Logo of jester cap with thought bubble with words 'Fool Transcripts' below it

Image source: The Motley Fool.

Occidental Petroleum Corporation (NYSE:OXY)
Q3 2018 Earnings Conference Call
November 6, 2018, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Occidental Petroleum Corporation third quarter 2018 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the * key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press * then 1 on your touchstone phone. To withdraw your question, please press * then 2. Please note this event is being recorded.

I would now like to turn the conference over to Jeff Alvarez, Vice President of Investor Relations. Please go ahead.

Jeff Alvarez -- Vice President of Investor Relations

Thank you, Andrea. Good morning, everyone, and thank you for participating in Occidental Petroleum's third 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, Ken Dillon, President, International Oil and Gas Operations, and B.J. Hebert, President of OxyChem. In just a moment, I will turn the call over to Vicki.

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 risks and uncertainties that may cause actual results to differ materially from those expressed or described in these statements and as more fully described in our cautionary statement regarding forward-looking statements on slide two.

Our earnings press release, the investor relations supplemental schedules, our non-GAAP to GAAP reconciliations, and the conference call presentation slides can be downloaded off our website at www.oxy.com.

I'll now turn the call over to Vicki. Vicki, please go ahead.

Vicki A. Hollub -- President and Chief Executive Officer

Thank you, Jeff and good morning, everyone. Today, I'd like to begin by highlighting the results we've achieved over the last 12 months, during which our focus on value growth and our high-quality assets delivered a cash return on capital employed of 26%. Combined with a double-digit return on capital employed over the same period, we have clearly demonstrated our ability to deliver industry-leading returns and have aligned our executive compensation to this principle.

Our integrated business model provides us with numerous opportunities in which to invest and grow free cashflow in a sustainable manner well into the future. We remain disciplined and will continue to allocate capital to investments that generate the highest returns to our shareholders. This approach enabled us to deliver $3.3 billion of cash to shareholders over the last year through a combination of our dividends and share repurchases while also growing production by 14%.

This morning, Cedric will walk you through our financial results and updated guidance. Jeff will detail the sustainable and value-creating improvements we continue to create in the Permian. Prior to leading our Investor Relations, as just want to let you know that Jeff served as President and General Manager for two of our resources business units, Texas Delaware and Midland Basin. He also has significant prior experience in our enhanced oil recovery businesses. After Jeff, Ken will provide an update on operations and opportunities in our international businesses.

Before covering our third quarter highlights, I would like to mention an organizational update and congratulate Jeff Bennett and Barbara Bergersen. They have recently taken on heightened roles within our domestic oil and gas business. Jeff is leading our three Permian business units, those are the Midland Basin, Texas Delaware, and Southeast New Mexico, and Barbara is leading our Permian-enhanced oil recovery business.

I'd also like to congratulate Richard Jackson in his new role, which includes leading our new low carbon ventures team along with our Permian competitor analysis, land, and regulatory teams. The low carbon ventures team will work across all of our businesses. These changes will enable us to focus more intensely on the Permian and to develop unique corporate strategies that address the key challenges facing our industry.

As noted on slide five, we delivered an exceptional quarter both financially and operationally. Our operating cashflow of $2.6 billion exceed capital and dividends by $700 million. During the third quarter, we returned $1.5 billion to our shareholders. Our earnings per share of $1.77 is the highest quarterly EPS we have achieved since the second quarter of 2014 when the average WTI oil price was over $100.00.

All of our business segments exceeded key performance targets through production growth and the most profitable areas, lower unit costs, and better price realizations. In Permian resources, we brought our best well to date online in the Greater Sand Dunes area and in Barilla Draw, we brought online the best Texas Permian well to date for the industry.

These achievements were made possible through the investments we made in our people and the advancements they have achieved in subsurface modeling and characterization. In Oman, we had three new blocks that will provide us long-term, short cycle, lower decline growth opportunities. Ken will provide additional information on these later in the presentation.

Our chemical segment produced another record quarter of earnings as a result of our integrated business model, which allows us to take full advantage of favorable market conditions. Our midstream and marketing business continues to deliver higher realizations from our advantaged Permian takeaway position and as expected, we closed on the previously announced $2.6 billion Midstream transactions.

Our priority continues to be the allocation of free cashflow toward investments that generate the highest returns, along with returning cash to shareholders through our dividend and share repurchases. This includes investing in high-return assets across our integrated businesses. With the additional three blocks in Oman and new opportunities in Columbia, we now have an even larger inventory of short cycle, high-return long-term growth options in our oil and gas business.

Oxy approaches each opportunity we consider with a disciplined focus on returns. Every project must create value for our shareholders, period. This is one of our core principles. Our priority now is to replace the cashflow from ISND and we're confident we'll do so in 2020, both from our ongoing development program and reallocation of capital from the North Dome. We will invest in our highest return projects with Permian resources serving as the returns benchmark.

Slide six shows the depth of opportunities across our portfolio from which we grow our high-return cashflow. Our integrated business provides domestic and international, conventional and unconventional opportunities from which to grow value from our oil and gas production and our chemical segment also has opportunities to grow cashflow. As we communicate our plan for 2019, we'll provide further details for our capital allocation.

