CapEx scenario, which is without any production growth.

We also looked at a moderate growth scenario where you're looking at a production CAGR of around 2%. What we saw was with the balanced investment between short cycle and mid-cycle investments, our free cash flow improvement was actually better than what we have outlined today by the time we got to 2030. Like Richard said, this is our baseline plan, and we're looking at options as to how we can accelerate and improve on our baseline plan.

The next question is from Doug Leggate with Wolfe Research. Please go ahead.

Well, good morning, guys. Richard, you and Sunil have worked together for a very, very long time. It's really fascinating to see what you've come up with as a leadership team here, and I've got two specific questions, if I may. The first one is, Sunil made a very clear statement, I think, that buybacks will take a secondary place to the preferred redemption. The implication then is that your net debt will continue to drop.

You'll have to build cash to redeem the pref. Is that the right interpretation of that comment? Is my first question. My second question, if I may, is, a big part of your free cash flow inflection, aside from the pref, is the decline in sustaining capital. I just wonder if you could walk through some of the moving parts.

I'm thinking obviously you've got steam flood, you've got the EOR. You've also got the CO2 huff and puff in the unconventional. Just walk us through how you get that sustaining capital down as low as you're planning. Thank you.

Great. I'm going to start briefly because I think we may share this answer. Yeah, it is good to work with Sunil for a long time. Certainly from a cash flow priority, I think you're seeing it right. Preference is net debt. Again, feel like at this time, that allocation provides the clearest path to increased value.

We're excited about the sustainable cash flow. We think it's a tremendous inflection in terms of value for Oxy. We want to be smart in terms of how we progress that. Decline rate is a part of it, and we are, as we've restored balance sheet, been able to make some of these incremental investments in the projects you're describing. Let me flip it to Sunil, and then we'll combine on some of these projects that are making that up.

Hi, Doug. Let me just get into a bit more detail in terms of how we are thinking about cash flow priorities. As we said, one of our foundational cash flow priorities is to have a sustainable and growing dividend. It starts with having a strong balance sheet. Our principal debt is currently at around $11.8 billion, which is the lowest we've had since second quarter of 2029, and we are well on track to achieve the $10 billion principal debt milestone.

In terms of leverage metrics, last year, our debt to EBITDA based on the actual price of $65 WTI was around 1.9. Once we get our principal debt down to $10 billion, our debt to EBITDA normalized for $65 WTI is almost going to be half of that. The question is, what next?

Like I mentioned in my prepared remarks, once we get to the $10 billion principal debt, our focus is to further reduce net debt. We will balance the additional principal debt reduction and building cash based on the macro and the timing relative to the preferred redemption in August 2029. Like I mentioned earlier, we are likely to lean towards more principal debt reduction if the macro is supportive. Considering the current volatility in oil prices, we do not want to give a new milestone at this point. Share repurchases will be opportunistic. Like you said, and you highlighted, any large continuous share repurchase program will be lower priority until the redemption of the preferred in August 2029.

In terms of dividend, we announced an 8% dividend increase this quarter, and we will be measured in terms of how we think about dividend growth, ensuring that we can support it through the cycle through a combination of strong balance sheet and increasing sustainable cash flow. The progress on both of these will determine how we think about dividend growth, and accordingly, we will recommend to our board. I think hopefully this provide more color and clarity around how we think about cash flow priorities.

Yeah. Maybe real quick, just a couple of notes on the decline rate. You want to start, Ken?

Yeah. Afternoon, Doug. As you know, Oxy is an industry leader in water flooding. We injected water prior to CO2 in all the large Permian EOR fields. Also internationally with great success right through to today in Oman, where we use it to reduce declines from 19% to around 7% once complete, extending field lives. Typically, water flooding can add more than 15% oil in place in fields that you already operate with very low F&D.

