Occidental Petroleum Corporation (OXY) Q1 2018 Earnings Conference Call Transcript

Occidental Petroleum Corporation (OXY -2.49%)
Q1 2018 Earnings Conference Call
May 9, 2018, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Occidental Petroleum Corporation First Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing "*0". After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press "*1" on your telephone keypad. To withdraw your question, please press "*2". Please note this event is being recorded. I would now like to turn the conference over to Richard Jackson, Vice President, Investor Relations. Please go ahead.

Richard A. Jackson -- Vice President of Investor Relations

Thank you, Kay. Good morning, everyone, and thank you for participating in Occidental Petroleum's First Quarter 2018 Conference Call. On the call with us today are: Vicki Hollub, President and Chief Executive Officer; Cedric Burgher, Senior Vice President and Chief Financial Officer; Jody Elliott, President of Domestic Oil and Gas; and B.J. Hebert, President of OxyChem. In just a moment, I will turn the call over to Vicki Hollub.

As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risk and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements, as more fully described in our cautionary statement regarding forward-looking statements on Slide 2.

Our earnings press release, the Investor Relations supplemental schedules, and our non-GAAP to GAAP reconciliations and conference call presentation slides can be downloaded off our website at www.oxy.com. I'll now turn the call over to Vicki Hollub. Vicki, please go ahead.

Vicki Hollub -- President and Chief Executive Officer

Thank you, Richard, and good morning, everyone. Our first quarter key highlights demonstrate the significant progress we made to increase the value of our business while delivering free cash flow and value-based growth. Our low oil price Breakeven Plan will be achieved in the third quarter, six months ahead of our original estimate. This accelerated schedule has been driven in part by better than expected performance from Permian resources, which added 18,000 BOED this quarter and is currently on a trajectory to deliver a 47% year-over-year growth rate. This will be accomplished with only 11 operated rigs. We're truly doing more with less as we demonstrated by our increased guidance in all business segments.

It is important to note that our Breakeven Plan not only provides us with the ability to continue value growth in a low-price environment, it delivers significant upside in a higher oil price environment. Slide 8 illustrates how leveraged our Permian EOR business is to higher oil prices. EOR will generate significant incremental cash flow in the prevailing environment. Similarly, Chemicals and Midstream have been positioned for long-term value creation and are capitalizing on today's pricing and marketing spreads to generate substantial improvements in free cash flow versus our Breakeven Plan. We have increased our full-year guidance for these two businesses and they are actually capable of generating over $2 billion of annual free cash flow.

As we did last year, we will continue to focus on enhancing our portfolio, increasing the value of our assets, and using technology to drive superior operational performance. On Slide 5, I'd like to point out a few, important Permian Resources achievements during the first quarter. First, we continued to bring wells online at basin-leading rates in Greater Sand Dunes with an average 30-Day IP of 31 BOED. We also increased new well performance by nearly 50% in our current Barilla Draw development area. Third, to support our growth in the region, we brought online our logistics and supply hub, Project Aventine. We have already started to see the benefits of our differentiated approach in well cost improvement and reliability of well site resources.

Turning to Slide 6, our value proposition has not changed. It has enhanced. The achievement of our Breakeven Plan strengthens our ability to provide a meaningful dividend with growth while maintaining a strong balance sheet and will allow us to resume opportunistic share repurchases. The part of our value proposition that we have significantly enhanced is our ability to exceed our oil and gas production growth targets with industry-leading returns. The quality of our assets and the depth of our development inventory will enable us to deliver higher returns and higher growth rates within our cash flow from operations. We believe our meaningful dividend, with a production growth rate greater than 8%, is a unique value proposition within our industry.

My last slide, 7, illustrates the differentiated approach Oxy takes in developing our assets. Across our businesses, we are focused on long-term value creation through exceptional technical work, life cycle planning, project execution, and operations focused on maximizing margins. In our oil and gas segment, our goal is to get the most oil out of our rock in the fastest time, at the lowest cost, and to sell at the highest price. This means that we start by understanding the potential of the reservoir through enhanced subsurface characterization. This is not only critical to producing the best wells under primary development but also under future EOR applications.

To ensure best time-to-market and service costs, we have developed operational capability and technology, created strategic logistic networks and relationships, and built key infrastructure, including our Ingleside Oil Terminal to access world refining markets. As a result, we believe we are the best-positioned company in the Permian to execute on a value-added growth strategy. The benefits of our strategy are yielding significant productivity improvements, increased capital efficiency, and better product price realizations. We expect our differentiated approach to result in peer-leading value creation.

I'll now turn the call over to Cedric to review our progress toward the Breakeven Plan and our financial results.

Cedric Burgher -- Senior Vice President and Chief Financial Officer

Thanks, Vicki. I will begin with an update on our Breakeven Plan and then address financial results and 2018 guidance.

On Slide 10, we have updated our progress toward our Breakeven Plan at low oil prices. We continue to make substantial progress on our plan and are exceeding targets across our businesses. In an effort to be conservative on sustainable cash flow, we adjusted our first quarter cash flow from operations for positive seasonality and market-related items in Midstream and Chemicals, net of turnarounds in the Middle East, which is represented by the grey bar. Once we achieve our remaining milestones, we will be well-positioned in the future with the cash flow necessary for our $40.00 oil price business sustainability and $50.00 oil price business growth scenarios. But we will continue to operate our business to reduce those breakevens even further.

Slide 11 illustrates our progress toward the Breakeven Plan. In the Chemicals business, the 4CPe plant began contributing to cash flow and will achieve peak operating rate in the third quarter of this year. We categorized additional chemical product pricing improvement as seasonal in the grey bar of other improvements to maintain conservatism in our plan. In the Midstream business, the Midland to Gulf Coast spread for the first quarter came within our guidance at $3.12 per barrel. Additional Midstream margin improvements for crude export, gas processing, and crude inventory sales were categorized as seasonal in the grey bar of other improvements.