Looking past next year, we will continue to focus on our highest return opportunities and expect to increase cashflow to between $9 billion and $9.5 billion by 2022, as shown on slide seven. This level of cashflow is achievable through investments in short cycle high-return projects and is sustainable with an annual capital investment of $5 billion to $5.3 billion in a $60.00 price environment.

We will deliver higher rates of production growth in 2018 and 2019 to replace the cashflow from ISND in 2020 and to return to higher dividend growth, but our long-term production growth target remains at 5% to 8%+.

Before I turn the call over to Cedric, I want to talk about what discipline means to Oxy. We have honored our commitment to shareholders by returning capital and will continue to do so. We're one of only a few companies in our sector that did not cut our dividend in the downturn or dilute or shareholders. We continue to increase our dividend and plan to return to more meaningful growth in the future, which is one of the key reasons we're investing in our highest return assets so we can increase cashflow and return more cashflow to shareholders.

As shown on slide 8, we've increased our dividend each year since 2002 and repurchased a significant number of shares in a higher oil price environment. Also, since 2006, we have returned a total of $31 billion or over half of our current market cap to shareholders. Returning capital to shareholders via our dividend and share repurchases is not new to us and will continue to be a key part of the value we provide.

I'll now turn the call over to Cedric.

Cedric W. Burgher -- Senior Vice President and Chief Financial Officer

Thanks, Vicki. As Vicki highlighted, we are pleased to have continued repurchasing shares, allowing us to return $1.5 billion of cash to shareholders during the quarter. On slide ten, I'd like to start with our earnings, which improved across all segments, with our third quarter reported earnings per share at $2.44 and core EPS at $1.77 per diluted share. The main difference between reported and core income is the gain on sale of our non-core domestic midstream assets which resulted in an after-tax gain of approximately $700 million.

Improvements in the oil and gas segment income were mainly attributed to higher Permian resources production and Middle East oil sales volumes. Third quarter realized oil prices were approximately flat compared to the second quarter. Total reported production for the third quarter was 681,000 BOEs a day coming in above the midpoint of our guidance. This was driven by strong execution and well productivity in Permian Resources, which came in at the top end of the guidance range at 225,000 BOEs per day, representing a year over year increase of over 60%.

Total international production came in at 297,000 BOEs a day, which is at the midpoint of our guidance. The increase in international production from the second quarter reflected the first full quarter following the successful de-bottlenecking and expansion of capacity at Al Hosn.

The chemical segment had another quarter of record earnings. Chemical pre-tax income for the third quarter was $321 million, which came in above guidance of $315 million. Compared to the second quarter of 2018 earnings of $317 million, third quarter earnings were relatively flat as vinyl margins came under pressure from higher ethylene costs resulting in increased ethane costs. Export cost ex-soda demand helped offset the decline in vinyl margins.

Midstream core earnings of $796 million reflected improved marketing margins due to an increase in the Midland to MEH differential from $7.86 to $16.67 quarter over quarter and exceeded the high-end of our guidance due to the market to market improvements, stronger gas processing results driven by higher NGL prices and one-off items from the midstream transaction that closed in the quarter.

Third quarter revenue and cost of sales were both grossed up by $327 million due to the accounting related to certain midstream contracts where we've used our excess takeaway capacity by purchasing and reselling third-party barrels. The second quarter gross up amount was $85 million.

Our operating cashflow before working capital improved to nearly $2.6 billion as all of our segments continued to outperform cashflow expectations, representing year on year growth of 136%. We spent $1.3 billion in capital during the quarter and our total year capital budget remains at $5 billion. Starting in 2019, we will begin to redeploy approximately $200 million of capital per year that would have been invested in Qatar.

Slide 11 details our updated guidance, which we have narrowed for the full year. We expect total production for 2018 to be 655,000 to 659,000 BOEs per day and Permian Resources production to be 211,000 to 213,000 BOEs per day. The midpoint of this range equates to an exit to exit Permian Resources production growth rate of 54% from Q4 2017 to Q4 2018.

We have also narrowed our international production guidance range to 286,000 to 287,000. Assuming a $75.00 per barrel Brent pricing for the remainder of the year. In Midstream, we expect the fourth quarter to generate pre-tax income between $450 million and $550 million, assuming a Midland to MEH spread of $13.00 to $15.00.

In our chemical business, we anticipate fourth quarter pre-tax earnings of $220 million and are raising the full-year guidance to $1.155 billion based on the strong results delivered year to date. To close, we are very pleased with our performance so far this year, including the continuation and expansion of our share repurchase program. As we have shown, our focus is on returns and our Permian operations set a very high bar for our company and, frankly, for the industry.

We have a pipeline of projects across our integrated business that meet our hurdle rates and that have long-term potential. We continue to have the discipline to hold to these principles and occasionally take tough decisions. We believe this is what it takes to lead with respect to capital stewardship. We have aligned compensation in this regard and we continue to demonstrate our long-term commitment to returns-driven reinvestment, a robust divined, and share repurchases.

I will now turn the call over to Jeff.

Jeff Alvarez -- Vice President of Investor Relations

Thank you, Cedric. Our Permian teams have delivered another great quarter by continuing to find innovative ways to improve and increase the value of our assets. I'm excited to share these results with you today. Production for the quarter was outstanding, with Permian resources exceeding the midpoint of production guidance by 5,000 BOEs per day.

