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OCCIDENTAL PETROLEUM CORP  (NYSE:OXY)
Q1 2019 Earnings Call
May. 06, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Occidental's First Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation there will be an opportunity to ask questions. (Operator Instructions) 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, Alison. Good morning, everyone, and thank you, for participating in Occidental Petroleum's first quarter 2019 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 & Gas Operations; and Oscar Brown, Senior Vice President, Strategy, Business Development and Integrated Supply. 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 implied in these statements as more fully described in our cautionary statement regarding forward-looking statements on slide two. Our earnings press release, the investor relations supplemental schedules and 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 Hollub -- President and Chief Executive Officer

Thank you, Jeff, and good morning, everyone. I'd like to start by recognizing that many would like to discuss our proposal to acquire Anadarko, which we will address, but first, I plan to cover the excellent results we achieved in the first quarter and reiterate that our commitment to our value proposition remains unchanged. Creating shareholder value continues to be our number one priority. Our integrated business is delivering outstanding results and we continue to be a leader in each area we operate.

We are dedicated to returning cash to our shareholders, delivering industry-leading returns and executing our strategy. During the first quarter, we did just that. We returned $800 million through dividends and share repurchases, driven by excellent results from all three of our business segments. Since 2002, we've returned $34 billion of capital to our shareholders and our assets continue to generate free cash flow for future distributions.

In the Permian Basin, our operational expertise and deep knowledge of the sub-surface is unmatched and the well productivity that is clear. We get more oil from our wells in the short and long term, which generates high value and low development costs. We are rapidly advancing our geo mechanical and flow unit modeling, driving breakthroughs in completion design and well spacing and mitigating parent-child impacts .

Oxy has delivered 23 of the top 100 horizontal wells in the Permian, which is the most of any operator, while as only drilling 4% of the total wells over the same time period. We also continue to delineate our acreage and new benches for future development with outstanding results from five different benches in New Mexico. Our leadership extends far beyond the Permian. We have a strong international reputation as a low cost operator, maximizing the value of new and old fields and delivering major projects around the world on time and on budget.

Over the last year, we grew our position in Oman, the UAE and Colombia by a total of over 6.5 million gross acres. And these assets will greatly enhance our value proposition for shareholders. We recently implemented a new completion design in the Middle East, which is generating more oil and improving returns for OXY and our partners. We're excited about the impact these breakthroughs will have on our future development plan.

Our unique Low Carbon Ventures business is also making progress on reducing our carbon footprint by advancing technologies and policies that support the capture and sequestration of anthropogenic CO2, which will reduce carbon emissions while enhancing the economic development of our reserves. We are currently working to advance the Midwest Industrial Carbon Capture strategy that can capture a significant amount of industrial emissions and reduce our total carbon impact through the use of this CO2 in our EOR operations.

This project will take partnership and advancement of technology, but we are motivated and have begun engagement to help promote this opportunity. We look forward to sharing more details on this project in the future. We also plan to release our 2019 Climate Report this month, which provides further details on the significant progress we've made on our long-term climate and sustainability strategy.

On slide five, I want to highlight how our value proposition delivered leading return on and return of capital in 2018. Our ability to achieve best-in-class returns through investing in our high-quality assets was evident, as we generated return on capital employed of 14% and cash return on capital employed at 27%, both significantly higher than 2017, an upper quartile performance versus our peer group. This was also the highest return on capital employed that we've generated since 2011.

In addition, we have returned more than $3.6 billion to shareholders through our sector-leading dividend and share repurchases. No other company in our peer group has such a consistent record of providing a high return of capital to shareholders. These achievements reflect our commitment to our sustainable value proposition, the strength of our integrated business model, the high quality of our assets and the incredible performance of our employees. After we have finished our review of our first quarter, we will discuss the acquisitions. So now, I'll turn the call to Cedric.

Cedric Burgher -- Chief Financial Officer and Senior Vice President

Thanks, Vicki. For the first quarter, we had reported earnings of $0.84 per diluted share as all three of our business segments continue to perform well despite a lower commodity price environment. We are also pleased to report that we returned $800 million of cash to our shareholders in the first quarter through our dividend and share repurchases. So overall, a very strong quarter across the board.

Oil & Gas core income increased in the first quarter compared to the prior quarter, reflecting lower DD&A rates, as well as a positive mark-to-market adjustment on carbon dioxide purchase contracts, partially offset by lower crude oil and NGL prices, and lower sales volumes due to the timing of liftings.

Total first quarter reported production of 719,000 BOEs per day exceeded guidance due to continued best-in-class execution and well productivity in Permian Resources, which came in at the high end of guidance at 261,000 BOEs per day. International production exceeded guidance at 298,000 BOEs per day, driven by strong operational performance in Oman, as well as the oil price adjustment in our production sharing contracts.

