OXY(OXY) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company generated $2.6 billion in operating cash flow in Q2 2025, which is higher than the same period in 2024 despite lower oil prices, with WTI averaging $11 per barrel lower [5][6] - Adjusted profit was $0.39 per diluted share, while reported profit was $0.26 per share, with approximately $700 million in free cash flow before working capital [22][23] - The effective tax rate increased due to a shift in the jurisdictional mix of income, with an adjusted effective tax rate expected to be around 32% for Q3 [23][24] Business Line Data and Key Metrics Changes - Oil and gas production reached 1.4 million BOE per day, exceeding guidance, with significant contributions from The Rockies and the Mukhaizna contract extension in Oman [7][24] - The Midstream and Marketing segment generated positive earnings, outperforming guidance due to improved crude marketing margins and gas marketing optimization [12][27] - OxyChem's pretax income fell below guidance due to weaker pricing for caustic and PVC, leading to a lowered full-year guidance range of $800 million to $900 million [28][29] Market Data and Key Metrics Changes - The company reported a 13% reduction in year-to-date Permian unconventional well costs compared to 2024, driven by enhanced efficiencies [11] - The Gulf of America production was impacted by curtailments and maintenance, but new projects are expected to stabilize and potentially increase production in the coming years [55][56] Company Strategy and Development Direction - The company is focused on optimizing its portfolio and has achieved nearly $4 billion in divestitures since January 2024, which has accelerated debt repayments [20][31] - The company is committed to carbon capture and enhanced oil recovery (EOR), with significant investments in the Stratus project and partnerships to develop direct air capture facilities [14][16][19] - The strategic focus includes maintaining a balance between debt reduction and capital allocation for growth opportunities, particularly in Oman and low decline projects [79][81] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in operational efficiencies and cost reductions, with expectations for strong production in the second half of the year [26][30] - The company anticipates that U.S. oil production could peak between 2027 and 2030, with significant potential for additional recovery through CO2 EOR [73][74] - The recent legislative changes, including the One Big Beautiful Bill, are expected to provide substantial cash tax benefits and support the company's carbon management initiatives [30][16] Other Important Information - The company has successfully reduced its debt by approximately $7.5 billion in the past year, significantly ahead of its initial targets [31][32] - The company is leveraging advanced technologies, including AI, to enhance operational efficiencies and subsurface characterization [70][71] Q&A Session All Questions and Answers Question: Follow-up on cash tax rate and expectations from the One Big Beautiful Bill - The company confirmed that 35% of the estimated $700 million to $800 million cash tax benefit will be realized in 2025, with the remainder in 2026, impacting deferred tax expenses rather than the adjusted income effective tax rate [37][38] Question: Inquiry about the MHAISNER contract and free cash implications - Management highlighted the benefits of the Oman contract, emphasizing its competitiveness and potential for future production increases, while also noting the historical production success [42][43] Question: Strategic focus on carbon business and point source opportunities - The company has always been interested in point source capture and is optimistic about the potential for industrial sources of CO2 to collaborate on arrangements [49][50] Question: Production capacity in the Gulf of America - Management indicated that water flood projects will help stabilize production decline rates, with a strong production ramp-up expected due to recent engineering successes [56][57] Question: Cost savings and spending trends in the Lower 48 - The company anticipates reductions in capital expenditures due to ongoing efficiencies, with a focus on maintaining optimized activity levels [60][62] Question: Outlook for OxyChem income amid PVC oversupply - The company noted that the PVC and caustic market is currently burdened by oversupply, particularly from China, and does not expect significant recovery in 2026 [86] Question: Production trends in the Permian Basin - Management expects an increase in oil cut in the second half of the year, driven by improved drilling and completion efficiencies [91][92]