OXY - Occidental Petroleum - Earnings Call Transcript Q3 2021

Operator: Good afternoon and welcome to the Occidental's Third Quarter 2021 Conference Call. All participants will be in listen-only mode. . After today's presentation, there will be an opportunity to ask question. . 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.

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Jeff Alvarez : Thank you. Good afternoon, everyone. And thank you for participating and Occidental's Third Quarter 2021 Conference Call. On the call with us today are Vicki Hollub, President Chief Operating Officer, and Rob Peterson, Senior Vice President Chief Financial Officer. This afternoon, we will refer to slides available on the Investors section of our website. The presentation includes a cautionary statement on slide 2 regarding forward-looking statements that will be made on the call this afternoon. I will now turn the call over to Vicki. Vicki, please go ahead.

Vicki Hollub : Thank you, Jeff, and good afternoon, everyone. Our strong operational and financial performance continued in the third quarter. Consistent with prior quarters this year, we generated a record level of free cash flow before working capital, which we applied towards reducing debt and strengthening our balance sheet. Operationally, our businesses excelled, driving our robust financial performance. OxyChem had a strongest quarter in over 30 years and our Permian Rockies, Gulf of Mexico and Oman teams, set new operational records and efficiency benchmarks. As was the case last quarter, our cost structure in capital intensity leadership served as catalysts, for our strong financial results, and provided a solid foundation for free cash flow generation. Our Gulf of Mexico, and OxyChem operations were impacted during this quarter by Hurricane Ida. Our primary focus was the safety and well-being of our employees and contractors and we were relieved to hear that our people remain safe during the storm. We were working closely with those that were impacted and I could not have been more pleased with how our teams overcame the challenging events triggered by the storm. The Gulf of Mexico and OxyChem operations that were affected by Ida are back online with no lasting impacts. I'd also like to pass along our best wishes to our coworkers in Oman 's capital of Muscat, and to all the people of Oman as they recover from the devastation recently caused by Cyclone Shaheen. This morning, I'll cover our third quarter operational performance in divestiture progress, Rob will cover our financial results and balance sheet improvement, as well as our fourth quarter guidance. Our guidance for the fourth quarter and full-year includes an increase in production and an improvement to earnings guidance for midstream and OxyChem. The commodity price environment continued to be supportive in the third quarter as our focus remains on generating free cash flow and maximizing margins. This is the third consecutive quarter that our operational success and capital intensity leadership has produced a record level of free cash flow. In fact, our third quarter free cash flow was the highest it's been since at least the turn of the century. As you know, that time frame included several periods of significantly higher oil prices. Total production for the quarter, reached the high end of our guidance which is a noteworthy accomplishment considering the extended downtime in the Gulf of Mexico. Hurricane Ida's impact on third quarter production and the cost associated with safely shutting in production, evacuating and then restarting the platforms and ongoing projects, resulted in higher-than-expected domestic operating costs for the quarter. Our fourth quarter domestic operating cost guidance reflects normalized conditions and it's relatively in line with our previous expectations for the year. On our last earnings call, we highlighted OxyChem's many strengths and consistent free cash flow generation. OxyChem's third quarter earnings were the strongest since 1990, and our great example of what the business is capable of delivering. Our Hurricane Ida disrupted third quarter operations. The impact to OxyChem 's Louisiana based facilities was temporary. Storm reduced production capacity in the period when market inventories were already fairly tight by historical standards. OxyChem continued to benefit from supported CBC and caustic pricing resulting in stronger than anticipated earnings. Our midstream and marketing business benefited from the timing of export sales during a rising crude price environment, and a healthy market for the sulfur produced at The marketing team was able to capitalize on natural gas price volatility during the quarter by directing gas towards transportation solutions, yielding the highest spreads. In summary, our team was once again able to utilize existing contracts and their expertise to maximize margins by delivering product to the markets that needed it the most. We continue to make notable progress in reducing debt and strengthening our balance sheet. We exited the third quarter with approximately $2.1 billion of unrestricted cash owing the repayment of $4.3 billion of debt and the settlement of $750 million of notional interest rate swaps. We're pleased to have delivered such as sizable reduction in debt in a single quarter. In a healthy commodity price environment, we expect to continue reducing debt in future quarters as we deliver and take the necessary steps to move towards returning additional capital to shareholders. Our oil and gas teams continue to demonstrate a consistent drive for efficiency as we never tire of setting new operational records or generating record levels of free cash flow. I continue to be impressed by how our global teams are able to deliver outstanding results. And I want to highlight several examples of operational excellence in the third quarter. I'll start in the Permian, where we drilled our first 15,000-foot lateral wells in the Midland Basin and did so with impressive results. One of the first wells was delivered in less than 10 days from spud to rig release. In the Delaware Basin, year-to-date we're drilling 16% faster than we were just a year ago. The efficiency gains that our teams are recording extend well beyond the Permian. Our Rockies team set a new OXY daily drilling record in the DJ Basin with over 9,700 feet drilled in 24 hours. In the Gulf of Mexico, we set a new cycle time drilling record and our hosting platform achieved a size production in 10 years. And Oman, we set new multiples, drilling records, and completions, efficiency records as our teams continued to leverage new technologies and drilling techniques to improve performance. Another significant milestone reached by our international business was Dolphin delivering its 10th TCF of natural gas in the third quarter. The impressive efficiency gains we have highlighted on the last few earnings calls are translating into tangible financial results. Our innovative approach to drilling and completion techniques coupled with supply chain optimization, will enable us to deliver higher production than initially planned this year. And I will point out we're accomplishing this all while maintaining our commitment to capital discipline. We continuously seek new ways to work with our partners to lower costs in a socially and environmentally responsible way. And we're pleased to have been able to do that in the third quarter. Through our partnership with a leading midstream Company, we increased by about 30% the capacity of the water recycling plant that supports our Midland Basin, South Curtis Ranch development. This expansion has enabled us to recycle and utilize higher volumes of water from the plant. In addition to lowering costs, we have not disposed of any water at the South Curtis Ranch development since August. Across our U.S. onshore assets, our transition to using dual-fuel frac fleets and drilling rigs, has saved over 6 million gallons of diesel year-to-date, lowering costs and reducing emissions. In Colorado's new Permian process became effective at the beginning of this year. We worked closely with regulators to adapt to the new process and requirements. As members of the communities where we operate, our goal is to serve as a resource and educate stakeholders on Oxy's approach to responsible development. Our inclusive approach has been helpful in securing DJ permits. In September, we were pleased to see the process move forward for Oxy with the approval of additional permits and wealth counting. Our engagement with and support from communities remains strong as just there are commitment to responsible development as we work to secure additional permits. The momentum that our oil and gas business has generated throughout 2021, has helped to position us for a strong start in 2022. We've recently completed our large-scale divestiture program with the sale of our Ghana assets for $750 million. As many of you know, we had been working closely with our partners in Ghana to complete this divestiture and have successfully closed the transactions with both buyers. The Ghana divestiture, we have completed our goal of divesting $2 to $3 billion post-Colombia, marking the end of our large-scale on ongoing divestiture program. We have now divested approximately $10 billion of assets since August of 2019, and including the debt that was repaid in the third quarter, we have repaid approximately $14 billion of debt. As we maintain our focus on shareholder value, we'll continue to seek opportunities to optimize our portfolio. We will continue to complete acreage trades, or bolt-on acquisitions if they create value for our shareholders. I will now hand the call over to Rob, who will walk you through our financial results for the third quarter, and guidance for the fourth quarter.