Continued improvements in well results along with great execution of our operational plan is resulting in high-value production growth. Permian Resources production guidance has now increased by 10,000 BOEs per day from the initial guidance we provided at the beginning of the year. These high margin barrels have generated additional cash and add significant value to the returns of the underlying assets.

Looking at our highlights on slide 13, we continued investments in the appraisal program to delineate our acreage and optimize development plans. In greater Barilla Draw, we integrated the results of our Hoban appraisal efforts into our field development plans and expect to be more active in this bench in 2019. We also drilled two Avalon appraisal wells in Greater Sand Dunes that each averaged approximately 2,700 BOEs per day over 30 days. Our appraisal program continues to provide us confidence that Permian Resources will generate returns and sustainable cashflow growth for many years to come.

As Vicki mentioned earlier, the third quarter was another record-breaking quarter for well results in both of our core development areas. We brought online our best Permian Basin well ever. The Corral Fly 21H in Greater Sand Dunes peaked at over 8,900 BOEs per day with an average over 6,700 BOEs per day for 30 days. We also broke the industry record for the best well in the Texas Permian Basin with the Greater Barilla Draw well, the Peck 11H, which peaked at over 6,500 BOEs per day and averaged 4,900 BOEs per day over 30 days, a 30% increase over the prior record well for this area that we shared with you last quarter.

These repeatable record-breaking results are a testament to our subservice capability, value-based development approach, and leading acreage position. While we are excited about these results and associated returns, we believe there are still more to come as we continue to progress our subservice characterization work and apply innovative technologies to our development plans.

In addition to the productivity improvements, we lowered our field operating costs in Permian resources to an all-time low of $7.03 per BOE in the quarter and expect to exit the year at less than $6.00 per BOE. Returns in Permian EOR are also improving. We continue to demonstrate our unique ability to maximize recovery of the reservoir by capturing oil that would otherwise not be recoverable.

As the largest EOR operator in the Permian, we continue to implement new CO2 expansions across our portfolio. We initiated initial development of the residual oil zone at the Seminole-San Andres unit, which is providing encouraging results that will further enhance the returns from this asset. Our expertise and position in enhanced oil recovery differentiates Oxy. We plan to leverage this core capability to generate enhanced returns in many areas of our business.

I'll close on slide 14 by summarizing our returns-focused investment approach and the resulting production growth. While the industry has been confronted with many challenges in the Permian this year. Our Permian resources business is delivering its best year ever due to our returns-focused approach.

We have delivered 52% of the top Permian wells over the last 12 months, while only drilling less than 5% of the total Permian wells over that time period. Our midstream business is providing flow assurance and exposure to the best pricing through our marketing arrangements and we are protecting our development program from inflation and execution disruptions through our maintenance and logistics hub.

Our inventory continues to improve as we advance and execute our development strategy, which provides us with sustainable high-return investment options for the future. We expect Permian resources to grow at over 35% next year, which is an outcome of our disciplined approach and the high-return investments that our assets provide.

I will now turn the call over to Ken to discuss international.

Ken Dillon -- President of International Oil and Gas Operations

Thanks, Jeff and good morning, everyone. Let me start by saying how honored we are today to introduce three new blocks in Oman, which I will discuss in more detail in a minute. Overall, we had an excellent quarter from a financial and operational standpoint, with world class HES performance. Our international upstream business is on target to realize $1.4 billion of free cashflow for 2018. In the third quarter, we produced 297,000 BOE per day. We expect this high-level of performance to continue as we deliver strong return projects for Oxy and our partners.

The plan we outlined for 2018 is progressing well. Our innovative de-bottlenecking at Al Hosn has increased production by 11% to a peak rate of 83,000 BOE per day net. This is one example of how we create value and enhanced returns for our existing assets as we executed the debottlenecking for only $10 million.

The TECA Steamflood project was sanctioned this month with our partner EcoPetrol. We will begin ramping up production in 2020 and reach a growth rate of 30,000 BOE per day in 2025. We are starting to identify additional areas of high potential in the field, which we can develop as attractive returns for both parties.

With our disciplined approach to major projects, the TECA Steamflood exceeds our hurdle rate at a breakeven price under $40.00 WPI. This is just one example of how our assets in Colombia will continue to generate long-term cashflow growth.

Internationally, our step-out drilling programs are on track to add approximately 20 million barrels of resources this year at low finding costs. This is in addition to the 50 million barrels of resources added last year. Overall, since 2014 using Oxy drilling dynamics and working with our suppliers, we've improved our drilling performance by 17% and reduced costs by 30%.

Moving now to Oman -- we drilled the very first exploration wells in Oman in 1955 and made the first discovery in 1957. In 2017, we produced our billionth barrel of oil in Oman, with two-thirds of that production coming within the last ten years. We're excited today to announce three new blocks in Oman, which will more than double our land position to approximately 6 million acres and fit perfectly with our expertise and generating returns from water-flooded development.

As you can see from the maps on slide 18, in Northern Oman, our acreage will stretch over 225 continuous miles, allowing us to leverage existing infrastructures we explore, appraise, and develop Block 65 and 51. Block 72 greatly expands our acreage position in Central Oman, where we see opportunities to expand upon the success of our development next door.

