Current OXY Stock Info

Oxy has invested $2 billion in the Permian

Occidental Petroleum (ticker: OXY) announced Monday ahead of its third-quarter earnings call that the company acquired producing and non-producing leasehold acreage in the Permian Basin from private sellers for approximately $2 billion. During OXY’s conference call today, it became clear that the company plans to use its Permian acreage as the benchmark for its operations globally.

While speaking about the company’s core international assets in Abu Dhabi, Qatar, Oman and Columbia, Occidental President and CEO Vicki Hollub said she has “emphasized to our partners in those areas that the returns on any new project or capital investment must compete with the Permian Basin.”

The acquired assets have current production of 7 MBOEPD (72% oil) on 35,000 net acres in Reeves and Pecos counties, Texas. OXY reported the acquired acreage has a minimum of 700 gross estimated horizontal drilling locations targeting the Wolfcamp A, Wolfcamp B, Bone Spring, and the potential upside of additional intervals.

Including this transaction, Occidental holds nearly 59,000 acres in the Permian with an aggregate acquisition cost, inclusive of value given to current production and infrastructure, of approximately $2 billion, the company said.

The Permian acquisition also includes working interest in producing oil and gas CO2 floods and related EOR infrastructure, increasing OXY’s ownership in several properties where it is currently the operator or an existing working interest partner. The Permian EOR projects have current production of approximately 4 MBOEPD (80% oil), with estimated net PDP reserves of approximately 25 MMBOE.

Occidental is in the process of ramping up drilling in the basin, but does expect production to fall in the fourth quarter, Hollub said during the company’s conference call. The company hopes to stabilize production and restart growth in early 2017.

“Longer term, we have a deep inventory of well locations in the Permian with the capability to drive direction growth above [a 5% to 8% production growth] range,” Hollub added. “As the production from the Permian Basin grows in coming years, we would expect increased demand for access to multiple markets.”

While Occidental will release a more detailed budget for next year in the fourth quarter, Hollub said the Permian would be receiving the largest increases in 2017 from OXY’s 2016 capital budget. Occidental’s CEO said they do not plan to acquire any additional acreage in the Permian “unless it’s smaller bolt-ons that do provide us the efficiencies to develop what we currently have.”

“At this point, it’s our expectation that capital will increase modestly from a little under $3 billion in 2016 to a range of $3.3 billion to $3.8 billion in 2017,” she said. “Our program in the Permian Resources business will receive the largest increase in capital, and due to the shorter cycle nature of the asset base, can be adjusted depending on the extent of commodity price recovery.”

The current drilling program for the company’s Permian assets next year is six rigs drilling and three rigs in EOR, Occidental President of Domestic Oil and Gas Jody Elliott added during the Q&A portion of the call.

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