Occidental Petroleum Corporation (OXY) Earnings Call Transcript & Summary

All right. Good morning. Thank you for joining us here today for day 3 of our Morgan Stanley Energy and Power Conference. Similar to the prior few days of session, this will be conducted both here in the room and virtually via webcast. If you are listening in on the webcast, I would ask you to please take a look at the research disclosures website, morganstanley.com/researchdisclosures. We'll take questions here toward the end of the session. I am very happy to have Rob Peterson here with us today, CFO of Occidental Petroleum. We're going to talk about some of the changes that we've seen happen across the U.S. E&P industry as we emerged post COVID and then how Oxy's value proposition fits into that.

I wanted to maybe kind of kick things off with a higher-level question if that works for you. And could you talk from your standpoint about some of the trends that you're seeing in terms of industry strategic shifts now as we move through this recovery versus prior cycles? What's different?

Yes. So first, it's great to be here in person. So definitely, while we're probably in the same demand point that we left off before COVID, things have changed dramatically in the supply side. And so -- and I think that really was a transformation the industry has gone through since COVID. With the price shock, that -- price actually going negative. Certainly, you had a fair -- the producers changed their perspective, became much more risk averse. You had a tidal wave of cash that came in the producers on the backside of slowing down production, which was largely used to deleverage balance sheets across the industry. Even pristine balance sheets became more pristine. And then as we backed out of that, you had a situation where the investment base enjoyed the return of cash to them as we're exiting and growing production back out of -- to meet demand on the backside of COVID. And that's really where the U.S. has changed quite a bit is that the investor base is dictating -- they like this new model. It's a deviation from the previous model, which was potently reinvesting all the cash back into the business to grow. Just splitting that between sustaining or moderate growth capital and the balance going back to investors. And so I think that's been a big change domestically. Internationally, you've seen the growth filled in to reach the current demand by international -- OPEC, OPEC Plus and non-OPEC countries. And we're in a stage now where there's very limited overhang of capacity. And so I think the difference today is that while the demand is still back to about 100 million like it was pre-COVID, the supply is very constrained from the standpoint of the U.S. producing moderate growth rates and internationally, having a very small overhanging capacity in Iran, the UAE and Saudi Arabia. So I think that's why you see prices doing what they're doing today.

Yes. No, it makes a lot of sense. I mean this shift away from growth towards free cash flow within E&P is definitely something that's attracted investors back into energy after many years of moving out. And I wanted to talk a little bit about how Oxy's positioned within that framework. Can you talk -- let's first just keep it at a high level, how you're thinking about capital allocation across your portfolio? What types of projects are attracting capital in this higher commodity price environment that we're in right now?

Yes. So we certainly have benefited greatly by the increased prices. It's allowed us to delever at a much faster rate than we anticipated. The portfolio we have today is better than anything we've had as a company in its history. The bulk of capital is going to flow into those Permian unconventional assets where we have a very deep inventory of high cash returning assets. Also, those are very short cycle assets that allow us to really throttle up and down with the macro. And so if we saw one thing with the other direction, we're able to pull back pretty quickly. But that's where you're going to see most investment, too. If you look at the sustaining capital we've outlined, 2/3 of was going into the Permian.

Great. And we've always been a fan of this balanced portfolio where you have short cycle optionality, in particular, very high return opportunities in the Permian, but also some longer-cycle opportunities elsewhere, Gulf of Mexico now, your Middle East assets as well. Within the conventional nonshale opportunities, what are you investing in there? What type of longer-term projects are making the cut in this environment?

Yes. So certainly, those were the projects that we backed off a bit during '20 and '21 when we were really focused on cash generation, but we are reinvesting this year more in our EOR assets, who knows back up into longer sustainable investment rates, which is a nice low decline. 5% investment -- decline rate for the business. We're also going back into Ghana in more sustainable levels. And this year, we're obviously investing in our Al Hosn expansion project which will come online the middle of next year, at about 10,000 barrels of production over there, which is essentially no decline assets. And so still focusing on those longer terms. And we've also embarked on a FEED study outside of the oil and gas business and our chemical business to look at some technology changes.