OxyChem exceeded guidance with earnings of $265 million for the first quarter. Earnings increased from the prior quarter primarily due to favorable feedstock costs, such as ethylene and natural gas, along with fees received under a pipeline easement agreement executed in the first quarter. The increase in earnings was partially offset by lower realized caustic soda pricing, in addition to production being curtailed at various OxyChem facilities by a third party tank farm fire in Deer Park, Texas. All OxyChem facilities have resumed safe operations.

Our Midstream business also exceeded guidance, with the first quarter income of $279 million, primarily driven by a higher Midland to MEH differential and a lower than expected mark-to-market impact. Compared to the prior quarter, the decrease in earnings reflected lower Midland to MEH differential, which decreased from approximately $15 to $9.78.

Working capital changes included cash payments typical of the first quarter, including property tax and fourth quarter accruals. Both OxyChem and our marketing businesses also experienced a working capital draw as a result of a receivable build due to higher prices and volumes.

Slide nine details our guidance for the second quarter and full year 2019. We are on track to deliver annual production growth of 9% to 11%, while staying within our capital budget of $4.5 billion. Due to our outstanding proposal to acquire Anadarko, we have suspended our share repurchase program.

I will now turn the call back over to Vicki.

Vicki Hollub -- President and Chief Executive Officer

Thank you, Cedric. Now, turning to our proposal, as you have likely seen, yesterday we delivered an updated proposal to the Board of Anadarko, as well as announced a contingent agreement to sell Anadarko's Algeria, Ghana, Mozambique and South Africa assets to Total for $8.8 billion when we complete our proposed acquisition of Anadarko. But before we discuss the details of those announcements, I'd like to quickly recap recent events related to our proposal and situate yesterday's important updates in the proper context.

On April 24th, we announced our superior proposal to acquire Anadarko for $76 in cash and stock. We continue to believe in the compelling financial and strategic merits of this deal, which would enhance Occidental's sustainable value proposition and benefit both companies' shareholders. On April 29th, Anadarko announced its Board of Directors had determined that Occidental's April 24th proposal could reasonably be expected to result in a superior proposal. And our two companies have since been engaged for that determination.

On April 30th, we announced that Berkshire Hathaway has committed to invest a total of $10 billion in Occidental, contingent upon the completion of our proposed acquisition of Anadarko. We're thrilled to have Berkshire Hathaway's financial support for this transaction and believe it reaffirms what we have long believed that Occidental is uniquely positioned to generate compelling value from Anadarko's highly complementary asset portfolio. This is committed acquisition financing that provides us with the ability to increase the cash component of our proposal in a more balance sheet friendly manner than issuing additional debt.

Yesterday, we announced an agreement with Total to sell Anadarko's Africa assets contingent upon us completing our proposed acquisition of Anadarko. We're pleased to have secured this agreement with Total as a fast-tracks (inaudible) divestiture plan we previously outlined in connection with our proposal. Our agreement with Total to sell these assets to a terrific company allows us to focus all of our integration efforts on the assets most valuable to OXY.

The almost $9 billion sale price funds a portion of the cash consideration to Anadarko, while delivering on the majority of our $10 billion to $15 billion of planned asset sales. Importantly, this sale supports our expectations around synergies and we continue to expect to deliver $2 billion of annual cost synergies and $1.5 billion of annual capital reductions from the proposed acquisition of Anadarko.

The financial support of Berkshire Hathaway, as well as the agreement we announced with Total also help us to delever our balance sheet while focusing our integration efforts on the assets that will provide the most value for us.

Yesterday, we also delivered a revised and significantly enhanced superior proposal to the Board of Anadarko to acquire the company for $76 per share, with revised terms of 78% in cash and 22% in stock. Under the terms of the revised proposal, Anadarko shareholders would receive $59 in cash and 0.2934 shares of Occidental stock per share of Anadarko. Pro-forma ownership of the combined company would be 84% legacy Occidental shareholders and 16% legacy Anadarko shareholders.

The increased cash portion of $59 per share provides significant and immediate value, greater closing certainty and enhanced accretion. This revised proposal represents a premium of approximately 23% to the $61.62 per share value of Chevron's offer as of Friday's market close. Our revised proposal does not require an Occidental shareholder vote, which has been cited as the explanation for Anadarko's Board's prior selection of Chevron's $65 offer over our $76 offer. Changing the consideration mix to be cash heavy is more accretive to us and addresses the issue that Anadarko focused on as their reason for taking the lower bid last time.

We firmly believe that Occidental is uniquely positioned to create significant and sustainable growth and value from Anadarko's assets. We've studied this opportunity for almost two years. This is a key long-term decision for us and we understand what a great opportunity this is for us and our shareholders. We encourage Anadarko's Board to comply with their fiduciary obligations and except this compelling proposal for Anadarko's shareholders. We hope we can continue to execute this merger agreement without delay and proceed to bringing in this exciting combination to fruition.

We'll now open it up for your questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question today will come from Brian Singer of Goldman Sachs. Please go ahead.

Brian Singer -- Goldman Sachs -- Analyst

Thank you, and good morning.

