Occidental Petroleum Aktie

Good afternoon, and welcome to Occidental's First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

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

Thank you, Betsy, and good afternoon, everyone. Thank you for participating in Occidental's First Quarter 2026 Earnings Conference Call. On the call with us today are Vicki Hollub, President and Chief Executive Officer; Sunil Mathew, Senior Vice President and Chief Financial Officer; Richard Jackson, Senior Vice President and Chief Operating 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 2 regarding forward-looking statements that will be made on the 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 Vicki.

Thank you, Babatunde, and good afternoon, everyone. I want to take a moment to acknowledge the ongoing challenges and uncertainty in the Middle East.

First and foremost, I want to thank our frontline employees in the region for their professionalism and focus under very difficult conditions. Their safety remains our top priority. And thankfully, our teams continue to operate safely with no adverse impacts to our personnel. Also I want to recognize the continued support of our partners and host governments in the UAE, Oman and Qatar. Their collaboration and shared focus on safety and asset integrity remain critical as conditions continue to evolve.

Recent developments have driven sharp price movements and increased volatility across global markets. These dynamics underscore how quickly supply expectations and trade flows can change and why reliability, resilience and financial strength matter. While volatility can influence near-term prices, long-term value is created by companies that execute consistently across cycles while protecting their people and assets.

During this period, Oxy executed as we planned. More importantly, we demonstrated that the strategy we have built over more than a decade can perform well through disruption. Over the past 10 years, we have fundamentally transformed Oxy's portfolio to emphasize quality, balance and durability.

From the beginning, we operated with clear conviction that the world will continue to need oil for decades to come and that the Permian would play a critical role in meeting that demand. That conviction shaped a strategy grounded in subsurface capability and operational excellence to lower full cycle cost across the portfolio.

As we sharpen that focus, we exited noncore assets and redirected capital to competitive positions where our technical capabilities could create the greatest value. We invested consistently in our people, knowing that subsurface expertise and disciplined execution will be key differentiators for Oxy over the long term.

As part of that deliberate work, we shifted to a substantially more domestic portfolio. Today, 83% of our current production and 88% of our total oil and gas resources are in the United States, concentrating our operations in a more stable operating environment. Recent global events reinforce the importance of those decisions.

Through this transformation, we built both scale and depth. Since 2015, we more than doubled production going from 650,000 BOE per day to over 1.4 million per day. We also more than doubled our reserves and resources, increasing reserves from 2.2 billion to 4.6 billion barrels of oil equivalent and total resources from 8 billion BOE to approximately 16.5 billion. These resources are high quality and low cost with a runway of more than 30 years.

At the same time, we diversified and balanced our mix of assets in the portfolio with roughly half of our resources in short-cycle unconventional assets and the other half anchored in lower decline assets across EOR, the Gulf of America, Oman, Abu Dhabi and Algeria. This balance positions us to reduce our base decline to below 20% by the end of the decade and support lower sustaining capital over time.

Subsurface and technical excellence have also been core to our success. Over the past decade, we have invested in data acquisition, reservoir characterization and development design to build a superior understanding of the subsurface. This enables us to optimize development plans by basin, section and formation rather than rely on a one-size-fits-all approach.

Our teams have delivered and the data backs it up. Quarter after quarter, we have achieved industry-leading unconventional well performance across every basin in which we operate. Since 2016, we have maintained a reserve replacement ratio above 100%.

This capability continues to expand and improve our resource base, unlocking new opportunities across EOR, the Gulf of America and our international assets. Looking ahead, this capability will only get stronger as we combine our data and technical foundation with advanced analytics and AI to further optimize development and performance.

Today, with the portfolio, resource base and capabilities we've built, Oxy is positioned to deliver even greater value for decades to come. In the first quarter of this year, we remain disciplined in our capital allocation, maintaining a steady development program aligned with our 2026 plan. And we continue to prioritize balance sheet strength to preserve flexibility and support sustainable shareholder returns. Our first quarter results reflect that progress.

Now I want to take a minute to reflect on the leadership succession plan we announced last week. As I'm sure you saw, I will be retiring as President and CEO of Occidental on June 1. And with the approval of the Board of Directors, Richard Jackson will succeed me as President and CEO. I will continue to serve on Oxy's Board, and Richard will join the Board as well on June 1.

I've worked with Richard for almost 20 years and have always been impressed with his drive for excellence, his integrity and ethics. He brings deep experience across our business and a strong track record of execution, making him a great choice for the next phase of our strategy, which includes the development of our extensive portfolio. The Board and I have full confidence in his leadership as he carries forward the strong performance and foundation we've built at Oxy.

As Oxy enters this next phase, I also have great confidence in our innovative leadership team and our employees who will continue to excel at what we do best, and that is oil and gas development and operations. This is our forte. Oxy's future is in excellent hands.

With that, I'll now turn the call over to Richard to discuss our forward trajectory in more detail.

Thank you, Vicki. I appreciate being able to speak with you all today, and I'm grateful for the opportunity in front of us at Oxy. It's a privilege to be part of our team, and I'm looking forward to my new role to help support and drive value delivery. I want to start by acknowledging the strong foundation that Vicki's leadership has built over the last decade.

It has been a remarkable transformation of resources and capability across Oxy. Her vision of transformation, combined with a strong drive to deliver has positioned us where we are today. More personally, all of us at Oxy recognize and appreciate the impact Vicki has had on our team and on each of us individually. Her passion to develop our team and her people-first approach is something that will endure and shape how we grow together in the future.

As we look forward, our focus now is on execution and delivery. As Vicki noted, we have a 30-plus year resource base that is high quality, rightsized and balanced. We believe each of these are important to help drive our results across any cycle. We're operating from a well-understood resource position with significant value upside and are now set for organic development to achieve our objectives.

Our focus starts with continuing to improve our advantaged resource base through sustained improvements in new well performance and base production. Today, we are a leader in U.S. unconventional well performance where much of our future resource development will occur.

In 2025, we were top tier in every basin where we operate, delivering at least 10% better new well performance than industry average on a 6-month oil per lateral foot basis. We continue to see opportunity for further new well performance improvement across our global assets.

Base production is also a key contributor to our results where we have improved uptime in all operating areas. I want to give special recognition to our Gulf of America team whose focus on maintenance and platform reliability has led to strong base production performance with a record topside uptime of 98% in Q1.

Beyond well performance, we will continue to improve our resources through advanced recovery across 4 differentiated capabilities: U.S. unconventional secondary bench development, expansion of EOR across the portfolio, low-cost development and waterflood projects in the Gulf of America and focused exploration strategy in both our GoA and our international operating areas.

These are all areas where our subsurface capabilities and approach are delivering results and where we have significant opportunities to unlock more value. Another key focus will be continuing to deliver cost efficiencies. Since 2023, we've delivered $2 billion in annual cost savings through operational efficiencies. And in 2026, we are on track for an additional $500 million in oil and gas cost savings across new well and facility costs, operating costs and transportation.

Looking ahead, in the near term, we see a clear pathway to grow free cash flow and value at any price with significant upside opportunities. Our value improvement starts with executing from a strong balance sheet, continuing to organically improve our resources and further driving cost efficiencies.

2026 is an important first step as we are targeting more than $1.2 billion of incremental free cash flow relative to 2025 before the positive impacts of higher prices. As a next step, we are developing plans to deliver significant additional cash flow by 2029 through continued oil and gas cost efficiency and lower decline rates, improvements from midstream and LCV and lower corporate costs driven from lower debt interest and workforce efficiency.

Our forward plan gives us a clear pathway to grow value through any cycle. At lower prices, we will be able to sustain production and grow the dividend. At higher prices, we have the opportunity to further accelerate value by adding measured reinvestment and share repurchases aligned with our disciplined cash flow priorities.

We will also remain leveraged to higher oil price, enabling us to generate substantial incremental cash during these times. Simply put, advantaged resources, lower costs and lower decline rates drive lower sustaining capital and durable free cash flow to grow value in any cycle.

Now let me turn to our first quarter results and progress. In our Middle East operations, our core focus has been on the safety of our people and operations. We want to thank our teams and partners as we continue to work through the events in the region. Sunil will talk through these impacts as he covers guidance for the second quarter and total year.

We exceeded the high end of guidance in both our Oil and Gas and Midstream and Marketing segments in the first quarter. We delivered 1.426 million BOE per day production, a 21,000 BOE per day beat against the midpoint of guidance, largely driven by strong new well performance and uptime across our domestic portfolio.

We also made strong progress on our U.S. onshore oil and gas cost savings this quarter, where we are delivering top-tier capital efficiency. We're building on the successful improvements we have made over the last few years, and we're on track to deliver approximately 7% new well cost improvement in our 2026 plan.

Additionally, last month, we announced the Bandit discovery in the Gulf of America. This is the third GoA exploration discovery we've had in the last 3 years, highlighting our subsurface capability and success of our infrastructure adjacent capital-efficient exploration approach.

I also want to provide an update on STRATOS. The construction of Phase 2 is now complete. This is the second 250,000 tons per year of capacity. It includes the final 2 air contactor trains and updated pellet reactors based on the new design.

We also completed commissioning of the Phase 1 unit operations, which includes operating air contactors and the central processing facility. During commissioning, the technology and process unit operations performed as expected.

After these Phase 1 commissioning activities, we identified an issue related to nonprocess components of the facility unrelated to the technology. We are currently evaluating the repair time line and assessing the impact on the operation schedule and we'll provide an update next quarter. While still early in our assessment for repair, we do not expect this to impact Oxy's capital range for the year.

I want to close again by thanking Vicki for her leadership and commitment to Oxy. Many of us have grown and developed together over the years, and the team and capability we've built is one of the strengths I'm most proud to be a part of.

We've made important progress, but we also recognize there's more to do. Our focus will be on consistent execution of our priorities to deliver enhanced durable value for our shareholders, employees and partners.

I'll now turn the call over to Sunil to review the financials.

Thank you, Richard. In the first quarter of 2026, we generated adjusted earnings of $1.06 per diluted share and reported earnings of $3.13 per diluted share. The difference was largely driven by the gain on the OxyChem sale, partially offset by the impact of derivative losses and early debt retirement premiums.

Strong operational execution, along with higher commodity prices enabled us to generate approximately $1.7 billion of free cash flow before working capital in the first quarter, and we exited the quarter with more than $3.8 billion of unrestricted cash. Even with oil prices roughly in line with the first quarter of 2025, we generated approximately 52% higher free cash flow from continuing operations, demonstrating our continued focus on cost and operational efficiency.

We had higher first quarter working capital use, driven primarily by higher receivables associated with stronger oil prices in March. This was in addition to normal first quarter items, including semiannual interest payments, annual property taxes and compensation plan payments.

As Vicki and Richard highlighted, our Oil and Gas and Midstream segments delivered exceptional results and exceeded our original expectations. Our production averaged 1.43 million BOE per day in the quarter, exceeding the high end of guidance. Strong base and new well performance in the Permian and Rockies, along with strong uptime in the Gulf of America, drove domestic outperformance, exceeding the midpoint of guidance by 33,000 BOE per day.

This was partially offset by lower international production due to Middle East disruptions and PSC impacts due to higher oil prices. We also continue to deliver on our cost efficiency targets. Domestic lease operating expense outperformed at $7.85 per BOE, a 5% improvement compared to our first quarter guidance due to maintenance schedule optimization in the Gulf of America and higher production.

Our Midstream segment outperformed in the first quarter, generating positive earnings on an adjusted basis of approximately $400 million above the midpoint of guidance. This was driven by gas marketing optimization and higher sulfur prices at Al Hosn, partially offset by lower sulfur sales.

We also benefited from higher crude marketing margins due to timing impacts of cargo sales and fluctuations in commodity prices, which are offset in mark-to-market. While the duration of these impacts remain uncertain, our performance highlights the ability of our midstream business to capture value during periods of volatility.

We have continued to make significant progress on our deleveraging. We reduced principal debt below the $14.3 billion level announced on our last call. And today, our principal debt stands at $13.3 billion. This brings our go-forward run rate on interest payments to $845 million per year, which is approximately $550 million lower than our interest payment in 2025. This progress reflects the strength and durability of our free cash flow and our continued commitment to disciplined capital allocation.

Our near-term cash flow priority is to reduce principal debt to $10 billion. Reaching this milestone will further strengthen the balance sheet and enhance our financial flexibility across cycles. As discussed on our fourth quarter call, near-term debt maturities remain low with $415 million due through the end of 2029. This provides meaningful support through periods of market volatility.

In the current environment, higher oil prices are generating incremental cash flow that continues to support this deleveraging path. After we achieve the $10 billion principal debt milestone, we will reassess our cash flow priorities based on the macro environment, including the appropriate balance between building cash on the balance sheet ahead of preferred equity redemption in August 2029, additional principal debt reduction and opportunistic share repurchases.

Any increase in reinvestment would be driven by clear macro conditions and supported by continued cost and operating efficiency. Until these conditions are met, we intend to remain disciplined and balanced in how we deploy incremental cash flow. We are well positioned to increase reinvestment from a highly advantaged resource base at the appropriate time.

Let me briefly comment on hedging. We have not historically been active in hedging as we believe we create shareholders over the long term by maintaining exposure to commodity prices. That said, we have selectively hedged under specific circumstances. In February, prior to the conflict escalation in the Middle East, we put in place a modest amount of oil hedges using costless collars. At that time, we saw increased downside oil price risk and an opportunity to take measured action to preserve operational momentum and support our 2026 capital plan with a steady development program and without using the balance sheet.

We hedged 100,000 barrels of oil per day from March through December 2026 with a floor of $55 WTI and a volume-weighted average ceiling of approximately $76 WTI. This was primarily an operational decision and not a change in our hedging strategy. As volatility increased and prices moved higher, we stopped adding new hedges and do not intend to do more.

Looking ahead to the second quarter, we expect performance to remain strong, reflecting disciplined execution and durable efficiency gains across our domestic portfolio. Our forward outlook incorporates a few discrete impacts driven primarily by 2 factors. First, in the Middle East, modest operational constraints at Al Hosn are expected to impact volumes. These began in mid-March and are anticipated to normalize before the end of the second quarter. In addition, higher prices under PSC terms will result in lower net production.

Second, we executed transactions to further optimize our EOR portfolio, increasing working interest in our core operated floods while divesting scattered noncore fields and associated facilities. While this lowers our EOR production modestly, these actions are free cash flow accretive, shifting the portfolio toward higher-margin oilier production and meaningfully lower operating costs. Overall, this improves both the quality and durability of our EOR asset base.

Strong U.S. onshore execution is expected to partially offset the impact of our EOR portfolio optimization. In the Permian, unconventional production is expected to increase in the second quarter, supported by higher activity and resilient base performance. In the Rockies, second quarter volumes are expected to be roughly flat, excluding prior period adjustments. In the Gulf of America, second quarter volumes are expected to decline modestly, reflecting planned facility maintenance and the beginning of tropical weather season.

As a result of the Middle East disruptions and strategic EOR actions, we are adjusting the midpoint of full year production guidance to 1.44 million BOE per day. We are maintaining our previous guidance for domestic lease operating expense as increasing CO2 cost pressure related to higher oil prices is offset by the benefits of the EOR optimization transactions.

Turning to Midstream. We expect earnings to remain strong in the second quarter, driven by gas marketing optimization opportunities given the wide Waha-to-Gulf Coast natural gas spread seen quarter-to-date. Our guidance assumes impacts to sulfur sales in the quarter due to disruption in logistics from the ongoing Middle East conflict. We expect sales to normalize in the second half of the year, recognizing conditions in the region can change quickly.

Given strong performance year-to-date, we are raising the midpoint of full year midstream guidance to $1.1 billion, an increase of approximately $800 million from the full year guidance provided in our last call. We continue to expect the Waha-to-Gulf Coast spread to narrow later this year as additional pipeline capacity comes online, and we believe we remain well positioned to capture marketing optimization opportunities as they emerge.

Capital spending in the first quarter was in line with our 2026 plan with activity weighted towards the first half of the year. We are maintaining our full year capital guidance range of $5.5 billion to $5.9 billion with the second quarter capital expected to be higher than the first quarter.

Even in a highly dynamic macro environment, our outlook remains strong. Our short-cycle U.S. onshore portfolio continues to be a key competitive advantage with low breakevens, enabling efficient stable activity while providing significant capital flexibility in extreme price scenarios. We complement our U.S. unconventional onshore investments with selective lower decline mid-cycle investments that reduce our sustaining capital and strengthen cash flow durability across price environments.

Together with continued balance sheet progress and disciplined capital allocation, we are well positioned for the future, delivering strong, consistent operational results providing resilience through volatility and the ability to opportunistically return capital.

I will now turn the call back to Vicki.

Thank you, Sunil. Since becoming CEO in 2016, I have worked with our Board and management team to operate with integrity and discipline, and we have invested in technical capabilities that differentiate Oxy, and we built a portfolio designed to endure. The progress we've made reflects that focus and above all, the expertise and commitment of our people.

I again want to thank our leadership team and our employees throughout the company for their performance over the past 10 years. They consistently exceeded my expectations with incredible passion, perseverance and loyalty. I also want to thank our Board for their strong guidance and support.

And in addition, I want our owners to know that I very much appreciated your trust and long-term perspective. I found our one-on-one meetings to be very valuable and informative. It's been a privilege to spend my 45-year career at Oxy and to lead this company alongside such talented and dedicated employees.

With that, we'll be happy to take your questions as Babatunde and Ken will also join us today for the Q&A, and we're ready now to begin.

[Operator Instructions] The first question today comes from Doug Leggate with Wolfe Research.

Vicki, it's been fun watching you reposition the company. I'm sure you're not going to miss us, but we're all going to miss you. So congratulations and good luck to you.

Now, Richard, you are taking the seat, obviously. And I think the obvious question to ask is, if anything, how do you see things for Oxy strategically? I don't know if you're able to give your top priorities. But as CEO, what does the strategy look like under Richard Jackson's tenure? I've got a follow-up, please.

Yes. Great to be with you, Doug. Appreciate to answer this. I think I'll start with a couple of perspectives. I think near term, there are several things that we're very focused on in terms of delivery. And I think that's a key thing that I'll continue to repeat.

