Occidental output hurt by Gulf outage, helped by Permian productivity

May 9, 2024
Higher capital spending in this year's second quarter will set the stage for production growth in second-half 2024.

Occidental Petroleum Corp., Houston, nearly topped its first-quarter production forecast for the Permian basin thanks in part to better-than-expected performance from wells not considered top performers.

The leaders of Occidental have been touting the company’s well productivity push for several quarters, saying better designs and workflows have enabled them to upgrade production forecasts, including for “secondary” assets. In the first 3 months of 2024, that helped Occidental’s Permian basin operations average 567,000 boe/d, near the high end of the 551,000-571,000 boe/d that president and chief executive officer Vicki Hollub and her team had estimated in February.

“Our Delaware teams are achieving impressive performance results by applying the same proprietary subsurface workflows that have generated remarkable success in our primary benches,” Hollub said on a May 8 conference call discussing Occidental’s first-quarter earnings of $718 million, down from $983 million early last year. “We are driving financial returns for our shareholders by improving our ability to high-grade our near-term inventory and by extending our runway of tier-one locations.”

First-quarter Permian basin production was down 2% from the prior-year period. Occidental’s total production for the quarter was 1,172,000 boe/d versus 1,220,000 boe/d in early 2023, due in large part to Gulf of Mexico output being nearly cut in half to 90,000 boe/d because of a November spill from a Main Pass Oil Gathering Co. pipeline. Occidental’s Gulf of Mexico platforms restarted production in mid-April.

In the Rockies and other domestic regions, total production averaged 286,000 boe/d, up more than 8% from a year earlier. International production climbed 11% year over year to 229,000 boe/d.

Capex will peak in Q2

Looking to the second quarter, Hollub and her team are forecasting that total production will be around 1,252,000 boe/d (give or take 20,000 boe/d), roughly 583,000 boe/d of which will come from the Permian basin. The Rockies and other US assets are forecast to produce a little more than 300,000 boe/d, up from 286,000 boe/d in the first quarter. Gulf of Mexico production is expected to rebound to about 135,000 boe/d, in line with second-quarter 2023. 

Capital spending in the first quarter was $1.7 billion and is forecast to come in a little higher in the current quarter. But chief financial officer Sunil Mathew said capex is still expected to be $6.4-6.6 billion for the full year and be more heavily weighted to the first half. That will set the stage for rising output in the second half.

“You’ll see that capital drop and you’ll see the production increase,” Richard Jackson, president of the company’s US onshore resources, said on the conference call. “That should set us up at a much more level-loaded and optimized pace going into 2025.”

Shares of Occidental (Ticker: OXY) fell on the earnings news but were regaining ground May 9 and changing hands around $64.25. Over the past 6 months, they have risen about 5%, growing the company’s market capitalization to about $57 billion.