Vicki Hollub -- President and Chief Executive Officer

Good morning.

Brian Singer -- Goldman Sachs -- Analyst

My first question is with regards to the legacy assets in first quarter results. First quarter CapEx was about 28% of full year guidance and the Permian Resources CapEx was about 30% of the annual budget. Can you run through your expectations for the CapEx trajectory for the remainder of the year? And given higher oil prices, what do you see as the potential to maintain spending run rates and raise the annual budget later in the year, as was done in 2018?

Vicki Hollub -- President and Chief Executive Officer

No. Our plan is to hold the budget where it is at $4.5 billion. As we had mentioned, I think, in the last earnings call, we are going to be coming under the year hot, but we are going to be slowing down activity toward the end of the year to achieve our $4.5 billion capital budget.

Brian Singer -- Goldman Sachs -- Analyst

And can you talk a little bit more about how you see that or where you see that? And is it fourth quarter specifically?

Vicki Hollub -- President and Chief Executive Officer

It would be a combination of third and fourth quarter. And it will be mostly in the Permian Resources business.

Brian Singer -- Goldman Sachs -- Analyst

Great. Thanks. And then my follow-up is, one of the advantages highlighted in your letter to Anadarko and in your comments for OXY's revised bid for Anadarko is that it does not require a shareholder vote. Recognizing that the requirement for shareholder vote at 20% equity issuance threshold is a rule from the NYSE, how do you and the Board weigh the benefits of the stronger bid as a result of no longer requiring a shareholder vote and the cost of capital that's come to achieve that relative to the Board's corporate governance objectives?

Vicki Hollub -- President and Chief Executive Officer

Well, I can say that in the year and a half that we've been engaged in making offers to Anadarko, we've always made offers up to this point that required a shareholder vote. So our objective in doing this was not at all to avoid the shareholder vote, it was to ensure that we had a reasonable chance to make this happen. We weren't playing on a level playing field. We, from a governance standpoint, avoiding the shareholder vote is not something that we wanted to do, but rather than increase our price, we felt like it was in the best interest of our shareholders to hold our price where it is.

And as you have seen, we put our last proposal in and even though it has an $11 differential, our bid still after 12 days was not declared superior. So from our standpoint we saw the two options is, increase the share price or provide clarity of closing. We felt like clarity of closing was the lower cost, even with the Berkshire financing because remember our yield is 5% already, the incremental 3% of the Berkshire funds for us was well worth it, when we took into consideration what the upside of this deal was versus losing this opportunity that for two years we've worked on. We know the upside pretty well.

As you know, this fits within our core experience and expertise. So achieving the $2 billion in synergies is quite clear for us. And when you take all of that into consideration, we felt that our greater fiduciary responsibility from a governance standpoint for our shareholders was to make this deal happen.

Brian Singer -- Goldman Sachs -- Analyst

Great. Thank you.

Vicki Hollub -- President and Chief Executive Officer

Thank you.

Operator

The next question will come from Josh Silverstein of Wolfe Research. Please go ahead.

Josh Silverstein -- Wolfe Research -- Analyst

Hi. Good morning, guys. I'm just going to stick with the synergies since you ended there. You highlighted the $3.5 billion number on the initial deal, and I know why you're reiterating the views today. How does the Berkshire financing and additional debt needed to increase the cash offer not eat into that?

Vicki Hollub -- President and Chief Executive Officer

Well, the synergies that we have are an estimate. We believe actually that we can exceed those. They're a conservative estimate, just based on what we're achieving today. We haven't built in the upside. And what we -- and we really haven't built much of the upside at all into the model that helped us to arrive at a $76 offer price. We believe that the upside in these assets is far more than what we modeled, but we're being conservative in what we see with respect to not only synergies but the incremental and recovery from these wells. We've built nothing into our model for the Powder River and nothing for the mineral rights trend. So -- and then very, very, very conservative for DJ and Delaware Basin. And for more specifics on each of the buckets, I'll turn it over to Cedric.

Cedric Burgher -- Chief Financial Officer and Senior Vice President

Yeah, Josh, Cedric. I'd just add that we have updated. We have two new investor decks out there today. One for the earnings, one for the revised proposal to acquiring Anadarko. And on slide 13, I'd just point you to those cash flow per share and free cash flow per share estimates for 2020 and 2021. They include our updated -- our synergies of course, but also the Berkshire Hathaway financing, as well as the sale of the African assets. So all of that's been updated.

As you can see this thing is very accretive, even more accretive than the priority on a cash flow per share basis. And on a free cash flow per share basis, you can see this deal as very powerful from an economic and financial standpoint. And so when we looked at things, all things considered, it was just part of a more holistic approach to looking at the deal, what it took to get there versus losing it, especially losing it for non-financial reasons, the optics of a vote and so on.

Josh Silverstein -- Wolfe Research -- Analyst

Got it. Just on those points, I mean, you guys are obviously willing to go out and put another bid on the table without knowing what Chevron's response would be. It seems as if you're finding more upside in this transaction and more willing to go out and get this deal if I'm reading that correctly?