I think, first of all, execution of our current program, '26 as we go into '27 is critical. We came out this year very proud of the program that we put together, I think, really highlights the efficiency that we have in the program and the quality of the resources that we've been talking about. So I certainly want to spend time with our teams, making sure that we have those put together partners as we extend those opportunities to our global operations. So focusing on near-term execution is critical.

I'd say the second piece maybe gets a bit more strategic. There's a couple of elements. I think one thing we've been working on, and we mentioned it in our script, is talking about free cash flow improvement near term. So as we go, certainly, this year was a big step with the free cash flow that we identified, but over the next several years.

We feel like there's some very clear drivers that at any price, we'll be able to significantly improve our cash flow outlook, continuing cost efficiency, one we're talking more about, which is our low decline of our production that's coming forward, having the opportunity this year to invest in things like the GoA waterfloods and even EOR is significantly contributing to lower decline as we go over the next few years.

And then improvements in our midstream and LCV and then, of course, debt interest as we continue to make great progress on deleveraging. So being very clear on that free cash flow plan important. And then that turns into a value plan. And so I think for us, it's simple as we think about driving value. How do we drive sustainable cash flow up, both free cash flow or we think about it a lot internally, cash from operations.

And then those things that I described drive our sustaining capital down. And so when we do that, we're really built to generate significant cash flow at any price. Lower prices, we can continue to grow our dividend. At higher prices, we get the opportunity to further grow our dividend, but also reinvest in this high-quality resource base that we have and then look at opportunistic share repurchases.

So I think being aligned on those plans, articulating what those clear drivers are, and then we really want to engage and help our investors understand when and how these improvements show up.

The last thing I'll say, while I've got the opportunity is obviously our people. I mentioned, obviously, the role that Vicki has played over the last 10 years, but we have great people. And I think these are always opportunities to work, look at growth, succession planning, how do we continue to develop.

And then we've been doing quite a bit of work on workforce efficiency, whether that's technologies like AI or simply relooking at our processes and priorities to make sure we're focused on this delivery that I'm describing. So those are the big ones that we'll be focused on initially. But again, look forward to delivering in the near term as well.

Congratulations to you as well, Richard. It's been fun watching you evolve as well. Maybe my follow-up, if you don't mind, I don't want to be too critical, but I'm looking at Slide 20 on the deck. And Sunil, you talked about getting to the $10 billion principal debt milestone. Obviously, your net debt is sitting a little over $11 billion, at least it was before you paid down the May bonds.

But the next line item on Slide 20 says ongoing net debt reduction. And I really want to understand what that means. Are you prepared to take this balance sheet to a level that essentially prepositions to redeem the prefs when they come due? I mean, that would essentially mean 0 net debt. What are you signaling?

Doug, just to put things in context, let me first walk through the progress we have made with respect to deleveraging in the last 6 months. So at the end of Q3 last year, our principal debt was at approximately $20.8 billion. And since December last year, we have paid down $7.5 billion. And today, our principal debt is at $13.3 billion, which is below the target we set in Q4 last year of $14.3 billion.

So we want to further strengthen our balance sheet. So our near-term focus in terms of cash flow priority is to reduce principal debt to $10 billion. Now once we get to that $10 billion of principal debt, we will reassess based on the macro, and we have multiple options.

So one is build cash on the balance sheet to redeem the preferred in August of 2029, when we can redeem the preferred without the $4 per share return of capital trigger. So like you mentioned, that is the option of reducing that debt and being ready to redeem the preferred in August of 2029. So that is one option we have.

The other option is reduce principal debt beyond the $10 billion. And the third is opportunistic share repurchases if there is a major dislocation between share price and oil price. So -- we don't have a specific net debt target, but ultimately, it's going to depend on the macro, and we will take the appropriate action at that point based on what we believe maximizes shareholder value.

And a couple of other options are, I mean, as we also think about potential reinvestment opportunities, once we have a clear clarity on the macro and supported by continued cost and operating efficiency, that is something we would consider because of the portfolio that we have and our operational performance.

And the last thing I want to highlight is, Richard mentioned about having a sustainable and growing dividend even at low oil price. So if you think about it, in 2029, after we have redeemed the preferred and even if you were to assume no principal debt reduction after $10 billion, the cash flow improvement between preferred dividend and interest payment will be approximately $1.2 billion better compared to 2025.

So if you look at our current common dividend payment, it's approximately $1 billion. So what that means or implies is a significant opportunity to have a sustainable and growing dividend even at lower oil price.

The next question comes from Nitin Kumar with Mizuho.

Vicki, first of all, congratulations on the milestone and thanks for your support over the years. Richard, you've been very clear about this new $10 billion target, and that's the first priority. A lot of your peers have formulaic return of cash programs in place. You're still talking about opportunistic buybacks. What is the hesitation in adopting something like that? And is it because you feel the macro is still volatile? Or is there any other reasons for not adopting something like that?

Yes. Thank you for that. We -- you're right. We have preferred not to have a formula-based approach to sort of our returns. I think for us, the cash flow priorities lay out how we think about and then as I walk through the value proposition, how we turn what we do into shareholder value. And so having flexibility through uncertainties has given us advantages to be able to move to do that.

And so what I can say with clarity is that what doesn't change are the fundamentals of driving the cost efficiency into our program. If you think about how do we create additional cash, capital efficiency, lower operating expense and lower decline. That's where we fundamentally are focused.

In terms of our cash flow priorities, I think bigger picture, I think dividend, as Sunil was mentioning, is where we go. If we think about share repurchases, we do want to be able to create those opportunities. But as we look to the future and especially after we build an even stronger balance sheet, continuous share repurchases through the cycles gives us opportunity, and it even helps our dividend growth as we're able to do that on a consistent basis. So for us, a lot of what we do really focuses to the opportunity to grow the dividend and -- as we put these pieces together. So hopefully, that helps.

No, that's great. And then just you talked about discipline and maybe staying the course on at least '26 and maybe not chasing growth. One of your peers talked about increased non-operated activity in the Delaware Basin. Anything that you're seeing on the ground, you have a big position and a big operation there in terms of others chasing growth?

I think we're managing that. That was one of the uncertainties we had early in terms of our capital range for the year. And so our teams have been continuing to work that and haven't seen anything that's put us out of our plan. What I do think that the teams have done even after the EOR optimization that we talked about, the core components of our production were strong with over 9,000 barrels a day on the total year that we improved.

And so even in the Permian, for us, we're growing. GoA, we're growing. As we've been able to think through the current price environment within our plan, within our spend, we are seeing time-to-market optimization. We're seeing opportunities in our operating expense categories, both in GoA and EOR to accelerate. And so these are the type of things that we're seeing. I'm sure others are having some of those opportunities, but we -- those have been the controllables that we've been really focused on staying within the plan for the year.

The next question comes from Arun Jayaram with JPMorgan.

Vicki, yes, I also wanted to express my best to you as you move into the next chapter. And Richard, congratulations to you as well. My question is, you guys are targeting for principal debt to reach a $10 billion number, call it, this year, just given the improvement in strip pricing. I was wondering how you're thinking about capital allocation post reaching this objective.

Richard, you mentioned the potential to shift into some measurement -- measured reinvestment, pardon me, to deliver kind of a modicum of growth. And I was wondering -- walk us through how that pivot into a little bit more reinvestment could look like for Oxy. Is this a '26 opportunity or more longer dated? And talk to us about between short cycle and long cycle, where your thought process is?

Yes. I appreciate that. Like I said, this year, we know delivery is critical, always is, but we really wanted to demonstrate the capital efficiency that we had in the program. And certainly, the milestone of $10 billion, what we're able to deliver this year is helping. As we think about reinvestment conditions, a few things. I think Sunil laid it out as well, but I'll add maybe a couple of additional points.

I think the macro being more clear is important. Obviously, the dollar we spend today doesn't turn into production or at least peak production until next year. And so that, in addition to the efficiencies that we're delivering this year are largely built on what I call development efficiencies.

So more wells per pad, longer laterals, more simul-frac. These take integrated development planning to put those together. And so while we are always looking to improve the program and optimize, these are things that are more difficult to change without impacting that efficiency. So clear macro support before we make add is important.

I would say the other one is decline rate. We like what we're doing this year in terms of the investment into EOR and the GoA waterfloods, Being able to go from mid-20s towards 20 or less over the next few years in terms of decline rate reduces our sustaining capital hundreds of millions of dollars, which gives us more headroom for return on capital. And so at low prices, that's an important one to establish.

And then I would just say, when we do feel like reinvestment comes, we want to provide clear outcomes. What's the returns? What's the cash flow timing? What's the decline rate? We want to be able to demonstrate that everything we do improves this value proposition that we talk about. So when I say measured, it's kind of just taking that approach.

With that said, we do have an amazing resource base, and it is very balanced. And so we have the opportunity, and we know that to accelerate value over the long term, whether we're sustaining production or growing production, that reinvestment, getting that right, as you're describing, is really important. And so I do think going forward, our idea is to be more balanced in terms of how we not only put it together for returns, but also decline rate.

And Sunil, yes.

Yes, Arun, I just want to add, in the last quarter, we did mention that for 2027, you can use $5.9 billion as a starting point for the sustaining capital. So the assumptions behind that $5.9 billion was U.S. onshore capital was assumed to be flat compared to this year, and the growth is largely going to be driven by capital efficiency, like what we've been demonstrating for the last few years.

And Richard mentioned about the balance between unconventional and the conventional to manage the base decline and reduce sustaining capital. So in Gulf of America next year, related to the Horn Mountain waterflood projects, we'll be drilling 2 injectors. So you're going to see some increase in Gulf of America next year.

Exploration, we typically participate in 3 wells with around 30% working interest. This year, we had actually reduced activity in exploration. So that might go back to on an average of around $150 million, which is what we have done over the last few years.

And then you have the roll-off of the LCV capital. So $5.9 billion would be a starting point in terms of sustaining capital. And like Richard said, any increase in reinvestment is largely going to be driven by the macro, but we are well positioned to do it at the appropriate time.

That's super clear. For my follow-up, Richard, I cover some of the North American service companies as well, and they are talking about being able to push some price on rigs, frac and consumables. You did reiterate your CapEx range at $5.5 billion to $5.9 billion for the full year. I was wondering if you could talk about some of these inflationary pressures? And does it change kind of where you expect to land within that range?

Yes. No, I appreciate that. I'll start, but invite Ken to help a little bit too from his perspective. I would say highlighting, I guess, new well cost, the 7%, that's largely driven by efficiencies today. So we've seen some ups and downs in terms of pricing, but are largely holding flat.

The thing I would say with our service partners, we've done for a long time, but I think we've just continued to get better at this, too. And that's really finding how do we work together for performance. And so much of what you'll see us do is try to find ways to address their needs in terms of utilization or even pricing but make sure that our performance is being delivered. And so we're obviously more levered to the cost of the well.

And so we've done quite a bit to work with them to -- while we largely hold flat to continue to drive our costs down. So things like diesel and other things certainly are playing a role, but not a major role. So to directly answer to your question, we do not see that as an impact on our range. And in fact, our cost improvement is intact through efficiencies. But let me ask Ken to add.

Yes. Sorry about that. Middle East, we've seen supply chain as a huge success during this period. Everyone's worked really well. So we've not any shortages, impacts on production due to material deliveries or costs. All of our vendors have really stuck with us. And we've seen what Richard said there. We've seen increases in some areas offset by other areas. We still see vendors really interested in market share as opposed to individual line item wins. And I think given our scale and mass in each of our locations, that's really paying off for us, especially as we concentrate activities on one pad, for example, utilization becomes really clear for the vendors. So overall, a very good story by supply chain, I think.

The next question comes from Betty Jiang with Barclays.

I want to share my congratulations to Vicki and Richard as well. My first question is probably a bigger picture one. Your Slide 3, I think, really laid out what Oxy was focused on in the last 10 years versus where the next 10 years could look like. You already have built the foundation for the portfolio today. So a question for Richard, where do you think is the biggest opportunity to extract value from the current portfolio from here in the next phase in this execution phase? The free cash flow expansion, we can clearly see, but where are you most excited about, whether that's the resource expansion or from the cost efficiency side?

Great. Really appreciate that question. There's a lot I could say there, but I'll try to narrow it down, a lot to be excited about. I think a few things. I think our advanced recovery that we're being doing, whether that's in, again, the Gulf of America with the waterfloods, CO2 EOR. We talk about our conventional opportunities, but now our unconventional, even internationally.

I think when we look at our resource base over the next 10 years, that is going to be a distinct advantage. And this has been building for some time. I think I got to work with Vicki the first time we were in EOR. And so this has just been exciting for us to see that mature. And we really believe that the time is now that translates back to lower sustaining capital and more value for our shareholders. So excited about that part as well.

I think operations excellence continues. I think we have got a great team that understands how to put things together, not only for CapEx, but as we think about operating expense and base production. I think one of the best things we've demonstrated over the last year, if you go back and look at our production beats was production uptime in the base production. And the people that work on that are some of the best, I think, in the world that we have.

I also think workforce efficiency. I think we have a talented group. And we -- as we look forward, being able to continue to be innovative, deploy technology, I think AI is taking on a larger and larger role across all disciplines in the company is a big part of that. And then one thing that maybe doesn't change is partnership. I think we've done a great job in our core operating areas internationally, being able to find ways to create win-win, things like our exploration program.

I think Oman, I love the -- I think it's such a great example of what we mean about how we're different in exploration, being able to take things more difficult, new reservoirs and really grow them to scale, and we're able to do that near existing facilities. So all of these things coming together at the end of the day to drive that value proposition that we're talking about. But it certainly starts with the resources, and we're in an outstanding position today.

No, that sounds great. And maybe digging a bit more into the base optimization. I really appreciate that there's a lot of focus on mitigating that decline. Can we just get an update on the unconventional EOR projects? What do you need to see to scale these projects? And what are some of the limiting factors longer term?

Yes, great. I mean we have the 3 commercial projects that we had talked about that we were starting. Most of that this year is kind of getting the early construction and the long lead items moving, mainly compression. Those again are expected to be online in 2028. But we have continued in some demo work. We've had continued demo in the Midland Basin around actually Barnett, which we're really happy about, our primary production, but we're now excited about what we can do with CO2 EOR there and seeing very good results on a first cycle. So I'd say the proof points continued on CO2 EOR.

The other one that's happening maybe in EOR that a little bit different than what we've talked about in the past. We've had some great success with some sidetracks in San Andres on the edge of the Central Basin Platform and in the Central Basin platform. We feel like this is one of the things we've been able to optimize in the program to actually add production this year.

One of the advantages of the divestment and acquisition or optimization in EOR is we're concentrated now our working interest where some of these opportunities lie. So I think EOR, I think we disclosed or planning to disclose today, we're about 100,000 barrels a day, but we really see that we're concentrated with the right low-cost structure with all of these advantages that we can take into both our conventional and unconventional assets.

The next question comes from Neil Mehta with Goldman Sachs.

Congratulations, Vicki. And congratulations, Richard, as well. Maybe, I think, Vicki, give you an opportunity to share your perspective. The last 10 years have been very volatile for the energy sector, but any perspective on the decade ahead and what leaves you optimistic? And what are the biggest concerns that you think we as an investment community should be spending time on?

Well, I think that volatility is just -- it's going to be with our industry forever. It's always been volatile. It will continue to be. It seems more volatile now because we just see the numbers as they change daily. A lot of things have happened in the history of our industry going all the way back to the Suez crisis, Yom Kippur, Iranian Revolution, Iran, Iraq war back in the '70s, the price wars, the -- now I think it -- when the oil price -- real oil prices changed dramatically was when PDVSA strike in Venezuela, Iraq war, Asian growth and a weaker dollar. That's when WTI prices started being driven up.

But through all the volatility, there are some things that are pretty consistent. So if you look at January -- from January 1974 to today, WTI averaged $76 in real prices averaged $76.32. And if you go back and you look at this century, let's say, forget about the last century, look at this century from 2001 to now, the average real price was $81.67. And if you take out the 9 years in this century that prices were above $100, that takes prices down still to a pretty healthy level at $66.76. But we tend to remember the bad prices and the bad times versus the times when things were okay. And that's why we've built our portfolio to last through the cycles and no matter what cycle to be able to add value and create value for our shareholders now and going forward into the future.

Because 2 big things are really important. First, the pricing that I talked about. I think that if you're built to last and make it with cash flow generation through the cycles and a dividend that you can support in the years where the prices are lower, you got to make sure you're prepared to pay the dividend through the cycles. Then the other thing that's really important to think about is that in the U.S., we expect that between 2027 and 2030, the U.S. is going to hit a plateau. So price -- the production then will start to decline.

And where we sit today is with a better inventory than I believe any company with respect to our U.S. base. And so we'll be prepared in the U.S. to be able to help with that -- help offset the decline that's happening because we not only have great assets in the United States, we have the ability, as Richard just described, to apply EOR to get more oil out of the reservoirs that we have. And we're not going to do that just in the United States, we'll be doing it in our international operations as well.

And internationally, we're in 3 places that -- where we have great relationships with the government. We've been there longer term in Oman and Abu Dhabi than Algeria, but the ability to do more there, too. And now that resources are becoming a real issue for some companies because of the fact that 80% of the current oil reserves in the world are held by NOCs or governments.

And so trying to get reserves if you don't have a strong and large inventory today is getting more and more challenging and needing to go international to locations where we decided as a part of this transformation, not to go to, you can get better contracts in bad places, but that doesn't end up with usually with a better result.

And so we're really happy that we believe that for decades to come, oil is going to be needed, that peak supply will occur before peak demand, not just for the United States, but for the world. And we're perfectly positioned with where we are today, the capabilities in the portfolio to be a part of helping to address that.

Yes. Great perspective, Vicki. And then the follow-up is, and I think you responded to this last quarter, you're now long inventory through M&A and good reserve replacement. And so the probability of needing to do large M&A has really diminished. Richard, I'd just love your perspective on that as well. Is that a viewpoint that the leadership team shares and it's really an organic story. So both of you guys, love your perspective.

Yes. I just want to say we did not go through what we went through to build this portfolio to let it sit there for 30 years. So Richard, to you.

Yes, we're very focused on organic development. So I think what's been done has been -- put us in an outstanding place. Our responsibility now is to extract value from it. And I think we are laser-focused on all the fundamentals that come through capital efficiency, operating efficiency, the subsurface work to continue to do that. And so there'll be opportunities around assets to continue to improve. Those type of things always occur, whether it's trades or other things.

