Occidental Petroleum Corporation 2026 Q2 Earnings Call

Thank you, Gary, and good afternoon, everyone, and thank you for participating in Occidental's second quarter 2026 earnings conference call. On the call with us today are Richard Jackson, President and Chief Executive Officer, Sunil Mathew, Senior Vice President and Chief Financial Officer, and Ken Dillon, Senior Vice President and President, International Oil and Gas Operations. This afternoon, we will refer to slides available on the Investors section of our website. The presentation includes a cautionary statement on Slide two regarding forward-looking statements that will be made on this call this afternoon. We will also reference a few non-GAAP financial measures today. Reconciliations to the nearest corresponding GAAP measure can be found in the schedules to our earnings release and on our website. I will now turn the call over to Richard.

Okay. Thank you, Babatunde, and thank you all for joining us today. Last quarter, as I started into my new role, I shared our focus looking forward was on execution and delivery from our advantaged resource position. The last few months have been productive, and we continue to deliver strong 2026 results. We were also able to advance our plans for sustainable cash flow growth, and I look forward to sharing updates on both with you today. To start, I want to frame simply how we think about our approach to value. For us, creating value is measured by our ability to increase both the return on and the return of capital through the cycle.

To ensure we are centered on fundamentals to deliver this value, we are focused on four priorities: executing from a strong balance sheet, organically improving our resources, continuing to drive cost efficiencies, and generating differentiated cash flow. This year, we are making strong progress on each. We have already reduced our principal debt to $11.8 billion. Our accelerated debt reduction lowers our go-forward annualized interest by approximately $630 million compared to 2025 interest payments. This structural savings helped enable an additional 8% increase to the quarterly dividend this year, as approved by our board and announced yesterday. We also remain on track with our 2026 cost savings targets, while operational efficiencies delivered another production beat in the second quarter.

Taken together, we expect to deliver more than the targeted $1.2 billion of free cash flow improvement for this year before the impact of higher oil prices. Looking ahead, we see a clear pathway to add over $4 billion of annual sustainable cash flow by 2030. This represents an approximate 95% annualized growth compared to 2025. Importantly, this increase is driven by durable improvements across the business, including lower cost, lower sustaining capital, and a stronger balance sheet. Additionally, we can deliver this cash flow without increasing production and can expect approximately 85% to be achieved at even much lower prices. While production growth is not required, our quality resources and execution efficiency provide opportunities for measured growth that could further improve cash flow. Our ability to deliver on this plan is grounded in organic development.

We believe our advantaged resources, advanced resource recovery capability, and a value-based development approach are three areas that provide a differentiated capability to achieve our value plans. Today, our resources total 16.5 billion BOE and are well understood and balanced, providing more than a 30-year low-cost development runway across conventional and unconventional assets. Approximately 88% of our resources are domestic and are complemented by a select set of international assets with strong partnerships, resilient free cash flow, and future upside opportunities. Advanced recovery is another area that plays a central role in our plans. Over the last few years, Oxy has continued to build a differentiated capability to improve resource recovery and unlock more value from the subsurface with demonstrated results. Today, we're applying those capabilities across conventional and unconventional assets to support additional low-cost resource recovery and lower future decline rates.

In our plans, we are advancing opportunities across unconventional, enhanced oil recovery, and Gulf of America waterflood developments, and in exploration opportunities where our advanced recovery capabilities can add value. As important is our approach to development. We have continued to refine our integrated value-based approach that combines subsurface characterization, technology, infrastructure, and operational considerations into long-term field development plans. By combining these important elements, we're able to optimize designs and sequencings to improve recovery and full cycle returns. Our approach is unique by basin, asset area, and often individual well, which has led to our top-tier capital efficiency in our U.S. unconventional developments. We see similar improvements with this approach across all of our operations. Additionally, we seek to integrate advancing technologies and partnerships around our key areas of CO2, power, water, and AI to further improve our results.