In our existing blocks as shown on slide 19, with the use of Oxy subsurface reservoir characterization workflows, we've helped redefine the stratigraphy. This has enabled us over a short period of time to move from 5 productive horizons to 17 producing and appraisal horizons. We will apply the same disciplined approach to the new blocks. We will shift 3D seismic and invest in targeted appraisal programs. Capital for next year will be modest as we acquire data and optimize future development profiles.

These blocks have significant potential, especially when combined with our excellent Omani staff, exceptional partners, and an inspirational leadership in the country. We expect our proven track record of value-based development and rapid time to market to continue.

In closing, I'd like to say that our regional subsurface experience is now being fully leveraged. We believe that in the long-term, when combined with our approach to operational excellence and value creation, it will bring future potential opportunities.

I will now turn the call back to Vicki. Thank you.

Vicki A. Hollub -- President and Chief Executive Officer

Thank you, Ken. Before we move to Q&A, I'd like to reiterate Oxy's sustainable value proposition, through which we'll continue to deliver industry-leading returns. Our integrated business model enables us to take advantage of opportunities across the value chain and generate high returns in the Permian and internationally, while benefiting from the stable cashflows generated from our Midstream and Chemical segments.

We will continue to invest in our human capital and empower our employees with the culture and facilities innovation and excellence. This is what their exceptional performance has enabled us to accomplish over the last couple of years. We've more than exceeded our targets. In addition to delivering the best wells in the Permian, our experience in operating wells beyond the initial development and through their entire lifecycle including enhanced recovery, that's second to none.

Our low carbon ventures business is making advances toward capturing and sequestering the anthropogenic CO2, which will reduce carbon emissions while enhancing the economic development of our reserves. Oxy is uniquely positioned to realize cost efficiencies not only in developing and operating wells, but also through our capability to deliver our products to market at maximized realized prices.

We remain committed to developing our resources in a sustainable manner while spending within cashflow. Last quarter, we achieved our breakeven plan, meaning we will be cashflow neutral and pay our dividend at $40.00 WTI and at $50.00 WTI, we can pay our dividend and grow production by 5% to 8%. This plan remains in place.

Our relentless focus remains on allocating free cashflow to investments with the highest returns across our integrated business and returning capital to shareholders through our dividend and share repurchases. Since resuming our share repurchases program this year, we have returned over $5 billion to shareholders through dividends and share repurchases by the end of 2019.

Lastly, across our businesses, we continue to focus on creating long-term value through industry-leading technical work, lifecycle planning and operations focused on maximizing margins.

We'll now open up for your questions.

Questions and Answers:

Operator

We will now begin the question and answer session. To ask a question, you may press * then 1 on your touchstone phone. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press * then 2.

Our first question will come from Doug Leggate of Bank of America. Please go ahead.

Doug Leggate -- Bank of America Merrill Lynch -- Managing Director

Thank you, everybody. I wasn't expecting to be first. I apologize. I've got two questions, if I may. My first one is on the Middle East. Obviously, I understand the comment about reallocating capital from Qatar. My question is really around Al Hosn. About a year or so ago, the government had talked about a project for something like a 50% expansion of development. I understand you've done the debottlenecking project, but the secondary piece of that appears to have gone somewhat quiet. I'm wondering you can give us an update about where that stands.

Ken Dillon -- President of International Oil and Gas Operations

Good morning, Doug. It's Ken. We've successfully debottlenecked the plan. We continue to look for ways to tweak the plan overall, but at the moment, there are no full-scale debottlenecking plans in the near future. We continue to work all different aspects of the project, but at the moment, there's no commitment.

Vicki A. Hollub -- President and Chief Executive Officer

We're really happy with being able to expand it from BCF to 1.3 BCF a day with only a $10 million investment. With that accomplishment, that sort of put the other project a bit on hold.

Doug Leggate -- Bank of America Merrill Lynch -- Managing Director

I understand. Thank you for that. My follow up -- I don't know who wants to take this one -- but with Jeff moving to take over the other regions, it begs the question what assumptions you align behind your 35% long-term growth profile. To be clear what I'm asking. Red Tank is a much more over-pressured area. What does all of this mean for the assumptions embedded in the growth. Are you using 2018 productivity? Are you using data productivity? I'm trying to understand what the well trajectory looks like that's embedded in your forecast.

Jeff Alvarez -- Vice President of Investor Relations

Yeah, Doug. This is Jeff. I think when you look to next year, we've built in some of our recent performance, the improvement performance we've seen in New Mexico starting in '17 into '18, we've built that in. We've talked about before where we tend to be a little conservative is existing improvements that are going to come in the future. We definitely expect to see additional improvements across our development areas. You can see that through not just New Mexico but what we've done in Greater Barilla Draw and beyond that.

So, the teams continue to work the subsurface methodology, which is the foundation of all the improvements we're making. So, we expect those improvements to continue. But when you look at next year and the 35%+ growth we've given out, we have built in many of those improvements we're currently aware of. Where we are a little conservative is the things we just haven't figured out, but we expect to when we get to that point.