But couldn't be more excited about the balance and I'd like to call it rightsized resource base that we have. Working to deliver the most value, and we look at a lot of scenarios. I like to do scenarios. We are put together to deliver the most value. And so that is clearly what we're focused on and just excited to do that and appreciative -- very appreciative of what we have to work with.

And thank you, Neil, for the question and helping us to clarify that.

And with that, I think we're done with the Q&A, and thank you all for joining us and for your questions, and have a great day.

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

Good afternoon, and welcome to Occidental's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

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

Thank you, Drew. Good afternoon, everyone, and thank you for participating in Occidental's fourth quarter 2025 earnings conference call. On the call with us today are Vicki Hollub, President and Chief Executive Officer; Sunil Matthew, Senior Vice President and Chief Financial Officer; Richard Jackson, Senior Vice President and Chief Operating 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 2 regarding forward-looking statements that will be made on the call this afternoon. We'll 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'll now turn the call over to Vicki.

Thank you, Jordan, and good afternoon, everyone. 2025 was an exceptional year for Oxy, made possible by the focus, discipline and commitment of our people. Our teams worked safely, executed consistently and delivered outstanding operational performance all while driving meaningful cost reductions and efficiency improvements and increasing our financial flexibility. We took decisive actions to strengthen the company and position Oxy for long-term value creation. The sale of OxyChem made possible by the quality of our portfolio was a deliberate step to strengthen our balance sheet and enable us to deliver greater value from our high-return oil and gas assets. As a result, the portfolio we have today is the strongest Oxy has ever had. Built around high margin, lower decline and long-lasting conventional assets, we developed a world-class unconventional portfolio and achieved the technical excellence to maximize and expand its value. Now with our operational excellence and our differentiated enhanced oil recovery expertise we are perfectly positioned to drive sustainable free cash flow growth and deliver long-term value to our shareholders for decades to come.

This afternoon, I will walk through our 2025 financial and operational performance, the actions we took to strengthen Oxy and our priorities and capital plans for 2026. Richard will then cover our operations in more detail, and Sunil will review our fourth quarter results and outlook for the year ahead. Starting with our financial performance. 2025 demonstrated the resilience of our business. Even with oil prices down around 14% from 2024, we generated $4.3 billion in free cash flow before working capital. On a normalized basis and excluding OxyChem, we increased cash flow from operations by 27% year-over-year. This improvement came from exceptional execution in multiple areas, including reduced operating costs, increased capital efficiency and strong production performance. Debt reduction continued to remain a top priority in 2025. We repaid $4 billion in debt from multiple sources. And with the completion of OxyChem sale earlier this year, our principal debt now stands at $15 billion, about $3 billion lower than before the CrownRock acquisition. Just this morning, we announced a tender offer that is expected to further reduce principal debt to $14.3 billion, reaching that target we set when we announced the OxyChem transaction. This progress reflects disciplined capital allocation and a sustained focus on strengthening the balance sheet. It gives us the flexibility to invest in our best opportunities and continue delivering value to our shareholders.

Now I'll discuss our operational achievements. Operational execution was a clear differentiator for us in 2025. We set a new annual production record of 1.4 million barrels of oil equivalent per day, exceeding the high end of our guidance while spending $300 million less in oil and gas capital than originally planned. We reduced annual operating expenses by $275 million and achieved our lowest lease operating expense per barrel of oil equivalent since 2021. Reserves to replacement remains critical to the sustainability of our business. Every year, we strive to add at least as many reserves as we produce. This is getting tougher across the industry, but once again, our teams delivered. In 2025, we achieved a 107% organic reserves replacement ratio and the 98% all their reserves replacement ratio at a finding and development cost below our DD&A rate. Including the 2.5 billion barrels of resource we shared last quarter, our total resource base now stands at 16.5 billion barrels of oil equivalent, providing more than 30 years of low-cost opportunity. Importantly, 84% of our total resource base breaks even below $50 per barrel.

Our leadership in enhanced oil recovery and advanced recovery techniques continues to extend resource life and improved capital efficiency. Midstream also delivered strong results with adjusted pretax income, surpassing the midpoint of guidance by more than $500 million, driven by gas marketing optimization in the Permian and higher sulfur prices at Al Hosn. More importantly, our employees achieved record safety performance across our global operations in 2025. In the fourth quarter, we launched our Remote Operations Command Center in the Gulf of America, which complements our Rockies and Permian remote operations command centers. These utilize advanced AI and remote monitoring and have further enhanced our safety, reliability and operational efficiency. In 2025, our strategic actions improved our balance sheet and showcased our team's innovation and operational expertise. With the sale of OxyChem, our 10-year journey to build the best and most diverse oil and gas portfolio is complete, yielding a larger, higher-quality resource base, now at 16.5 billion BOE, up from $8 billion BOE in 2015, and increasing production from 668,000 BOE per day in 2015 to 1.43 million barrels of oil equivalent per day in this year.

U.S. assets now provide 83% of our production compared to 50% in 2015, while our international assets remain high quality and high performing with upside potential. Our mix of conventional and unconventional assets provides a complementary balance that offers investment flexibility and downside production through the cycles. We no longer require transformative acquisitions. Instead, our teams are focused on what they do best and that is execution, including cost reduction, capital efficiency and well performance, resulting in higher production, better margins and greater financial flexibility.

I'm confident that our teams will continue to innovate in all these areas into the future. While we are pleased with this pivotal achievement, we are not yet satisfied there's still more work to be done. So looking ahead, our priorities for 2026 will build on the progress we made last year. First, we plan to maintain our production base through safe, reliable operations because safety and operational excellence are foundational to everything we do. Second, delivering a sustainable and growing dividend remains central to our strategy, including the 8% increase to our quarterly dividend announced yesterday. Third, we will continue to strengthen our financial position and remain opportunistic in terms of share repurchases and further net debt reductions. Our value proposition is rooted in investing in high-return oil and gas projects that generate strong cash flow today, while advancing mid-cycle projects to reduce sustaining capital requirements over time. We're also progressing integrated technologies in CO2, power and midstream to drive resource recovery and long-term value, bringing StRATOS online this year is an important step in this strategy.

Turning to our capital plan. We're entering 2026 from a physician strength. We expect capital spending to range from $5.5 billion to $5.9 billion, representing a $550 million reduction from 2025, excluding OxyChem. This reflects a leaner, more efficient Oxy and continued capital discipline. Even with lower spend, we expect production to average approximately 1.45 million barrels of oil equivalent per day. Approximately 70% of our oil and gas capital will be directed to our U.S. onshore portfolio, providing flexibility to respond to commodity price improvements, while maximizing near-term cash flow.

I'll now turn the call over to Richard to discuss operations in more detail.

Okay. Thank you, Vicki. 2025 was a standout year for Oxy, and I'm proud to share the progress we've made across our operations. Last year, our focus on cost efficiency and well performance continue to deliver positive results. As Vicki noted, our teams delivered record annual production of 1.434 million BOE per day production while reducing total spending by $575 million, including a 7% beat in domestic operating expenses. In U.S. onshore, our new well capital costs were down 15% compared to 2024 with Permian unconventional costs down 16% and the Rockies down 13%. These new well cost improvements are part of our ongoing track record of oil and gas cost efficiencies. Since 2023, we've achieved approximately $2 billion in annual oil and gas cost savings across our capital and operating expense categories. At the same time, last year across all U.S. onshore basins, our new wells performed more than 10% better than the industry, measured on a 6-month cumulative oil per foot basis. We also achieved record production from our Holston and record uptimes in Algeria, Gulf of America, Al Hosn and our U.S. onshore EOR facilities, adding strong base production delivery to our production [ beef. ]

I want to recognize our teams for the relentless drive to improve cost efficiency and performance while also delivering record safety results across our operations. As we look towards 2026, our operational priorities continue to center on three key focus areas: Extending and improving our low-cost resource base, further driving cost efficiency, and generating resilient free cash flow at any price. Last quarter, we highlighted the significant resource opportunities ahead of us, including our 16.5 billion BOE and 30-plus years of low-cost development runway. This included our advanced recovery opportunities like unconventional EOR that position Oxy for the future. Today, I want to expand on our cost efficiency progress, which is central to our 2026 plan.

The significant cost efficiencies and strong well performance we achieved in our oil and gas operations have positioned us to deliver another $500 million of cost savings in 2026 with $300 million from capital and $200 million from operating and transportation costs. This includes about 7% lower well costs, 5% less facility cost and a 4% reduction in domestic operating expenses. These structural savings are a result of a focused cross-functional effort from our teams over the last several years.

Moving forward, we aim to deliver further efficiency gains with our ongoing focus on enhancing cash flow from operations and lowering sustaining capital. These efficiencies, combined with changes in our program allocation have enabled us to reduce our 2026 capital plan by $550 million compared to 2025 without chemicals. This includes $300 million capital reduction for oil and gas and a $250 million reduction in LCV as STRATOS construction winds down. On StRATOS, we've made great progress. Phase 1 is in the final stage of startup and is expected online in Q2. Phase 2, which incorporates the learnings from our R&D and Phase 1 construction activities will also begin commissioning in Q2, with operational ramp-up continuing through the rest of the year. Last quarter, we discussed the potential to reallocate up to $400 million of capital to U.S. onshore operations as capital rolled off in other areas. However, further cost savings and higher productivity from both base and new wells eliminated the need for this reallocation.

Ultimately, these efficiencies further enabled us to reduce U.S. onshore capital by $400 million compared to 2025, while still delivering a 1% production growth. This year, we plan to invest in key mid-cycle projects, including Gulf of America waterflood projects and unconventional EOR, where we've increased capital by $200 million from 2025. We view mid-cycle projects as an important part of our strategy to improve and extend resources lower total company decline rate and ultimately lower our sustaining capital.

In [ Goa, ] we are beginning our Horn Mountain waterflood project, which has potential to provide significant incremental recovery with initial uplift to begin in late 2027. We believe our pipeline of [ Goa ] waterflood projects, combined with our ongoing focus on production reliability can meaningfully lower our base decline rate and operating expenses. Importantly, our agile operations and 2026 plans provide flexibility to deliver resilient free cash flow even in a lower oil price environment. We have the ability to continue to adjust spend and activity across capital and operating expenses while delivering mid-cycle investments as needed to preserve near-term cash flow and position Oxy for reinvestment only when market fundamentals are clear.

In closing, our operational strength and financial progress in 2025 has positioned us for a strong year in 2026. We we've proven that our execution, relentless cost focus and operational agility can deliver outstanding results even in a dynamic market. Our teams have set new benchmarks in safety, efficiency, and well performance, and we're carrying that momentum into 2026. I'm confident that by maintaining our focus on improving resources and cost efficiency, we will continue to deliver durable results and enable a stronger, more resilient Oxy that will create lasting value. Thank you.

Now I'll turn it over to Sunil.

Thank you, Richard. In the fourth quarter, we delivered strong operational and financial results. We generated an adjusted profit of $0.31 per diluted share and a reported loss of $0.07 per diluted share. The difference was largely driven by charges and transaction costs related to the sale of OxyChem. Our sustained focus on cost efficiencies and operational improvements enabled us to generate approximately $1 billion in free cash flow despite lower realized oil prices. As Vicki and Richard shared, we had an excellent quarter operationally and strengthened our financial position. Production exceeded the midpoint of guidance by 21,000 BOE per day, driven by strong U.S. onshore performance. We also achieved our lowest quarterly domestic operating expense since 2021 at $7.77 per BOE.

Momentum across our oil and gas portfolio is accelerating, demonstrated by our exceptional operational performance throughout 2025. We remain highly confident in our ability to unlock further value for our shareholders, driven by our disciplined capital allocation and strong operational performance. Our Midstream segment delivered outstanding results with adjusted pretax income in the fourth quarter, exceeding guidance by $172 million. This was largely driven by our team success in optimizing transportation around unplanned maintenance on third-party pipelines out of the Permian as well as higher sulfur prices at Al Hosn. As shared last quarter, OxyChem and legacy environmental liabilities are reported under discontinued operations. Our strategic actions and targeted focus on efficiencies further lowered our cost structure and enhanced our financial flexibility. The successful completion of the OxyChem sale at the start of the year, accelerated our deleveraging, strengthened our balance sheet and enabled us to reduce principal debt to approximately $15 billion. Over the last 20 months, we have repaid $13.9 billion in debt. As a result, our leverage metrics have improved significantly, and our near-term debt maturity profile is fairly minimal with approximately $450 million due over the next 4 years.

In addition, this morning, we launched a $700 million debt tender offer that is expected to reduce principal debt to $14.3 billion, a reduction of over 40% since year-end 2024. As a result of our disciplined execution and ongoing focus on cost efficiencies we have driven our sustaining capital requirement lower. We are taking purposeful steps to enhance our cost structure and financial resilience as demonstrated by the operational efficiency gains realized in 2025 and expected savings for 2026. We expect to improve free cash flow by more than $1.2 billion in 2026. This is largely driven by expected annual operational savings of $500 million in oil and gas and $400 million in midstreaming savings, partially driven by improved crude transportation costs. In addition, we expect to realize approximately $365 million in interest savings in 2026 compared to 2025. These initiatives will continue to strengthen our cost structure, supporting resilient free cash flow in a lower price environment.

Our improved financial strength, lower sustaining CapEx and and lower cost structure support our 8% dividend increase. Our cash flow priorities remain disciplined with a clear commitment to delivering long-term value for our shareholders. As I shared before, as we build cash on our balance sheet, we will be opportunistic in terms of share repurchase and of further net debt reductions. We believe this balanced and opportunistic approach will serve us better as we prepare to resume redemption of the preferred equity in August 2029 when it becomes callable without a $4 per share return of capital trigger and at a lower reduction premium. As Vicki and Richard highlighted, our commitment to cost improvements and prudent capital allocation in 2026 allows us to further reduce costs while maintaining relatively flat production. Total capital for the year is expected to range between $5.5 billion and $5.9 billion weighted to the first half. The midpoint represents an 8% reduction from 2025, excluding OxyChem, primarily driven by efficiency gains and optimization of activity levels.

Our capital plan is structured to maintain flexibility and support long-term value creation, enabling us to adapt to oil price uncertainty. We continue to prioritize short-cycle, high-return assets to maximize near-term cash flow, while investing in mid-cycle projects to balance base decline. Approximately 70% of our capital program remains focused on U.S. onshore assets, preserving significant flexibility to respond to market changes. Related to 2025, spend in U.S. onshore is expected to decrease by $400 million, reflecting ongoing efficiency gains and a reduction in Permian activity levels. We plan to increase investment in the Gulf of America, permit EOR and international by approximately $200 million, supporting our long-term base decline rates through mid-cycle investments. Investment in these projects will support future sustaining capital improvements. We have reduced our exploration budget by approximately $100 million with lower spend in the Gulf of America.

Investment in low carbon ventures will be approximately $250 million lower year-over-year with STRATOS anticipated completion of both phases this year. As Richard mentioned, we expect 2026 production to grow approximately 1%, averaging 1.45 million BOE per day, even at lower capital levels. First quarter volumes will be lower, reflecting reduced fourth quarter activity and working interest in U.S. onshore, the impact of winter storm firm and planned turnarounds that will impact Gulf of America production in the first half of the year. Production is expected to increase in the second quarter, driven by stronger Permian volumes positioning us for strong full year performance. In Midstream, we anticipate slightly lower earnings in 2026 as gas transportation optimization opportunities narrow with increased Permian gas takeaway capacity and in the back half of the year. However, improvements in crude marketing out of the Permian, including the benefit from revised transportation contracts at lower rates are expected to partially offset this impact. We expect a higher working capital used during the first quarter, which is typical for this time of the year, driven by property tax, compensation plan payments and higher interest payments.

In summary, our disciplined capital allocation, strong asset base and operational performance continue to drive resilient performance and enhance capital efficiency. The advancement of our key portfolio initiatives and sustained cost efficiencies have reinforced Oxy's flexibility and financial resilience. As we continue to strengthen our financial position, we are confident in our ability to create long-term value for our shareholders as we move forward in 2026 and beyond.

I will now turn the call back over to Vicki.

Thank you, Sunil. In closing, 2025 was a year of strong execution and disciplined decision-making. We delivered lasting efficiency gains and higher productivity, reinforcing the capabilities and talent of our workforce. And we strengthened our balance sheet and enhanced our financial flexibility, setting the stage for strong shareholder return in the years ahead.

Before we move to Q&A, I'd like to share that Jordan Tanner, who has led our Investor Relations team for the past three years, will be taking on a leadership role in the Gulf of America, helping to advance our portfolio of exciting development opportunities. Jordan has done an outstanding job sharing our story, helping communicate our strategy and results and supporting our leadership team. We've also gotten a lot of positive feedback from many of you about Jordan and his ability to tell our story. We greatly appreciate Jordan's contributions and look forward to his continued impact in his new leadership role.

I'm also pleased to announce that Babatunde will become Vice President of Investor Relations reporting to Sunil. Babatunde brings deep operational and leadership experience, most recently as President and General Manager of our Delaware Basin business unit. In that role, he was instrumental in driving operational excellence and accelerating the growth of our unconventional development in the basin. Babatunde has 20 years of industry experience working in reservoir engineering and production operations. Please join me in thanking Jordan and welcoming Babatunde.

We'll now open the call for your questions.

[Operator Instructions] The first question comes from Arun Jayaram with JPMorgan.

Vicki, I was wondering if you could maybe walk through some of the moving pieces of the much lower CapEx guide relative to the soft guide that you provided on the third quarter call, you did come out about $800 million lower than that -- a soft guide that you provided last quarter. And maybe you could just walk through kind of the moving pieces. Richard mentioned about $300 million of savings from efficiency gains plus you're reducing exploration CapEx by $100 million. So that's about half of the delta. But maybe just walk through the other changes and perhaps what's happening with activity under the revised program.

Yes. I want to point out, Arun, that we always start our capital planning in around June of each year. So we go through about three processes before we get to the point where we actually make a recommendation to the Board. And part of what happened is our teams are just getting better. Our teams came up with these ideas on what we should do and what were the best projects, but as they continue to optimize those projects, it was pretty amazing to see the cost that they were able to cut out, the efficiencies that they were able to to find. So a lot of it is just the teams doing exceptional work. And again, I have to say that we've gotten to the point where the process that Richard and the team in the U.S. and that, Ken, the offshore team and the international groups they're incredibly innovative, and they have processes that they've put together ways to look at things that differentiates us from others. I like to call it the saving process for oil and gas, it works. And it's working for our teams. And Richard, you can -- you -- I think both of you can share a little bit of the details about the specifics around what did change.