Rob Peterson : Thank you, Vicki. In the third quarter, we generated a record level of free cash flow as commodity prices remained healthy and our businesses performed well. We exited third quarter with approximately $2.1 billion for free cash on the balance sheet after repaying $4.3 billion of debt in the quarter. Through September 30, we have repaid $4.5 billion of debt and retired $750 million of notional interest rate swaps. We estimate this will reduce interest in financing costs by $170 million per year going forward. Our consistently strong operational results in combination with current commodity price environment, are driving improved profitability on top of our already robust free cash flow for generation. In the third quarter, we announced an adjusted profit of $0.87 and our reported profit of $0.65 per diluted share, following our return to profitability on adjusted basis in the second quarter. Similar to previous quarters this year, our reported results for less than our adjusted results, primarily due to mark-to-market impact of derivatives. As commodity price improved throughout the third quarter, we made payments of $14.2 million under main oil hedge position and $24.1 million under our gas hedges. We recognized that shareholder appreciate our leveraged oil prices and the recent upwards and natural gas prices. Our current oil and gas hedges will expire by the end of this year, and we have not added any new hedges for future periods. As Vicki mentioned, the sale of our marks the completion of our large-scale divestiture program. These apps reclassified as discontinued operations are on our financial statements. So, there'll be no impact on ongoing production. We will apply to cash in this divestiture at any cash generated from future portfolio optimization towards our capital priorities, which are currently focused on reducing debt. We have raised our full-year production guidance to 1.155 million BOE per day for 2021, while our full-year capital guidance of $2.9 billion remains unchanged. Last quarter, we raised our full-year production guidance shortly before Hurricane Ida typically disrupted our Gulf of Mexico production. Even consider the impact of this size-able storm, we met the high-end of our Company-wide production guidance for the third quarter. Our fourth-quarter capital spend is expected to be higher than prior quarters this year, primarily due to the timing of maintenance activities in all 3 of our business segments. In oil and gas for example, a portion of the capital spend in the Gulf of Mexico, was moved from the third to the fourth quarter due to Hurricane Ida. And we plan to accelerate the start of 2 rigs in the Permian, which I will touch on shortly. Company-wide fourth quarter production is expected to be 1.14 million BOE per day, which represents 5,000 BOE per day increase from the guidance provided in our last call. Our fourth quarter guidance, which is slightly lower than our third quarter results, considers production sharing contract, price sensitivities, planned maintenance, and our activity schedules. We expect to exit 2021 with approximately the same average quarter production as we exited 2020 with. We have updated our activity slide to include two additional Permian rigs, that were originally scheduled to start early next year and will now begin operating in the fourth quarter into Texas, Delaware, and New Mexico. Similar to the activity change we announced last quarter, this adjustment we fully funded through cost-savings and optimization of capital projects gained through efficiency improvements and will not increase our 2021 capital budget. The Texas Delaware in New Mexico are two of our highest return to assets. And introducing the activity in the fourth quarter will place us in a stronger position for 2022. We expect that the market dynamics which drove midstream in marketing performance in the third quarter will continue in the fourth quarter. We have increased four rig guidance to reflect improved differentials benefiting the gas marketing business and robust sulfur pricing at Al Hosn. We have increased earning guidance for OxyChem for the third time this year, reflecting year-to-date performance and continued strong product demand. Not only do we expect 2021 to be a record year for OxyChem, we also anticipate the fourth quarter will be even stronger than the record third quarter. We believe that the market recognizes and appreciates the value being delivered to shareholders, to debt reduction and balance sheet improvement. As we work to repay additional debt, we expect the shareholders will continue to benefit in several key ways. First, we expect that additional debt reduction will translate into share price appreciation. We acknowledge that healthy commodity prices have played a role in the Improvement of Oxy's enterprise value over the last 18 months. Assuming the enterprise value of the Company remains stable or improves, equity will become a larger portion of enterprise value over time as debt is reduced. The interest in financing costs saved on a go-forward basis lowers our cash flow breakeven. We expect that a lower cash flow breakeven will result in additional discretionary cash being available to allocate towards our future cash flow priorities, including returning capital shareholders. As we stated previously, we want to ensure that returning to additional capital shareholders, including any increase in the dividend, is sustainable and ratable throughout the cycle. Reducing the amount of cash committed interest payments today places us in a stronger position for the sustainable return of capital in the future. Finally, lowering fixed costs in the form of interest or interest rate swap payment improves our flexible and optionality through any point in the commodity cycle. Our balance sheet improvement ever set places with a clear runway for the next few years. We are taking a thoughtful approach to repaying additional debt, in a manner that's opportunistic for Oxy. Executing additional tenders or exercising attractive make-whole provisions, are just 2 of the solutions we are considering. We may also choose to retire remaining interest rate swaps, which have an uncollateralized value of approximately $400 million, and could be another opportunity to improve cash flow by approximately $45 million per year, at the current interest rate curve. As we advance our capital priorities, we expect Oxy's financial position to strengthen. Aided by our deleveraging efforts and our strong liquidity position. As we near the end of 2021, we are preparing for the year ahead with an unrelenting focus on safe, responsible operations and financial discipline, which we believe will create value for our shareholders. I will now turn the call back over to Vickie.