Doug Leggate -- Bank of America Merrill Lynch -- Managing Director

Just to be clear, is that trajectory on a flat rig count or is it a rig count trajectory you can give us that goes along with that 2022 outlook?

Jeff Alvarez -- Vice President of Investor Relations

It's a flat rig count.

Operator

Our next question comes from Brian Singer of Goldman Sachs. Please go ahead.

Brian Singer -- Goldman Sachs -- Managing Director

Thank you. Good morning. Can you talk more to the specific drivers of getting Permian Resource's operating cash costs down below $6.00 per BOE in the fourth quarter from slightly above $7.00 in the third quarter, especially as that would mean acceleration in cost reduction relative to what we saw in Q3 versus Q2?

Jeff Alvarez -- Vice President of Investor Relations

Yeah, Brian. This is Jeff. So, the big drivers of that are two components -- obviously, cost per BOE, there's the cost side. So, if you look at the details, you can see things like our downhole maintenance, the things we're doing from an artificial lift standpoint to find effective artificial lift systems for very high-rate horizontal wells. We're seeing our downhole maintenance costs come down because we're getting much better at finding the right lift systems and then when things do fail, which they do, from artificial lift, getting them fixed cheaper and faster. So, that's one area.

You look at what we're doing on the water recycling side, the chemical side, getting trucks of the road, infrastructure in place. So, all the things that we do from our initial developments to where we start planning, how do we need to operate these fields, start to translate into the cost side.

The second part of that component is obviously the barrels, we're making a lot more lower-cost barrels. When you look at the cost per BOE of these new barrels we're bringing on, they're much lower than the legacy barrels, so that helps drive that cost down as well. Vicki mentioned it. That's one area we're very excited about. As the unconventional business matures, that's one area where we think based on what we've done in our EOR business in the core capabilities we've built, we'll be able to use that and further differentiate ourselves when it comes to getting margin by not just good development costs but excellent operating costs and I think this is a testament to that.

Brian Singer -- Goldman Sachs -- Managing Director

Thank you. My follow-up is regards to allocation and free cashflow. You highlighted the case for free cashflow well in excess of dividends at the 2022. When you think about the needs for allocation, what if any is needed to advance the portfolio either from new projects or via M&A versus what you see as returnable to shareholders. Cedric mentioned $200 million that would have been invested in Qatar is going to be redeployed. Can you talk more to where that's going or maybe that's the points you were making with regards to Columbia and Oman.

Cedric W. Burgher -- Senior Vice President and Chief Financial Officer

Yeah, Brian. This is Cedric. It's a good question at the heart of what we're trying to do, which is to allocate capital to the very best places. As you know, we have a long history of a fairly diverse approach, which we are continuing today between dividends, buybacks, and reinvestment. M&A also is something that's certainly been a part of Oxy's DNA and continues and we look at opportunities there.

So, our organic plan is very strong and that's really what we've touched on here so far on the call, but we've got lots of opportunities. Ken touched on it internationally. You see what we're doing with EOR and our low carbon ventures and of course the Permian is fantastic and even getting better each quarter.

But that's how we're going to approach it. It's consistent with what we've been doing, but we'll just continue to look for the best places to put the money and make those decisions as we go each year. We do look forward to growing the dividend at a faster rate and buying more shares, but it will be opportunistic in those cases.

Vicki A. Hollub -- President and Chief Executive Officer

I'll just add to that. We've shown before, but the $50.00, we can grow 5% to 8%, so from $50.00 to $60.00, then we have the opportunity to grow or use funds to buyback shares or to increase our dividend. Over time, the reason for the accelerated grow, what some considered accelerated growth early is to try to put ourselves in position with respect to cashflow that we can grow the dividend more meaningfully.

I will say the international projects that we've just picked up in Oman are very good. The seismic analysis and interpretation is showing good prospects. That's why Ken showed the stratigraphy of the horizons we have to choose from. So, I'm really excited in that Oman provides us so many opportunities now.

I feel a lot better today than I've ever felt about where we are with respect to the organic growth prospects and the ability to grow the cashflow. That's why we wanted to provide you the numbers for 2022. We're very confident in being able to achieve that with the assets we have and hopefully continue to advance technology to improve upon that.

It's certain that we have -- I think we're in a better position today than we've ever been. I'm excited about it. It's certainly taken a lot of pressure, really, off of our ability to continue to fund and develop and even improve projects within our portfolio.

Operator

Our next question comes from Paul Sankey of Mizuho. Please go ahead.

Paul Sankey -- Mizuho -- Managing Director

Good morning, everyone. Vicki, you've provided an illustration here of the company at $60.00 through 2022. It feels like you're planning at $50.00 this is kind of an upside illustration of the kind of cashflows you generate. I was wondering -- the dividend growth you've talked about in the past in line with production growth. Can you illustrate what kind of dividend growth you'd be aspiring to? Do I assume you would grow the dividend assuming $50.00 and do the rest as buyback?

Vicki A. Hollub -- President and Chief Executive Officer

The way we're trying to model this -- it's a little bit difficult to explain -- this $40.00 cash neutrality is really a point that we want to maintain into the future. What that means is we continue to grow our cashflow. Our cashflow neutrality price actually will go down. As it goes down, we intend to grow the dividend accordingly so we maintain a $40.00 cashflow neutrality. So, that's what we're trying to come back to.