Yes, perfect. Thanks, Vicki. Thanks, Arun. I'll try to walk through a few of the pieces and fit the Vicki's good description there. We're certainly excited about the 2026 plan. It really is a continuation of strong performance from '25. So let me just walk through a few of the pieces. As you look at oil and gas, a few moving parts that I'll walk through, but about $300 million of reduced oil and gas, and that's really mostly structural cost savings and a bit of reallocation, and I'll walk through that and then get into the structural piece. And then as we look at total Oxy that $250 million lower LCV. So that was kind of the big picture. But diving into the oil and gas within that $300 million, the key driver of the program is really a negative or minus $400 million of U.S. unconventional capital. And that's against last year's capital. As I mentioned in the prepared remarks, we had kind of worked through this in total and had worked ourselves out of the reallocation, but it really was those efficiencies that drove another $400 million. And then we are down $100 million year-on-year on exploration as we continue to optimize that program. And then going up in our mid-cycle $200 million, and that's really focused on Gulf of America and the waterflood project, and our -- a bit in our international and our unconventional EOR. So then just let me spend the last minute on introducing this structural cost savings. So in our U.S. unconventional, about 70% of that $400 million reduction is a continuation of well cost. So we talked about and certainly highlight the $2 billion the team achieved from '23 to '25. This is an additional 7% of well cost, an additional 5% on facilities and construction. And these are really -- at a high level, we can get in through the call, but these are really development efficiencies. These are more wells per pad, a bit longer laterals, but from an activity standpoint, we're actually able to achieve this with lower activity. So we have 2.5 lower rigs to frac cores. And that's all being done through operations efficiency, but the other really important part is the production improvement. And so base production had a significant beat in the fourth quarter that rolls into 2026. And then our new wells continue to deliver not only the primary benches but the secondary benches, and I know we have a slide highlighting that continued improvement. So I just wanted to walk through that at a high level, but certainly want to spend time on these structural cost savings because we think that they're important for this year, but we'll be able to expand those as we go into the future.

And then similarly for International, we have many examples of sustainable savings. For example, our drilling performance has improved so much in Algeria. We dropped a rig from our plan this year. and we can still achieve the year's program as originally planned. And [ Goa ] and the Horn Mountain waterfloods that Richard alluded to, facilities team really did a great job of reducing capital by leveraging to the maximum of the existing systems top sites and then only augmenting the existing sea water system with new filters and pumps, while doing that, we're able to keep the original injection date, so a really good team performance.

2

Great. My follow-up is just on the Horn Mountain waterflood project. We expect the initial rate next year, do you think that a project like this should be able to support kind of a sustaining production profile for the Gulf as we look out the next several years in that low 130 MBOE per day kind of range?

Yes. Great question. I think the way I'd put it is we're really entering a new year in [ Goa, ] one with lower declines due to the water flood. So this water flood, the King dump flood, the future water floods are also improving reliability due to our ongoing initiatives and then lower OpEx per barrel long term. And we have a large inventory of development wells and additional wedge layers, including some really interesting opportunities. So it feels like we're entering [ Goa ] 2.0. In terms of declines in walk-down, thank Horn Mountain as part of it. So it will move from a 20% to sub-10% decline by 2030 and improving to below 5% in subsequent years. King will be down to low single-digit decline. And I think our portfolio level go average decline is projected to decrease to 12% with the potential to get below 7% as the additional water floods are bid online. And these are substantial reserves associated with them in very low F&D. So I think long term, we have a really good runway and can sustain production for a very, very long time.

The next question comes from Nitin Kumar with Mizuho.

I want to start off on Slide 24. You mentioned the 16.5 million BOE and the $38 breakeven what catches my eye is the sub-30 bucket, how much of that is unconventional because we hear a lot about shale inventory depth and exhaustion, you're showing a big piece is quite economic. So what's driving that?

Let me begin again, yes, so what's happening there is in the U.S. unconventional is the continued improvement of the inventory, starting with primary -- the primary intervals, which were amazing. The secondary benches are providing now as much value as their primary benches did. And then all the things that Richard's mentioned has lowered costs for the resource business to down to the less than 50. And this is specifically talking about the Resources business, not the entire portfolio, but the rest of the portfolio is pretty competitive with U.S. unconventional. And you can see that the U.S. unconventional is pretty much almost half of the total. So in [ Goa, ] and in the other areas, we are doing things that are lower -- continuing to lower those costs as well. So it's -- the whole resource is the average resource is about at a $38 per barrel breakeven.

Great. Sorry about the delayed -- I wasn't sure if it was on my end or not. As my follow-up, Sunil, maybe for you, you mentioned the opportunistic approach to buybacks. A lot of your peers have provided formula or percentages and things like that. Could you help us understand why the reluctance to go down that path, you have a lot of room on the cash return side?

Hi, Nitin. So first, let me start with the progress we have made on deleveraging, just to put things in context. So when we announced the OxyChem transaction last year, we said that we'll be using $6.5 billion of the proceeds to pay down debt, and our near-term principal debt target was $14.3 billion. We also said that we'll be initially focused on paying down the debt maturing in the next 3 to 4 years. So where are we today with respect to debt. Our principal debt is currently at $15 billion and on track to get to the $14.3 billion with the $700 million tender that we announced this morning. So we have $450 million of debt maturing between $26 million and $29 million, and that was $5.5 billion for the same period at the end of Q3 2025. So I just want to highlight that first, we have delivered on the deleveraging goals that we outlined late last year. So how do we -- looking forward, we would like to first get our principal debt to $10 billion, but we're not setting a time frame to get to this target as we want to have some flexibility. And we expect to have a better view of the macro in the second half of this year. And at that point, I think we will be better positioned to make the appropriate decisions on how we balance between cash build and our return of capital opportunities for 2026 and beyond. The other thing I want to highlight, which Vicki had mentioned in our prepared remarks, our foundational or top return of capital priority is to have a sustainable and growing dividend. So consistent with that, we increased our quarterly dividend by 8%. And we expect to continue making progress with lowering our sustaining capital through operational efficiency and also investing in the mid-cycle projects like [indiscernible] America and Permian EOR. Now this should also help with a sustainable and growing dividend. So I just want to conclude by saying, as I mentioned in my prepared remarks, we believe that this balanced and opportunistic approach will serve us better as we prepare to resume redemption of the preferred equity in August 2029. And we always get the question, what is special about August 2029, it is, at that point, it is callable without the $4 per share return of capital trigger and at a lower redemption premium.

The next question comes from Betty Jiang with Barclays.

Congrats on the efficiencies, cost savings that you're being able to achieve in 2025 and reflecting 2026 guidance. A big question that we're guiding just what does it mean for 2027. I know I'm not asking for '27 outlook, but how much of the saving is sustainable to '27? Is there anything getting deferred from '26 into 2027? Sunil, I think you mentioned that CapEx will be far and weighted, but perhaps like activity is back-end weighted. So we're just trying to figure out if production will be growing 4Q to 4Q and really just how that all flows into 2027.

Okay. So let me start first with the 2027 capital. Again, this is too early to provide any soft guidance, but I just want to give you some thoughts on how we are thinking about the next year's capital. So if you start with U.S. onshore, you can assume this year's capital as sustaining capital. But like Richard said, as we have demonstrated over the last few years, we've been able to reduce the sustaining capital through cost efficiency and strong well performance. So we expect to maintain this momentum into next year. So we could see a modest growth with this year's capital depending on the efficiency and new well performance. In Gulf of America, there will be an increase related to the waterflood project because both the injection wells for the unmounted project will be drilled next year. International, you can assume it to be flat compared to this year. And on exploration, for the last few years, on an average, we have been spending around $200 million per year. This year is lower because we don't have a new program starting in Gulf of America. And LCV, with the completion of STRATOS this year, capital should be coming in lower into 2027. So what I would say is, overall, this year's capital range will be a good starting point as sustaining capital and depending on the exploration capital and potentially some reallocation between the assets. And the last thing I would say is if we do have a modest production growth with sustaining capital, it is primarily due to a combination of savings, not just limited to CapEx, but other categories too and well productivity and capital reallocation that will be driving this modest production growth. And now I'll let Richard talk about the -- particularly in production.

Yes, great. Yes, two things I'd like to take the opportunity to just walk through. One is the structural savings to just think about how that rolls into 2027. Again, it's largely structural, anything sort of year-on-year beyond that has really been optimization of our mid-cycle projects, but let me walk through that and then the production. So from a structural standpoint, again, going back to 2023 to '25, significant improvement over 28% well cost in our U.S. onshore. I'd characterize that as -- and as you followed our story, very focused on specific operational activities, drilling, completion, facilities. And so we had a lot highlight [indiscernible] over that period of time. For example, we're drilling more wells per rig per year. So twice the number of wells per rig. And so you could see that in our gross and net rig activity that we've been able to do. So as we go forward, it's a lot more development, what I call development efficiency. So a few highlights. Wells per pad across our U.S. position has gone from 3 to 4 to 4 to 6. Our lateral length is improving 10%. And then a big part on the completion side, we've been able to really scale simul-frac. And so with these larger wells, on a pad, we've gone from 10% to near 40% across our U.S. position going in simul-frac. So again, just give some kind of underpin the structural piece of that. From an optimization standpoint on our mid-cycle projects, as we went year-on-year exploration is a piece of that. We continue to look at how do we optimize that program and make sure it fits on a multiyear perspective. But the Horn Mountain project, waterflood project that Ken described, the team continued to work through that through the last several months and optimize the schedule and the cost profile. And so that was a big piece of things. So it wasn't a deferral. The injection begins. We expect the uplift in late 2027. And that would be the same for our EOR projects. We've got an uptick in capital there, both unconventional and opportunities in our conventional EOR. So I just wanted to reemphasize the point of it being optimization, not deferrals. Lastly, on production, just a couple of things to point to. Permian does grow, as you mentioned, it's about 4% year-on-year. And so there is a profile during the year to continue to grow there. And then in Rockies, while down year-on-year, it's really a transition year as we go into Powder River Basin. And so what you'll see is actually pretty stable wells online through the year. There was a bit of a opportunity in the DJ. We're moving to a greenfield project we call Bronco that has more wells per pad. We're actually deploying simul-frac in our Rockies operations. So this will kind of provide a steady outlook, but you're transitioning the Powder River Basin. And so that production from the beginning of the year to the end, has a pretty good growth trajectory. So it's almost double from first quarter to fourth quarter. So those are some of the moving parts as you look at our activity slide and try to put the pieces together. So hopefully, that helps.

Really helpful. Follow-up on the Rockies. I think the program just really stood out this year with a fairly flattish capital, actually, the D&C is lower as a percentage. But while [ pills ] are up quite a bit, almost 45%. So maybe going forward, there's a lot of moving pieces. And as you said, going into PRB, will it be a good baseline to think about going forward, will the PRB typically higher costs as well. So maybe just unpack the dynamics there?

Yes. Just a couple of points to that. I think, again, you'll see sort of the DJ trajectory trending down just a bit year-on-year. Now one thing to point out, if you look year-on-year, we had a non-op divestment last year. So that was a portion of the year-on-year change. But even just trajectory, DJ, declines a bit but stabilizes at the end of the year, PRB goes up. Again, I would look at the wells online and even if you go into DUC counts, those stayed very steady through the year. It just transitions. The dynamic I'd point you to is oil cut and Powder River Basin is higher. And so on a BOE basis, that may change a bit, but that oil cut is going to pick up in the Powder River Basin. We've seen tremendous well performance. We talk about the secondary benches in the Permian, but both the Nio and Turner have had, for us, record production over the last year. That's really given us that confidence. And to back up, it's just very similar to the way we work Delaware and Midland Basin. We like that scale across the basins to really optimize operations, but they do balance themselves between gas and the oil production. So we'll continue to help with that is that [Audio gap] we're excited about that PRB program going forward.

The next question comes from Doug Leggate with Wolfe Research.

I wonder if I could ask a couple of questions. First 1 is on the sustaining capital updated guidance of $4.1 billion, that's obviously at $40 oil. Obviously, we're early from that, what would that number look like, however you want to define it, let's say, I don't know, today's price or $70, how would be a [indiscernible]. And then my follow-up is, obviously, LCV has still got some residual capital this year. Does that go away in 2027? And can you give us some idea whether or not we are we're starting to think about removing the drag on the midstream business. Does that -- is that thing now at least contributing to cash flow? And I'll leave it there.

Hi, Doug, Sunil here. So let me first start with the sustaining capital. So if you look at the midpoint of our CapEx guidance for this year, it's $5.7 billion. And the way we define sustaining capital is to keep production flat, like you said, in a $40 environment And excludes multiyear projects and mid-cycle projects that does not support production in the near term. So from $5.7 billion, you back out LCV and exploration of $300 million, you're at $5.4 billion. And then if you backed out the $200 million of mid-cycle project, you are at $5.2 billion and going from $5.2 billion to $4.1 billion at $40, that is primarily deflation around 20% deflation. That is what we assume going from $55 to $40. And another thing which I would like to highlight is, in 2025, our sustaining capital was $4.5 billion. That was to support 1.42 million BOE per day. And so if you adjust that for OxyChem, it's around $4.2 billion. And for 2026, what we're seeing is sustaining capital is $4.1 billion, but it's also supporting an additional production of 35,000. So what that tells you is that with the increased production, the sustaining capital should have been higher, but all the operational efficiency that the teams have been able to focus on, and what like Vicki and Richard highlighted, that is what has helped us reduce our sustaining capital down to $4.1 billion. And like I mentioned earlier, our top priority in terms of return of capital is to have a sustainable and growing dividend and lowering our sustaining capital is key to have a sustainable and growing dividend. So now I'll let Richard talk about LCV.

Yes. I'll start that. I appreciate the question, Doug. STRATOS a couple of things that kind of pin yourself. STRATOS ramps up this year as we've discussed. So we'll begin to roll off capital for sure. So as we look into next year, that's about another $100 million of capital that will roll off. One thing to think about in terms of that business, is as we think about the future opportunities, both for DAC and even success we've had in our sequestration hubs, as those have been put together, we really think partnership helps move that forward. So if you're thinking about it from a capital perspective, we anticipate being able to bring in partners because of the economics and the derisking that's occurring across both of those opportunities today. And so I just wanted to mention that because I think that's one aspect that we need to think about as we go forward. From a STRATOS standpoint, again, we'll ramp up this year. There'll be injection, really going into next year, and we'll hit more steady operations, which will then lead to more steady revenue in the mid- to later part of next year, and we think we can really start to point to a levelized EBITDA. We told, and Sunil can help me, make any other connections. But I think we've talked about a $90 million to $130 million range kind of levelizing as we get into late 2028. Now I'll tell you from an operational perspective, Ken and I are both optimistic that we're going to continue to find opportunities do like we do another project like Al Hosn debottleneck and add capacity. And so while that's a good run rate that we've used and communicated operationally, we're working on how do you reduce cost and add capacity. And -- so anyway, that's sort of the milestones that we're looking at in that program going forward.

The next question comes from Neil Mehta with Goldman Sachs.

Congratulations to everyone on the new roles and Jordan, great job in the time you were in the seat. I guess the first question actually is for you, Richard, as -- have you stepped into the CRO's seat late last year, but just some initial observations of things that you think Oxy has been doing really well from an operations standpoint? And where do you think there is room for improvement just because you have some fresh eyes in the new seat.

Yes, appreciate the question. But lucky to work for Oxy for some time. So some of these I've got to observe for a while or be a part of. But I will say the new perspective in the job a couple of things. One, the resource base that we have today is outstanding. That's been continued to improve really over the last 10 or 15 years, both as we've narrowed our focus, but also through organic efforts. And that's why we're excited to talk about all the subsurface work that we've done and the well performance, how it's played out. And so that part has been reinforced as I look across the portfolio. I would say projects like the Gulf of America waterfloods. When we think about the opportunity of EOR in Gulf of America and the contribution they can have to reduce our cost structure, lower decline, add to that sustaining capital very exciting part of the portfolio. We're just now in a position to really take advantage of. Things like the Gulf of America working on production reliability has been impressive. So I think from a resource perspective, good from operational efficiency, I love our teams, that's where I grew up with it. And so I just have a lot of confidence in not only what we're doing today but going forward. I'd say the last thing I would note that I think we're starting to see some momentum on and Vicki mentioned it in our prepared remarks, is really coming together on some of the technology. And so we talk about technology around CO2, power and water. But the other one is things like the digital technology or AI. I can tell you in the Rockies, through this last winter storm, we have been able to deploy this remote operations center. So in the U.S. -- let me just back up, in the U.S., about 40% of our production, we call routeless meaning that it's covered under a remote center where we resolve or understand issues before we send a person to go check it. And so in the Rockies during this winter storm, we were able to resolve about 300 issues a day remotely. And so that's not only more efficient for cost and production, but it's also safer. And so like many of us talk today, but I think we're seeing it especially in the ranks of our operations, the ability to use this technology, things like AI to deploy our people in a more effective way are really exciting. So on top of all the drilling completion things I get excited talking about, I really do believe that's going to be a good part of our future.

And then the follow-up for you, Vicki, is your perspective on the macro, you always have great color on how you see the world, be curious on how you're thinking about the setup for 2026 for oil this year where many of us came into the year a little bit more cautious. And obviously, geopolitical volatility is creating some upside risk here in the near term. So your perspective on that? And do you think the industry is going to respond to potentially higher prices in the near term are folks watching the back end of the curve, and where there's been less movement. So your perspective would be great.