Vicki Hollub : Thank you, Rob. We understand that there's a high level of interest in our 2022 plan, which we'll announce in our next call. But now we'd be happy to take your calls for this segment of the call.

Operator: We will now begin the question-and-answer session. . Please limit questions to one primary question and one follow-up. If you have further questions, you may re-enter the question queue. Our first question today comes from Jeanine Wai with Barclays.

Jeanine Wai: Hi, good morning, good afternoon, everyone. Thanks for taking your questions. Our first question is perhaps on the Balance Sheet and growth. When do you see actually getting to the net debt of about $25 billion for that marker, depending on oil prices, our models suggest you can achieve that by about year-end. And if that's the case, is it just a matter of waiting for the macro to give you the all-clear sign in order to begin layering some growth capital?

Vicki Hollub : Certainly, we are achieving a lot of slide toward getting to that net debt target of $25 billion. So, we're going to get there sooner than we expected. But in terms of what we would do with the cash flow after that, we'll follow our commitments to our cash flow priorities, and the next in line would be to start to increase our fixed dividend. So that would be in terms of orders of priority, our next target. We really, don't feel like we need to provide growth at this time from the standpoint of where we are today, we respect our cash flow-generating capability. Future growth for us really is would be in support of growing the dividend, not growth for growth's sake.