That's why our model really shows that above $60.00 that providing cash back to the shareholders through buybacks is an option that for us will continue to be a part of our proposition. We don't want to increase the dividend so significantly that we put ourselves way above that cashflow neutrality. We're targeting to keep that in place over time. Growing the cashflow to what we've proposed in 2022 will enable us to grow the dividend more meaningfully than we've done in the past few years.

Paul Sankey -- Mizuho -- Managing Director

If we were to triangulate that, would be looking at a 5% dividend increase annually at a $50.00 assumption?

Vicki A. Hollub -- President and Chief Executive Officer

Potentially, but again, it depends on the cashflow. When you model that out and see what your free cashflow is from that model, that free cashflow is something we would sustain, be able to sustain beyond 2022. That would be what we would then allocate to dividend growth over that time period.

Paul Sankey -- Mizuho -- Managing Director

Can you just remind us on risks such as we saw with Qatar in the past quarter? Can you just highlight anything else that is in that realm of the potential shift that could happen over the period of 2022 in terms of PSEs and other contracts?

Vicki A. Hollub -- President and Chief Executive Officer

We don't have anything that would be expiring in terms of PSEs. Everything else we have is long-term. The nearest-term one we would have would be ISSD, which that's South Dome in Qatar. That expires in 2022. That's very low production and not even material to us. But everything else, we're in good shape about. That's why I made the comment I really feel good about where we are.

This has turned into a win-win for us in that we've been able to pick up in Oman those three projects which are on-shore, lower cost, and they're bolt-on, so they're right next to what we know we have and the blocks we have today. With what we see on the seismic, we feel really good about that potential. We went from a mature asset and higher cost to lower cost new field development but near infrastructure. So, we're in a really good situation today.

Operator

Our next question comes from Leo Mariani of National Alliance Securities. Please go ahead.

Leo Mariani -- NatAlliance Securities -- Analyst

I wanted to explore a little bit further on Oman here. You talked about some of the recoveries and some EOR opportunities. Is there already some production on some of these blocks? Are there some lower-producing mature fields? Is this more of a rank exploration play in certain areas? Maybe you can better characterize this to get a sense of the risk profile.

Ken Dillon -- President of International Oil and Gas Operations

It's Ken. If you look at the blocks individually, Block 65 is very close to Block 27. So, we see that as step-out well formations that we're used to dealing with. If you look at 72, it's beside Block 53. We're also seeing recent discoveries with our step-out wells with Block 53, but also blocks in the north. We've got the areas divided into clusters running north. Cluster one, we plan on drilling a well late this year and we'll start 3D seismic as quickly as possible. Low dollars in terms of capital, but we see really high potential in these blocks.

Then if you look at the stratigraphy, we've done some recent seismic work in one of our existing blocks, where it looked like we saw something, so we put some tails very cheaply on development wells and we've now got a 1,000-barrel a day well producing in a zone that's not been produced in Oman before. The question is how do we calibrate that and does it run everywhere?

What we've got there is essentially a zone risk at 25 penetrations in an area the size of the Delaware Basin. We see real opportunities with our step-out program and see real opportunities because of proximity to existing facilities. We can get stuff on really, really quickly and great familiarity with our Omani staff there and our partners are really committed to these projects too. We see holstiically huge opportunities here for us.

Leo Mariani -- NatAlliance Securities -- Analyst

Switching gears a little bit to the Permian Basin, I guess you guys just continue to make better and better wells here in the Permian. You mentioned that it could be further improvements down the road. Where do you guys think you sit like if I was to use a baseball analogy -- is this the fourth or fifth inning or are we more toward the later innings of improvements?

Jeff Alvarez -- Vice President of Investor Relations

Hey, Leo, this is Jeff. That's a good question and one we continually ask ourselves, especially the leaders of these businesses. We always think these results have got to stop at some point. The thing I'll take you back to -- Vicki initiated this transformation probably four years ago. If you look at where we've come over the last four years, it's truly amazing. Inside the company, we really turned the quarter a couple years ago, but then now, I think over the last couple quarters you're seeing that more externally.

The thing I'll tell you is while the foundation is built in subsurface technical excellence, which was always the primary building block for what we're doing, there are many other elements that allow us to take subsurface technical excellence and turn that into economic value and sustainable returns, things like the long-term development planning, things like data analytics, which we're finding new improvements every day, things like developing the culture and human capital to really be successful in a business like this. We continue to see improvements in all those areas.

So, the ability to predict when do those improvements stop is very difficult, but we don't think that's any time in the near future and what makes us feel so strongly about that is all you have to do is go to the people doing this work and you see the improvements they see that they want to go capture that they haven't been able to capture yet and those continue to happen at a very rapid pace.

I think those improvements continue to happen in different areas, I doubt we'll be talking about a record well and Sand Dunes every quarter, you'll start to see where that may plateau and improvements come in a different area of New Mexico or a different area of Barilla Draw or Midland Basin or whatever that is or it may come on well costs instead of productivity but they'll all be returns and value-driven.