I think that we're still a little bit cautious about 2026 because we feel strongly that you have to look at the fundamentals. And there are going to be these scenarios where prices get driven up by things that are happening geopolitically. We don't believe those are sustainable, and we believe that could be resolved within days or it could go on for months. We don't know, but we're prepared to assume that the fundamentals don't support where prices are right now. But we do believe that toward the end of the year and into next year that the fundamentals will start to shift a bit because when you look at what's happening in our industry, and this -- we're a big believer in trying to make sure that every year, we replace the production that we produce, so our reserves replacement ratio is important to us. But if you look at the industry, the industries around the world worldwide, the industry reserve replacement ratio right now is about less than 25%. So I think that means that the macro has got to become better for oil sooner rather than later. The -- when you look at the exploration that's happening along the western side of of Africa, the eastern side of South America. While those reservoirs are good, and they're going to be -- they're going to add value to the shareholders of the companies that are developing those. And by the way, we do have a blocking guy on that ultimately we hope to develop too, is that those reservoirs are great for the company and for the shareholders, but they're not even hardly a blip on the radar for world supply. For example, if you have like a Guyana, the original forecast, I don't know what it is now, but it was for 12 billion barrels of oil to be recovered, that barely replaces 1/3 of what the world demands for use today. So the world uses $30 billion. And so these reservoirs, while good individually for companies they're not going to be what we need for world supply going forward. So our view of the macro is that ultimately, we believe by 2027, we're going to get much closer to being in balance with respect to supply and demand. And I would say the other thing that's happening is a lot of companies have declining resources. And there are very few oil and gas companies today that can consistently maintain a better than 100% reserve replacement ratio. And those companies have to become a shrinking business, or they have to figure out what do they do about that. Some are going international when they've never been. Some are going to need to do M&A. We're doing all of that. We've done our M&A. So we're done with M&A. We've -- we're already international, and we have experience there, and we're in three of the best countries that you can be in internationally with respect to the government and our partners. And then the third thing that needs to happen is we need to get more oil out of the reservoirs that the world has today. And we're the best at doing that. I believe we have the CO2 enhanced oil recovery expertise. So we are the company that can get the most out of the reservoirs we have here and internationally. So it's really important to recognize that what we've built here is something very unique and very important for our industry and for the energy independence of the United States as we start to apply our enhanced oil recovery in a bigger way for us in the Permian and then in other basins, to help extend the energy independence of the U.S. So this is significant what the teams have accomplished here at Oxy, and we're proud of it. And we know we've got work to do, and we'll be doing that, and we'll get better every year because that's just -- that's just what our teams do. That's what they're committed to do.

So with that, we're over time, and I'll let you all go. And thank you for participating in our call today.

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

Good afternoon, and welcome to Occidental's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded. I would now like to turn the conference over to Jordan Tanner, Vice President of Investor Relations. Please go ahead. .

Thank you, Rocco. Good afternoon, everyone, and thank you for participating in Occidental's Third Quarter 2025 Earnings Conference Call. On the call with us today are Vicki Hollub, President and Chief Executive Officer; Sunil Mathew, Senior Vice President and Chief Financial Officer; Richard Jackson, Senior Vice President and Chief Operating Officer; and Tim 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 2 regarding forward-looking statements that will be made on the call this afternoon. We'll 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'll now turn the call over to Vicki.

Thank you, Jordan, and good afternoon, everyone. I want to take a moment to recognize Veterans Day and express our deep gratitude to all veterans and their families for their service. Today, I will address our recently announced sale of OxyChem outlined a strategic rationale and highlight our third quarter performance. Richard will provide details on our oil and gas operations and Sunil will review our third quarter financials, fourth quarter guidance and considerations for the year ahead.

The sale of OxyChem is a pivotal step in our transformation. The decision was driven by the scale, quality and diversity of the oil and gas portfolio we have built over the last decade. Since 2015, we have more than doubled our total resource potential and our production going from a total resource of 8 billion barrels of oil equivalent to 16.5 billion barrels of oil equivalent and from production of 650,000 BOE per day to over 1.4 million BOE per day. We now have a higher quality portfolio with Oxy's lowest-ever geopolitical risk as we have shifted the percentage of our oil and gas production from 50% domestic to 83% domestic.

And our portfolio has a development runway of 30-plus years that includes high return, short cycle, higher decline, unconventional assets complemented by a solid return, lower decline, mid-cycle development opportunities in our conventional oil and gas assets. Our substantial oil and gas runway, along with our demonstrated expertise in maximizing resource recovery created the foundation for accelerating value to our shareholders through the divestiture of OxyChem. The proceeds will be used to immediately strengthen our balance sheet, allowing us to significantly deleverage and achieve our principal debt target of less than $15 billion. This will reinforce our financial resilience and agility to navigate changing market conditions.

With greater financial flexibility, we can broaden our return of capital program and accelerate shareholder returns. This will enhance our approach to delivering value to our shareholders by increasing cash returns and continuing to rebalance enterprise value through net debt reduction. Our strengthened financial foundation will enable us to accelerate the development of our industry-leading oil and gas portfolio by focusing capital on our Permian unconventional assets, including unconventional [ CO2 floods ], along with our Gulf of America waterfloods and in the future, our [ Bakia ] gas and condensate discovery in Oman. We're excited about all the opportunities ahead to apply our subsurface expertise for greater resource recovery and the opportunities to advance our various low-decline enhanced oil recovery projects, particularly our CO2 EOR projects.

Now turning to the third quarter. Our teams delivered another strong quarter of operational performance, generating $3.2 billion in operating cash flow and $1.5 billion of free cash flow before working capital. Notably, we exceeded last year's third quarter operating cash flow despite WTI prices that were more than $10 per barrel lower in the third quarter of this year. Our team's continued focus on cost management and efficiency improvements also led to our lowest quarterly lease operating expense per barrel across our full Oil and Gas segment since 2021.

Ongoing improvement in portfolio and operational performance underscores the quality of our resources and the exceptional caliber of our teams who continue to bring [indiscernible] value by delivering more with less. In the third quarter, our oil and gas business produced approximately 1.47 million barrels of oil equivalent per day, exceeding the high end of our guidance range. The Permian Basin contributed 800,000 BOE per day, which is the highest quarterly Permian production in Oxy's history.

The Rockies also posted outstanding results, thanks to strong new well performance and stable base operations. Additionally, our Gulf of America assets outperformed the high end of guidance, benefiting from favorable weather and achieving the highest uptime in our operating history. Our Midstream & Marketing segment delivered another incredible quarter, generating positive adjusted earnings and surpassing the high end of guidance. Our team's expertly navigated market volatility to maximize margins through strategic gas marketing, helping to offset challenging gas price realizations.

Higher sulfur prices in Al Hosn further contributed to the quarter's results. As shown in our third quarter results, we remain focused on generating free cash flow at lower oil prices and maintaining flexibility in our capital and development programs to support near- and long-term value creation. Richard will now provide more details on our third quarter operational highlights and how we are positioned to generate stronger returns and higher free cash flow.

Thank you, Vicki. I appreciate the opportunity to share the progress we are making in our operations and how we are positioning our plans going into 2026. In all parts of our oil and gas business, we are making significant advancements through a focus on 3 key areas: resource improvement, cost efficiency and operating ability to generate free cash flow across a range of oil price scenarios. .

Today, I will focus on our Permian operations where there have been several meaningful updates across these 3 areas. I look forward to sharing more from our other teams in future calls. First, let me begin by highlighting our strong third quarter results. As Vicki noted, domestic production exceeded guidance with strong contributions from all business units in the Permian, Rockies and Gulf of America. This strong performance and record results were achieved while sustaining our outlook for lower capital and improved operating costs for the year.

Compared to our original 2025 guidance, we have reduced capital expenditures by $300 million and operating costs by $170 million. We appreciate our team's continued efforts to exceed expectations. Importantly, this performance is part of our continued track record of cost efficiency. We recently highlighted that since 2023, we have realized $2 billion in annualized cost savings across our U.S. onshore operations driven by continuous operational improvements in drilling, completions and operating expense categories as well as a value-focused supply chain management approach.

We are seeing similar improvements across all of our operating teams and look forward to these efficiencies continuing into 2026. Building more on Vicki's introductory comments, we have made important progress in our organic oil and gas resource improvement across the portfolio. Today, I will focus on the Permian as it plays an essential role in our near and long-term results. We have recently expanded our Permian resource base by 2.5 billion BOE, which now represents approximately 70% of Oxy's total resources of approximately 16.5 billion BOE.

We achieved this organic resource expansion through subsurface characterization and the application of advanced recovery and technologies. Our deep Permian resources, both low cost and provides operational flexibility to support free cash flow across a wide range of oil price scenarios. When combined with our ongoing cost efficiencies and technical recovery advancement, this places the Permian as a core value driver for Oxy's feature.

To start in the Delaware Basin, we continue to be a leader in new well performance across both our primary and secondary benches. Importantly, our secondary bench wells outperformed the industry average by 10% when compared to all benches, primary and secondary in the basin. In addition to improving productivity, these secondary benches also enable us to efficiently utilize existing infrastructure that was built to support our primary development.

As a result, we have extended our resources through increased secondary bench development while lowering our overall development costs, leading to a 16% lower capital intensity since 2022. Additionally, over the last few years, we have significantly transformed our position and performance in the Midland Basin. Today, these development projects are incredibly competitive in our Oxy portfolio. This process began with a basin-wide subsurface characterization initiative and targeted development program to more fully understand the resource potential in the basin. We then strengthened our acreage position and achieve the scale needed for operational efficiencies through the CrownRock acquisition.

Today, the combined Oxy and legacy CrownRock teams are delivering industry-leading low cost and performance. driven by both continued operational improvements and refined subsurface designs.

Since 2023, our new wells have shown a 22% increase in 6-month cumulative oil production per 1,000 feet, while the industry average has declined about 5% over the same period. We have also reduced well costs by 38% since 2023. These step changes have created an expanded deep bench opportunity, allowing us to organically add top-tier Barnett resources across 115,000 acres in our Midland and Central Basin platform operating areas.

Again, we highlight that our new well performance in the Barnett is outperforming the industry average by 18% since 2020. Another resource opportunity and key differentiator for Oxy is the expansion of enhanced oil recovery into our unconventional shale. As a leader in conventional CO2 EOR, we are leveraging our decades-long investment and expertise into these assets. Since 2017, we have advanced unconventional EOR in our Permian U.S. Permian and Rockies business units completing multiple demonstrations where we have achieved positive and consistent results.

These projects have delivered over 45% oil uplift, but we believe with continued optimization, our commercial projects have the capability to deliver up to 100% production uplift. We are now moving into commercial development with 3 initial projects and a current pipeline of 30 more ready for development. These mid-cycle projects offer low decline rates and competitive returns.

Our unique and sizable Permian Basin CO2 infrastructure gives us an advantage as we scale these developments over time. Today, this represents a resource opportunity of over 2 billion BOE. We also continue to advance our existing conventional EOR assets with approximately 2 billion BOEs of undeveloped resources with low development costs. These mid-cycle projects are also meaningful as part of our future resources. Recent improvements in cost structure, including $80 million of our 2025 domestic operating cost reductions continue to improve the returns and investment priority within our portfolio.

Beyond CO2 EOR, we are progressing a suite of complementary recovery technologies, including infill drilling, precision well placement and spacing, next-generation frac and other methods of EOR. We believe our ability to organically expand our low-cost resource base through subsurface characterization, continued cost efficiency and advanced recovery technologies give us a competitive advantage to deliver long-term value.

As we look ahead to 2026, we continue to actively manage our operational scenarios for a disciplined approach for resilient free cash flow, even if in challenging oil price environment. Our approach begins with a focus on operational and cost efficiency over activity reductions to preserve future free cash flow and to maintain optimized activity across our assets. A key part of this approach is working closely with our service company partners to capture supply chain savings, improving value for both parties.

Beyond that, we selectively defer multiyear facilities and construction projects, allowing us to invest opportunistically in these projects when conditions are more favorable. We also regularly review and optimize our operating expense activities to enable us to scale and time activities for maximum free cash flow. Finally, we evaluate capital and development activity adjustments, always with a focus on achieving the most efficient capital to cash flow outcome.

At much lower oil prices, capital flexibility becomes critical, and we remain committed to investing wisely, preserving optionality and delivering value through efficient execution. As we enter 2026, we are targeting a $55 to $60 WTI plan, with flexibility to adapt to market conditions, while continuing to improve cost efficiency to deliver our free cash flow needs without impacting operational performance.

Looking ahead, we have a deep portfolio of short cycle, high return and mid-cycle low-decline assets that can deliver strong cash flow. We are focused on sustaining momentum by driving cost efficiency, advancing recovery technologies and optimizing our operations.

Lastly, I'd like to thank all of our teams for their continued performance and especially safety as we looked at in the year strong. I also look forward to working closer with many of you for the first time or again in my new role. Thank you for your time today, and I'll now turn the call over to Sunil for the financial discussion.

Thank you, Richard. In the third quarter, we generated a reported profit of $0.65 per diluted share. Strong operational performance and a continued focus on capital efficiency enabled us to generate approximately $1.5 billion in free cash flow before working capital. We had a negative working capital change, primarily driven by the timing of semiannual interest payments on our debt and payments within our Oil and Gas segment.

During the quarter, we repaid $1.3 billion of debt, bringing our total year-to-date debt repayment to $3.6 billion and reducing Occidental's principal debt balance to $20.8 billion. Our strong financial performance can largely be attributed to higher volumes across our U.S. portfolio, which more than offset slightly lower than expected production from our international assets.

New well and base production outperformance in the Permian and Rockies as well as higher uptime and favorable weather in the Gulf of America enabled us to exceed the high end of guidance across all of our domestic oil and gas assets. This production outperformance and a continued focus on delivering operational cost efficiencies led to lower domestic lease operating expenses in the quarter notably outperforming guidance at $8.11 per BOE.

Part of the outperformance also reflected the timing of certain offshore production engineering activities, which shifted into the fourth quarter. In the midstream and marketing segment, we continue to capture value through optimizing our gas marketing positions out of the Permian Basin and higher sulfur pricing in Al Hosn. Both were significant catalysts in the segment, generating positive earnings on an adjusted basis of $153 million, above the midpoint of guidance.

Looking ahead, we are increasing our full year guidance for our oil and gas and midstream and marketing segments as a result of our strong third quarter outperformance and improved expectations for the fourth quarter. In oil and gas, we are raising our fourth quarter total company production guidance from last quarter's implied guidance to a midpoint of 1.46 million BOE per day. This is driven by the expectation for continued strong performance across all 3 domestic assets, which should more than offset impacts from a scheduled turnaround at Al Hosn also in the fourth quarter.

Other midstream and marketing pretax income guidance assumes that our teams will capture gas marketing optimization benefits from the wider Permian to Gulf Coast spread observed already in the fourth quarter. We expect full year pretax income from the segment to come in approximately $400 million above our original guidance, largely due to those gas marketing opportunities and stronger-than-anticipated sulfur pricing from Al Hosn.

Due to continued softness in the global chlorovinyls market, our third quarter OxyChem pretax income came in below guidance at $197 million. We are guiding to $140 million for the next full quarter. Beginning in the fourth quarter, OxyChem will be classified as discontinued operations. We are in the process of evaluating the potential impact of OxyChem's classification on our fourth quarter adjusted effective tax rate, and we will provide a further update early next year.

Total company capital spend, net of noncontrolling interest of approximately $1.7 billion was in line with our expectations for the third quarter, and we expect to remain within our previously guided range for 2025 capital. As Vicki said, the OxyChem transaction marks a significant milestone for our company. Asset will strengthen our financial position and enhance our ability to return capital to our shareholders.

The all-cash nature of this transaction will enable us to accelerate our debt reduction efforts and achieve our post CrownRock principal debt target of less than $15 billion. Of the roughly $8 billion in transaction net proceeds, we plan to use approximately $6.5 billion to reduce debt. Our initial focus is on the $4 billion of debt maturing in the next 3 years. This includes $1.3 billion of term loans maturing in 2026, which we can call at par and for the remaining $2.7 billion, we may largely use make-whole provisions to ensure certainty.

Beyond that, we will be opportunistic taking into consideration redemption prices and the impact on our maturity profile. This will meaningfully improve our credit metrics and is expected to lower our annual interest expense by more than $350 million, while providing a very manageable near-term debt maturity schedule. The remaining $1.5 billion in net proceeds will go to cash on the balance sheet. By significantly lowering our debt burden and building cash on hand, we will create a stronger, more resilient balance sheet.

With the achievement of our first CrownRock principal debt target, Oxy will be positioned to broaden our return of capital program and adopt a more flexible framework for delivering value to our shareholders. We will be opportunistic with the share repurchase program. Our decisions and priorities will be driven by a range of factors, including the macro conditions, commodity prices, market valuations relative to Oxy's intrinsic value, cash on the balance sheet and the time line to August 2029. We plan to resume the redemption of the preferred in August 2029, when the preferred equity becomes callable with a lower redemption premium and does not have the $4 per share return of capital trigger.

Now I would like to share how we're approaching our capital program for 2026. Last quarter, we discussed the potential to allocate capital to mid-cycle conventional oil assets. We are planning to increase investment in the Gulf of America waterflood projects and in Oman, given both projects high oil weighting and favorable base decline rates, combined with the enhanced economics in Oman, following our [indiscernible] contract extension.

Approximately an additional $250 million could be allocated to these areas as capital rolls off in our LCD portfolio. Considering the recent commodity price volatility and oil market outlook, we are evaluating multiple capital scenarios across our U.S. onshore portfolio. With the OxyChem sale, our U.S. onshore capital will comprise an even greater proportion of the total company investment program, which provides flexibility should the macro environment deteriorate.

As Richard mentioned, we have an incredible runway of high-quality oil and gas opportunities and sustained momentum in delivering value through greater capital efficiency. We plan to reallocate up to $400 million to these short-cycle high-return projects, primarily in the Permian. Any additional allocation of capital next year will be undertaken in a thoughtful manner with an eye to the oil market given oversupply concerns. The quantum of that reallocation will depend on the macroeconomic environment, and we plan to share more on our 2026 capital budget during our fourth quarter call pending Board approval. I will now turn the call over to Vicki for closing remarks.

Thank you, Sunil. As we highlighted, the OxyChem sale represents more than just a business decision and marks the final major milestone in the strategic transformation that we've been pursuing for years. With this step, we are accelerating opportunities to extend our advantaged low-cost resource position and leveraging integrated technologies to deliver differentiated recovery and superior value. .

We are confident that these actions will further strengthen our competitive position. With that, we'll now open the call for questions. And as Jordan mentioned, Ken Dillon is joining us today for the Q&A session.

[Operator Instructions] And today's first question comes from Doug Leggate with Wolfe Research.