Vicki Hollub -- President and Chief Executive Officer

We believe this to be transformational for OXY and it's very rare, in fact generational, when you see an opportunity like this come along, where you can check every box that you want to check from a value standpoint, it's accretive to cash flow, as Cedric just described, tremendous asset base with a huge upside. Also, it's got scale, and it's got things. I believe, that haven't even been evaluated yet, because Anadarko has been busy doing -- working on the DJ, the Delaware, they begun working in the Powder, which I believe is going to be an upside. And Anadarko has incredible people too. So we believe that the combination of their employees continuing to have the opportunity to work these assets and with the culture they have blending into our culture, which we think is going to be fairly easy transition, we think that there is tremendous upside. And we've identified what we feel comfortable with and see today, but I think you're right, there will be more and there are things we're excited about that we're just not quantifying it.

Josh Silverstein -- Wolfe Research -- Analyst

So there is more than just the Permian Basin here? And I am guessing that's the reason why you aren't just going out and doing one to two Permian consolidation transactions?

Vicki Hollub -- President and Chief Executive Officer

That's right. It's much more than just the Permian. It's the amazing cash flow from the Gulf of Mexico, that's going to fund -- help to fund additional return of cash to shareholders, because both the DJ the Delaware are close to being free cash flow generating. And then you have to build on that ultimately as we go along the Power River position. So we're really excited about it. It gives us so much more flexibility and with what we can do with our dollars and the free cash flow.

Josh Silverstein -- Wolfe Research -- Analyst

Great. Thanks guys.

Vicki Hollub -- President and Chief Executive Officer

Thank you.

Operator

Next question will come from Devin McDermott of Morgan Stanley. Please go ahead.

Devin McDermott -- Morgan Stanley -- Analyst

Good morning. Thanks for taking my question.

Vicki Hollub -- President and Chief Executive Officer

Good morning.

Devin McDermott -- Morgan Stanley -- Analyst

So, first question I wanted to ask is just, can we get a little bit more detail on the dialog and process that you've had here with Anadarko's Board? And specifically, what the key areas of focus or concern are for them and what has or hasn't been addressed in latest proposal? I understand the shareholder vote was the key one that has now been taken out, but in your letter of the Board, you highlighted some others, like the potential Board seats that Anadarko was asking. So just wondering if you can talk a little bit more about what in your view has and hasn't been addressed and what some of the sticking points have been in the conversation so far?

Vicki Hollub -- President and Chief Executive Officer

Well, I think as we've go along, we went back and did some rehashing of some things that we had previously looked at and we got -- worked through all of that. Their management team with our management team has been very engaged. We've got it down to working just some of the details around employees and benefits programs, making sure that we're making fair and equitable decisions for both sets of the employees in both companies. So it's been a 12-day process and my concern is that as we were going along and discussing things that were not -- they were getting to the point where they weren't quite material that our proposal still wasn't deemed superior, which is why we've -- we yesterday submitted the increased cash offer.

Devin McDermott -- Morgan Stanley -- Analyst

Got it. Thank you. And then my follow-ups on actually the balance sheet. So one of the changes with the revised bid is, there's a higher cash component, and we now have the preferred equity as you noted from Berkshire Hathaway in the mix, but the overall pro forma leverage with more cash does, at least in our estimates, look higher and you've addressed that partially with I think attractive asset sale here of the Africa portfolio. Can you just talk about how you're thinking about the balance sheet and delevering plan here? And any dialog you may or may not have had with the rating agencies as part of this revised bid?

Cedric Burgher -- Chief Financial Officer and Senior Vice President

Yeah. This is Cedric, Devin. So, certainly, it's a higher cash bid. So more leverage we have mitigated that through the two transactions we've talked about, the Berkshire money and the African sale. So if you look at the updated numbers, 2021, we're still targeting a debt to EBITDA of 2 times or less and that's with the accounting consolidation of the MLP. Excluding the MLP, it's about 1.5 times debt to EBITDA and that's in a $60 scenario. At $50, if we were to go to $50 immediately, then 2021, excluding the MLP would be just above 2 times and debt-to-EBITDA. Excuse me. So that is we think manageable, not optimal. And as we've said all along, we will be working hard to reduce our debt further below the 1.5 times target ultimately. And we have had extensive dialog with all three of our credit rating agencies that is ongoing, and we still feel confident that we will be investment grade.

Devin McDermott -- Morgan Stanley -- Analyst

Got it. Thank you very much.

Cedric Burgher -- Chief Financial Officer and Senior Vice President

Welcome.

Operator

The next question will come from Phil Gresh of JPMorgan. Please go ahead.

Phil Gresh -- JP Morgan -- Analyst

Yes. Good morning. Just, I guess a follow-up to the last question on the balance sheet. Cedric, in the last call we had, you talked about there being a lot of buyer interest in the asset sales, inbound interest. And so I guess I was just wondering now that you've announced this transaction with Total, was that the main set of assets that you were referring to? Or do you feel like that there are other things you're working on in the queue that could get the balance sheet in better shape faster?