Rob Peterson : Yeah, and Jeanine, I'll add to Vicki's comments on that just as we get to that, and we've discussed feathering in the dividend at $25 billion. We're not going to stop our debt reduction at that point. We'll continue to put cash flow into our debt reduction priorities beyond our other top priority of maintenance capital.

Jeanine Wai: Okay. And then maybe we can pivot to a different kind of growth. And the roll of carbon capture, it's going to be absolutely tremendous in the energy transition, and OXY clearly has core competency in this area. And Vicki, in the past, I think you've sized the potential of OXY's carbon capture business as rivaling that maybe of your other businesses over time. If you have any comments or update on that, that'd be great and if overall you can just discuss your updated view on OXY's future as a carbonate management Company?

Vicki Hollub : We still -- do still believe and are moving toward becoming a carbon management Company. We think that, that's going to be needed for the energy transition and we're actually filling a gap with what we're doing as you know, with respect to what others are doing. Every -- there's a lot that really needs to happen in this energy transition for us to be successful to cap global warming at 1.5 degrees. So, there's some companies in the oil and gas industry that are moving more towards to renewables and that's very much needed. And there are others that are working very hard to mitigate all of their emissions from current operations. We're working on both of those but not the renewables. We're working on reducing our current emissions from ongoing operations, but we're also as you know, taking advantage of a core confidence we have with CO2 and the handling of CO2 for enhanced oil recovery. We believe that, that's a gap that nobody else is filling. And the reason that gap is necessary, is for several reasons. First of all, there has to be CO2 removed from the atmosphere. There's nobody in the world that disputes that. So, Direct Air capture is going to be critical for that to happen. So, with Direct Air capture, not only can we remove CO2 from the atmosphere, but also that helps us to develop and produce oil that's either net zero or net-negative carbon. That enables us to provide the and decarbonize industries such as Aviation, or Maritime with fuels that are net-zero carbon. So, there are 2 reasons to build Direct Air Capture first of all for the removal from the atmosphere, the provision for providing those net-zero carbon fuels, and the things that makes it very versatile, is you can build it anywhere. So, we think that because of the magnitude that impact around the world and the need for thousands of these to be built, it provides us the opportunity to be a big part of that and to actually be a leader in developing the technology. So, we think we will transition. The transition will take some time, but over the next 10-15 years, I think we'll make a lot of progress towards becoming that carbon management Company. And I go to Company for those that need the CO2 offsets.

Operator: Our next question comes from Doug Leggate with Bank of America.

Doug Leggate: Thanks. Good afternoon. I guess it is now. Welcome to the end of earnings week, Vicki, thanks for closing us out, I guess. I've got a couple of questions specifically around the return of cash comments. And if you don't -- indulge me for a minute, I'd like to do kind of layout my thinking here. Your share prices are lagging pretty badly today. Despite extraordinary free cash flow yield on our numbers and a clear line of sight to deleveraging, so there's something the market is not acknowledging, obviously. And our feedback I guess is that you're the only Company not giving meaningful cash returns back to investors. My question is, how do you think about the right level, or the appropriate mechanism to return cash when your stock has such a high free cash flow yield? Let's assume that persists. That's my first question. My second question is. , one has practically no net debt. The other is targeting no net debt. Where do you think the right level of debt is once you surpass your $25 billion-dollar target, where do you want it to be? First question, mechanism for cash returns, Second question, the long-term mid-cycle appropriate level of your Balance Sheet.

Vicki Hollub : Well as you know, to get to around $25 billion net debt was our target. And as Rob mentioned earlier, now that target is in line of sight and again, much sooner than we expected. So, once we have actually achieved that, then we'll begin to layer in some of the other things that we can do with our cash most notably and primarily would be to grow a fixed dividend and then beyond that, again, I don't see capital growth until we've gone to a point where we need to make that happen. I think we've talked about over the last couple of years that we feel like it's very important to keep our breakeven around $40. So, as we established a fixed dividend and move forward, we would grow our cash flow to match the growth in the dividend rate. So that it will happen and it will happen over time with respect to other considerations for the use of cash. It will really depend on the circumstances that we're in when we actually have reestablished or actually grown the existing fixed dividend that we have.

Rob Peterson : Yes. I guess if I can add to that is. What we've done is, consistent of what we've been messaging every sense we got into this deleveraging process. We indicated the market as Vicki said that we were going to get into that $25 billion debt range before we considered raising increasing value return to shareholders. And so, we do have line of sight. It's obviously heard a lot closer than we anticipated. It would be because of the combination of all the work we did, the scrip out cash, but sort of commodity prices is much stronger than we anticipated. And if it continues that way, it's not that far away that we'll reach that target. But we aren't there yet and that's the reason why we're not increasing value return to shareholders because we're sticking to our messaging, and the plan we've set out in front of our shareholders. And so, for us to prematurely deviate from that plan, bringing inconsistency that message we certainly don't want to bring to the marketplace.