I think when you look at the returns and value creation standpoint, the improvements are going to happen on a very long period of time. Then Vicki mentioned after initial development EOR operating capability and all that, I think the improvements will shift to that, but they'll all be centered around how do we create more value, how do we get higher returns? I don't think they're going to stop any time in the near future.

Vicki A. Hollub -- President and Chief Executive Officer

I'd like to add that during the downturn, another thing that we didn't do that others did is we didn't lay off employees and we took that opportunity to engage and empower our employees and let some of our team work on things that were longer-term so that we could start to impact our cost structure and with subsurface characterization and dramatically change how we view our subsurface now.

The credit for this all goes to our employees. We've empowered them to do the things they need to do, take risks, do things differently, try some things we haven't tried before, but most importantly when they felt the need to do what they needed to do from a technical expertise standpoint to not only develop themselves and use the incredible mentors we have internally but also to go external and get the data we need.

On top of all this too is our really aggressive data analytics team, the business units guide them to the questions and problems they need to solve and the analytics group gets with them and works on those issues. It's a combination of a lot of things, but most importantly, it's the collaboration of our people to drive toward success, not just solving a problem that's not meaningful, but driving toward the things that really improve the value of our portfolio and the production and value we can deliver.

Operator

Our next question comes from Phil Gresh of J.P. Morgan. Please go ahead.

Phil Gresh -- J.P. Morgan -- Analyst

Thanks for taking my question. My first question is around the guidance for 2022. How do you think about the amount of lost CSO between now and then from Qatar and from Midstream and from chemicals?

Vicki A. Hollub -- President and Chief Executive Officer

This is why we put the plan in place. Qatar was a headwind, but design our programs and our plans knowing we're going to have cycles with respect to differentials in the Permian. We're going to have variations in caustic soda prices, variations in sulfur prices. So, we plan around that and we generally plan to be pretty conservative with those things that cycle up and down. The program we put forth for 2022, we feel that certainly, we can achieve that at $60.00 and with conservative assumptions on pricing.

Phil Gresh -- J.P. Morgan -- Analyst

I was trying to run some numbers on this. You said there's $200 of CapEx and $300 million of free cashflow, so I assume that's about $500 million of CSO. With your Midstream sensitives, it seemed like this may be $1.3 billion going from the 2018 differential down to the $3.00 differential on your assumptions. I just calculated it might be approaching $2 billion of CSO backfill between net and chemicals to kind of get you back to a normalized place and then the CSO growth on top of that.

Vicki A. Hollub -- President and Chief Executive Officer

We're assuming the differential will be $3.00 starting in 2020 to 2022. The differential for next year, we assume to be essentially what it averaged this year. With respect to the replacement of the cashflow, what's important for us is the cashflow not only from operations, but the cashflow pre-capital and post-capital. The reality is that had we proceeded with the ISND, the capital would have gone up, the take would have gone down.

So, in our models, we didn't have to replace that. There was not going to be for us what we saw going forward as big a gap as you're calculating. Essentially, the replacement of that comes from the growth in resources and the international growth. Again, conservative assumptions in marketing and as also midstream and chemicals.

Phil Gresh -- J.P. Morgan -- Analyst

If I could follow-up on some of the prior questions, if you put it all together between now and 2022, embedded in your cashflow guidance, are you assuming all of the growth will come from the Permian or should we thinking with the blocks in Oman, etc. that there will be some international or other growth in the portfolio?

Vicki A. Hollub -- President and Chief Executive Officer

What we can say is that for resources, you can assume that over the four-year period, there would be about a 25% kegger, plus or minus a couple of percent. So, that would be what would come from resources. Then assume the rest of the production growth would come from advanced oil recovery in the Permian plus Oman and Colombia opportunities.

Phil Gresh -- J.P. Morgan -- Analyst

Okay. Thank you.

Operator

Our next question comes from Bob Morris of Citi. Please go ahead.

Robert Morris -- Citigroup -- Managing Director

Thank you. A question for either Vicki or Jeff -- as you look at the Permian Basin, your growth forecast for next year assume the rig counts stay flat at basically where it is currently and assumes about $60.00 WTI.

This year, you start out the year with a $50.00 WTI assumption that with a higher cashflow versus what was the original plan to accelerate growth in 2019 and you're already looking at double-digit growth in 2019 now for the entire company, but if oil prices end up being much higher than your assumption of $60.00 per barrel WTI, would you again look to perhaps add rigs later in the year and accelerate into 2020 or are you dead set on keeping the rig count flat through 2019 and back to that 5% to 8% growth in 2020?

Vicki A. Hollub -- President and Chief Executive Officer

We're going to be dead flat with respect to our rigs in '19 because we're going to say between the 5 to 5.3 cashflow. We're putting together our capital plan now. We'll roll that out in the next quarter. We'll provide you more information on it. From what we're seeing right now, we would go with the same rig count into 2019 that we have today.

Robert Morris -- Citigroup -- Managing Director

Okay. Even with a lot higher oil prices, incremental cash is going to go to dividend increases or share buybacks.

Vicki A. Hollub -- President and Chief Executive Officer

In 2019, our capital is set for 5% to 5.3%.

Robert Morris -- Citigroup -- Managing Director

Right. That's helpful.

Operator

Our next question comes from Paul Cheng of Barclays. Please go ahead.