Cedric Burgher -- Chief Financial Officer and Senior Vice President

Thanks. Good question. That was a definitely the largest set of assets we were receiving inbounds on. There are others and we certainly have a pipeline of other transactions we think we can execute. And so we can continue to delever further and overachieve our asset sales targets.

Vicki Hollub -- President and Chief Executive Officer

I would just also reinforce that it's been really for us very, very encouraging to see the offers and the interest coming in and the fact that we believe that we will far beat our the -- what we've laid out to accomplish.

Phil Gresh -- JP Morgan -- Analyst

Okay. And then just to clarify on the Total deal. Is that deal -- is that a done deal no matter what, as long as the Anadarko deal closes, i.e., there are no other contingencies? And then, secondarily, Cedric, you mentioned the leverage metrics, excluding Western Gas. If you could clarify what it would require in order to de-consolidate that if that were something you're interested in, just mathematically what we need to be done?

Vicki Hollub -- President and Chief Executive Officer

First, I'll start with the Total question. It is contingent only on the deal going through with Anadarko. And I will say, we're really excited about that one, because to Total -- we've partnered with them for a long time in the Dolphin project. We know them well, and we know that they're going to be able to maximize the value out of the Africa assets and get more than anybody else could we believe. And so we're excited about that arrangement and we will continue working with Total on other opportunities in the Middle East and other areas.

Cedric Burgher -- Chief Financial Officer and Senior Vice President

Okay. And then with respect to Western Gas MLP consolidation, they current -- Anadarko currently owns about 55% of the MLP and because of the governance structure that's unique to MLPs and this one in particular, you could sell down to 20% and still have effective control again through the governance set up for that MLP. So you would therefore in that instance if you sold down to even 20%, you would still consolidate for sure. If you sell down below 20%, you still likely consolidate because again, there's a lot of control mechanisms that trigger consolidation. So, not sure exactly where the line is. It probably is close to zero, if not zero, ownership position in the MLP before you would de-consolidate.

But if you think about it from a standpoint of legal liability and obligations that debt at the MLP is non-recourse and so in some respects it's purely an accounting nuance in terms of the consolidation and who is responsible for the debt at the MLP.

Phil Gresh -- JP Morgan -- Analyst

Okay. Thank you.

Operator

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

Pavel Molchanov -- Raymond James -- Analyst

Thanks for taking the question. You noted that share buyback has been suspended. Is that a purely legal step for the duration of the uncertainty over the outcome of the current process, or do you anticipate keeping the buyback suspended even after closing Anadarko if that happens?

Cedric Burgher -- Chief Financial Officer and Senior Vice President

Hi. Yes. This is Cedric again. We think it's prudent to suspend the buyback now. We've actually done that for the last month or so, a little longer. Once we felt that this transaction had a higher probability of happening and there was enough material information that wasn't yet public, we thought it was prudent thing to do to suspend it. So that was kind of the first gate. Secondly, certainly, if we close on the transaction, we will be suspending the buyback. Our highest priority will be reducing debt and we won't be buying back shares until we get down to the debt targets that we've established.

Pavel Molchanov -- Raymond James -- Analyst

Okay. Clear enough. Can I also ask about the carbon comments? Previously with obviously a much more simplified asset base, you've said that you want to be 100% carbon-neutral. Will that target continue to apply to the greatly expanded and diversified production mix if in fact this deal happens?

Vicki Hollub -- President and Chief Executive Officer

That will continue to be our goal. It could extend that out beyond where we had initially hoped to be, but that's still our goal. We think that we have the strategy that can accomplish that over time and we think it's really -- it's our responsibility to do all that we can do to make that happen. And we're really excited about what our Low Carbon Ventures team is doing, the strategy that they're putting together. It's not just going to impact our operations, but they are actually in a position where they are influencing and helping others too. So we believe that the extent of the benefit of what we're doing will go far beyond just our Company.

Pavel Molchanov -- Raymond James -- Analyst

All right. Appreciate it.

Vicki Hollub -- President and Chief Executive Officer

Thank you.

Operator

The next question will come from Leo Mariani of KeyBanc. Please go ahead.

Leo Mariani -- KeyBanc -- Analyst

Hi, guys. Wanted to see if you can provide with more detail around the $2 billion of ongoing annual cost synergies here. What we're really trying to get at is to whether or not there's maybe some breakdown as to how of that you might see in the Permian versus the DJ? Just want to get a sense of what those synergies maybe in the DJ given that scenario that I don't think you guys have operated in before?

Vicki Hollub -- President and Chief Executive Officer

Okay. I'll start with this and then we'll give you a little more view of what the full synergy outlook looks for each of the buckets. But the reason we say that is we, over the past few years, our team, our sub-surface teams working with our business units, the combination of those hand in hand looking at how do we improve our performance in the shale play in general, have made some key breakthroughs. And I have to say it's all of our teams working together from the geophysicists, petrophysicists, geologists, engineers and even a person that we brought over from a NASA contractor who helped us look at or make it a similarity or see a similarity between looking at composites and how they fracture in the aerospace industry, with how we look at our sub-surface.