Doug Leggate: Okay, guys, this is a quick follow-up. I'll jump off it. I'm looking at the Apache example. They've come out and basically given a framework where they're saying, essentially, like you guys, the free cash flow yield is extraordinary. And so, we're going to buy back a bunch of stock. That's really what I'm driving at here. Your capacity for potential buybacks is pretty material. Can you offer any kind of thoughts as to why that might not be the case and what the limitations out around preference shares as it relates to whether share buybacks would be practical? I'll leave it there. Thanks.

Vicki Hollub : I would say that we're not at the net debt of $25 billion yet, and we want to see what the macro conditions are and what's happening with our stock at that point. So, since we're not there, it's really hard to provide any direction right now on which -- what we would do. The one thing we can tell you is that we will follow our cash flow priorities, which is the fixed dividend first before we would do and consider anything else. The share repurchases are a longer-term possibility for us, but not the nearest term. The nearest term would be the growing the dividend.

Operator: Our next question comes from Neil Mehta with Goldman Sachs.

Neil Mehta: Good afternoon, team. Vicki the first question is just around sustaining capital, recognizing you're going to provide a little bit more clarity on '22 year in the coming months. But can you just talk about how you see that trending as we move into '22. And what are the tools that you have in place to mitigate the natural cost inflation that should arise as oil prices stay at elevated levels?

Vicki Hollub : I'll take the second one first. Our teams have worked hard to try to establish the right kind of contracts in business situations with service providers and materials providers to mitigate inflation. We don't think necessarily we would mitigate all of it. We're just not sure right now what inflation will be, but we know that our efficiencies and our established relationship and business situations will help to mitigate some of it. We're hoping to continue also to further improve our efficiency so that we can mitigate more than what we would see today. But that -- there's a lot of work going on around that and especially with respect to how we manage our supply chain, and the strength of our position not only in the U.S., but around the world. So, we're leveraging that, as well. With respect to the sustainability capital, I will say that inflation, whatever amount we can't mitigate would be certainly on top of what we have today. And the only thing that I could really point to, in terms of what we've said before about this is in 2022, we won't have as many DAC s to complete as we did in 2021. So, there is a difference there. We completed about 100 DACs in this year. In addition to that, we're going to have some capital investment that we'll need to make in 2 other areas, both of which we've mentioned before. Al Hosn we will begin the expansion of that in 2022. So, we'll have that cost. We'll also have some incremental costs in the Gulf of Mexico. So, it will be higher than the $300 million we had this year, because the golf is a little bit lumpy in terms of capital investments. So, we'll have those things to consider when we are putting together our final plan for 2022.

Neil Mehta: That's helpful. And just the follow-up is the composition of the portfolio. As you evaluate the different upstream buckets, the Permian, Rockies, Gulf of Mexico, Middle East. How do you see that evolving over time? Is there an area where you see is going to represent a disproportionate amount of the incremental capital beyond what you've already laid out?

Vicki Hollub : The Permian will always receive the bigger portion of the growth capital or even the maintenance capital than anywhere else as we're starting to -- or in continuing to offset declines. There may be some of our areas that do decline that would be made up usually by the Permian Basin. But all of our areas have played a role in what we're doing. In fact, for example, the Middle East, that area for us is very helpful to continue development there because the contracts provide us some protection in a down-market the PSCs do. So, Oman is important to us from that respect. And we do have a low cost of development there we get our cash back fairly quickly. So that's the good part of Oman and delivers good returns in Al Hosn as a low decline asset for us. So, it's -- it plays that role of -- we want to continue building on our low decline assets, but that'll be a lot of the growth for that will be going back to IOR at some point to start building there as we get this anthropogenic CO2. So, you know, are in the Permian will play a bigger role in the future. But low decline assets are important to us. But the bulk of our dollar beyond sustainability ultimately, we'd go to the Permian.

Operator: Our next question comes from Raphael Dubois, with Societe General.

Raphael Dubois: Good afternoon and thank you for taking my questions. The first one is a follow-up on the shareholder repair. Can you please remind us why you think it is more appropriate to start by increasing your dividend, instead of starting shareholder return by a large buyback program considering you -- I think we all agree that you are somewhat undervalued. So, would it not make more sense to start by a lot of buyback program? Thank you very much.