Paul Cheng -- Barclays -- Analyst

Hi, good afternoon. Vicki, Oman, I know it's early days. Can you give us some idea -- did it work out as you expect? How big is the program they can support?

Vicki A. Hollub -- President and Chief Executive Officer

I'll go ahead and let Ken take that. I think that Ken has modeled out some opportunities for growth which really depends on what we find from the extension of our appraisal program. I think our capability is going to exceed what will fit within our capital budget, but I'm sure Ken is going to lobby for more. Ken, do you want to address that?

Ken Dillon -- President of International Oil and Gas Operations

I think that's a fair assessment. As you can see from one of the slides, we showed a number of wells in the inventory that is fairly substantial. Drilling cluster one as soon as possible will open up that area very quickly, very close to existing block, same with Block 65, close to Block 27. I think we have to compete with Permian Resources and I feel we've got the inventory to do so. So, as Vicki said, I will be coming along, knocking on her door trying to drive the performance there.

Paul Cheng -- Barclays -- Analyst

Ken, I think you guys mentioned you're going apply more 3D seismic next year. So, spending in the program would be pretty slow next year. What kind of timeline may be the benchmark that we can use on how that progresses?

Ken Dillon -- President of International Oil and Gas Operations

I think if you look at it, we have some existing 2D seismic over much of the areas which will quickly be processed. We also have some overlapping 3D seismic that other operators have shot in the areas. We're able to access those, particularly around cluster one. I'd say next year, appraisal processing, seismic, obtaining new 3D seismic, moderate to low drilling next year and then the following year, being in a position where we can expand the drilling program if we can obtain some capital. So, a thoughtful, disciplined approach. We want to add value, deliver returns not only for us but for our partners and for the government also.

Paul Cheng -- Barclays -- Analyst

Do you think that by the end of next year, you will have a much better idea how big is the program that you can support from a resource standpoint?

Ken Dillon -- President of International Oil and Gas Operations

Absolutely.

Paul Cheng -- Barclays -- Analyst

In terms of the Permian, Vicki or Jeff, have you guys ever provided by 2025 if we're going to maintain the same rig program as it is today, have kind of production may we be talking about?

Vicki A. Hollub -- President and Chief Executive Officer

We know we have the capability to continue to grow the resources business at pretty much the same kegger we would see between now and 2022. Whether or not we do that really depends on the other international projects and opportunities. I can tell you we have the capability, but whether that's what we're going to do would depend on what we see at that time.

Paul Cheng -- Barclays -- Analyst

Would you be trying to maintain that at $5 billion to $5.5 billion over the next several years in terms of CapEx or that would also be subject to be changed?

Vicki A. Hollub -- President and Chief Executive Officer

Our CapEx between now and 2022 we expect to be between 5 and 5.3.

Paul Cheng -- Barclays -- Analyst

Thank you.

Cedric W. Burgher -- Senior Vice President and Chief Financial Officer

That, of course, assumes a $60.00 or better kind of environment. As we've said many times, prices are very volatile. If it falls, we intend to keep our spending and our dividend within cashflow. We can take that all the way down to $40.00 oil. If that happens, the growth will moderate, but we intend it to be disciplined to spending within cashflow.

Paul Cheng -- Barclays -- Analyst

I understand but I guess a lot of people are asking that if the price ends up to be sustainable above the $60.00 range, that means you guys would also be looking for opportunity to accelerate the growth? I think you've already said the 2019 program is set. So, how about beyond 2019 if the commodity price environment is better, does that mean you're going to spend more than the $5.3 billion or are you still going to stick to that program?

Cedric W. Burgher -- Senior Vice President and Chief Financial Officer

Well, we've given a broad outline of how we would see things in a $60.00 environment further out. I think it's too early to speculate on wildly different price environments. I would say certainly like you've seen us already in a price environment above $60.00 and we weren't that far above it this last quarter, we would certainly look to complement our spending with a much more substantial buyback program, but to go with a lot greater definition, I think it's too early to do that today.

Paul Cheng -- Barclays -- Analyst

Okay. Thank you.

Operator

In the interest of time, this concludes our question and answer session. I would like to turn the conference back over to Vicki Hollub for any closing remarks.

Vicki A. Hollub -- President and Chief Executive Officer

I just want to say thank you all for your questions today. We're excited about where we're headed. We'll continue to increase our opportunities and get better. Thank you all. Have a great day. Bye.

Operator

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

Duration: 62 minutes

Call participants:

Jeff Alvarez -- Vice President of Investor Relations

Vicki A. Hollub -- President and Chief Executive Officer

Cedric W. Burgher -- Senior Vice President and Chief Financial Officer

Ken Dillon -- President of International Oil and Gas Operations

Doug Leggate -- Bank of America Merrill Lynch -- Managing Director

Brian Singer -- Goldman Sachs -- Managing Director

Paul Sankey -- Mizuho -- Managing Director

Leo Mariani -- NatAlliance Securities -- Analyst

Phil Gresh -- J.P. Morgan -- Analyst

Robert Morris -- Citigroup -- Managing Director

Paul Cheng -- Barclays -- Analyst

More OXY analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

10 stocks we like better than Occidental Petroleum
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Occidental Petroleum wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 6, 2018

Motley Fool Transcription has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.