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Text: The fourth quarter of 2021 was a fitting year -- a fitting way to end the year where Oxy's operational and financial performance advanced from strong to stronger.
Our focus on consistently delivering outstanding operational results, combined with our steadfast dedication and patience in improving our balance sheet, has positioned us to begin increasing the amount of capital returned to shareholders.
Our new shareholder return framework, which we will detail today, includes a dividend that is sustainable in a low price environment.
We are pleased to implement this new framework, beginning with an increase in the quarterly common dividend to $0.13 per share.
The position of strength that we are in today stems from our team's hard work and accomplishments last year.
Throughout 2021, we strived tirelessly to improve our already exceptional operational performance.
We capitalized on efficiency improvements by embedding innovative techniques across our operations.
Our focus on learning, implementing change, where needed, and maximizing opportunities for improvement enabled us to accelerate time to market for our products while generating notable capital saving.
We will continue to maximize operational efficiencies in 2022 by executing on the capital plan that invest in our highest-return assets to generate long-term sustainable free cash flow.
Rob and I will then discuss our shareholder return framework, and Rob will provide guidance for the first quarter and year ahead.
Before turning to Q&A at the end, I will provide a preview of the Low Carbon Ventures investor update that we have planned for next month.
Now to talk about delivering cash flow priorities.
Those who have followed us at Oxy's journey over the past several quarters know that our cash flow priorities have centered around derisking our balance sheet and reducing debt.
We diligently delivered on these cash flow priorities throughout 2021, including the repayment of approximately $6.7 billion of debt.
We now expect that our net debt will be below $25 billion by the end of the first quarter of 2022, which will mark a change in how excess cash flow will be allocated going forward.
Before I detail our updated cash flow priorities and shareholder return framework, I would like to first touch on a few of the many operational and financial successes that enabled us to reach this significant turning point.
2021 was a year of continuous operational improvements, which drove record free cash flow generation, rapid debt reduction and a return to profitability.
One of Oxy's core strengths is our ability to develop assets in a way that efficiently maximizes production and recovery while generating significant cash flow, and that is just what we did in 2021.
Multiple drilling and completion records were set across our domestic and international businesses as our production for the year averaged 1.167 million BOE per day.
That's 27,000 BOE per day higher than our initial guidance.
2021 was also a more conventional year in terms of commodity prices, operations and planning, all of which was helpful in providing a reserve update that reflects a more normalized price environment.
Our reserves for year-end 2021 increased to 3.5 billion BOE, representing a reserve replacement ratio of 241%.
Our reserves position means that we have a vast supply of low-breakeven projects and inventory available.
Over the last year, we significantly advanced our commitments toward a low-carbon future.
We are proud to be one of only a few oil and gas companies with net-zero goals that are aligned with the Paris Agreement's 1.5-degree Celsius pathway.
In December, Oxy became the first U.S. upstream oil and gas company to enter into a sustainability-linked revolving credit facility, which includes absolute reductions in our combined Scopes 1 and 2 CO2 equivalent emissions as the key performance indicator.
We set additional interim emission targets to further refine our net-zero pathway, including a short-term target to reduce our CO2 equivalent emissions to approximately 3.7 million metric tons per year below our 2021 level and to accomplish that by 2024.
We set a medium-term target to facilitate the geologic storage or use of 25 million metric tons per year of CO2 in Oxy's value chain by 2032.
We also endorsed the Methane Guiding Principles and Oil and Gas Methane Partnership 2.0, a climate and clean air coalition initiative led by the United Nations Environment program.
This is consistent with our commitment to enhance methane emissions reporting and reducing those emissions.
Our journey toward net zero is underway, and we look forward to discussing in greater detail at our Low Carbon Ventures investor day next month.
Now the fourth quarter highlights.
The strong operational and financial performance that we delivered throughout last year continued in the fourth quarter.
We set a fourth consecutive record for quarterly free cash flow generation before working capital, which contributed to generating our highest-ever annual level of free cash flow in 2021.
We continue to apply free cash flow toward reducing debt and strengthening our balance sheet, repaying an additional $2.2 billion of debt in the fourth quarter.
Operationally, all three business segments excelled in driving our robust financial performance.
OxyChem delivered record earnings for the second consecutive quarter as performance throughout the year culminated in 2021 being OxyChem's strongest in over 30 years.
The fourth quarter, which is typically lower due to seasonality, even exceeded the record third quarter.
And in our oil and gas segment, our Permian, Rockies and Oman teams set new operational records and efficiency benchmarks in the fourth quarter, further improving on their third quarter record.
Our midstream business outperformed by maximizing gas margins during the fourth quarter.