Vicki Hollub : The reality is that there are multiple things that we could do with our cash. We believe that restoring the dividend is the -- not restoring it to the prior level, but continuing to increase it over time is a better and more predictable value creator for our shareholders. We have always been a dividend paying Company. It's important for us to get back to that and make it a more -- get it to a level where it's more meaningful to our shareholders. But we always want to evaluate buybacks since -- so I'm not saying that we would never do it or never consider it. We're just not at the point now where we have all the data to be able to make that assessment. For example, today we're not at $25 billion net debt. Now, when we get there, we will take a look at all the things that are available to us to do. But starting to grow the dividend we have today is a high priority because of the fact that we did have to reduce it significantly. We won't start restoring it. But anytime we look at cash, we would have cash beyond that available. And then we would just do the value calculations and determine whether it makes sense, given the other opportunities for us to buy back shares. It's always a consideration.

Raphael Dubois: Great. Thank you very much for the . One extra question on OxyChem. The results in Q3 were of an accident and your guidance in Q4 is nothing short of amazing considering there's always seasonality in this business. And usually Q4 is not as strong as Q3. So, can you maybe tell us a bit more about the market dynamics in terms of supply and demand. When do you think we should expect some normalization of your chemical business?

Rob Peterson : Yes. Sure. Happy to discuss it, Rafael. So, I would say, what we see today in the chemical business, is still very strong commit -- condition in our vinyl business, and steady improvements in the coffee business. And you're correct. Typically, we're normally entering into a seasonally slower period of time, but we're just not seeing that thus far because if you step back and look at the year, the industry which already was pretty tight on supply at the beginning of the year, lost almost 2 months of production because of the freeze we had in the gulf states in February, and then the impact of Ida that we had in the third quarter. So, the combination of those 2 was kept, coupled with the demand being as strong as was for all of our products, has kept the supply-demand balance much tighter than anticipated, or typically historically year. Those are the 2 main drivers on Slide 31 of the deck we included. Obviously, the main profit driver for the business on the earnings are going to come from both the PVC business and the caustic soda business. The operating rates year-to-date are over 80% and the PVC business despite the impacts of the 2 storms and the lost months of production and domestic demand is up over 13% versus this time year-to-date last year. And that's even when we started picking up the demand post COVID last year. The other thing I would say is that the construction sector looks like it is our building products remains very strong with inventory levels still very low and you can tell that inventories are very tight because exports are really soft still, compared to historical levels. And what you have is with exports being down over 1/3 versus prior year. Even prior year being a COVID year. That's because the discretionary resin is just not available. And so, with your only exported PVC resins really destined for long-term contractual sales from U.S. based producers overseas. And you're not seeing that spot resin flow into the market, which means people are still just trying to get an up resin for the domestic market, which is going to keep prices elevated and the margins elevated through that period of time. And so that's kind of atypical for this time of year. But we do see it continuing to the balance of the year. Does it continue all way to the winter? Construction necessarily has to slow during the winter. What we don't have a flavor for is how much are people going to want to restock inventories to be ready for what looks like another strong spring construction set which will return pretty early in the year next year. On the chlor -alkali side, I'd say chlorine has extremely tightest producers. We are still trying to think the highest value for the outlet. This is where OxyChem 's vast portfolio of derivatives gives us so much strength versus many others because we're not just making PVC, we're making all 3 parts of the vinyl chain. We're also selling into our domestic market that gives us exposure to the polyurethane markets, the TiO2 markets, etc. And water -- beyond just a water treatment and others are traditionally thinking of at our own core methane business. And so all those we're seeing strong demand and in supply demand, balances are very tight. And we will see, more than likely in the back side of another difficult operating over the industry. A continued effort to rebuild inventories, not only in supply chain, but there's also we're seeing a lot of pent-up demand still coming back as things somewhat return to normal on the backside of the pandemic, particularly caustic soda demand globally, will continue to improve as manufacturing activities restored in both South America and Asia and in Europe. What we're seeing on the caustic side is again, the steady improvements. We're not seeing record prices on the caustic soda yet like we are on PVC, but some of the prices in Asia, have risen to levels that haven't been seen be for e. And so, both businesses are very strong right now. We will see a seasonal slowdown in caustic domestically, because you're no longer able to transport caustic river once it -- for the winter, but we don't see it really impacting the industry enough just because inventories are so tight. And so, I still think January, February, will just continue to be slower months for the industry, but it's going to be such a narrow period with a tight inventory. We'll probably hit the ground running pretty quick in the spring again.

Operator: Our next question comes from Neal Dingmann with Truist Securities.

Neal Dingmann: I guess when you, thanks for the time. Vicki, can you share maybe just broadly how you're currently thinking about sort of just on a strategy growth versus capital discipline today in light of, I know Rob just had some minor comments on just adding some Permian rigs, but just maybe if you could share your thoughts on where you sit with that today.