All of that together and then applying data analytics has enabled us to, we believe, find a breakthrough and how we look at not only how fracturing works, but what you should expect your flow unit to be. And once you determine what you expect your flow unit to be, then you can tailor your frac designs more appropriately for what you're seeing in the sub-surface and then by tailoring it, you can then optimize your profit. And we have gotten to the point where we're not only having really good results, but we are getting predictive with it. And predictive where you have 3D seismic and you can look at your attribute analysis and make some judgments and assessments on what you expect to see that's similar to what you've already have in your analytics database.

So when you look at that and you look at how we've been able to do with 23 of the top 100 wells and using less proppant than the other wells in the top 100, they used 37% -- I think it's 34% or 37% more proppant. So, when you look at that, what that means is, you're basing this on physics, you're basing it on the science, it's not -- we're taking a little bit of the art out of fracing and completing shale plays. And so when you can do that then based on the science, you can take that and apply it to other areas. And that -- and so, it doesn't matter whether you're moving geographically or vertically within the well-bore, science works the same. And so, in the Delaware Basin, we've taken it, and we blinded some wells and found that it's predictive capabilities are really pretty good. And so we know that we can do it in other shale basins as well. And I have to give a shout out to our sub-surface teams. They've just done amazing jobs in the business unit and working with them to look at the possibilities and to try new things and to optimize as a team. It's been amazing. And I never expected us to see the continuing improvement that we've seen year-on-year. And we're still continuing. You've seen in the Basin, in some areas where the productivity improvements have plateaued. They haven't with us, they continue to increase again from 2017 to 2018. So I think we'll see the same kind of success in the DJ. Now, I'll go to Cedric for a little bit more color around the rest of the synergies.

Cedric Burgher -- Chief Financial Officer and Senior Vice President

Right. Thank you, Vicki. Just looking at slide 12 in the updated proposal deck that we put out this morning, and the synergies haven't changed. So the prior deck, same slide, but if you look at the four different categories of synergies we've laid out. The first one, domestic capital operating efficiency, that really is just getting Anadarko well cost down to where we currently are, primarily using our OXY Drilling Dynamics , reducing drilling costs and the proppant loading reduction, which reduces the completion costs. So we are going to talk a little bit more about the drilling dynamics here in a second. Ken is with us to help on that front. And so that's the first bucket there.

The second one, procurement and supply chain. We've talked a lot about our Aventine logistics hub and the savings we get there for ourselves, again we can deploy that in the Permian and that strategy, we can play elsewhere, but primarily we've attributed savings in the Permian, plus our supply chain. And Oscar Brown's here who heads up global supply and strategy for us. He can address that a little further.

And then the last, the third bucket there general overhead and corporate, it's primarily people, real estate and aircraft. We have one corporate aircraft, plus an employee shuttle, to their four corporate airplanes, and so we don't think we need all of those and we can reduce that along with obviously people and duplicate offices and real estate. And then we've talked about the capital reduction synergies as well as kind of a fourth bucket for you.

So now I'll turn it over to Ken to talk about OXY Drilling Dynamics and the savings we've achieved around the world there. And then follow that with Oscar on supply chain.

Kenneth Dillon -- Senior Vice President and President

Good morning. First of all, I'd like to say, we compete and partner with majors and independent oil companies all around the world. So we can actually see how far ahead we are in drilling dynamics, started in Permian and rolled out around the world. So we're very confident in the drilling and completion synergies, working with the excellent Anadarko engineers in each of their assets. ODD is basically a holistic approach to drilling, it's a mechanical specific energy focus and we have our own equations which drive our software that we install in the rigs. We have our own process, and it's more like a social network of drilling rather than a data book and how to design wells. We optimize bit design ourselves, we designed stabilizers ourselves in real time, based on the results of the last well and we use data analytics to make formation-by-formation improvements.

If you look since 2014, we've worked together with international contractors altogether. So, Halliburton, Schlumberger, Baker, are all in the same room as we're drilling each individual well, everyone has a chance to have input and the focus is in the best well, not the best individual company performance. We've improved HES and we've integrated and optimized the supply chain processes. Since 2014, we saved over $708 million internationally and we are very confident about making those synergies that we've talked about in this proposal. I'd like to hand over now to Oscar on supply chain.

Oscar K. Brown -- Senior Vice President, Strategy, Business Development and Integrated Supply

Thanks, Ken. And I guess just stating the obvious, we'll be doubling our purchase power at Occidental with the combination with Anadarko. So that's a huge opportunity and will be maximizing our economies of scale in terms of purchasing power and then combining both companies' best practices in procurement. I'll just expand a little bit on Cedric's comments on Aventine in that model, as certainly, the Aventine hub is only 40 miles from the heart of Anadarko's Delaware Basin assets and so there's real -- there's lots of capacity still available at Aventine for all the different services and products that are managed there. So that it can a huge opportunity in terms of general logistics.