Vicki -- maybe the first question is for Sunil actually is on the capital guidance that you just talked about there, the soft outlook. If I'm doing the math correctly, so you dropped about $300 million from the beginning of this year, so it was [ $7.2 billion ]. But [ $900 million ] was chemicals, as I understand it, for next year, and I believe this year it was [ 450 ] on DAC. So that's about [ $1.35 billion ] I'm trying to kind of get to the range for next year. So if you add back the $650 million you talked about, are we in the ballpark to think that spending next year should be down about $700 million on your -- based on your remarks, Sunil?

Yes. So Doug, you're right on the way you're approaching it. Like you said, midpoint for CapEx guidance for this year, $7.2 billion. Chemicals is $900 million. So back out of that, you're at $6.3 billion. Like I mentioned, we are going to increase CapEx in the Gulf of America waterflood projects and Oman, which is around $250 million, which will be largely offset by the roll-off of capital in our low carbon venture portfolio. So you're back to the $6.3 billion.

And with respect to U.S. onshore, like I mentioned in my prepared remarks, we are looking at potentially investing up to $400 million. So you start with $6.3 billion and it could be somewhere between $6.3 billion to $6.7 billion, depending on the macro environment.

And the other thing I would highlight is, like I said, with this increased spending in U.S. onshore, a proportion of U.S. onshore CapEx as a percentage of the total CapEx will increase. What that means is a lot more flexibility if the macro is going to become more unfavorable. And so that is one important thing. And I think like Richard said in his prepared remarks, the way we think about capital allocation for U.S. onshore, if you were to adjust our capital program. I mean first, we look at our efficiency, both operating efficiency and what we are seeing in the market; second is potentially how we can defer some of our facility spending.

And the last thing would be in terms of activity. So I think -- from a capital point of view, we are looking at somewhere between $6.3 billion to $6.7 billion, with a larger proportion of U.S. onshore CapEx where we have a lot more flexibility.

The Street is obviously very smart, Sunil, because it's sitting at $6.5 billion right now. So that's really helpful. My follow-up, if I may, is for Richard, I'll take advantage and also wish him congratulations for your new role, Richard, I'm thinking a Permian field trip might be in the offering, but we'll take that one offline. My question is, you did say you've added 2.5 billion barrels of resource mostly in the Permian, you've obviously got, it looks like sector-leading drilling per lateral foot cost now and clearly, the breakevens in the Barnett are coming down. So my question is, you haven't given us a resource -- drilling backlog or a breakeven for those sustaining capital for the portfolio. So I wonder if you could address those -- where does this leave your drilling inventory? And what would you say is the sustaining capital breakeven at this point for the portfolio?

Doug, this is Richard. Great to hear from you and appreciate that for sure. I always enjoy our Permian visits. Let me start just sort of addressing generally why resources. I think -- for a long time, we've been trying to characterize our strong unconventional resource base. And the way to do that was to talk about drilling inventory and think about breakevens against that. I think as we look forward, as we're explaining today, we're so much more than that.

We have our big opportunities on our conventional assets and just felt like moving to more of a resource explanation was a better representation of what we are and the value that we have. If we sort of break down that 2.5 billion barrel Permian add, most of that -- much of that is coming from continued unconventional shale improvements. And in our view, this is technology. This is using our subsurface characterization to continue to fine-tune our designs, especially around the secondary benches, which we felt like was important to point out in this highlight.

It includes things like the Barnett, where we had an existing position. Much of that Barnett resource runs into our Central Basin platform we've operated in our enhanced oil recovery business for a long time. And so much of that continues, and that would be a direct translation to the drilling inventory that we've disclosed previously. But the other piece is the EOR. And we highlight the unconventional EOR today, but also across our conventional position. And so in total, we just felt like that was the right way to think about it.

In terms of the Barnett, obviously, a big piece of that becoming competitive in our portfolio is the drilling cost improvement and just very pleased with the progress by the teams in the Midland Basin for what they've been able to do. But we're seeing that across all of our basins. I think we highlighted in one of the slides about a 14% total reduction in well cost across all of our unconventional drilling same in the Rockies.

So in general, that's improving our resource base. And so I think going forward to the breakeven, we'll continue to characterize that resource base with a breakeven. I think we've talked about our projects for the year, our annual program are all less than $40 breakeven. And so on a project basis, we expect that to continue. And like we've shown in the past, it's always improving the resource, expanding it, yes, but improving is the most important component of it and cost is a big part of that.

And our next question today is from Arun Jayaram with JPMorgan.

Yes. My first question is maybe on Slide 16, perhaps for Richard. I just wondered if you could maybe give us more details on the demonstration pilot. It looks like in this example, you're highlighting CO2 injection around 3 years after initial production from the well. But I was wondering if you could just talk about the applicability of this on older wells that may have been completed 6, 7 years ago? And maybe just a little bit about the math around the $2 billion BOE resource opportunity, that would be helpful.

Yes. Great. I appreciate that question a lot. The example we're highlighting on that slide in the Midland Basin, it was with CO2. These wells were originally online in about mid-2015. So your question is perfect. While they apply to historic wells like we're showing here, they also apply to recent vintage as well, and I'll walk through that math in a second.

But just a little bit on that pilot. Again, that's about a 45% uplift. We had 5 injection cycles that were completed over those 3 years, we stopped and saw this 45% uplift. If we modeled out continued cycles of CO2 injection, this is where we get to the 60% and even 100% production uplift. And so that's where that comes from. If we look at the 2 billion barrel, if you think about recovery factors in the 8% to 12% with unconventional. If you look at this 45% to 100% uplift, now you're talking about reaching recovery factors in the 15% to 20%.

So that is likely a little bit more for the oil and perhaps a little bit less for the gas in an oil reservoir. But if you look across the derisked unconventional acreage where we have this opportunity, that's how we began to account for the 2 billion barrels of unconventional EOR. As I mentioned in -- we've got 3 projects that we'll be working into commercial development over the next couple of years. Those are really spread between New Mexico, Texas, Delaware and the Midland Basin. So again, it's sort of an approach that can be applied to multiple areas. And then based on these technical work, we have another 30 development-ready projects across these basins that will be ready to develop.

And so again, as we think about the role of mid-cycle low decline cash flow, in our outlook, we believe these can be very meaningful as we look forward into future years.

Great. That's helpful. My follow-up is, Sunil mentioned that you could redirect $250 million of capital from the reduction in LCV capital back into the Gulf of America for waterfloods in Oman. I was wondering if you could provide some thoughts on the -- what you believe these waterflood projects can do to your productive capacity in the Gulf of America. Maybe just thoughts on Gulf output as we think about 2026.

Good afternoon. We now have 2 water flood projects FID'd in GOA. These will result in improved recoveries of nearly 150 million BOE and significant reductions in decline rates over time. Potentially, these could lead to GOA declines going from 20% today to 10% in 2030 and 7% by 2035. And so a significant impact on the base. First up is at the King Field, which is a tieback to Marlin. There will be a dump flood, which requires very limited facilities that will be on stream in Q2 next year. This will lead to a potential extension in field life of around 10 years.

At Horn Mountain, we've used the latest OBN seismic with our in-house developed tools to place the first injector, 2 will be drilled in Q1 2027. And in parallel, facilities will be installed in Horn Mountain, leading to a target injection date of Q2 2027 and an expected response date during late summer 2027. We've been ready to go for some time and all the long-lead items have now been placed. Returns expected to be in the 40% to 50% range for these projects.

So overall, last time I talked about improving well performance this time talking about lower decline. And as you can see, we've had improved reliability, both on rotating equipment and general facilities. We were aided by weather a bit, including, I would say, being able to get through a lot of fabric maintenance work in this time period. So overall, still working on next year's plan. Part of that is tying the construction activities for the water [indiscernible] the planned maintenance required offshore so that we only take the platforms down once in a staggered turnaround.

And our next question today comes from Neil Mehta with Goldman Sachs.

Yes. This is an important time for STRATOS as you guys are ramping this project up and so as the rubber hits the road, I just wanted to understand what the gating items are and early thoughts around start-up activities. .

Yes, overall, the STRATOS Phase 1 start-up is proceeding well. Since we last talked, we've commissioned the central processing unit with water. Another major milestone was achieved, that was starting up the process compression facilities, which are required for CO2 injection. [ Siemens ] Energy team, I have to say, including the CEO and the execs have been incredibly supportive of the project. This is a large complex machine, which basically started up first time. We've now started loading the first films of pellets and chemicals and continue to start up the other unit operations. So the next are the centrifuges. And then after that, it's the calciner and these are the 2 remaining operations before we export the CO2.

We continue to optimize each of the units during startup as we always do. And while that does cost us some time now, it will pay tremendous dividends going forward. Priorities are to learn for long-term capture efficiency and uptime. So overall, we expect to be circulating KOH this quarter and injecting CO2 in Q1. .

Okay. And I had a couple of questions around just return of capital as the follow-up. And so I think following the OxyChem sale, while I think investors definitely recognize the value in improving the balance sheet, some of the concerns that we heard was about the legacy liability. So I guess this will be the first time you'll have an opportunity to maybe address that and help people get comfortable around that.

And then -- while I know that you can't knock out the preferreds until August 2029, is there an opportunity to opportunistically repurchase shares before then to help alleviate some of those concerns. I just want to give you an opportunity to address both of those.

Okay. With respect to the return of capital, we definitely want to take out the -- all that we can, the $6.5 billion of debt first. And then beyond that, we are going to opportunistically buy back shares and it has to make sense. It's a value calculation for us to determine whether to do that or whether it's best to take down some more debt or put more into the business.

But one thing with respect to the use of cash, I want to make very clear to everybody, and that is that that we're not going to aggressively put lots of extra barrels into an oversupplied market. So when we're talking about the possibilities here on the call, I want you to understand that we definitely have plans to be very flexible in that. And I think Richard may have an opportunity later to share more on what that's going to look like.

But we are going to stay within our means in terms of using the cash that we have but not taking down too much cash off the balance sheet. We'll try to maintain about $3 billion to $4 billion on the balance sheet as we go forward. And the legacy liabilities with respect to OxyChem, the bulk of those liabilities are outside the operating areas that were purchased. And there's very little cash being spent or any necessary activities beyond what's already happening within those assets -- operating assets ever bought, everything else is outside.

It made no sense to -- for those liabilities to go. And what they're costing us right now is somewhere in the neighborhood of $20 million or so on an annual basis. The liability that's the largest, of course, is the [indiscernible] But that it's going to be spread over 20 to 30 years. So this is going to take a lot of time to develop that and to work that. And so this really has minimal impact on us to maintain these. It's really not material to what we do. And the repo -- the Berkshire, you want to talk about the Berkshire Sunil?

Sure. So Neil, like again, I mentioned in my prepared remarks, now that we've got our debt target below our goal of less than $15 billion and as Vicki outlined, we're going to be opportunistic with respect to share repurchase. It's going to be driven by the macro conditions, where our stock price is trading, cash and balance sheet because our ultimate goal is to start or resume the redemption of the preferred once we get to August 2029.

So what you're likely to see is as we get towards August of '29, we're going to start building up cash on our balance sheet. So there is no formula as such in terms of share repurchase, but we're just going to be opportunistic considering or keeping in mind that by August 2029, we want to build cash on balance sheet.

And our next question today comes from Paul Cheng with Scotia Bank.

One, can I just clarify that you in your 2026 CapEx, you're saying that you're going to redirect, say, $250 million from the LCV into the government in Omen. So is that mean that LCV we're not going to spend any money at all. And also, I think for Richard, can you talk about the $400 million that on the quick payback onshore project, what kind of production contribution which you expect for 2026?

The second question is exploration. With your resource seems like you're finding more ways to get resource from the onshore market. So is that means that exploration will remain sort of like not the most important aspect for your program over the next several years.

So Paul, with respect to LCV CapEx for next year, we think it's going to be around $100 million as we roll off capital with the completion of STRATOS.

Yes. I'll pick up a bit of the scenarios with a potential $400 million that Sunil talked about. I mentioned in my remarks a sort of a target initial plan of 55 to 60. And what that means is really, if you think about continuing activity this year, that would be up to that $400 million that Sunil talked about, so actually flat in terms of resources that we would go from this year into next year. .

In terms of what that makeup for next year might look like for EOR, it's actually -- it's light. It's about $100 million between EOR and unconventionally ore. And so it's fairly light next year. And it's actually pretty capital efficient as we look in the out years because we're not drilling wells, we're using CO2 in terms of the recovery. But I also want to highlight, we work scenarios below the $55 plan. And that's one of the advantages of the allocation of capital into the U.S. onshore. We have plans that go below $50 to be able to adjust to really carry Oxy in total in terms of cash flow to meet a breakeven and obviously cover our uses of cash.

So we have that mapped out. We've done it in the past. That's why we wanted to go into some detail on the thought process of how we react to lower oil prices. Obviously, we like to work through efficiency first. But we do have that activity, flexibility in our operations, especially in the U.S. to adjust in lower oil price scenarios.

And then following up our -- we've already started deferring some exploration from next year into the following years. And in Oman, these are not really big exploration. These are step-out wells, very close to our existing facilities, which can be brought online incredibly quickly. .

And our next question today comes from James West at Melius Research.

So Vicki, maybe a bigger picture question for you. A lot of moving parts the last several years with Oxy, lots of changes in the portfolio. You've been busy is the key here. With the OxyChem sale, are we going into now a quieter period, maybe a harvesting type of a period?

Absolutely. And I'm thankful to be at this point, finally, Yes, we've gone through -- there was a lot, as you said, going on, but this is where we wanted to be, and this is where we needed to be. So we've done everything that we set out to do with respect to being mostly a U.S. company and with very high-quality, high-margin assets and assets that can sustain over the long term. And we think that our portfolio is so much differentiated from anybody else because we not only have the high return, but high decline shale is complemented and will be complemented in the future by the conventional assets and conventional EOR, along with unconventional EOR.

And when we look at where our portfolio stands today, the -- our production, where we've -- our total development 45% conventional and 55% is unconventional. Going into the future, we have a ratio of -- it looks like about the total 16.5 billion that we have in resource, about 65% is unconventional, 35% conventional. But the beauty of the unconventional is what Richard talked about, and that is the the fact that in the unconventional, we're going to be able to do -- use CO2 for enhanced oil recovery in the unconventional.

It's going to recover, we believe up to the same amount as primary production. So we'll get 100% of what we got before. So we're doubling our total recovery from the unconventional. So that will be actually a low decline as well over time. So we think that versus a pure shale player or versus those that have assets that are difficult to manage internationally and in foreign countries, we think that we're much better positioned with this portfolio. So yes, we're done with anything that's any big acquisitions or anything like that.

And our next question today comes from Matt Portillo of TPH.

Maybe just a question to start out on the DJ. You highlighted in Q3, strong well performance drove upside to your production figures. I was curious if you could just maybe comment on in the Rockies, if you've changed anything on the completion or spacing design? Or what's really driving the outperformance there?

Yes. Thanks. A big part of that B really the last couple of quarters has been our base production. And so a lot of work we've talked about in the past, we've been doing around artificial lift, even using some analytics to improve our efficiency on that. So that was the biggest part of it. We have had better new well performance as well. I wouldn't call it major changes. We just continue to tweak sort of our subsurface designs and flow back. The base actually the production operations that support the base also help our new well production. And so a lot of that [ new well B ] is just better uptime on some of our processing facilities.

Great. And then maybe just a follow-up on the inventory. I was wondering if you might be able to comment on your views around your DJ inventory and how you might be able to flex capital and kind of a lower commodity price environment just thinking through kind of the remaining locations left and obviously, some of the upside that you've highlighted here in the Permian, how you can flex capital between those 2 basins?

Yes, that's great. Yes. We've been largely working in the DJ around an optimized activity set. We've added a couple of rigs and 1 frac core. And so that's been a big piece of it, continuing to show efficiencies like I said on well cost earlier. I think in the Rockies, as we look to the future, excited about the Powder River Basin.

We continue to make progress there. We sort of have been working similar to the way I described the Midland Basin where we -- first, we're sort of proving out the productivity of the wells, really in the '23, '24 time frame. And then in '25, we've had a partial rig year where we flex the rig up to the Powder River Basin. We've had really drilling record after drilling record up there. We've improved about more than 25% versus the last year in terms of drilling performance.

So that was a big part of it. And so now really as we look to '26 and beyond, we have that opportunity to flex from the Rockies to the Powder River Basin. And so again, I don't really see an increase in capital, just more optimization in terms of that portfolio for the Rockies with that.

And our next question today comes from Neal Dingmann at William Blair.

My question is just on the low Permian well cost that you all showed for maybe through Richard. Is the larger projects contribute to that? Or what was the main driver of that exceptionally low cost?

Yes. Great question. We've been on this mission in the last couple of years to really relook at both the operational efficiency of our operations and working, like I mentioned earlier around our contracts and service contracts. And so it's really been a bit of both. I'd say the scale in the Midland Basin certainly helped. We were able to combine really the best of best from Oxy and our CrownRock -- legacy Crownrock team and really just worked on that piece of it, but the scale certainly helps.

So I do agree with that. But from an efficiency -- from a contract standpoint, I think we were also entering a period where we made sure we were getting the right contracts for the right type of work. And so we've done a lot of work on that. We're fairly short right now in terms of contract term. And so we're working hard with our partners there to kind of think about how it looks going into 2026 and making sure we got those 2 pieces put together correctly.

Great point. And then just a follow-up, Richard. You talked a lot on the [indiscernible] EOR today. and the amount of possible recoveries there. I'm curious, what type of returns? I assume the returns around some of that incremental upside would be very positive, I would think, correct?

Yes. We highlighted a 25% to 35% kind of where we're at today. And so if we're able to increase the uplift like we're talking about, those are only going to get better. So the goal, obviously, is to be competitive in our portfolio. And so the teams will be working on that. And that -- again, that's the beauty of the portfolio that we have. It's not so much the expansion, but it's the competition. to make sure that we're putting capital we're best placed with the returns that we want. .

And our final question today is from Leo Mariani with ROTH.

Really appreciate all the details on '26. You certainly talked about the range of capital, $6.3 billion, $6.7 billion, very helpful. Could you give us just some high-level indications of what would you kind of expect production to do in that range? Is that kind of a maintenance range for production, maybe at the lower end and maybe you see a modest amount of growth at the high end. What can you kind of tell us about kind of associated production?

