Occidental Petroleum Corporation (OXY) Earnings Call Transcript & Summary

Good morning and welcome to the virtual webcast of the 2020 Annual Meeting of Shareholders of Occidental Petroleum Corporation. We do not expect any technical difficulties today. However, in the event we lose audio or webcast connection, please wait 10 minutes for a resolution. I would now like to introduce Occidental's Vice President, Deputy General Counsel and Corporate Secretary, Nicole Clark, to begin the meeting. Please go ahead, ma'am.

Good morning, everyone, and thank you for joining Occidental's 2020 Annual Meeting. During the webcast today, we may make certain projections or other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. Please refer to Occidental's 2019 annual report on Form 10-K and first quarter 2020 Form 10-Q, each filed with the Securities and Exchange Commission, for detailed discussions of the risks and uncertainties that could cause such differences to our subsequent SEC filings for updates. With that, I'll turn the call over to Occidental's President and Chief Executive Officer, Vicki Hollub, to share a few opening remarks before we call the business meeting to order.

Thank you, Nicole, and good morning, everyone. I'd like to thank all of you for joining us today. Health and safety are of paramount importance at Occidental, and in light of the risk posed by the pandemic to our shareholders and employees, we decided to hold a virtual annual meeting this year. We hope that you'll find this format to be efficient, and we appreciate the opportunity to reach out and engage a larger number of our shareholders. As I mentioned on our last earnings call, we've taken a series of decisive financial and operational actions to ensure that Oxy has the resiliency to weather this difficult period while positioning the company to succeed in future higher price environments. We have continuously delivered best-in-class operational results while further cementing our position as a low-cost operator. We have fully captured the $1.1 billion of overhead and operating expense synergies promised at the time of the acquisition, and we are further improving our 2020 cost base with an additional $1.2 billion of overhead and operating expense reductions that we expect to fully realize this year. We also reduced our full year capital budget to a range of $2.4 billion to $2.6 billion. The progress our teams have made in reducing activity in collaboration with our partners and service providers while minimizing adverse impacts has been remarkable. Despite our reduction in spending and activity, our long-term core differentiators remain intact. Our leadership as a low-cost operator, our track record of operational excellence and our portfolio of world-class assets are competitive advantages that position us to succeed as market conditions improve. These attributes, combined with our low carbon strategy, are expected to drive our success and sustainability long into the future. As Oxy adapts to the challenging and continuously evolving market backdrop, our thoughts remain, first and foremost, with those who have been impacted by COVID-19, and we hope that this tragic situation passes quickly. We've been encouraged by recent green shoots of recovery, but know that we must continue to demonstrate low-cost leadership while ensuring the safety of our employees. I'll now turn it over to Steve Chazen, Chairman of the Board, to call the meeting to order.

Thank you, Vicki, and good morning to everyone. On behalf of the Board, I'm pleased to welcome you to our 2020 Annual Meeting of Shareholders. The meeting is officially called to order. At this time, I'd like to introduce the other director nominees who are on the call with us today, in addition to Vicki, Andrew Gould, Nick Graziano, Carlos Gutierrez, Bill Klesse, Andrew Langham, Jack Moore, Peggy Paláu-Hernández, Dick Poladian and Bob Shearer. Our independent auditor, KPMG, is represented today by partners Jeanne Abundis, Jeff Andrews and Jeff Urban. Also joining us is Natalie Hairston from American Election Services, who will serve as the Inspector of Election for today's election. Before we turn to the formal business of the meeting, I'd like to take a minute to recognize and thank our retiring directors, Spencer Abraham, Gene Batchelder, Peggy Foran and Elisse Walter. Each of them has brought a unique perspective and skill set to the boardroom. On behalf of our Board, the management, the employees and shareholders, we thank you for your years of dedicated service to Occidental. The Secretary of the meeting, Ms. Clark, will now provide brief remarks on certain procedural matters related to today's meeting and review the matters to be voted on.