While short-term opportunities in the commodity markets are difficult to predict, our midstream team exceed at finding and taking full advantage of such opportunities when they arise.
Now I'm pleased to say that our fourth quarter results continued to demonstrate the commitment of all of our employees, no matter their position or location, to find ways to further create value by lowering costs, improving efficiencies and maximizing recoveries.
They truly are driving our strong financial results and providing a solid foundation for free cash flow generation.
Now on to 2021 oil and gas operational excellence.
On each of our last several calls, I've enjoyed highlighting the many operational achievements our teams continuously deliver.
The magnitude of these achievements is striking when viewed on a combined basis over the last year.
We established record drilling cycle times in the Gulf of Mexico, the Permian, Rockies and in Oman, and set new efficiency benchmarks across our portfolio in 2021.
We intend to maintain our focus on continuous improvement in the year ahead as we work to maximize the value our portfolio can generate for shareholders.
Now our 2022 capital plan.
Our 2022 capital plan invests in cash flow longevity while building on the capital intensity leadership we demonstrated in 2021.
We have sized our capital plan to sustain production in 2022 at 1.155 million BOE per day while investing in high-return projects that will provide cash flow stability throughout the cycle.
We have also incorporated an expectation for inflation and a capital range to reflect the potential for fluctuations in our third-party-operated assets and our low-carbon opportunities during the year.
Our sustaining capital, which we define as the capital required to sustain production in the $40 WTI environment over a multiyear period, remains industry-leading.
Our multiyear sustaining capital is expected to increase from our 2021 capital budget of $2.9 billion, the reduced inventory of drilling uncompleted wells and additional investment in our Gulf of Mexico and EOR assets, to optimize the long-term productivity of our reservoirs and facilities.
If the macro environment requires spending below our multiyear sustaining capital, we have the ability to reduce it further and hold production flat for shorter periods of time, as we've demonstrated.
We are also investing in attractive mid-cycle projects that will provide cash flow stability through the cycle in future years.
For example, these projects include the Al Hosn expansion, which began last year.
And OxyChem is in the process of completing a FEED study to modernize certain Gulf Coast chlor-alkali assets from diaphram to membrane technology.
Our capital plan also includes investments to advance our net zero pathway, including reducing emissions, improving energy efficiency and developing our carbon sequestration initiative.
We are allocating capital in the budget to 1PointFive to begin construction on the first direct air capture facility.
We continue to make progress on both the engineering and commercial needs for direct air capture development.
We are improving both of these aspects and believe Oxy's capital helps retain value for our shareholders.
As the construction phase and technology of this new project advance, we will continue to consider strategic capital partnerships and structures to address financing.
We'll provide more comprehensive update on 1PointFive and direct air capture at our March 23 LCV investor update.
We benefited greatly from commodity price rebound last year and appreciate how swiftly the price environment can change.
The optionality that our scale and asset base provide enables us to retain a high degree of flexibility in our capital and spending plans.
The majority of our capital program is comprised of short-cycle investments, meaning that we have the ability to quickly adapt to changes in the macro environment.
Within six months or less, if necessary, we can reduce capital spending to sustaining levels.
And if oil prices remain supportive this year, our intent is to follow our cash flow priorities and capital framework that we will share with you today.
We have no need and no intent to invest in production growth this year.
Having a flexible capital budget that includes investment and cash flow longevity provides us and puts us in a strong position to implement shareholder return framework that will benefit shareholders over the long term.
With respect to cash flow priorities, our priorities for 2022 remain largely unchanged, with a continuing emphasis on reducing debt while maintaining our asset base integrity and sustainability.
The objective of strengthening our financial position remains the same: Enable us to confidently increase the amount of capital that we may sustainably return to shareholders throughout the cycle.
As we expect net debt to fall below $25 billion by the end of the first quarter, our focus has expanded to returning capital to shareholders, beginning with the increase in our common dividend to $0.13 per share and the reactivation and expansion of our share repurchase program.
The increase in the dividend to $0.13 per share is consistent with our intention to initially increase the dividend to a level that approximates the yield of the S&P 500.
We believe establishing framework for returning capital to shareholders through a sustainable common dividend, combined with an active share repurchase program and continued debt reduction, creates an attractive value proposition for shareholders while also improving the company's long-term financial position.
For the first phase of our shareholder return framework initiated, we have the options in future years to invest in cash flow growth.
We have the ability to grow oil and gas cash flow through higher production, but also have multiple investment opportunities across our other businesses.
As evidenced by our guidance for 2022, we do not intend to grow production in 2022.
At the point where it is appropriate to invest in future cash flow growth, we will only do so if supported by long-term demand.
Any future production growth will be limited to an average annual rate of approximately 5%.