We also had planned turnarounds in the Middle East which reduced quarterly cash flow but will be back to normal rates in the second quarter of this year. In the Permian Resources business, we grew 18,000 BOED sequentially, leaving 32,000 BOED to achieve our Breakeven Plan goal. Jody will give additional guidance on the timing of new wells online and production.

Shifting to our quarterly financial and operating results on Slide 13, I'd like to start with our production results. Total reported production for the first quarter was 609,000 BOED, which exceeded the high end of our guidance of 603,000 BOED. Much of this was driven by execution and well productivity in Permian Resources, which came in well above the high end of guidance at 177,000 BOED.

International also contributed to the production beat, with our planned first quarter turnarounds at Al Hosn and Dolphin ahead of schedule and successful step-out wells in Columbia. Total International production came in at 273,000 BOED, above the high end of guidance of 271,000 BOED, even after 2,000 BOED of production impacts from production sharing contracts.

Earnings improved across all segments and our first quarter reported and core EPS was $0.92 per share. Improvements in the oil and gas segment were mainly attributed to higher oil prices and lower DD&A rates. Realized oil prices increased by 14% and our DD&A rate for the first quarter was 10% lower than the average 2017 DD&A rate. Operating cash flow before working capital improved sequentially to nearly $1.7 billion, due to higher oil prices along with higher Permian Resources production, as well as higher contributions from the Chemicals and Midstream segments.

We spent $1 billion in capital during the first quarter, in line with our full-year capital plan of $3.9 billion. We issued $1 billion in debt to retire $500 million of notes that were due in February and for general corporate purposes. Working capital changes included cash payments typical of the first quarter, including property tax and payments against our fourth quarter accruals. Our Chemicals and Marketing businesses also experienced a working capital draw as a result of a receivable billed due to higher prices and volumes.

Chemicals first quarter core earnings of $298 million came in above guidance of $250 million. Pricing for caustic soda and other products continued to increase as global demand remained robust and purchased ethylene prices declined throughout the quarter.

Midstream first quarter core earnings of $179 million also came in well above our guidance. Included is a gain on the sale of a domestic gas plant for $43 million. Excluding the gain, Midstream reflected improved earnings from crude exports, gas processing, and higher equity income from the Plains All American investment. The better than expected result also included income from items considered timing related, such as crude inventory sales.

Our updated guidance is provide on Slide 15. With respect to full-year 2018, we raised our total production range in spite of a negative production sharing contract impact of about 5,000 BOED since our first quarter guidance. The increase to the Permian Resources production range was mainly attributable to improved new well productivity. Jody will give additional detail on the outlook for our Permian Resources business.

International production is expected to benefit from Al Hosn volumes ramping back up to average 66,000 to 69,000 BOED during the second quarter and 83,000 BOED in the third quarter. Qatar will have planned downtime during the second quarter, which we expect to impact production by approximately 6,000 BOED.

Our guidance now assumes $63.00 WTI and $67.00 Brent prices for the second through fourth quarters. The guidance for the total year capital budget is maintained at $3.9 billion.

In Midstream, our improved second quarter and full-year guidance reflects the significant increases in Permian to Gulf Coast spreads. In Chemicals, our guidance increases primarily are due to higher caustic soda prices and we now assume that they remain at current levels. Our DD&A expense for the oil and gas is lower as a result of low refining and development costs last year.

First quarter domestic operating expense was up slightly over last quarter due to front-end-loaded workover and maintenance activities in Permian EOR. Lower operating costs in Permian Resources, which are forecasted to average under $7.00 per BOE, are expected to be offset by higher costs in Permian EOR for oil price sensitive purchased injectant and higher energy-related costs.

We have updated our guidance for the total company effective tax rate to 32% in 2018, which reflects higher earnings from our domestic oil and gas business.

To close, we are off to a great start to the year and we expect to reach a major milestone with the achievement of the Breakeven Plan in the third quarter. We are significantly ahead of schedule right now and will evaluate opportunistic uses of excess cash flow that we expect to be generated in the remainder of the year. These could include sustaining current activity levels in Permian Resources, improving our balance sheet through net debt reduction, and more investment in International and Permian EOR.

Last and certainly not least, we now intend to resume our long-standing share repurchase program this year. As a reminder, we have approximately 64 million shares remaining in our buyback program authorized by our Board of Directors. Since the inception of the program, we have repurchased approximately 121 million shares for nearly $9 billion.

I'll now turn the call over to Jody.

Jody Elliott -- President of Occidental Oil and Gas Corporation-Domestic

Thank you, Cedric, and good morning, everyone. Today I'll provide an update on the continued improvements in our Permian operations and the progress we've made in delivering high-margin production growth to contribute to our Breakeven Plan. 2018 is off to a great start. Our value-based development approach continues to deliver record wells and operational improvements are lowering cost and reducing time to market.

On Slide 18, you'll see that our Permian Resources New Mexico team delivered another quarter of play-leading results. We turned 16 new Greater Sand Dunes wells to production that averaged 30-day rates of 3,100 BOED, which is in line with the step change in productivity that began in the second half of 2017. I also want to highlight a 2-well pad in the Wolfcamp XY bench that delivered an average 30-day peak rate over 10,000 BOED.

As shown on Slide 50 in the appendix, many of these record wells in New Mexico were stimulated with significantly less proppant than the industry average, which results in lower well costs and higher full-cycle value. We continue to integrate our vast seismic data with improved geomechanic and petrophysical analysis that enable us to land the wells in the best part of the rock and stimulate the rock with a customized frac. Our customized stimulation designs rely on our subsurface characterization workflows and data analytics to balance well productivity with incremental costs, ensuring we're developing each section for maximum value.