Vicki Hollub : I would say that for us production growth is not a priority for us right now. Because if you look at our cash flow generating capabilities and with our strategy around that going forward, it's too, it's basically. When we get to our net debt target of $25 billion that's not where we'll end. As Rob mentioned, we want to continue working to reduce our debt beyond that. But the need to do so at a bigger level is just not there. We get to the $25 billion -- we'll share more information as we get there about what our next target would be with respect to debt reduction. And then again, it's to start growing our dividend again. And the only point at which we would really need to start growing our production would be down the road, where we want to continue growing the dividend. We don't need additional growth from production right now to be able to increase the dividend over the next couple of years. Because again, with what we expect the macro to be and the level of increase in our dividend, we believe that we can do that without any production growth over the next at least couple of years. So, it would be continuing to maintain our facility, our operations, our production level, and then these occasional projects that are beyond us, sustainability capital, like the GoM, Al Hosn, or could be those over the next couple of years. But other than that, it's going to the dividend and further debt reduction.

Neal Dingmann: And I assume your low in decline helps with all that?

Vicki Hollub : Pardon me? Oh, yes. Yes. And that's why it's important to have these low decline projects that enabled us to execute on this strategy.

Neal Dingmann: Absolutely, then one last one if I could, you've mentioned, I think maybe even on the last call or maybe the prior, In the past about maybe having hopes to get more than just a Q45 tax credit can maybe help you and others potentially expedite some of your plans in that low carbon area? I'm just wondering, is this still something you think is needed to help you and others expedite plans and low carbon and if you did an expedited this would that come at the expense of cash going towards the upstream business.

Vicki Hollub : I would say that the world absolutely has to have acceleration of Direct Air capture, not just our DAC facilities that carbon capture retrofitting industry. It has to happen, and the only way that it can happen and at the pace that's needed for the world is for the U.S. to get on board with the supporting it. And the U.S. has the strength and the capability to do that. And the best way to do it is through 45Q and direct pay 45Q. So, you're right on that. That that's incredibly important to us. Otherwise, the U.S. will not achieve the targets that we've set with even the prior Paris Accord, much less what's happening in Glasgow right now. So 45Q has to happen and really needs to be direct pay. Otherwise, we're going to struggle to be successful. But with respect to what we're doing, there is going to be a price for carbon because there's a lot of commitment from corporations now to get to net neutral. Everybody I think realizes at some point that if we don't achieve our goals through the incentives like 45Q, then there is going to have be some price mechanism on carbon to make it happen. And so, what we're seeing, is a lot of corporations are trying to get ahead of that. A lot of corporations are starting to feel that there is a social license to operate and that to have that, there has -- they have to proactively start seeking CO2 credit offsets to become net neutral. United has been one as you know, that we've announced that they want to do that and they are proactively committing to dollars to the building of the Direct Air Capture plus the purchase of the oil that would be the net zero oil. Other corporations are calling us, we're getting a lot of incoming interest in the Direct Air capture because of that. So, I do believe that there's going to be sufficient growth and commitment. To make what we're doing here in the next -- in initial phases work. But beyond that, again, what it's going to require is much more acceleration than that.

Operator: Our next question comes from Phil Gresh with J.P. Morgan.

Phil Gresh: Hey, good afternoon, one follow-up question just around the dividend situation you talked about wanting to have a $40 WTI break even. And I just wanted to get some clarification of how you would calculate where we are today. And then it sounds like you would want to grow dividend multiple years up to the $40 WTI -break-even as opposed to all at once. So just clarification around that place.

Vicki Hollub : Yeah. The clarification is right now, we're in the probably upper 30s on a breakeven. But that's not -- that's assuming -- that's without the preferred. So, we're really close to where we want to be and where we want to stay. As we grow -- as we restore the dividend at a moderate level, we'll do it in a way that enables us to grow it over time, but probably not at the pace that we've done in the past. So, it will be in moderate growth, but it will be a material dividend as we've always tried to maintain.

Phil Gresh: Okay. So, are you willing to go above the $40 WTI breakeven for the dividend or you want to keep the dividend within that, just to be clear?

Vicki Hollub : Ultimately, we want to keep it within that. Now, there's going to be some discussion and some evaluation of what -- how do we start out that dividend growth, but we'll determine that when we get to the $25 billion net debt. We'll see again what will be supported by mid-cycle, what would be supported by a $40 breakeven.

Phil Gresh: Got it. And there's one follow-up for Rob. Do you have a sense that you could share with us around U.S. cash taxes? What your situation is there when you'd become a full U.S. cash tax payer?

Rob Peterson : I think Phil, for the standpoint, certainly of this year where you don't anticipate any material cash taxes based on our viewpoint of 2022, we don't see that happening again, also we see ourselves, depending upon certainly the macro conditions, becoming a U.S. cash taxpayer in a meaningful way in 2023.

Operator: Our next question comes from Paul Cheng with Scotiabank.