So in terms of production, you would be looking something closer to flat to potentially up to 2% growth.

Okay. That's very helpful. And I guess, any specific areas that largely kind of unconventional that kind of provides the growth for next year? Is that kind of the flex piece is really that $400 million, which I guess is mostly unconventional Permian?

That's right. So the growth will be largely driven by unconventional Permian.

Right. And as I mentioned, the flex down, we'll go after efficiency first to maintain activity, but in position to be able to cut activity as required based on the macro. .

And that concludes our question-and-answer session. I'd like to turn the conference back over to Vicki Hollub for any closing remarks. .

Before we close, I want to express sincere appreciation to the entire OxyChem team for their steadfast commitment to safety and operational excellence. Their achievements have contributed significant value of the years, and we're confident that OxyChem will continue to thrive under new ownership. So thank you all for your questions and for joining our call today.

Thank you. Today's conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Good afternoon, and welcome to Occidental's Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

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

Thank you, Drew. Good afternoon, everyone, and thank you for participating in Occidental's Second Quarter 2025 Earnings Conference Call. On the call with us today are Vicki Hollub, President and Chief Executive Officer; Sunil Mathew, Senior Vice President and Chief Financial Officer; Richard Jackson, President Operations, U.S. Onshore Resources and Carbon Management; 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 2 regarding forward-looking statements that will be made on the call this afternoon. We'll 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'll now turn the call over to Vicki.

Thank you, Jordan, and good afternoon, everyone. I'd like to first thank our teams for another quarter of strong performance, delivering $2.6 billion of operating cash flow in the second quarter. This helps to generate more operating cash flow in the first half of 2025 than we did in the first half of 2024, despite much lower oil prices in the first half of 2025. In fact, WTI averaged $11 per barrel lower than the first half of 2025. And for reference, those cash flows are talking about cash flows before working capital.

Next, I'd like to congratulate our teams for their ability to optimize our portfolio in a way that strengthens our future development plans while creating divestment opportunities that along with cash flow made it possible for us to repay $7.5 billion of debt and less than a year from closing the CrownRock acquisition, that's well ahead of target. This equates to almost a 70% reduction of the debt raised for the acquisition.

Also, I'm pleased to report that STRATOS has achieved a significant milestone, and we're on track to start capturing CO2 this year. This timing is perfect as there is growing momentum behind direct air capture to generate meaningful value from CO2 enhanced oil recovery or EOR in carbon dioxide removal credits or CDRs.

Before I turn the call over to Sunil, I'll now provide a little more detail on operations, debt reduction and STRATOS. In the second quarter, our oil and gas business produced 1.4 million BOE per day, exceeding the midpoint of our production guidance. This reflects both the operational strength of our teams and the caliber of our diverse portfolio, with outperformance in the Rockies and an uplift to our Oman volumes due to the Mukhaizna contract extension, more than offsetting production impacts primarily due to third-party constraints in the Gulf of America.

Back to cash flow generation. Despite much lower oil prices, the teams achieved higher CFO or cash flow from operations this year versus the same period last year, due in part to the additional production from CrownRock as well as some production growth from legacy Oxy. But important to note is that our oil and gas teams were able to achieve enough operating cost reductions to offset the operating costs associated with the incremental 180,000 BOE per day of production. In other words, despite oil production rates of 1.395 million BOE per day in the first half of this year versus 1.215 million barrels of oil equivalent per day in the first half of 2024 absolute operating cost in those 2 periods were essentially the same.

I'll highlight some of those activities that have contributed to reductions in our total cost structure. In our onshore U.S. operations, we announced in our first quarter earnings call, $150 million in expected operating cost savings this year through significant cost reductions.

As I just highlighted, holding absolute cost level with increased production resulted in a meaningful reduction of per barrel cost to $8.55. By integrating automation, field sensors and artificial intelligence to prioritize lease operating routes, we have transitioned approximately 40% of our onshore production to routeless operations. And in our EOR business, increased field interconnectivity has enabled us to optimize our use of recycled CO2 and advanced subsurface modeling has helped to improve the effectiveness of each molecule we inject thus enabling us to reduce our purchased CO2 volumes.

In our international operations, we have implemented similar efficiencies to reduce CapEx -- I'm sorry, OpEx for the year by an estimated $50 million. We are confident in the sustainability of these cost reductions as the majority are structural in nature. Across the Permian, our teams have consistently driven down well costs through enhanced efficiencies, enabling us to reduce the midpoint of our capital guidance by an additional $100 million this quarter.

In the Delaware Basin, drilling times have improved by 20%, bringing well cost below our 2025 target. Meanwhile, in the Midland Basin, our best of the best workshops have facilitated the rapid sharing of valuable well design and operational insights across the organization, yielding impressive results. In the first half of this year, well costs for both our legacy Midland Basin assets and our CrownRock assets were lower than the expectations we set earlier this year. Collectively, these advancements have resulted in a 13% reduction in year-to-date Permian unconventional well costs compared to 2024.

The capital efficiencies, along with continued improvements in recoveries have yielded robust economics from secondary benches and has helped to sustain year-on-year improvements in our capital intensity.

We also delivered strong well performance offshore. I'd like to highlight 2 recent standout wells in the Gulf of America with one of the best at Horn Mountain in 22 years and the best at Caesar Tonga in 13 years. Both are on production down and ramping up through the end of the year. This is due to the success of our subsurface engineering and the resource potential across our existing fields, which will be enhanced by future water flooding that will unlock significant value going forward.

Our Midstream and Marketing segment had another impressive quarter, generating positive earnings on an adjusted basis and outperforming the high end of guidance. This was largely due to improved crude marketing margins, gas marketing optimization and higher sulfur pricing. We also benefited from new oil transportation contracts that began during the second quarter.

Turning now to low quarter -- Low Carbon Ventures business. In just 2 years since groundbreaking, STRATOS has achieved a significant milestone with Trains 1 and 2 now moving over to operations. We've commenced wet commissioning with water circulation and are on track to start capturing CO2 this year. We are immensely proud of the achievements to date and the exceptional record of safety performance as we advance towards commercial startup.

As I've shared in the past, we see immense value from taking a phased approach to STRATOS development. Even though this is a first-of-its-kind facility at this scale, we're already benefiting from continuous evaluation and learnings along the way. For example, we've been able to capture lessons from commissioning as we move into operations and are incorporating the latest R&D out of our carbon engineering innovation center into Phase 2. Not only will this improve the project's economics when the full capacity is online, but it will accelerate the cost down curve for future DAC projects.

Since the first quarter, we signed 2 additional commercial agreements for carbon dioxide removal cells with JPMorgan and Palo Alto Networks. The majority of volumes through 2030 from STRATOS are now contracted, demonstrating the strength of the growing CDR market and increasing appetite for durable carbon removal technologies.

We also announced an agreement to evaluate a potential joint venture to develop a DAC facility in South Texas with XRG, which is the UAE's investment company and gas, chemicals and low carbon energy solutions. Agreements like this, along with the U.S. Department of Energy, support and highlight Oxy's unique capabilities and signal confidence in DAC as an investable technology to provide both high integrity carbon removal and support energy development through enhanced oil recovery in the United States.

The recently enacted One Big Beautiful Bill included a number of provisions that will help Oxy continue to deliver differential value to our shareholders. One of these is the extension and expansion of the 45Q credit driven by the recognition of the need to capture CO2 for use in EOR to support U.S. energy security.

The new law levels the playing field between carbon storage and utilization pathways like DAC to EOR. Both can and likely will play an important role across global energy supply chains and carbon manage. We believe that carbon capture in DAC in particular, will be instrumental in shaping the future energy landscape.

First, captured CO2 can be used for enhanced oil recovery in conventional and shale reservoirs. We believe this proven technology could recover an additional 50 billion to 70 billion barrels of oil in the United States which could extend our energy independence by 10 years.

Second, CO2 removed from the atmosphere via DAC can be used today to address submissions related to products or services, specifically CDRs from DAC can be paired with any fuel or energy source to provide a low-cost, scalable solution for growing low carbon intensity fuel or energy markets.

Oxy is uniquely positioned to deliver both through our leadership in DAC technology, sequestration and EOR operations. We have over 50 years of experience in carbon management and nearly 3 billion barrels of Permian EOR conventional resources along with extensive CO2 infrastructure in the Permian. In addition, we have our expanded U.S. unconventional runway and our well-positioned sequestration hubs.

As the largest acreage holder in the Permian, we have the scale, along with the ability to add secondary benches and EOR to provide lower emission barrels and further support U.S. energy security.

Before turning to Sunil, I'd like to highlight the recent success of our portfolio high-grading efforts. Since the end of the first quarter, we announced $950 million of additional divestitures, selling noncore largely nonoperated assets in our U.S. onshore business. This brings our total of announced divestitures to nearly $4 billion since January of 2024, enabling us to accelerate our debt repayments and improve our balance sheet.

Through our high-grading efforts, we have strengthened our portfolio, divesting assets with limited near-term opportunities and growing our inventory of competitive high-margin opportunities.

We have seen tremendous success so far across our CrownRock acreage, realizing significant improvements in well cost and efficiencies, and it keeps getting better. We expect value creation to expand as we continue to harness cross operational synergies throughout our Permian operations.

I'll now hand the call over to Sunil to review our financial performance and discuss our second half guidance in more detail.

Thank you, Vicki. In the second quarter, we generated an adjusted profit of $0.39 per diluted share and a reported profit of $0.26 per diluted [indiscernible] investment income, partially offset by positive mark-to-market adjustments. Strong operational performance and a continued focus on capital efficiencies, enabled us to generate approximately $700 million in free cash flow before working capital despite lower realized oil prices and high market volatility.

We had a positive working capital change primarily driven by reductions in commodity prices, fewer battle shipments on the water and lower interest payments, which is typical for the second and fourth quarters. These impacts were partially offset by a $110 million tax payment related to 2024. After warrant proceeds and debt repayments, we exited the quarter with approximately $2.3 billion of unrestricted cash on the balance sheet.

Our effective tax rate increased in the second quarter due to a shift in the jurisdictional mix of income driven by lower anticipated full year oil prices compared to original expectations. We are guiding to an adjusted effective tax rate of approximately 32% for the third quarter with our full year effective tax rate in a similar range based on current commodity prices.

Our strong operational and financial performance can largely be attributed to higher volumes across our U.S. onshore and international portfolio, offsetting lower-than-expected production out of the Gulf of America. New well and base production outperformance in the Rockies and the net production uplift in Oman from the Mukhaizna contract extension, enabled us to outperform the midpoint of guidance.

Our domestic lease operating expense in the second quarter notably outperformed guidance at $8.55 per barrel. This outperformance was due in large part to early success in delivering U.S. onshore operating cost improvements plus timing impacts of offshore production engineering work shifting from the second to third quarter.

As Vicki shared, this reflects our commitment to achieving operational efficiencies and continuous improvement with notable savings realized in the Permian. Looking ahead, the outlook for the second half of the year remains strong. In the third quarter, we expect our total company production range to increase to 1.42 million to 1.46 million BOE per day as we sustain operational momentum and anticipate higher volumes in all of our main operating areas.

Though we expect a quarter-on-quarter increase in produced volumes in the Gulf of America, the recent curtailments and the shift in program timing will have lingering effects prompting a reduction in our offshore second half production guidance. We are maintaining total company production guidance for the year as a stronger outlook on new well and base performance across our U.S. onshore assets and increased production in Oman from our Mukhaizna contract extension are expected to offset lower volumes in the Gulf of America. This modified production mix is expected to slightly reduce annual total company oil cuts.

As Vicki said, our Midstream & Marketing segment performed exceptionally well in the second quarter, generating positive earnings on an adjusted basis of approximately $206 million above the midpoint of guidance. This was largely driven by enhanced crude marketing margins due to timing impacts of cargo sales and fluctuations in commodity prices.

We also benefited from gas marketing optimization and higher sulfur prices at Al Hosn during the quarter. Given the strong second quarter performance, we have raised full year Midstream and Marketing guidance by $85 million. We anticipate a more muted third quarter, assuming the [indiscernible] to Gulf Coast natural gas strip continues to narrow and we'll be prepared for any marketing optimization opportunities as they arrive.

Our second quarter OxyChem pretax income came in below guidance due to weaker-than-anticipated pricing for caustic and PVC. Demand [indiscernible], but excess supply in both the global and domestic markets compressed margins. While the domestic PVC demand is typically the strongest in the third quarter, it is not expected to be strong enough to offset the oversupply in the market. Based on these market conditions, we are lowering OxyChem's full year guidance range to $800 million to $900 million.

Turning now to our capital program. We expect the remaining 2025 capital spend to be more weighted to the third quarter due to the timing of oil and gas activities and the construction schedule for the [indiscernible] expansion. Continued momentum in operational efficiencies across our Permian assets has enabled us to further reduce our 2025 capital guidance range by $100 million without impacting total company production.

Together with the $50 million in operating cost reductions from our international assets and the cost reductions of $350 million announced in May, we now expect $500 million in total reductions relative to the original plan.

In the first quarter earnings call, we highlighted several key non-oil and gas items contributing to incremental pretax free cash flow in 2026. Another impactful driver is the recent passing of the One Big Beautiful Bill. In addition to the benefits Vicki highlighted, from the preservation of 45Q credits and EO parity, the bill will provide significant cash tax benefits to Oxy for the remainder of 2025 and 2026 relative to prior law.

Based on our preliminary assessment, we estimate a potential $700 million to $800 million reduction in cash taxes with roughly 35% expected to be realized in 2025 and the remainder in 2026. These benefits are primarily due to changes to bonus depreciation, R&D expensing and limitations on interest deductibility.

Before I close, I would like to provide an update on our strengthening financial position. As Vicki shared, our portfolio high-grading efforts are progressing with the announcement of $950 million of additional divestitures since the end of the first quarter. Of this, $370 million as closed and we expect the remaining $580 million to close in the third quarter. This brings the total of announced divestitures to nearly $4 billion since the first quarter of 2024.

The success of our divestiture program to date, coupled with warrant proceeds and strong free cash flow have enabled us to be ahead of the schedule on the debt reduction targets outlined when we announced the CrownRock acquisition. In the last 13 months, we repaid approximately $7.5 billion of debt, far exceeding our near-term goal of paying down $4.5 billion of debt within 12 months of closing the CrownRock acquisition. This reduces annual interest expense by approximately $410 million and also results in a much more manageable debt maturity profile.

We are extremely pleased with the progress of our divestiture program and the trajectory of our debt reduction plans. Together with recent step changes in operational efficiency and key non-oil and gas catalysts, our continued focus on strengthening the balance sheet will support a stronger foundation for delivering long-term shareholder value.

I will now turn the call back over to Vicki.

Thank you, Sunil. To close, I'd like to reiterate the strength of our upstream portfolio. I believe we have built Oxy's best-ever portfolio of high-quality complementary assets. These are a diversified mix of short-cycle, high-return unconventional assets along with lower decline, solid return conventional reservoirs. And we have the best talent and capabilities in our history and with our team's continued focus on performance and innovation, enabling us to deliver outstanding results and to position us for the future.

We have an incredible runway in front of us with over 14 billion barrels in total resources, much of which is well suited for EOR application. Our industry-leading experience in carbon management and EOR operations is a key differentiator for Oxy and will enable us to unlock additional resources and deliver long-term value for our shareholders.

With that, we'll now open the call for questions. As Jordan mentioned, Richard Jackson and Ken Dillon are here with us today for the Q&A session.

[Operator Instructions] The first question comes from Arun Jayaram with JPMorgan.

Sunil, I wanted to just follow up on the cash tax rate or your expectations of tailwinds from the One Big Beautiful Bill. You mentioned $700 million to $800 million of tailwinds. I think you said 35% in '25 and the balance in '26. Is that correct? And maybe help us think about what that would translate into a cash tax rate perhaps in '26?

Arun, firstly, that is correct. 35% of the $700 million to $800 million benefit will be '25 and the balance is going to be in 2026. So the way to look at it is the adjusted income effective tax rate will not be impacted by the cash tax benefit but what you're going to see is an increased deferred tax expense primarily driven by the acceleration of depreciation and R&D expenses for cash tax purpose. So you can go based on the guidance in terms of the book tax rate but what you're going to see the difference is on the deferred tax expense increasing due to this benefit.

The next question comes from Doug Leggate with Wolfe Research.

Vicki, it's a long time since we heard much about Mukhaizna. I seem to remember when Ray had that contract signed, gosh, about 20 years ago now. The press has you spending committing $30 billion over through 2050. And I recall that there are significant cost recovery benefits from stepping back up the spending. So I just wonder if you can walk us through what the free cash implications are? We obviously saw the initial step up in production in Q2.

Yes. I'd say, Doug, that was an incredible agreement that we made with Oman because the benefits both Oxy and Oman and allows us the flexibility and possibility to invest over there because now the economics will be comparable. .

And Ken, did you have anything to...

Doug, it's Ken. I can't really comment on specific numbers around the contract. But if you think of that number being both capital and expense perhaps, and then you look at our equity in the book, which is less than 50%. And you start looking at that capital between now and 2050, you get into the sort of numbers you would expect for us.

The other thing I would say as you look back to the days that you mentioned since then, we've produced 640 million barrels to date. And originally, it was very focused on the steam fronts with all the work we've done there, what we see is multiple stack pays across a very large block. And in the North, we've been producing the [indiscernible] wells for some time now, which are totally different and don't need any steam.

So we see the extension is a win-win for Oxy and the government and sustainable. And as Sunil said on the last call, you'll see the numbers roll through the books over time.

And you'll know, Doug, that we much prefer those areas that have stacked pay and gives you multiple options and lower cost on infrastructure ultimately.

Will be limited to one? Or can I have a follow-up?

You can have a follow-up.

Okay. So my follow-up, Vicki, is the $1 billion of noncore asset sales kind of came out of nowhere, especially the sale to enterprise. So I wonder if you could take a kind of 5-year forward look or however long you would like to put on it and say, well, we actually have another x billion dollars of noncore asset sales that can augment the free cash flow in terms of deleveraging, what would the scale of that noncore asset bucket look like for potential sales over that period of time?