And if you look in the map on page 11, you can really see the sort of superhighway that's formed between the Southern and the Northern Delaware or the pro forma position. And you can see, there may be opportunities to expand the Aventine type model to other parts of the Delaware Basin. In addition, the combined purchasing power, I think we both have contracts where the increase in purchasing power will help us in terms of our cost, in terms of certain equipment, rig rates, OCTG, et cetera. So we believe there's great opportunities in supply chain to deliver the $600 million that's noted.

Leo Mariani -- KeyBanc -- Analyst

All right. Very, very thorough answer from you folks around the synergies here. Just in terms of follow up, I think, Cedric, you clearly pointed out that leverage will increase at OXY post the deal, and thank you for those sensitivities around the commodity prices. Is there any thought process to maybe hedge some volumes out over the next couple of years to maybe eliminate some of that cash flow uncertainty in the deal here?

Cedric Burgher -- Chief Financial Officer and Senior Vice President

It's certainly an option available to us. We don't think it'll be necessary. As you have already seen, we're way ahead of schedule on what we can do to delever. And so we have historically not been an advocate of hedging for a number of reasons, but it is an option available to us to help reduce the risk if we feel like we need to fall back to that. None of the things, and none the numbers we presented you with include any hedging.

Leo Mariani -- KeyBanc -- Analyst

Okay. Thank you.

Vicki Hollub -- President and Chief Executive Officer

I'll also point out that, our chemicals business and our Al Hosn and Dolphin provide -- and our PSAs in the Middle East provide some form of hedging for us. So we're quite confident that the cash flow in a lower price environment will be there.

Leo Mariani -- KeyBanc -- Analyst

Yeah. No doubt. Thank you.

Vicki Hollub -- President and Chief Executive Officer

Thank you.

Operator

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

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

Hi. Good morning, everybody. I just got two quick ones. I think just doing a follow-up to Phil's question earlier, regarding Western Gas. For those of us who've covered Andarko for a while, Anadarko have pretty much built out their Midstream facilities so the control of that asset didn't really seem to be as strategic a requirement as it was in the cost. So I'm just curious, given that you guys have (inaudible) retaining the takeaway rights while monetizing this field, can you just give us a little bit more of a thought as to what you see is the strategic ownership requirement of West?

My follow-up is just a quick one on the Gulf of Mexico. Obviously, OXY had some interest in it long time ago but clearly Anadarko is using that harvest cash. I'm just curious whether you see the role of that in your portfolio as to continue to harvest cash or if you might consider yourself as perhaps a consolidator there as well as much as you expect to be in the onshore? I'll leave it there. Thank you.

Vicki Hollub -- President and Chief Executive Officer

I'll start with the first one on Western Gas. As you've rightly pointed out, Doug, we don't really feel like we have to necessarily own infrastructure to take advantage of it. We were quite fortunate that and by design actually selected the companies that we did for the sale of our Midstream last year to two, what we feel like a great management teams that are very well positioned to maximize the value of those assets and to work well with us, and so we have a great relationship with them.

The same kind of thing would need to happen for Western for us to divest of it because it's important that you're working with someone who has interests that are aligned with yours when you're talking about infrastructure. So I wouldn't take that option off the table. As with any of our infrastructure in place today, we would be willing to consider the optimization -- monetization of that sooner rather than later depending on the potential buyer.

With respect to the Gulf of Mexico assets, our strategy would be the same as Anadarko's there and that is to just use that asset to generate cash. It would not be to consolidate or extend the growth, it's to maintain production flat and keep our cash flow flat. And Anadarko has done a great job doing that. And they have a superior team working in the Gulf of Mexico today.

Operator

Our next question will come from David Deckelbaum of Cowen. Please go ahead.

David Deckelbaum -- Cowen -- Analyst

Good morning, Vicki, Cedric and team. Thanks for taking my questions. I just wanted to confirm, included in the assumptions on capital reduction, the $1.5 billion, was any of that capital allocated toward the African assets, this is $1.5 billion stand-alone post the African divestiture?

Cedric Burgher -- Chief Financial Officer and Senior Vice President

Hi. This is Cedric. Yes, it was. There was some capital associated with the African assets that's now been removed. So we're ahead of schedule on the capital reduction targets as well with that.

David Deckelbaum -- Cowen -- Analyst

So how much of that was included in the $1.5 billion? Are you saying there is still another $1.5 billion that remains in capital reduction after this sale?

Cedric Burgher -- Chief Financial Officer and Senior Vice President

No, it is about $200 million. So that leaves about $1.3 billion remaining.

David Deckelbaum -- Cowen -- Analyst

Okay. So there was nothing for Mozambique included in there then?