As Vicki mentioned, the first phase of our shareholder return framework consists of the debt reduction; an increase in the common dividend to $0.13 per share; and the reactivation, expansion of our share repurchase program.
With net debt expected to be below $25 billion by the end of the first quarter, we are ready to begin returning more capital to shareholders, but we'll continue to prioritize debt reduction to focus on our medium-term goal of regaining our investment-grade credit rating.
We place high importance on debt reduction for the reasons I highlighted last quarter, mainly that as debt is reduced, our company's enterprise value rebalances to the benefit of our shareholders.
We recognize that oil prices are uncertain and may remain volatile, particularly in the current environment.
We then prioritized retirement of an initial $5 billion of debt to drive our net debt toward our next milestone of $20 billion.
When this milestone is achieved, our balance sheet will improve significantly even from where we are today.
We intend to provide our shareholders with a competitive common dividend while maintaining a long-cycle cash flow breakeven at $40 WTI or less.
The long-term sustainability of our dividend will be enhanced by continued deleveraging and share repurchases, as well as our best-in-class capital efficiency and a deep low-cost portfolio of assets.
As debt is retired, our cash interest payments will decrease, freeing up cash that can be used to support future common dividend growth.
In addition to increasing the common dividend to $0.13 per share, we intend to purchase approximately $3 billion of outstanding shares of common stock.
Maintaining an active share repurchase program with the benefit of a healthy balance sheet will potentially enable us to grow the dividend on a per-share basis at a faster rate.
As evidenced by our progress reducing debt last year, debt retirement remains a higher cash flow priority than our share repurchase program.
We intend to make substantial progress toward retiring an additional $5 billion of debt before initiating share repurchases.
It is our goal to reward shareholders with the triple benefit of: A sustainable common benefit, an active share repurchase program and a continuously strengthening financial position.
I'll now turn to our fourth quarter results.
In the fourth quarter, we announced an adjusted profit of $1.48 and a reported profit of $1.37 per diluted share.
Our adjusted income improved significantly through 2021, with the fourth quarter being the strongest quarter of the year.
The increase in earnings was primarily driven by higher commodity prices and volumes, as well as OxyChem's excellent financial performance.
Our domestic oil and gas expenses experienced a sizable reduction on a BOE basis from the previous quarter and reflected a more normalized environment absent any significant weather disruptions.
The strong performance of our businesses, combined with the benefit of a healthy commodity price, enabled us to deliver another consecutive quarter of record free cash flow.
On our third quarter call, we announced the completion of our large-scale divestiture program, but reiterated our intention to continue seeking opportunities to optimize our portfolio to create shareholder value.
In November, we completed a bolt-on acquisition to increase our working interest in EOR assets that we'd operate.
And in January 2022, we divested a small package of Permian acreage that had yet no immediate plan to develop.
The purchase and sale prices of these transactions largely offset each other, while the EOR acquisition added approximately 5,000 BOE per day of low-decline production, as well as increasing our inventory of potential CCUS opportunity.
We exited the fourth quarter with approximately $2.8 billion of unrestricted cash on the balance sheet after repaying approximately $2.2 billion of debt in the quarter.
In total, last year, we paid approximately $6.7 billion of debt and retired $750 million of notional interest rate swaps.
Our debt reduction continues to drive a pronounced improvement in our credit profile.
Since our last call, both Fitch and S&P upgraded our credit ratings to BB plus, one notch below investment grade; while Moody's assigned us a positive outlook on our debt.
Reducing the amount of cash that is committed to interest payments today places us in a stronger position for a sustainable return of capital in the future.
We estimate that the balance sheet improvements executed in 2021 will reduce interest and financing costs by almost $250 million per year going forward, which will fund approximately half of the increase in our common dividend.
Our business incurred a negative working capital change in the fourth quarter.
It was primarily driven by higher accounts receivable balance due to higher commodity prices and, to a lesser extent, an increase in inventories, including a higher number of barrels on the water at year-end.
The oil and gas hedges we had in place rolled off at the end of the fourth quarter, and we are now positioned to take full advantage of the current commodity price environment.
We recognize the possibility of a swift change in commodity prices always exists.
The debt maturity profile we have today is far more manageable mantle than it was two years ago, and our liquidity profile remains robust.
In addition to cash on hand, we have $4.4 billion of committed unutilized bank facility.
We continue to believe that reducing debt and maintaining maximum flexibility in our capital plans is the most effective long-term solution to managing risk while providing shareholders the benefits of commodity price gain.
We expect our full year production to average 1.155 million BOE per day in 2022.
Production in the first quarter of 2022 is expected to be lower than the fourth quarter of 2021 due to the timing impact of wells that are brought online in 2021, severe winter weather in the Permian earlier this month and the impact of significant planned international turnaround activities this quarter.