Lastly in New Mexico, we continue to appraise and delineate our acreage across Greater Sand Dunes. We delivered one second and one third Bone Spring appraisal well in a field called Red Tank in the northern part of Greater Sand Dunes, which delivered an average 30-day peak rate of 2,300 BOED per well. We're excited about these results as they provide additional low breakeven inventory for future growth.

On Slide 19, we've updated our Permian Resources quarterly production guidance and increased the midpoint for total year by 2,000 BOED. Production in the first quarter of 177,000 BOED was above the high-end guidance, which was driven by better than expected well results in Greater Sand Dunes and Greater Barilla Draw and less downtime than expected from artificial lift installations on many new wells.

Many of the artificial lift installations scheduled for the first quarter were delayed to the second quarter as pressure in the new wells remained high and were able to flow longer without intervention. We expect to install lift on these wells in the second quarter and the associated downtime is included in our production guidance.

Turning to Slide 20, I'll provide an update on Aventine, our maintenance and logistics hub located in southeast New Mexico. Since this one-of-a-kind facility in the Permian began operations in February, we've received sand from 14 separate unit trains and supplied sand for 31 completions across Texas and New Mexico. In March, the oil country tubular goods part of the facility became operational and since received approximately 1,400 tons of pipe with over 1,000 tons delivered by rail. We also began servicing wells with the new Sandstorm system which has reduced the number of trucks required to supply sand to the well site and reduced the amount of time each truck takes to unload.

While the facility has started providing cost savings for our new wells, it also plays an important role in ensuring we can execute our plan. As activity is ramped up, we've been able to avoid logistics and supply problems by servicing our wells from Aventine. We expect this facility will be fully operational by the end of the third quarter, providing a competitive advantage for us in the Permian.

Finally, on Slide 22, we're delivering operational execution improvements that are reducing the cost of our wells and accelerating production by reducing time to market. We've increased drilled feet per day 23% in New Mexico and 17% in Texas since the first half of 2017. These efficiencies are a result of better well designs and improved well site operations from our proprietary Oxy drilling dynamics. We've also seen improvements in our completions in New Mexico, where we achieved a 19% improvement in stages pumped per day compared to the first half of 2017. These first quarter improvements demonstrate our strong executional capabilities and provide a foundation for us to bring online the wells we've forecasted for the year with the potential for upside.

2018 will be a great year for our domestic assets. Our Permian EOR business will continue to generate significant free cash flow while finding innovative ways to operate mature fields at lower cost. Permian Resources is growing high-margin production at the lowest capital intensity level in its history and providing cash flow for long-term sustainability. And thanks to investment in our Midstream business, we're positioned to maximize price realizations with oil and gas transportation agreements to the Gulf Coast with volumes in excess of our current equity production. Lastly, we're also continuing to build future opportunities by advancing our understanding of EOR in unconventional rocks and will provide updates in future calls. I'll now turn the call over to Vicki.

Vicki Hollub -- President and Chief Executive Officer

Thank you, Jody. I'd like to close by congratulating two members of our team on role changes. Richard Jackson will be moving into Jody's team to lead our Operation Support groups. Richard has been an incredible asset for the Investor Relations team and will continue to be actively involved with our IR activity. He has done an incredible job to change our communication and sharing our story with our investors and shareholders.

Replacing Richard as VP of Investor Relations is Jeff Alvarez. Jeff most recently led the Permian Resources Texas Delaware business unit as President and General Manager. Jeff's extensive international and domestic experience has prepared him to be our investment community spokesperson. Richard and Jeff have a long working history together and will be transitioning over the next few months.

We'll now open it up for questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. To ask a question, you may press "*1" on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press "*2".

The first question is from Brian Singer of Goldman Sachs. Please go ahead.

Brian Singer -- Goldman Sachs -- Analyst

Thank you. Good morning and congratulations to Richard and Jeff. Vicki, share repurchases have not been vocally high in the pecking order for use of free cash. Can you talk to how you and the Board will determine the magnitude and the timing of share repurchase and whether you view repurchases as more temporary to deploy excess free cash flow from above mid-cycle margins in Midstream and Pet Chem versus something more ongoing as an augmentation to Oxy's dividend?

Vicki Hollub -- President and Chief Executive Officer

It's important to note that historically we've always had a very active share buyback program. And as Cedric mentioned, from 2005 to 2015, we had bought back about $9 billion in shares. That's while we were paying a dividend over that time period of about $17 billion. That dividend that we paid over that time period had a CAGR of almost 14%. So even though we pay a healthy dividend, share buybacks are a part of our cash flow priorities. And, in fact, in our last presentation, on Slide 6 for the last quarter, we had listed that share buybacks would be a possibility in an environment above $60.00.

The reason we haven't talked about it here recently is the fact that we wanted to get a line of sight to see whether or not prices were gonna remain that healthy. And we also wanted to get closer to our Breakeven Plan to resume our buyback program.

As for the amount, as Cedric said, we have quite a volume of share repurchases that are authorized by the Board for us to make. We'll begin those this year but it really depends on the market conditions, pricing, and other opportunities.

Brian Singer -- Goldman Sachs -- Analyst

Great. Thanks. And then to shift in my follow-up to the Permian, you're planning an accerlation in the number of Permian Resources wells brought online in the second and third quarter. So you've guided to an acceleration in production and growth in the third and fourth quarters but what are the moving pieces around that and potential upsides? What type of well productivity improvement, if any, have you factored in versus what you're seeing? And how should we think about the natural decline rates in Permian Resources?