Cedric Burgher -- Chief Financial Officer and Senior Vice President

That's about $200 million for the next year. So a total of $400 million. Excuse me. $200 million was ex-Mozambique and then $200 million with Mozambique.

David Deckelbaum -- Cowen -- Analyst

Okay. I appreciate that. And then just as a follow-up, I know pro forma, you talked about the capital reduction and then slowing the combined growth rate down to 5%. Is that purely a function of trying to augment as much free cash as you can in the first couple of years just to delever more quickly? And then if it's not the case, would OXY stand-alone be better suited growing at a lower rate?

Cedric Burgher -- Chief Financial Officer and Senior Vice President

So, yeah, good question. We think that 5% is a very healthy growth rate. It's very sustainable for many, many, many years. And on a larger asset base, this would obviously be transformational, taking us up in terms of scale and size. We think that's an appropriate growth rate and it certainly does help increased free cash flow, so that we can delever more quickly.

And then, stand-alone, we have also considered doing that as well. As you know, last year -- up until the middle of last year we were replacing a lot of cash flow that we had exited second tier basins in countries and replacing that organically rather than through M&A. We accomplished that plan in the middle of last year and then we were surprised with the Qatar -- loss of the Qatar cash flow and so we've been replacing that as well. So we've been headed in that direction as well. Internally, we just haven't yet announced that, but I can tell you, that's where we're headed fairly soon if we were to lose out on the Anadarko deal.

David Deckelbaum -- Cowen -- Analyst

Appreciate that. Thank you for the responses, guys.

Cedric Burgher -- Chief Financial Officer and Senior Vice President

You bet.

Operator

And the final question will come from Richard Tullis of Capital One Securities. Please go ahead.

Richard Tullis -- Capital One Securities -- Analyst

Sure. Thanks. Good morning, everyone. Vicki In the past, OXY has referenced about 3,000 drilling locations in the Permian Resources, with breakevens below $50 oil. How would the Anadarko-Delaware Basin properties generally rank within OXY's existing inventory on a rate of return basis?

Vicki Hollub -- President and Chief Executive Officer

I think that they would fit well within the top couple of tiers. If you look at the -- as Oscar had referenced slide 11 previously, where it shows the portion of their acreage that is in between Barilla Draw in Southeast New Mexico, there is some prime acreage in there and there's some, certainly, we believe, quite a few Tier 1 opportunities, I think their inventory there we believe could be over 10,000 wells and we believe that it would be very, very similar to our inventory. And we expect that over time, because of the lower cost that we can imply as a result of the entire trend, our two areas with theirs, we can further lower costs and infrastructure synergies, so that will be able to move more wells down into the less than $50 breakeven category.

Richard Tullis -- Capital One Securities -- Analyst

Thank you. That's helpful. And that just lastly, not trying to jump ahead too much here, I know there is more work to be done, of course, but how does this pending acquisition impact further Permian acquisitions going forward that may materialize in the current environment that places more value on operational execution and free cash flow generation, albeit they may be smaller in the future?

Vicki Hollub -- President and Chief Executive Officer

We will continue doing the very small asset trades that our teams do, acreage swaps and things like that. We would continue some bolt-on where it makes sense, but not of any size. We will be looking at smaller bolt-on acquisitions, I would say that anything of any material acquisitions would be something that we would not do until we achieve our debt reduction targets.

Richard Tullis -- Capital One Securities -- Analyst

All right. Well, thank you. That's all from me.

Cedric Burgher -- Chief Financial Officer and Senior Vice President

I'd like to add one thing that came up on a prior question, just it's something we've had offline. I want to make sure we get it out there for everyone. For the transaction with Total, it's about $8.8 billion in gross proceeds, but after-tax net proceeds from the transaction would be about $8 billion. So about $800 million in tax and other costs.

Operator

And in the interest of time, this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Vicki Hollub for any closing remarks.

Vicki Hollub -- President and Chief Executive Officer

I just want to say thank you all for your questions and for joining our call. We're really excited about this opportunity and what it's going to mean for Occidental and for the Anadarko shareholders, and ultimately, for our shareholders. Appreciate it. Have a good day. Bye.

Operator

The conference is now concluded. We thank you for attending today's presentation. You may now disconnect your lines.

Duration: 53 minutes

Call participants:

Jeff Alvarez -- Vice President of Investor Relations

Vicki Hollub -- President and Chief Executive Officer

Cedric Burgher -- Chief Financial Officer and Senior Vice President

Brian Singer -- Goldman Sachs -- Analyst

Josh Silverstein -- Wolfe Research -- Analyst

Devin McDermott -- Morgan Stanley -- Analyst

Phil Gresh -- JP Morgan -- Analyst

Pavel Molchanov -- Raymond James -- Analyst

Leo Mariani -- KeyBanc -- Analyst

Kenneth Dillon -- Senior Vice President and President

Oscar K. Brown -- Senior Vice President, Strategy, Business Development and Integrated Supply

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

David Deckelbaum -- Cowen -- Analyst

Richard Tullis -- Capital One Securities -- Analyst

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