Together, these advantages position us well to deliver our $4 billion in incremental sustainable cash flow by 2030. As we look to the future, we believe these will further differentiate our ability to drive value. To go further into the specifics of our sustainable cash flow growth. We note four areas of improvement with several milestones to mark our progress. First, we will continue to improve capital efficiency and reduce costs across the business. Over the last several years, our teams have consistently reduced costs to deliver more than $2 billion in savings since 2023. We are on track for this year's targets and expect to further extend our savings by 2030. We have clear initiatives underway with new milestones, including U.S. onshore, new well cost reductions, lower domestic LOE and transportation costs, and improving workforce efficiency through simplification and technology deployment.

Second, we expect lower sustaining capital by $900 million through continued improvements in capital efficiency and from a lower total Oxy base decline. This base decline improvement is driven by our advanced recovery projects, which are expected to support a decline rate reduction from approximately 25% to 20% by 2030. Third, we will continue to see the benefit from corporate savings as we further strengthen the balance sheet. Continued debt reduction is expected to lower principal debt to a $10 billion milestone and reduce annual interest expense by roughly $740 million compared to last year. Additional savings from the redemption of our preferred equity also contribute to our corporate savings milestone. Finally, we will see a reduction in low-carbon ventures capital spending. With Stratos moving from development to operations, approximately $400 million of LCV capital will fully roll off beginning next year.

At Stratos, we're making good progress on the non-technology-related repair and commissionings of Trains 3 and 4. Based on our current outlook, we expect full plant commissioning to begin around the end of the year as we transition to operations in 2027. Altogether, our team has done an outstanding job building our sustainable cash flow improvement plan. They have taken a bottoms-up approach, identifying and now executing many detailed projects and initiatives to drive our organic improvement. We see this as a new baseline, with opportunities to add and accelerate value as we go beyond our milestones. Additionally, continued portfolio optimization, measured and efficiency-led growth, and stronger oil and gas prices can all further increase our cash flow beyond the baseline that we are sharing today. In addition to our significant cash flow inflection, we know it's important to execute from clear and disciplined allocation priorities.

We recognize market and operational conditions will continue to evolve, and believe these priorities, with the right considerations, enable us to improve value through cycles. We begin with a clear set of foundational priorities that are designed to support a stronger business and return of capital capability. Beyond that, we have subsequent opportunities to further add value. These include debt reduction, the redemption of our preferred equity, opportunistic share repurchases, and disciplined investment in opportunities that can improve sustainable cash flow and returns. As we consider future reinvestment for growth, we appreciate we have a deep inventory of advantaged, well-understood resources for low-cost development. However, when we invest for growth, we want to be thoughtful. Simply put, it must be measured, efficiency-led, and clearly value additive. There are multiple considerations to help guide our decisions to deliver and improve our baseline plans.

Ultimately, our plans are set to build a fundamentally stronger business where we can sustain production at lower oil prices with a sustainable and growing dividend. At higher prices, we have opportunities to add further value both for the business and our shareholders. I'll now turn briefly to second quarter highlights. Our teams have delivered another strong quarter operationally and financially. Production exceeded the high end of guidance, reflecting strong operational performance across our assets. In midstream and marketing, adjusted pre-tax income exceeded the segment's previous record performance. We also generated approximately $3 billion of free cash flow during the quarter, our highest level since the third quarter of 2022. Across the business, execution remains strong to deliver in 2026 and to progress our new plans. Through a relentless focus on efficiency, we're continuing to outperform.

The consistency of these results continue to reflect the quality of our team and the strength of our assets. I'll now turn the call over to Sunil to discuss the financials.

Thank you, Richard. In the second quarter, we generated adjusted earnings of $2.40 per diluted share and reported earnings of $2.75 per diluted share. The difference was largely driven by mark-to-market gains in marketing and crude hedges, along with a dilution gain in equity investment income. Strong operational execution and cost discipline, combined with higher commodity prices, resulted in approximately $3 billion of free cash flow before working capital. This is our highest quarterly free cash flow since the third quarter of 2022, which included OxyChem. We ended the quarter with approximately $4.2 billion of unrestricted cash, giving us additional flexibility as we continue to advance our cash flow priorities. As Richard discussed, Oxy continued its track record of strong operational performance.