Jody Elliott -- President of Occidental Oil and Gas Corporation-Domestic

Hey, Brian, this is Jody. Good morning. We tend to take a cautious approach to updating our tide curves and projections on new wells. So as we get data beyond the 24-hour IP, beyond the 30-day IP, we really want to start seeing consistency in the six-month cumulatives, or even the one-year cumulatives. We start moving up our tide curves. So some of that is baked into this forward guidance. The wells online count, we're confident about that given all the investment in Aventine and the logistics work and the improvements in our execution. The variability in those numbers is really just the fact that a lot of these land right at the end of the quarter. And so a few wells moving in or a few wells moving out changes your count, but it doesn't appreciably change your production forecast.

Brian Singer -- Goldman Sachs -- Analyst

Great. Thank you.

Operator

The next question comes from Guy Baber of Simmons & Company. Please go ahead.

Guy Baber -- Simmons & Company -- Analyst

Thanks and congratulations, everyone, on the strong results.

Vicki Hollub -- President and Chief Executive Officer

Thank you.

Guy Baber -- Simmons & Company -- Analyst

I wanted to start with just a point of clarification on the Midstream. But just to confirm here, the slides show that for every $0.25 per barrel widening in the spread, that's another $45 million of cash flow annualized to the Midstream, which is clear. However there is, I believe, a partial offset in terms of your upstream realizations. So can you just confirm for us what that sensitivity is on a net basis to Oxy at the corporate level, inclusive of the Midstream benefits but also accounting for the hit to the upstream realizations? I just want to make sure that we're triangulating to the right bottom line, as the guidance is premised upon a $6.00 to $7.00 spread obviously. But we're currently sitting closer to $15.00 on a spot basis.

Cedric Burgher -- Senior Vice President and Chief Financial Officer

Guy, this is Cedric and that's a good question. The net is about $30 million. So the $45 million minus $15 million. I think that answered it.

Guy Baber -- Simmons & Company -- Analyst

Great. Okay. Perfect. And then for my follow-up here, I wanted to ask an ops question but, Jody, you alluded to this and you have a slide on this in the back of your deck, Slide 50, I believe. But you highlight how you all have drilled some of the most prolific wells in the basin in the last 12 months with a step function improvement in the recent quarters, yet you're seeming to do that without any meaningful increases in your completion intensity and at a completion intensity that's well below average for peers. So that appears to bode pretty well for your capital efficiency. So can you just talk about that dynamic in a little bit more detail? I'm just trying to better understand the sustainability there and what you're seeing, kind of leading edge, on a capital efficiency front.

Jody Elliott -- President of Occidental Oil and Gas Corporation-Domestic

Yeah, Guy, thank you for the question. This all really starts with subsurface characterization. It's what we've been talking about over the last year of improvements on geomechanics and geochemistry and integrating our seismic and advancing our petrophysical modeling to better understand what we call flow units. And then how those flow units will behave with a stimulation. That leads to then a better stimulation design that's customized for basically each well. But from that customization comes efficiency gains built around standardization. So all of the execution with leveraging Aventine, with how we execute in the field, delivery of sand, the commercial arrangements that support that, then turn something that's very customized into something that's very manufacturing-oriented. So the combination of those things is really what's driving what we believe is kind of play-leading capital efficiency.

The other piece in the middle I want to highlight is what the team does in the area of field development planning. So they take all of those attributes and then optimize what's the best way to develop the field or the different flow units. Do we do them concurrently? Do we do them individually? How do you pace the rigs? How many rigs? How many frac cores? And there's many, many iterations on trying to optimize that. And the ultimate goal is maximum value per section. And so our teams have gotten very, very good at that but they also retain flexibility in those field development plans so, as we have new learnings, we have surprises, both positive and negative, we can adjust those plans accordingly. So we really are hitting on all cylinders from subsurface through execution at the well head.

Guy Baber -- Simmons & Company -- Analyst

That's great stuff. Thank you. And congrats to you as well, Richard.

Richard A. Jackson -- Vice President of Investor Relations

Thanks, Guy.

Operator

The next question is from Phil Gresh of JP Morgan. Please go ahead.

Phil Gresh -- JP Morgan -- Analyst

Yes. Hi. Good morning. Congratulations on a strong quarter. First question is just on the capital spending for this year. If I look at the Permian specifically, the wells online in the first quarter are a fairly small percentage of the total year plan but the CapEx in the Permian, if I just take your guidance from the fourth quarter call divided by four, is tracking ahead of that. So I just want to get an understanding of how -- it sounds like it was in line with your own expectations but I just want to get an understanding of how you think about how that plays out. And then if you could maybe just dovetail in the comments about potentially looking to spend more capital to sustain activity levels in the International investment that you talked about.

Vicki Hollub -- President and Chief Executive Officer

Yeah. I'll let Jody cover a little bit more of the lumpiness of the Resources business and what we had expected to see in the beginning of the year. But when we laid out our program, we intentionally designed it so that, toward the end of the year, we would have the flexibility to ramp down and that's built in to the capital program for 2018. What we wanted to do is to have the flexibility to ramp down to our $3.3 billion capital in 2019 if we were seeing a $50.00 environment, which is what we had talked about. Since we're not sure what pricing will do in 2019 and we want to stay within cash flow with our capital programs in the future, we haven't set that yet. So what you're seeing is an upfront-loaded 2018 capital.

With respect to how the wells fit into that, I'll let Jody talk about that.

Jody Elliott -- President of Occidental Oil and Gas Corporation-Domestic

Yeah. When you think about the plan for this year, the front end is considerable loaded with more facility activity. In fact, in the second quarter, we'll be commissioning two large facilities in New Mexico. And so as you move through the year, even though some of the well count is going up on a completion side, you're offsetting that with less facility spending. The wells are also the place where all these efficiencies, the benefits of Aventine, which are just starting and which will grow over the year, start coming into play.