Well, another thing that we have is we have scattered acreage that goes all the way from here through the Rockies and into even the Virginias. So we have a lot of acreage because of the acquisitions that have been made over time to create what we have today. A lot of that has not a lot of value, but needs to be cleaned up, accumulated and sold. And so at some point, we'll sell that. Those would not be big dollars. So -- and so currently, I think the team is working on rounding that up and getting that ready for sale.

And I apologize, I have Arun Jayaram, for his follow-up.

His line is disconnected. We'll go to the next person, Betty Jiang with Barclays.

Vicki, just given your comment about OBB's benefit on 45Q and the carbon business, I was wondering if that changes your strategic focus around the carbon business towards potentially more point source opportunities for EOR purposes? Just given that you are -- the utilization parity you mentioned?

Yes. We've always been interested in point source capture. In fact, we -- that's what kicked off our desire to get and to make the technology of direct air capture better because since 2008, from about 2008 to about -- until we found director capture, we were trying to get point-source capture. But back then, the carbon credits for that kind of capture were so low that we couldn't convince any industry to do it. And so now with the parity for CO2 enhanced oil recovery, we've never given up on that effort. So we've continued that. And so we'll continue looking for point source.

And there's quite a bit of emissions that are within pipelines that could be gotten -- that could get the CO2 to the Permian. So we'll still be working that. And now what I'm hoping this will do is it will make the industrial sources of CO2 more willing to work out an arrangement with us.

Miss Betty, just one quick one, this is Richard, to add. I would say one sort of tailwind that's helping us natural gas to power generation, especially in places like the Permian. And so for us, we see that link not only for the power supply, but from a CO2 source as well as we're able to incorporate carbon capture into some of those installations.

Got it. That makes sense. It's very impactful for the [indiscernible] business for sure. My follow-up actually back to cash taxes. What will be the cash tax saving potential beyond 2027? Do you go back to where it was before? Or you continue to expect savings?

Beyond '26, it will depend on the capital trajectory and on the proportion of domestic spending. So today, if you look at our capital, around 90% of it is domestic and we don't expect any significant change in that mix. And the reason we highlighted the '26 estimate is because we have the battleground expansion project that is expected to come online next year. And so we're expecting more 100% bonus depreciation qualifying assets in '26 compared to '25.

Once again, we'll try again Arun with JPMorgan. Please go ahead with your follow-up questions, sir.

Yes. Apologies about that. I forgot how to use a phone. A quick question on the Gulf of America. I wanted to get your thoughts on how you think about the production capacity in the Gulf of Mexico trending over a multiyear basis as you implement some of your Gulf of America 2.0 projects and I think this year also was impacted by a higher degree of turnarounds and maintenance.

Yes. I think looking forward, the first layer that builds in is the water floods, which we've talked about briefly before. Having those projects online will reduce the average decline rate for our fields and lead to flat, low-cost, steady barrels. We have a large number of projects lined up for most of our facilities. If you look in the East, some of the modifications we made recently, offshore increases the capacity from our Eastern facilities. I think in the central [indiscernible], as Vicki mentioned that the start of this, we're seeing wells that are coming in with very large EURs. One of them could potentially end up as one of the best Gulf wells we have ever drilled.

So I think the combination of the subsurface engineering that's being carried out along with the geo signs, I think layered on to what we've done over the last 3 years in terms of getting equipment reliability and availability means that we're positioned incredibly well going forward for the production ramp-up.

The next question comes from Nitin Kumar with Mizuho.

I want to start off on the pretty impressive cost savings you highlighted both in the Delaware and the Midland. CapEx for the year was only down about $100 million. So I know you won't give me a budget for next year, but as I think about rolling those savings, could you talk about how Lower 48 spending might trend in 2026, given the efficiencies you're seeing?

Yes. I would say that you're right that we -- next year, we will have a reduction in our OxyChem spend by about $300 million, reduction in LCV by $250 million. That, along with the efficiencies that the onshore team is building and achieving that could create some opportunities for higher capital. You want to comment some on that, Richard?

Sure. No, I appreciate the opportunity. The team has done an outstanding job across capital and operating expense. But speaking to the capital, again, like you said, we've -- another incremental $100 million down this quarter. This is on top of the $100 million in the first quarter. So $200 million below our original plan. For us, we do see opportunities going forward to not only sustain that but continue to improve it. We are having good success really when drilling efficiency, whether that's nonproductive time reduction or larger pads, we're moving to from sort of 2 to 3 well pads in the first half of the year to 4 to 6. Our completion frac teams continue to deliver efficiency results. So as we couple that together, we expect continue to see that.

As we think about 2026, though, I think we're at a point we're really working to optimize activity levels for efficiency. And so while we're not targeting growth and that -- it's really the outcome of what do we need to do to maintain these efficiencies. And so I think today, we're largely near optimized activity level. And so we'll watch it over the next several months to see if things -- efficiencies may move activity continue to the left. On our schedule, we'll anticipate that to make sure we have the right bridge into that 2026 activity.

And I'd say the other place that we could shift some capital would be to the lower decline, low F&D, high-margin, waterflood projects that Ken is [indiscernible] up for the Gulf of America. Those are very [indiscernible].

That's a perfect segue to my next question. So I appreciate you teeing me up, but I just want to follow up on Arun's question. As you put behind the Horn Mountain pipeline issues that have dogged Gulf of America this year, what would be a good, steady sort of run rate for the Gulf of America, let's say, in '26 and '27 from a production standpoint? And could you help us bridge the gap from where we are today between new developments, these water floods, et cetera, basic lines and also a return or sort of curtailed constrained production right now?

Thanks for the question. I think if we maybe do in reverse order, operationally, we experienced a mix of things, including pipeline constraints. But as Vicki highlighted, we've also seen incredibly positive results in our wells this year. We modified our pumps in Eastern [indiscernible] to handle the constraints. This work was done successfully in Q2, did really great work by our teams, both onshore and offshore.

Going forward this year, we were hurt by the late arrival of a stimulation vessel, which have been doing work for another operator. But these elements have all been built into our ramp-up plan, and we expect a very strong exit rate as you can see from the numbers.

In terms of next year's guidance, with the Gulf, it's all about optimization and planning. Over the last few years, as you know, we've really improved the availability and plant uptime. The next phase of our OpEx optimization is to move to turnarounds every 2 years. And that multiyear schedule is being poured at the moment, including mapping resources internally, externally and tied to vendors that can service us through the long term. So we're considering starting that next year. So more information to come on the 26th [indiscernible] later this year.

The next question comes from Neil Mehta with Goldman Sachs.

Yes. Looking at Slide 34, you talk about advanced subsurface characterization and technological improvements. And I think a lot of investors are just wondering what inning are we in terms of digital application in the oil fields and how are you employing it? And do you think it's going to fundamentally change the industry and our ability to drive volumes?

We are so excited about what we've been able to do internally with an Oxy to start building our AI capabilities. And I think we've talked on this on the calls previously about our AI effort in the Gulf of America. That subsurface is so incredibly complex that we do believe that we can make a big difference with the project that we're working right now. And we expect that maybe by the end of this year, we'll be prepared to start having the team look at actually executing some things in the year to 2 years following.

So Gulf of Mexico or Gulf of America, that's going to be an area that where AI is really going to be applicable. It's already helping us with the subsurface in the Permian and in the other onshore areas in the U.S. It's also helping with not just the subsurface, it's helping with operational efficiencies. So we have really put a big effort into making sure that we have actually focused teams.

These are teams that are focused on specific areas. One, is right now working operations. The other is working in the Gulf of America. Then we have a group that's working with the broader challenges of logistics and supply chain and things like that. So we put a big effort forth on it, and I do believe it's going to deliver significant results.

Vicki, maybe tie that into your perspective on U.S. oil production and how you see that evolving as we apply these technologies, we've got to contrast that with maturity in a number of these key basins and limited exploration success on the oil side at least. And so just how do you see the U.S. production profile evolving over the next 5 years?

Well, we've been talking about this a lot. We believe that the U.S. would -- could hit peak production between 2027 and 2030. And we've modeled that based on [indiscernible] curves and the current data that we have. We've taken the model down to look at conventional separate from unconventional and also to look at EOR. So we believe that right now, there's going to be significant potential and maybe the extension of our U.S. energy independence by about 10 years with the development of 50 million to 70 million barrels of oil developed by and through CO2 EOR.

So it's, to us, incredibly important because energy independence for the United States really impacts our ability to keep maintaining our leverage in the world. So we believe this is critically important. And for us, it's always been a strategy to use CO2 for enhanced oil recovery. We're a company that's always been known for getting the most barrels out of any reservoir that we work. And CO2 is in our experience, over the 50 years that we've been doing it, it's been able to get more than any other technique that we've tried beyond primary production and water floating.

So we do believe that out of the estimated 1.5 trillion barrels of oil that the United States has in terms of total resource in the ground. Currently, only 22% will be recovered unless we can apply CO2 EOR. And CO2 EOR will get us double-digit increases from that amount, we believe. And again, the 50 billion to 70 billion barrels. We're working on that. That's our strategy. We're working the technology to get the CO2 because the other challenge is that there's not enough naturally occurring CO2 in the United States to support the development of that kind of volume.

The next question comes from Paul Cheng with Scotiabank.

Vicki, on Oman, the term sounds fantastic, and you guys know what to do, and there's a lot of opportunity. Is the activity level, why now it's being constrained by your capital or is there any other thing that's constraining the activity level so that you can't do or go a bit faster?

Well, what's happened with this contract is certainly going to make that project a lot more competitive. So there's no restrictions with respect to what we can consider there, but the main restriction for us in terms of capital and for the industry itself is right now, we have an oversupplied market. And so there's, in our view, no reason for companies to get too aggressive with the growth right now. You're just making the problem worse if we do that. And for us, we are absolutely determined to get our debt down sooner rather than later. So we are now running at a level where our activity level is designed to ensure that we can maintain our production and that we generate the projects at the pace that we need to. So we're not looking for growth.

As Richard had said, we're looking for the activities that can help us continue to optimize, reduce our costs and lower our cost structure. And I can tell you that our -- every one of our asset teams, including midstream and chemicals works every day to find ways to lower our cost because we believe at the end of the day, it's going to be the lower-cost company that really is profitable through all the cycles and the one that has the sustainability over time. With the portfolio we have, we have the chance to do that. And we're doing it now. We'll continue doing it. But the next step is to get our debt costs down to the point where the CO2 cost enables us to generate maximum returns from those CO2 floods.

And with respect to Oman in particular, it's ultimately going to be a place where there will be incremental capital. We'll just have to figure out when that's going to be.

What do you think, Ken?

Yes. Just one thing to build on what Vicki said, in the same way that U.S. onshore is improving both in terms of capital efficiency and operational efficiency. In Block 53, our drilling rigs are now running at their lowest cost per foot and their highest feet per day rates ever. And OpEx efficiency or artificial lift equipment is running at its highest reliability ever, and our workover rigs are performing at their best level ever. All done with the best safety performance with great help from our teams in the center also using AI.

So we're doing more -- just doing it much smarter. And it's a combination of the engineering related activities, but it's also through supply chain also. We're working on supply chain around the world, and we're seeing the effects roll through onshore, effects rolling through offshore and rolling through in our assets around the world, and we see more opportunities to come. [indiscernible]

Can I just continue on this subject because let's assume, say, several years down the road, you guys already restored your balance sheet and that that's a [indiscernible] on oil. And so the oil is needed. At that point, I'm trying to understand that how big is the scale of the Oman business can get to? And what is the constraining factor at that moment?

The constraint for us would be our value proposition because it's not just about growth for us. Our value proposition is that we want to deliver a growing dividend, but at a moderate pace. We want to, in the near term, lower our debt. But over time, we want to add share repurchases to our program in addition to investing appropriately in our organic assets. So we will, over time, need to increase our production, but it would be at the appropriate time. And when there's -- when that happens, we'll allocate capital based on not just what the returns are, but how it fits within our long-term plan because as we've said, our portfolio is diverse, we have the high return shale, but high decline. We have the low-return assets like Oman and where Oman comes in is providing us those lower decline and lower capital cost projects.

Just maybe I could add something to that. If you look at the portfolio in Oman, what we have is a number of blocks where we already have partners. If you look at the south, it's predominantly heavy oil, but with some lighter oil. In the Northwest, it's light oil. And then in the East, it's gas, and we mentioned our [indiscernible] discovery recently. Some of these blocks, we do not have partners. So we have opportunities to use partnerships as a way of funding projects also to accelerate things, but without digging into our own capital going forward. So we have a huge range of options with very low option cost at the moment as we work through things.

The next question comes from Kevin MacCurdy with Pickering Energy Partners.

I wanted to ask on the trajectory of OxyChem income. Do you view the PVC oversupply and price decrease is temporary? And how is that factored into your outlook for a big free cash flow uplift in [indiscernible] next year? And just one for me.

So in terms of the '26 market, it's going to a large extent, depending on the timing of the supply-demand balance. And so currently, the global supply demand for PVC and caustic is being burdened by additional Chinese capacity, which, again, is burdening the export prices and ultimately burning the domestic prices. So if you look at the Chinese exports on the PVC side, it's growth from almost nothing in 2020 to almost 30% currently. And the same with caustic. It's been increasing and it's still growing.

So some of the announced capacity rationalization in Europe and U.S. will potentially mitigate some of those capacity additions, but we don't see a meaningful impact of that in 2026.

Also, we believe that the integrated margins between PVC and caustic are close to variable cost of many international producers, including China. So we don't anticipate further sustained declines in margins but as far as 2016 goes, we believe it is more likely to be what we saw in 2025.

The next question comes from Matt Portillo with TPH.

Just a question on the Permian. I'm curious, as you guys think about the production in the basin. We've seen a little bit of a downtick in the oil cut and a rise in your gas and NGL recoveries. I was curious if that is a function of the secondary zones being developed or if you're having just better recoveries overall in the gas and NGL side? And then as you look into the back half of this year, especially given the high [indiscernible] in Q2, do you expect that oil cut to stabilize or even improve a bit into the second half of 2025?

Yes. Great. Perfect question. Let me walk through a few pieces of that. I would say overall, U.S. onshore -- so if you're looking at Permian plus Rockies, as we think about not only '25 versus '24 but also second half versus first half, we expect that to go up a bit. With respect to the Permian, we do expect an increase in the second half of the year from where we have been in the first half. And you got it exactly right. We have much more secondary benches as a part of our portfolio.

The good news is, I think you know as part of our strategy, it's really reusing the infrastructure and so being able to refill existing production processing equipment can deliver exceptional returns. And so that is a big part of it. Really, the oil cut is an outcome of that well mix. It's drilling completion efficiencies as we move production to the left that can change some of our outlooks. And so those are really the variables that change it. But as you say, we do expect it to stabilize and actually increase in the second half of the year.

Great. And then as a follow-up in the Permian, there's been a lot of industry discussion around water handling and disposal in the basin as you're a very large player. I'm just curious how you guys are looking at that business? Any constraints that might be on the horizon? And any opportunities that you may see to further reduce your cost on the waterfront, especially as you develop these secondary zones, which I think, in some cases, tend to carry a higher water cut?

Right. No, great question. A couple of aspects to that. I [indiscernible] start with where you sit on the secondary benches. I would say one key thing that I think we've done really well, and this is with respect to our well performance, which has continued to outpace really the industry is thinking about well placement to optimize the oil, not the water. And so I think we've had great success just from that standpoint, starting in the subsurface.

As you think about -- as it comes to surface, obviously, having the partnerships, having the long sort of connection with Western Midstream and others thinking about that takeaway, we've tried to be proactive for the last several years looking at that.

And then the final thing I would note is just the technology. I think we continue to highlight our technology advancements and recycling and others, and we do think that's going to be a meaningful part of this solution going forward. And so Midland Basin has been a big thing we've highlighted, but we actually did quite a bit in the Delaware Basin as well. It's another synergy that CrownRock brought into our portfolio as well.

So you're exactly right. It's a very important thing to watch. I think we're well positioned to maintain our cost structure and really be smart about that water as we go into the future.

The next question comes from Mark -- Scott Gruber with Citigroup.

Yes. I want to dig into the EOR opportunity a bit more. You have a lot of EOR experience in conventional oil, but shale EOR in the, call it, a valuation phase for a number of years. Is shale EOR economically viable now at current crude prices and with the 45Q enhancement? Is it really just a CO2 availability constraint that needs to be addressed? And if it is economically viable, just some thoughts on potential timing of a commercial shale EOR project?

For us, it's really more about the availability of the CO2 [indiscernible] is so important for us. And that's why going and looking at point source capture to get it to the Permian is important, and we're doing that work and trying to get prepared for it. But we have right now the conventional CO2 floods are taking as much -- almost as much CO2 as we can get right now reasonably for the life of the floods. So it's going to take a little while for us to make the shale CO2 happen. But it is going to be economical and our teams are getting prepared for a project in the Delaware Basin. And so we'll be putting that on within the next probably year to 2 years.

So we do -- we have modeled it enough. We've done 4 pilots. We've done the modeling, the pilots were better than the model. So we've recalibrated. So we know that it will work. It's just a matter of getting the incremental CO2. And in Oman, we've also tested the -- some reservoirs in North Oman and CO2 enhanced oil recovery did well there too. So that's going to be another place where we'll apply hopefully, DAC and/or net power. Net power, as you know, it not only generates electricity to run the equipment, but it creates CO2 as a sidestream -- pure CO2 that can be used in EOR. So we'd like to apply that in Oman as well as in the Permian.

It's interesting. It's good to hear. And then turning to a second potential DAC facility in South Texas, does the potential JV and contribution from [indiscernible] tilt towards thinking that project, if you can work through the details or would you look to forward sell a certain percentage of the volumes? Just some thoughts on the factors that could impact your decision to sanction a second facility?

Well, we intend to go with the second facility. We have a DOE grant for that as well. So that's going to be helpful. But we do intend to FID. The timing is not set yet, but we will FID it. We're going to take advantage of some of the innovations that's being developed right now on carbon engineering to make sure that we get that in the second facility, just like we're getting in Phase 2 of the current facility. But we will FID.

We've got a lot of interest in others that want to be a part of that and a lot of interest in the sales. And we presold the credits for STRATOS and so we'll presell for that one, too, but probably not signed contracts until we've done the FID.

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

I just want to thank you all for joining our call and for your questions, and have a great day. Bye.

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