We're now applying these technologies to GoA. Horn Mountain water flood remains on track for injection in the second half of next year, 2028. The Marlin King water dump flood was completed in the last quarter and is already on stream. We would expect a response in Q1 next year. Longer term, we completed our CO2 EOR pilot in Oman, and that's been successful.

Yeah. The only thing I would add, I just think at total, the water floods in Gulf of America, obviously progress in our EOR projects, certainly in the Permian, but even globally will contribute. The other thing I'd just quickly say, base performance. I think we've continued to beat on base performance, uptime records, so that's been a big piece of it. The last thing, and this was really an acceleration, but it's a great project we're looking forward to sharing more with.

On the Central Basin Platform in our EOR assets, we've been able to deploy some workover rigs to do sidetracks in some of our tighter conventional rock, using all the things that we've learned through unconventional, being able to do some fracs there. We're seeing great results. That's been good low cost adds for production this year.

What that also does is de-risk quite a few opportunities on the Central Basin Platform. You could think about it, similar to Midland Basin shallow wells, or more conventional Midland Basin at similar cost. We're excited about that opportunity. Those come at a lower decline rate too, especially when we put CO2 to it, where we can increase the recovery and lower the decline. Just wanted to get that in there as well.

The next question is from Neil Mehta with Goldman Sachs. Please go ahead.

Yeah. Thanks so much, guys. Really great disclosure, Richard and Sunil. The first question is just on sustainable cost savings. Beyond reduction in interest expenses, can you talk about how you're going to approach taking cost out of the business in a way that it is sustainable?

Yeah. Appreciate that. That is a really important aspect of what we're trying to do here. The teams, like I said, we like to highlight the track record, but more to go. As Sunil said, some things continue from this year to next. Our drilling efficiency continues to get better. We're almost 50% better in terms of well delivery per rig. I think we showed some rig reductions in the Permian as a reflection of that efficiency.

Simulfrac continues to expand. I think we've increased the outlook on that. Some of these things are what we've been talking about. I'd say the upside, so this is one we could go further at. Ken and I and several on our team are really working to take a global perspective in terms of cost and efficiency.

We do a great job across our assets, but we feel like there are some areas that we can continue to scale, work together. While we highlight the U.S. well cost and even the domestic LOE, we think there's opportunity beyond that. I'm really excited about that, to get back to working with the teams, on that sort of thing. The other thing, just lastly, we wanted to be intentional with our work choice milestone. This is the baseline. The teams are obviously working hard to deliver more. While this is a start, we're going to be working all options to accelerate value. I think Sunil had one to add.

Neil, Richard mentioned about the efficiency we have seen so far in 2026. A data point around that. Based on the efficiencies we have seen so far in Permian, the plan is to drop three rigs in Q4. We're actually expecting to have 15 more wells online in Permian. From a production point of view, once we adjust for the transaction we did in Permian EOR, the full year guidance is actually 7,000 more than the original guidance that we had given in the fourth quarter call. It again comes back to doing more with less. This is just another indication of the continued and the relentless focus on operating efficiency.

Thanks, Sunil. The follow-up is just on LCV and how does it fit in the multi-year plan? Obviously, Stratos has been a little choppy in the startup, and the market conditions are changing, but it's very interesting technology. Just how does it fit into the go-forward strategy?

CCUS, I'm going to broaden it a little bit, just to talk through. Carbon capture technologies still add value as we look forward, or can add value. We've made significant progress for us within LCV, advancing several of these technologies, including DAC. The core purpose was focused on CO2, power, and emissions, and those are really how you add value to our core business. We're seeing emerging opportunities in that today in the Permian, as you think about power generation, data center build-out. One outcome is the ability to capture CO2 off of those facilities. We're excited and have positioned ourselves, I think, to do that. CO2 and power are 30% of the operating cost of an EOR barrel.

When we look forward, and we're excited about the economics and from a corporate perspective, what things like lower decline do for us, but we do want to address that supply and the cost, and carbon capture can play a role. Where we stand today, we felt like we're at meaningful milestone. DAC's coming online. As we look forward, the other projects and technologies that we've been working with are at similar milestones, and so we're really at a point where partners in the market need to help pull us forward.