Phil Gresh -- JP Morgan -- Analyst

And if I could just clarify, Vicki, the second part of that question around the activity levels and the potential for further investment in International and EOR. Is that something that would lead to spending above the $3.9 billion for the year at this stage?

Vicki Hollub -- President and Chief Executive Officer

At this point, we haven't made any decisions regarding that. But what I will assure you is that we have flexibility. We have a vast inventory of not only things to do in the Permian but internationally. Our opportunities are pretty much unlimited at this point with respect to what we're seeing. But for the program this year, we haven't made any decision yet to increase our capital. What we would consider doing, at the most, probably would be to sustain the activity level we have at this point. But we haven't made that decision yet. We'll see how things look over the next few months.

Phil Gresh -- JP Morgan -- Analyst

Got it. Okay. And then my follow-up was just around the balance sheet. In past quarters, you've had slides there where you've talked about asset sales as a means of bridging some of your spending gap, which, obviously, at higher prices, isn't as necessary. But does that mean that you're not looking to monetize these assets anymore? And just, in general, when you talked about your debt reduction objective, what would be the goal at this stage? Where do you want gross debt or net debt, whatever metric you would choose to go by?

Cedric Burgher -- Senior Vice President and Chief Financial Officer

Yeah, this is Cedric, Phil. On monetizations, we'll always be looking at high-grading and improving our portfolio. If there are things that we can get a good value for that aren't core or strategic to us, then certainly we'd be looking at those kind of exits. Like what we just did in the first quarter with the gas plant. Really it wasn't -- we got a good price for it and it wasn't essential to what we needed to do. And a lot of those, particularly in Midstream areas, we can contractually cover our needs just as easily. You don't necessarily have to own the assets. So there aren't any big plans necessarily. But at the same time, we'll always be opportunistic with improving our portfolio.

With respect to the balance sheet and debt, we don't have a precise target other than we want to be at the strong side of the group within the peer group. We've got a good credit rating, a good, strong balance sheet, and we would like to make some improvements to it. But there's nothing that's kind of a "must have." So improving the net debt with some of the organic cash flow we expect to be generating over the next few quarters is also on the list of things we'd like to do.

Phil Gresh -- JP Morgan -- Analyst

Okay. Thanks.

Operator

The next question is from Doug Leggate of Bank of America. Please go ahead.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Thanks. Good morning, everybody. Richard, you're not gonna get rid of us that easily but good luck in your new role. Two quick questions, if I may.

Vicki Hollub -- President and Chief Executive Officer

I'm sorry, Doug, but you're cutting out. Could you try to repeat that question for us please?

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Sorry. I apologize. Can you hear me now?

Vicki Hollub -- President and Chief Executive Officer

Yes.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Okay. So when I saw you last, you talked about achieving the milestone for cash breakeven as a potential turning point for the new Oxy strategy going forward. I'm just wondering what you think is the right level of growth for a company your size? What you think your portfolio can support?

Vicki Hollub -- President and Chief Executive Officer

I think what the portfolio can support and what's appropriate and prudent to do are maybe two different things. Our portfolio would support significant growth rates but we believe that a growth rate certainly above 8% is where we can be very efficiently and effective. And we think that that's a growth rate that would be appropriate for our dividend level and for the other cash flow priorities that we have. As we mentioned earlier, buybacks. I'm not sure where that ultimate number would be. It really depends on how efficient we get and what types of projects come up. But certainly one of the things we always want to do is stay within cash flow. So it'll be somewhat driven by prices.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

I appreciate that. Just to be clear, that was compared to the current 5% to 8% target, right?

Vicki Hollub -- President and Chief Executive Officer

That's right. Because currently we've averaged 5% to 8% over the years. We now have the capability to go well above that and how far above that we go, to say it more clearly, is gonna be dependent on prices and cash available.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Thanks. My follow-up is probably for Cedric, if you can still hear me. Cedric, buybacks and dividend growth kind of go hand-in-hand, meaning that, on a per share basis, buybacks amplify dividend growth. So I'm just curious, how do you think about the dividend policy going forward in the context of restarting the buyback program? Is that a per share growth target on the dividend or an absolute target on the dividend now? I'll leave it there. Thanks.

Cedric Burgher -- Senior Vice President and Chief Financial Officer

Thanks, Doug. No, on dividends, really our philosophy has not changed. We are absolutely committed to the dividend, as we've proven through the downturn, with not just sustaining it but growing it at a modest rate. It'll be dependent on our view of -- a dividend is a long-term commitment, share buybacks are more opportunistic, is maybe the way to say it. But on the dividend, we would look to continue with modest increases. Because it's a long-term, permanent commitment, if you will, the dividend, we look to do that at a more mid-cycle price. So today plus or minus $50.00 is what we have in mind. So with the higher price, as we showed last quarter on Slide 6 of last quarter's presentation, buybacks come into play when you have a significantly higher price than $50.00.

So we kind of run our business on a $40.00 to $50.00 price deck, in terms of being prepared for lower prices, running a low-cost business. And then look for dividend increases as we continue to improve our efficiencies, our well productivity, the Aventine, all the things we've been talking about to drive our breakevens lower, we'll continue to do that. And that's what will position us potentially for further dividend increases.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

I appreciate the answer. Thanks, everybody.

Operator

The next question is from Leo Mariani of NatAlliance Securities. Please go ahead.

Leo Mariani -- NatAlliance Securities -- Analyst

Hey, guys, I just wanted to follow up on one of the earlier comments that you guys made. Obviously you're breakeven has been pushed forward to the third quarter. Obviously that's nice. You talked about potentially higher CapEx later in the year but you kind of specifically said that that would likely be portioned over to international EOR. I just wanted to kind of get your thought on that. Why those areas versus Permian Resources, for example? Do you see better returns internationally EOR? What's the thought behind that?