Thank you, Steve. The format of today's meeting is outlined on the agenda, which is shown at the top right corner of the meeting portal, and the rules of conduct and procedures are posted at the bottom right corner of the meeting portal. These procedures are designed to ensure we have a fair and orderly meeting. Please note that this meeting is being recorded. However, no one attending via the webcast or by telephone is permitted to use any audio recording device. The polls were opened at 9:00 a.m. Central Time. If you are a shareholder and you have not already voted or you wish to change your vote, you should have logged into the meeting using your control number, which will allow you to vote online during the meeting. Your control number may be found on your proxy card, voting instruction form or electronic notice to vote. You may vote by clicking on the Vote Here button at the bottom right corner of the meeting portal. If you have already submitted your proxy card or voted by Internet or telephone, your shares have been voted accordingly. You do not need to vote today unless you are voting for the first time or you wish to change your vote. [Operator Instructions] Questions previously submitted to the company via the proxyvote.com website will be addressed at the end of the meeting. The Board of Directors fixed April 3, 2020, as the record date for the determination of shareholders entitled to receive notice of and to vote at this meeting. We began delivering the notice of Internet availability of the proxy materials, the proxy statement and our annual report on Form 10-K to holders of record as of April 3 on or about April 17. We have received an affidavit of mailing establishing that notice of this meeting was duly given. A copy of the materials described above and the affidavit of mailing will be incorporated into the minutes of this meeting. The oath of office of Natalie Hairston, our independent third-party Inspector of Election, will also be included in the minutes. The proxy statement and a supplement thereto filed on April 28, 2020, the annual report on Form 10-K and a list of shareholders entitled to vote at this meeting are available to shareholders electronically during the meeting. We have a preliminary report from the Inspector of Election, and there are shareholders representing more than 85% of the outstanding shares of common stock of Occidental entitled to vote at this meeting present in person or by proxy. I therefore declare that a quorum is present, and this meeting is duly convened for the purpose of transacting such business as may properly come before the meeting. Under the company's bylaws, the only matters properly before our shareholders today are those set forth in the notice of annual meeting and proxy statement. The bylaws also provide the procedures the shareholder must follow to nominate directors. The period in which shareholders can nominate directors at this meeting has passed. I will now review the matters to be voted on at today's meeting. The first proposal is the election of 11 directors to serve for a 1-year term ending at the 2021 annual meeting but in any event until his or her respective successor is elected and qualified, unless ended earlier due to his or her death, resignation, disqualification or removal from office. The Board has nominated the following persons to serve as directors of the company: Steve Chazen, Andrew Gould, Nick Graziano, Carlos Gutierrez, Vicki Hollub, Bill Klesse, Andrew Langham, Jack Moore, Maggie Paláu-Hernández, Dick Poladian and Bob Shearer. The biography of each director nominee is included in the proxy statement. The second proposal is the advisory vote to approve named executive officer compensation as described in the proxy statement. The third proposal is the ratification of the selection of KPMG as Occidental's independent auditor for the fiscal year ending December 31, 2020. The fourth proposal is the proposal to approve Occidental's amended and restated 2015 long-term incentive plan. The fifth proposal is the proposal to approve the issuance of common stock underlying the Berkshire Hathaway warrant. The sixth proposal is the proposal to approve an increase in authorized shares of common stock. The seventh proposal is the proposal to approve the adoption of an amendment to Occidental's Charter to enhance shareholders' ability to act by written consent. The eighth proposal is the proposal to approve the adoption of an amendment to Occidental's Charter to lower the ownership threshold for shareholders to call special meetings and make other clarifying amendments. The ninth proposal is the proposal to approve the Rights Agreement.

Thanks, Nicole. For the reasons discussed in the proxy statement, the Board recommends a vote for each of the director nominees and for each of the proposals. We will pause for a moment to review the question bank for questions relating to the foregoing proposals.

[ Genere ], have we received any questions relating to the proposals?

Yes. The first question is, how many shares of common stock will be issued between the Berkshire Hathaway warrant and the general increase in common stock?

Thanks, [ Genere ]. This question relates to proposal 5 and proposal 6. In connection with the financing of the Anadarko acquisition, the company issued preferred stock and a warrant to Berkshire Hathaway to acquire 80 million shares of the company's common stock at an exercise price of $62.50 per share. To comply with NYSE rules and the terms of the purchase agreement, the exercise for the warrant -- the exercise of the warrant for shares of common stock is subject to shareholders' approval of the issuance of such shares. Proposal 5 is seeking this approval so that if and when the warrant is exercised, the company has the authorization to issue the 80 million shares. Separately, on proposal 6, we are seeking approval to amend the company's Charter to increase the number of authorized shares of common stock by 400 million shares to 1.5 billion shares of common stock. This does not mean that all of these shares will be issued right away or at all. The additional shares of common stock may be used for such corporate purposes as may be determined by the Board from time to time, which may include the issuance of common stock to Berkshire Hathaway upon its exercise of the warrant. The authorization of such additional shares of common stock would not have any immediate dilutive effect on the proportionate voting power or other rights of existing shareholders. Further details regarding proposals 5 and 6 and are set forth in the proxy statement.

Nicole, we have one more question relating to the proposals. It is, who are the Icahn director nominee?