Paul Cheng : Hey, good afternoon, guys. Two questions for you. Please. Shell have just sold their Permian asset to Conoco. I just want to see if you see that as a maybe additional opportunity for you guys to work with a different partner and seeing either asset swap or other opportunity associated with that, or do you think that this is just business as usual, given that you are the operator and that doesn't really change anything? That's the first question. On the second question that I think the focus has been everyone asking you about when you're going to you increase your capex in the oil and gas sector and you're maybe made clear, not yet anytime soon. But how about in the chemical? I mean chemical, you guys have a very unique position. You are not in the typical chain. And that with the housing sector has been very strong and that really have been doing quite well, or much better than before, so do you do you have any intention to expand and grow that business? And then they also be good in terms of energy transition. So, want to see that. What is your overview in terms of -- from a growth prospect standpoint for that. Thank you.

Vicki Hollub : I'll start with the Shell assets, and we're always looking for opportunities to core up while we operate. Assets swaps have been a big part of helping us to increase our working interest in the areas that we already operate over the last few years and that's been very successful. We will continue to try to do that and we'll be working with Conoco and any other partners that are in our current operations and we're near we have to make swaps that work. Because those are always better for each Company. Those are win-win scenario. So those or something that's really important for us to do, we'll continue that. The second part of the question is

Paul Cheng : Vicki. Actually, before that. Have you already reached out or that the Conoco already reach out and talk to you between you and on that or that this is something that you guys going to do?

Vicki Hollub : Well, we had been in conversation with Shell for a long time and we certainly have had conversations. Our teams worked with Conoco on other things and so we have had contact about potential swaps. We think it would be best for both of us to be open to that and pursue that. So just as we have done with Shell, we're doing the same with Conoco. With respect to the OxyChem business, Rob knows this better than I do, but OxyChem has been very opportunistic in the past to ensure that they mitigated market risk by working out with partners, opportunities to build into grow. But again, without taking, market risk more.

Rob Peterson : I would add, is that your Paul -- If you look back the history of projects, whether it was the chlor -alkali plant is adjacent to the Komorze CO2 plant or the cracker than we built, an angle-size have entered together, are in relations we have, what we've been able to do is, build long-term partnership with our downstream customer that gives us a pseudo integration in end markets. Otherwise, we don't want to build it into CO2 or Polyurethanes. etc. and partner with the leaders in those industries. And so, we're always evaluating that, but the Vicki's point, it's going to be something we're going to structure around where we're guaranteed a return on and of the capital necessarily continue to fund the cash from that towards the rest remainder of the business as a cash flow source. I think we're constantly evaluating that. Like anything else, there's probably a dozen projects that end up on the drawing board that -- to get one good one that works out. But you are right, that there is a lot of growth in the core vinyl sector as a building product. And the advantage the U.S has versus the rest of world; the feedstocks is pretty significant. So, we'll continue to evaluate those and if something comes together, we will happy to share it with the market.

Vicki Hollub : And you're right. All in that it is really an important part of our transition story. OxyChem will be a key player in that and certainly, we're open to opportunities from any of our existing partners and new partners to help with that.

Paul Cheng : They can. And what do you guys foresee growth capital into the OxyChem over the next 1 or 2 years on some new bid longer term?

Rob Peterson : It's hard to say, Paul. I mean, I think it depends on the timing of investments and what the opportunities are out there. And so, we're constantly evaluating that and would integrate it in our portfolio if it made sense. But I would be purely speculative to give timing on when we might make the next significant investment in OxyChem.

Operator: Our final question today comes from Leo Mariani with KeyBanc.

Leo Mariani: Hey, guys wanted to follow-up a little bit on one of the prepared comments that you guys made. I think you commented there could be some bolt - ons in the future. Just wanted to get a sense in general of what Oxy's advertise might be for doing those types of things just given that you've had a pretty prolific asset sale program for the last couple of years?

Vicki Hollub : Yes, we would only do it if it was very strategic, and something that fill the gap that we currently have. And there are situations where picking up some acreage would enable us to drill longer laterals. There’re situations where we have the opportunity to increase working interest in something that we already own. And so those are situations that when they do come along, you almost need to do it otherwise, you may not get the chance to do it again.

Leo Mariani: Okay. It makes sense and then just also wanted to ask you guys, is there update that you might have on the funding situation for your Direct Air capture projects. I think you guys were seeking external off-balance sheet financing for that.

Vicki Hollub : We don't have an update currently, but our plan is still to hold an LCD day or event in the first quarter of next year. By then, a lot of what we're working on right now, we hope to be able to talk about publicly.

Leo Mariani: Okay. Thank you.

Vicki Hollub : Thank you.

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

Vicki Hollub : Thank you all for your questions and for joining our call. Have a great day.

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