Vicki Hollub -- President and Chief Executive Officer

So for 2018, if we increased our capital, it would be not beyond the program we currently have planned for International. Any increase in capital this year would be to just sustain the Permian Resources business. We do have some capital allocated to our international assets to do some appraisal work and evaluations for a little more aggressive program internationally in 2019, if prices permit. But that's probably what you're talking about, is just the work to set up those programs for 2019.

Leo Mariani -- NatAlliance Securities -- Analyst

Okay, that's helpful. And I guess with respect to the Aventine hub, obviously you guys have put a lot of time and effort into getting that up and running. If you were to sort of do a bit of a look back and kind of a project forward, is there any way to kind of quantify what you might be able to save in terms of Permian Resources well costs? Is there any way to kind of say, look, once this is fully up and running by the end of the year, we can save 10%? Or is there any way to quantify that?

Jody Elliott -- President of Occidental Oil and Gas Corporation-Domestic

Leo, this is Jody. Thanks for the question. I think we've stated $500,000 to $750,000 a well kind of impact when we're up and running. But the concept of Aventine actually wasn't just well cost-focused. It was also securing supply. And so we're really getting multiple benefits out of Aventine. Clearly we think we will drive cost down. We have already shown that securing supply during this tight period has been very, very helpful, not just in New Mexico but supporting contingency sand deliveries in Texas as well.

The other part that really starts growing over time are the efficiencies that are gained because we've got all of our strategic partners in place that can start whittling out all of the inefficiencies, the wasted motion, which does two things: it lowers our well costs, shortens time to market, but for our partners, it drives up their utilization. So their profit per frac or per rig crew, per flow back unit, all of those things go up because we're more efficient than the industry average. And so the result of that is less pressure on price increase because they're driving higher margins. So that's how we look at it. The number we've talked about is $500,000 to $750,000 a well. We think there's upside as the teams mature, not just in the physical assets but how we work the process.

Leo Mariani -- NatAlliance Securities -- Analyst

Alright. Thanks a lot.

Operator

The next question is from Bob Morris of Citi. Please go ahead.

Robert Morris -- Citigroup -- Analyst

Thank you. Good morning, Vicki and team. Congratulations on continued improvement in the Delaware Basin wells. My first question is you raised the guidance on the Midstream pre-tax income and that's based on an assumed spread of $7.00 to $8.00 from Midland to the Gulf Coast for the rest of the year. But that spread is currently around $15.00 and the strip on that is similarly wide. Would you or could you, have you given any thought to hedging that or trying to lock that in? Because that would be significant incremental cash flow that then you could use for the share buyback or otherwise.

Vicki Hollub -- President and Chief Executive Officer

I would say, Bob, up to this point, this quarter, we're seeing an average of just a little more than $8.00. So while it might seem like we're being conservative, it's really based on some information and some of the spikes we're seeing go well above that, but we're not sure we'll see that. But with respect to your question, I'll pass that to Cedric.

Cedric Burgher -- Senior Vice President and Chief Financial Officer

Yeah, Bob, I'd love to lock in $15.00 if we could. The truth is there's no market really for hedging those differentials. It's very thin and short-term and just really non-existent. So it's a volatile market. Its outlook is difficult to predict, as we've seen. Primary drivers, pipeline utilization, which we expect to continue to be high until these new pipes come on, particularly in the second half of '19. But as it stands, hedging's just not really an option available to us.

Robert Morris -- Citigroup -- Analyst

Yeah. No, I suspected the market was pretty thin and obviously it would be nice to be able to lock that in. My follow-on question is I know you did mention you'd be opportunistic on non-core asset sales. You did say last quarter you expected to execute on some non-core asset sales this year. Has either the recent deal at a very high per acre value or the widening in the Midland differentials change your view or approach on executing on non-core asset sales this year?

Vicki Hollub -- President and Chief Executive Officer

No. It's still the same. We will look for opportunities and the opportunities have to be compelling enough to execute on. But we're still continuing to look at ways to monetize those things that are non-core to us.

Robert Morris -- Citigroup -- Analyst

Okay. Great. Again, congratulations. Thank you.

Vicki Hollub -- President and Chief Executive Officer

Thank you.

Operator

The next question is from Matt Portillo of Tudor, Pickering, Holt. Please go ahead.

Matthew Portillo -- Tudor, Pickering, Holt & Co. -- Analyst

Good morning, all. Jody, you highlighted the value proposition of the Aventine logistics hub in the Northern Delaware Basin, which appears to have a strong competitive advantage regionally. I was wondering if you see similar logistics potential in Southern Delaware and the Midland Basin.

Jody Elliott -- President of Occidental Oil and Gas Corporation-Domestic

Yeah, Matt, we sure do. But in a different scale. Actually the one in the Southern Delaware Basin is called Palatine and it's more of a contractual relationship on sand trans-load. Midland Basin, there's more access to infrastructure and so you could service Midland out of either Palatine or direct from some of the regional sand mines that are coming on line. It's a little less exposed, plus our activity set is considerably lower in Midland. So we're really focusing on the Delaware Basin to ensure we have logistics, maintenance capabilities, those kind of things that are more regional to the activity, to take out trucks, to take out inefficiency and downtime.

Matthew Portillo -- Tudor, Pickering, Holt & Co. -- Analyst

Great. And the follow-up question is actually around your export business. As pipeline capacity ramps toward Corpus, you mentioned industry volumes will continue to increase, allowing you to expand your Ingleside dock capacity for crude oil. My question actually revolves around your LPG asset base. I know Oxy mothballed that facility due to lack of propane access. And I was wondering, with some of the new green build NGL pipes potentially heading southbound, if you see the potential to bring this asset back into service?