Thank you, [ Genere ]. On March 25, the company entered into a director appointment and nomination agreement with the Icahn Group, pursuant to which, Nick Graziano and Andrew Langham were appointed to the Board as designees of the Icahn Group. And Maggie Paláu-Hernández joined the Board as a new independent director, each effective immediately. The biographies of each of these director nominees is included in the proxy statement. The director nomination and appointment agreement is filed with the SEC as exhibit 10.1 to the company's current report on Form 8-K filed on March 25, 2020. [ Genere ], do we have any additional questions regarding the proposals?

No, we do not.

Thanks, [ Genere ]. That concludes the question-and-answer session regarding the proposals.

Thank you, Nicole. I now declare the polls closed. Ms. Clark will provide a preliminary report on the voting results.

Thanks, Steve. The Inspector of Election reports on a preliminary basis that shareholders have approved to the election of each of the 11 director nominees named in proposal 1, and shareholders have approved each of the proposals 2 through 9. The final voting results will become part of the record of the meeting and will be reported in a Form 8-K to be filed in connection with the matters voted upon at this meeting.

Thank you, Nicole. Since there is no further formal business, the official business portion of the meeting is now adjourned. With that, I'll turn the call over to Vicki.

Thank you, Steve. I'll now address shareholder questions that relate to matters other than the proposals. [ Genere ], do we have any questions?

Yes, we do. The first question is, can you please provide an update regarding the Algeria and Ghana operations?

Yes. In April, following several meetings with our partners in Algeria, we decided to continue operating in the country, and we decided that the sale of the Algeria assets to Total should not proceed. Occidental's original agreement with Total provided that the purchase of the Ghana assets by Total was optional if the sale of the Algeria assets did not close. Total opted not to proceed with the purchase of the Ghana assets in the current environment. On May 15 of this year, Total and Occidental executed a waiver of Occidental's obligation to sell and Total's obligation to purchase the Ghana assets. We do intend to market the Ghana assets to other parties.

The next question is, does the company plan to continue to pay the preferred dividend and common stock?

The Board plans to assess market conditions and Occidental's financial position on a quarterly basis to determine whether the dividend on the preferred stock will be paid in shares of common stock in cash or a combination thereof or interest will be accrued. In order to boost our liquidity position, the Board decided to pay the April 15 dividend and shares of preferred stock in lieu of cash.

We received several questions regarding Occidental's resiliency at current commodity prices and Occidental's outlook. Can you speak to that?

Yes. The current oil and gas price environment is challenging. Our Board and management team acted quickly to prepare for the prolonged low prices in order to best position Oxy to weather this difficult macro environment. Since mid-March, we've announced an additional $600 million of overhead and $600 million of operating expense reductions, resulting in $1.2 billion of total reductions for 2020. These reductions are in addition to the $1.1 billion of transaction-related overhead and operating synergies that we've already captured. So this yields total savings of $2.3 billion that will be fully realized this year. Our capital reductions are expected to result in a full year capital budget of $2.4 billion to $2.6 billion, representing a more than 50% decrease from our original budget. These significant cost structure enhancements, in addition to reducing the dividend burden, have materially lowered the commodity price at which the company can generate free cash flow. We're continuing to pursue noncore asset divestitures and expect to raise over $2 billion in the near term. Our divestment activities and cost-saving measures are intended to leave our core differentiators intact so that we remain positioned to succeed as prices increase.

The next question is, why did Occidental decide to bring Steve Chazen back?

We, the Board, felt that Steve's proven leadership and deep understanding of the company and our operations was critically important for us at this time. He has invaluable knowledge regarding the oil and gas industry and experience successfully navigating past industry downturns. His financial expertise is already proving helpful as we work to strengthen our balance sheet and to review our capital structure and options available to manage our near-term debt maturities.

The next question is, what is the company's return of capital strategy going forward? How does the Board intend to return value to existing holders of common equity?

Well, we're focused on the immediate importance of maximizing liquidity and reducing debt in the current macro environment. Earlier, I touched on the ways in which the company is positioned for a prolonged low price environment. We expect that our efforts to strengthen our balance sheet through cash preservation and closing divestitures of noncore assets will improve shareholder returns.

Our last question is, how might the company use existing human capital and infrastructure to diversify into complementary profit centers?

Oxy's Low Carbon Ventures business is a great example of how Oxy is leveraging our deep enhanced oil recovery expertise and our vast CO2 infrastructure in the Permian to increase returns and provide a unique carbon reduction strategy. Our near-term focus will be to provide our Permian EOR business with cheaper CO2, but we believe there will be business opportunities beyond this as carbon markets continue to develop.

That's all.

Okay. With that, that concludes the question-and-answer session relating to nonproposal matters. So on behalf of the Board and senior management, thank you for your continued support and ownership of Occidental.

Ladies and gentlemen, this concludes the 2020 Annual Meeting of Shareholders of Occidental Petroleum Corporation. You may now disconnect.