That's been our plan. The teams are very focused to make that happen. With success, as development goes forward, we really will be focused on bringing in partners to help us move that forward. Appreciate the question. Team's working hard on DAC. We know we'll have more updates as we go.

Appreciate the opportunity to address that.

The next question is from Betty Jiang with Barclays. Please go ahead.

Hello, good afternoon. I want to ask about CapEx again. Looking at the sustaining CapEx that's going from $5.4-$4.5, it seems clear based on your comments so far that it will be a pretty gradual step down over the next few years. Then if I compare that $4.5 at the endpoint from the $5.9 that you're saying for next year, that's at the cap, that's a big range on how much CapEx can come down. My question is, what's the quantum of growth capital that you're willing to spend above and beyond the sustaining capital, assuming a mid-cycle price environment? Maybe just how you're pacing this investment in both short cycle and longer cycle projects.

Hi, Betty. Let's talk about the 2027 CapEx. Like I mentioned, our starting point is $5.9 billion. The way we define sustaining capital, it excludes multi-year projects, exploration, and the growth projects. For next year, if we back out exploration, we back out the Waterflood project in Gulf of America, we're going to see the peak spending related to the Horn Mountain project next year. Also, in terms of EOR spending in Permian and some additional spending in international, you're looking at a sustaining capital of around $5 billion-$5.1 billion next year. What we are doing is we're continuing to invest in mid-cycle projects that is going to help with our base decline and ultimately reduce our sustaining capital.

As you take it forward to 2030, this is what is going to help us to get to that $4.5 billion. It's a combination of lower decline that helps reduce our sustaining capital, and then we are also expecting more in terms of well cost efficiency improvement. We have said we're targeting 12% by 2030. This year alone, we are at 7%. It's a combination of these two that's going to get us to the $4.5 billion of sustaining capital in 2030.

Yeah. Maybe the only thing to add, like Sunil said, we've looked at even outlook with that sort of reinvestment. Our free cash at the end with reinvestment, it exceeds the $4 billion that we're talking about from a sustainable cash flow. While we think it's important to think about it in the sustainable cash flow lens, the free cash flow outlook needs to improve over time to support that.

Got it. That's helpful. Thank you. My follow-up is on operations on the Rockies asset. It's always one that's a bit difficult to project and a lot of moving pieces. This year, you're investing more in the PRB, which is oilier, and I think the program might envision more PRB investment going forward as well. Can you just talk through cadence for the Rockies and just how you think about Rockies contributing within this longer-term framework?

Hi, Betty. It's Babatunde. Great question on the Powder River. I think the Powder in general is becoming a lot more important to our U.S. oil growth story, right? What we're seeing is a result of not just strong asset quality, but also quality execution improvement by our teams. The benefits we're seeing are stronger well performance, continued development of our oily basin position in the basin, but also the same operational efficiencies that Sunil mentioned we're achieving across these assets also.

Just a couple of things to point out on the Powder River Basin. From a well productivity standpoint, we're about 41% above the industry average using a six-month oil productivity basis. Well cost is down about 10% this year. We're expecting to be down about 10% this year. It is benefiting from the same improvements we're seeing across all our other basins.

I think from a cadence standpoint, what you're seeing is the DJ Basin activity moderate a little bit and the Powder River activity shift into the Powder River. From a margin standpoint, we're getting oilier, and we're replacing that with some higher margin production. We'll disclose more as we move through our cash flow improvement plan, but this is one of the examples of the higher margin additions that we plan to make as we move through the cash flow framework.

The next question is from Arun Jayaram with JPMorgan. Please go ahead. Mr. Jayaram, your line is open on our end. Is your phone muted on yours?

Occidental Petroleum Q2 2026 Earnings Call Transcript | Fortune

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