Vicki Hollub -- President and Chief Executive Officer

We stay aware of all the activity in the area and we're just keeping a watchful eye to determine at what point -- we believe at some point that could be an opportunity for us. But we don't see that now. We're really focused more on expanding the oil export part of that. However, we're gonna stay opportunistic with respect to how those pipelines play out and what opportunities might come our way.

Matthew Portillo -- Tudor, Pickering, Holt & Co. -- Analyst

Great. Thank you very much.

Vicki Hollub -- President and Chief Executive Officer

Thank you.

Operator

The next question is from Pavel Molchanov of Raymond James. Please go ahead.

Muhammed Ghulam -- Raymond James -- Analyst

Hey, this is Muhammed on behalf of Pavel. Thank you for taking the questions. First of all, when the buyback eventually does start, how should we think about it? Should it be a flex variable, as in will it remain relatively constant or flex up or down with free cash flow?

Cedric Burgher -- Senior Vice President and Chief Financial Officer

I think the way to think of it, Muhammed, is opportunistic. We're going to be looking at the competition for capital around here and that's one great use of capital. But we'll look at reinvestment and other options as well. And obviously we'll be looking at the value of the shares. So in periods of weakness and things like that, we certainly could step in. But we'll be opportunistic with those buybacks.

Muhammed Ghulam -- Raymond James -- Analyst

Follow-up on a different topic, the Middle East. It's now been almost a year since the economic embargo against Qatar started. You've said in the past there hasn't really been a significant impact on you guys. Is that still the same or have there been any changes?

Vicki Hollub -- President and Chief Executive Officer

No, that's still the same. It never really impacted our business very much. And I think Qatar, in general, has made a lot of changes to the way the country now manages that. And so we don't expect -- didn't see any and don't expect to see any problems with any of our operations.

Muhammed Ghulam -- Raymond James -- Analyst

That's all for me. Thank you.

Vicki Hollub -- President and Chief Executive Officer

Thank you.

Operator

The next question is from Roger Read of Wells Fargo. Please go ahead.

Roger Read -- Wells Fargo Securities -- Analyst

Yeah, thanks. Good morning. Am I on?

Vicki Hollub -- President and Chief Executive Officer

Good morning. Yes, you're on.

Roger Read -- Wells Fargo Securities -- Analyst

Good morning. Okay. Just to make sure. Kind of blank there. Maybe to follow up on the dividend question that hasn't been quite beaten to death. Cedric, if you look at your debt, and thinking about kind of the period we've just been through here of focusing more on cash flow neutrality at a low oil price environment than where we are today, do you look at any of your long-term debt and evaluate that as something you might prefer to retire rather than buy back shares?

Cedric Burgher -- Senior Vice President and Chief Financial Officer

Certainly we would look at that. Have looked at it. We know the terms. So that is one option that we could consider down the road. So, again, framing it, hopefully we've laid this out pretty clearly, but we have a plan that we're about to achieve. That means we can pretty much, in any reasonable oil price scenario, stay within the guardrails of cash flow. And then with that, we've laid out our priorities and net debt improvement is one of them. And so in the short-term, it likely means building cash a little bit, because most of our debt is termed out, as you've noted, but there are ways to bring that in and make some reductions there, too, over time. But, again, in that area, we'd be opportunistic. I've worked on, in the past, debt buybacks and even a defeasance and a defeasance is probably the last thing we'd want to do. They tend to be expensive. But there are ways to bring that debt in and that's something we would look at over time should the cash flow continue to stay at a high level.

Roger Read -- Wells Fargo Securities -- Analyst

Okay. Thanks. And then maybe two quick questions on the Permian. This call, no comments or, at least that I saw in the presentation, anything on acreage swaps or additions or anything. Is that an indication the market's slowed down or just a quarterly kind of event? And then the other question was, if you could help us, just because it's been quite a while since we've had to think about high oil prices having an impact on EOR ops or on OpEx, what exactly is exposed? Kind of what the percentage, maybe the right way to think about how that stair-steps in a higher oil price environment.

Jody Elliott -- President of Occidental Oil and Gas Corporation-Domestic

Roger, the first question on acreage trades. No, there's still a lot of activity there. Last year we did about 17,000 net acres in trades, and in the first quarter we've done 11,000. So there's still a desire to core up, be able to drill longer laterals, leverage your larger positions. With regard to EOR OpEx, it's primarily two things. It's energy. So as the cost of electricity goes up, you have some exposure to energy. And then some of the CO2 contracts have an oil price relationship. We can follow up with you later on trying to help model that a little closer. But the things we control with well work and activity, that's all managed pretty well and not so exposed to inflation. Our improvement activities typically offset any inflation.

Roger Read -- Wells Fargo Securities -- Analyst

Okay. Great.

Cedric Burgher -- Senior Vice President and Chief Financial Officer

Roger, sorry, this is Cedric. I just want to add one thing just for clarification. The first quarter financials, in our cash flow, you'll see $177 million of acquisitions and $275 of sales. Well, we talked about the roughly $150 million Delaware Basin gas plant sale, which was non-core, in that sale number. But the other piece of it was really the swap. So really the acquisition, the way we did it from an accounting standpoint, we broke both the acquisition and the sale out in the financial statement but it really was done as one deal and it was essentially a swap. A large one.

Roger Read -- Wells Fargo Securities -- Analyst

Great. Thank you.

Vicki Hollub -- President and Chief Executive Officer

And the other thing I'd add, Roger, about EOR is that we put the slide in there to show you its leverage to oil. And the reason for that is that it's about 80% liquids. And so on a BOE basis, we have a higher liquid and higher oil production from EOR on a BOE basis. So that's why it's that margin for -- even though OpEx will go up a little bit, we really benefit from higher oil prices in the EOR business.

Roger Read -- Wells Fargo Securities -- Analyst

I appreciate that.