Algeria, Al Hosn and Dolphin are all undergoing scheduled maintenance in the first quarter, which is reflected in our international production guidance.
The downtime associated with Al Hosn is notably larger than typical years as the plant is undergoing the first full shutdown since its inception to substantially complete the tie-ins associated with the expansion project and to enhance plant sustainability and reliability.
Additionally, a portion of our international production is subject to production-sharing contracts, where we typically receive fewer barrels in a higher-price environment, the impact of which is captured in our full year and first quarter guidance.
The Permian activity we added late in the fourth quarter is expected to replace the production benefit received in 2021 and completed our DJ -- our inventory of DJ Basin undrilled, uncompleted wells in the early part of last year.
Our 2022 Permian capital allocation is expected to provide benefits that will last into 2023.
We anticipate that our activity this year will provide us the flexibility to either hold Permian production flat at our 2022 exit rate for similar capital next year, or spend less capital in 2023 to hold production relatively flat to our 2022 average.
We also expect that our production in 2022 will increase throughout the year to achieve our full year guidance as our international operations will resume their normal production levels and our activity in the Permian brings new production online.
Additionally, the trajectory of operating production is anticipated to offset lower production in the Rockies this year as our activity in the DJ Basin is tapered, reflecting development planning timing to ensure efficient operations as new permits are obtained.
Partially offsetting lower Rockies production with higher Permian production, combined with an increase in EOR activity, will result in a slightly higher domestic operating expense as the DJ Basin has one of the lowest operating costs on a BOE basis in our portfolio.
The increase in Permian production is expected to result in domestic cash margins improving by -- in 2022 as the companywide oil cut increases approximately 54.5%.
The mid-cycle level of capital we intend to spin this year provides flexibility to sustain production in 2023 and beyond at our multiyear sustaining capital level of $3.2 billion in a $40 price environment.
We expect that OxyChem's 2022 earnings will exceed even 2021.
OxyChem continues to benefit from continued demand improvement for caustic soda, while PVC pricing remains strong.
Additionally, as I mentioned on our last call, we expect chlorine markets to remain tight as chlor-alkali producers seek the highest value for their products.
OxyChem's integration toward multiple chlorine derivatives enables us to optimize our production mix to supply the products the market requires, whether this is for chlorine for water treatment, vinyls or PVC, for example.
This year, we will make an incremental capital investment as we complete a FEED study for the modernization of certain Gulf Coast chlor-alkali assets from diaphram to membrane technology.
Modernizing these assets would result in a material energy efficiency improvement, but will also lower the carbon intensity per ton of the product produced and delivered.
The project would also provide the opportunity for a significant expansion of our existing capacity to meet growing demand for our key products.
We expect to reach final investment decision later this year, at which time, we will be prepared to share additional details.
To assist investors to reconcile our guidance with our segment earnings, we have made a change in how we guide midstream going forward.
Our midstream guidance now includes income from WES, which is a change to how we've guided midstream previously.
Quarterly guidance now includes Oxy's portion of WES income using the average of the previous four publicly available quarters.
Our annual guidance now includes Oxy's portion of WES income using the sum of the previous four publicly available quarters.
As we look to the year ahead, we will work to continue to improve on the numerous operational and financial success of 2021, including making additional inroads on reducing debt, implementing our shareholder return framework and advancing our low-carbon aspirations.
When we established Low Carbon Ventures in 2018, we knew we were ahead of the curve in recognizing the opportunity and necessity of building a carbon management business, both to help reduce global emissions and to enhance our business.
At that time, we were focused on key technologies and projects that would reduce Oxy's emissions and provide a more sustainable future business.
Today, we have advanced that vision and fully appreciate the vast scope of the carbon management opportunity, as well as the cross-industry support and partnership in front of us.
On past earnings calls, we had discussed several of the initiatives Low Carbon Ventures is developing and Oxy's ambition to achieve net zero before 2050.
We've been working on key technology developments and important commercial needs to advance LCV's projects that are now in a position to move more fully -- and more fully detail our low carbon business and how it positions us to realize our net-zero ambition and improve our long-term business.
On March 23, we will host a Low Carbon Ventures investor update, where we will provide a detailed update on our low-carbon strategy, with a focus on the technology and commercial development of carbon-capture projects, specifically direct air capture.
The event, which we expect may last up to two and a half hours, will be accessible through our website.
As I've said before, we are excited about our unique position and capabilities as a company.
We value our broader low-carbon and business partnerships that are growing, and our workforce is energized to advance this immense opportunity before us.

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occidental increases dividend.
occidental petroleum corp - board of directors has declared a regular quarterly dividend of $0.13 per share on common stock.

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