Operator

The next question is from Jason Gammel of Jefferies. Please go ahead.

Jason Gammel -- Jefferies -- Analyst

Yes. Thanks very much. I just wanted to come back to the guidance on the Midstream, which is obviously a very significant increase. I realize that most of it is due to differential but, if I just take the midpoint change in the differential and multiply it by the $45 million rule of thumb, which sounds like maybe I should be using $30 million, I get to about $625 million versus the $750 million step-up in the guidance. So I was wondering if you could talk about any other factors that are positively affecting your outlook for the Midstream this year.

Cedric Burgher -- Senior Vice President and Chief Financial Officer

Certainly. The Midstream business has more than just those contracts related to the takeaway. The export terminal, in particular, has been doing fantastic this year. As you know, we're a leader in that area. And so it'd probably be the other thing I'd point to more specifically.

Jason Gammel -- Jefferies -- Analyst

So it's the ability to capture the arbitrage between, let's say, Brent and Corpus Christi pricing or something along that line?

Richard A. Jackson -- Vice President of Investor Relations

This is Richard. I may help with one piece of that. I wanted to clarify that the $45 million per $0.25 change, the Midstream segment fully benefits from that. The $30 million is really -- our upstream production is based on Midland pricing and so you'll see that in our realizations in our production schedules. So you do need to take the full $45 million and apply it to Midstream and that's the benefit.

Jason Gammel -- Jefferies -- Analyst

Okay. Thanks. And I was gonna say, even that would be a fairly significant uplift relative to just the rule of thumb that you're giving in guidance. But maybe if I could just transition to your comments around essentially around pipeline utilization rates being very high and not really much relief until mid-year next year. I know you're only giving guidance for 2018 but should we be able to extrapolate that Midstream is looking to have a pretty good first half of '19 earnings period as well?

Cedric Burgher -- Senior Vice President and Chief Financial Officer

Yes. That's our view. If you look at the alternatives, rail would be great but it's kind of got an $8.00 per barrel range. But that's limited today to around 100,000 to 150,000 barrels a day, in terms of rail capacity. I think there will be efforts to try to increase that but it's difficult to do. And then trucking. By the way, Slide 63 lays this out pretty well for you. And then trucking, again, it's a higher cost, with around $12.00 or so a barrel. So those would be kind of some upper limits you might think about. However, with trucking, we've all seen bottlenecks there. The roads are crowded and in disarray and getting trucks, and getting truck drivers even, is a difficult thing to do. So as we've said, the outlook for spreads is difficult to predict. It's going to be bouncy for a while as all of the takeaway systems are being stretched to their limits.

Jason Gammel -- Jefferies -- Analyst

That's really very useful. Thanks very much.

Operator

And the final question today comes from Michael Hall of Heikkinen Energy Advisors. Please go ahead.

Michael Hall -- Heikkinen Energy Advisors -- Analyst

Thanks. A lot of mine have been addressed. I guess just one I wanted to hit on, on the Aventine facility, I guess kind of dovetailing off of the comment on crude by rail. Is there any opportunity to convert any of that facility into a crude by rail terminal and to what extent might there be any interest in doing that?

Jody Elliott -- President of Occidental Oil and Gas Corporation-Domestic

Hey, Michael, this is Jody. You'll recall, we have two-and-a-half times our equity oil production volume that we can move on pipe. So, for us, we wouldn't likely consider that as an option. We really see this more as an operational facility to support right now mostly the capital side of the business. Then as you go through the full life cycle, it'll support the operating cost side of the facility as well.

Michael Hall -- Heikkinen Energy Advisors -- Analyst

Okay. Yeah, I guess I was thinking about it from the marketing business angle as another way to capture even more potential upside from the current situation. But it sounds like no. And then I guess the other piece is just on local sand usage. To what extent, if at all, are you guys testing that in the Delaware Basin, in particular, is, I guess, where I'm curious?

Jody Elliott -- President of Occidental Oil and Gas Corporation-Domestic

Hey, Michael. We see application of local sand in both the Southern Delaware and the Midland Basin. Our preferred sand provider is kind of coming online now with their local sand mine. So we will start utilizing more local sand as a percentage of the total. We've done kind of the background work, the geoscience work, the lab work, and all, to test different sands, different sand qualities, so we're comfortable applying those. It's just a matter of getting more activity in the local sand market.

Michael Hall -- Heikkinen Energy Advisors -- Analyst

Great. Appreciate it.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Vicki Hollub for closing remarks.

Vicki Hollub -- President and Chief Executive Officer

I'd like to leave you with three takeaways today. First, we are ahead of schedule for achieving our Breakeven Plan. Second, our first quarter outperformance and improving business results have led us to increase our full-year guidance. Finally, we will reinvest excess cash flow in our highest return opportunities. And, to close, I'd like to thank all of our employees because they are the true drivers of our success. Thank you for joining our call today.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Duration: 59 minutes

Call participants:

Richard A. Jackson -- Vice President of Investor Relations

Vicki Hollub -- President and Chief Executive Officer

Cedric Burgher -- Senior Vice President and Chief Financial Officer

Jody Elliott -- President of Occidental Oil and Gas Corporation-Domestic

Brian Singer -- Goldman Sachs -- Analyst

Guy Baber -- Simmons & Company -- Analyst

Phil Gresh -- JP Morgan -- Analyst

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Leo Mariani -- NatAlliance Securities -- Analyst

Robert Morris -- Citigroup -- Analyst

Matthew Portillo -- Tudor, Pickering, Holt & Co. -- Analyst

Muhammed Ghulam -- Raymond James -- Analyst

Roger Read -- Wells Fargo Securities -- Analyst

Jason Gammel -- Jefferies -- Analyst

Michael Hall -- Heikkinen Energy Advisors -- Analyst

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