Great. Yes. I want to get into that in a moment. But before we do, let's stick with the upstream side of the business. Inflation has been topical in the industry, and we've seen a rise in inflationary pressure, particularly in shale. Can you talk about what you're seeing across your portfolio?

Yes. So certainly not immune to it. We were -- we resized the business during the downturn when obviously we were not going to be the same size a company that we were prior to the downturn. That's enabled us to fairly insulate from inflation, but we're not immune to the 100% run-up in steel costs, which have -- our [indiscernible] prices were up significantly because of that. And so we built in $250 million of initial inflation in this year's budget, with $50 million that being offset from additional efficiencies we think we can gain through technology just through a better design and just the efforts of our employees.

Got it. And can you elaborate a bit on the efficiency side? I think from our seat, I've been impressed at the level of efficiency gains that you all realized, particularly in your Permian business even prior to COVID, some of the efficiency trends that we saw that were very impressive. What are some of the incremental opportunities that you're focused on across the portfolio to drive gains to drive capital efficiency further?

Yes, I think -- so one example I would give you on that is we've gone to a lot more remote drilling and remote surveillance. A lot of things that we thought about doing, but frankly couldn't do because we were growing as an industry so quickly, the pause allowed us to step back and really implement some things that we weren't necessarily able to do because of the pace we were running at. And remote drilling and surveillance is something that we've added in, building our automation techniques, but being able to essentially drill and complete a well remotely from a different state, while drilling the Permian is pretty amazing for us.

Got it. Exciting stuff. And -- if we think about the international piece of the portfolio, are you seeing -- particularly from the inflation standpoint first, but what are you seeing there in terms of the inflation outside of the U.S.?

Yes. As you move out to the Permian, it drops significantly. So I would say the Permian was closer to 10% inflation, and I would put the Gulf of Mexico high single digits and then less than 5% to nothing in the international side of the business, the way we're seeing.

Got it. And then are there learnings that you can take from your shale assets in the U.S., you can apply to, let's say, Oman, which I think has some similar geologic characteristics?

Yes. So that's certainly an attractive part of the portfolio. It's why we're a preferred operator in those locations. It's bringing it to it. Algeria is another perfect example of that where we're taking over the assets there. There's a lot of opportunities to build on what we've learned in the Permian and those locations, yes.

Excellent. So maybe we can shift gear over to the chemicals business. So one of the differentiators in the Oxy portfolio is the fact that you have a big chemicals platform, a very profitable one. Last year, we saw very strong results in 2022. You're guiding to yet another year-over-year increase in earnings and profitability there. So let's just start by talking about some of the macro trends that are driving that.

Sure. So the chemical business has always been part of the portfolio. It's often been misunderstood why we would have a chemical business to begin with, but I think it certainly proved its worth over the downturn. It's a -- what I would call it, it's more of a base chemical business. We're making products -- other people make our products out of it. And so it's very core. It's a lot like the oil and gas business from being sort of a "sand and gravel-type business." But I would say that the big changes in the macro is that coming out of COVID, there was this pent-up demand in construction demand. And it really drove the vinyl side of our business and then the caustic soda business side of the business has improved dramatically as activities increased at manufacturing and again, coming out of that sort of downturn on COVID for demand and production. But I would also say that there's been consolidation in the industry. It's a very energy-intensive business, and that is something that's kind of kept a lid on expansion globally from the standpoint of people wanting to invest in it. A lot of people don't see as attractive as maybe the polyethylene-type plastics or polypropylenes because there's no caustic soda piece of the business. So we see the business being very attractive moving forward. And coming into this year, we have high margins in both business, whereas last year, we started the business really with good PVC margins. And so the combination of having margins on both sides of the business, allowing us to guide to a higher level this year. We do think it will top out at some point and maybe decline through the second half of the year as things stabilize, but it's still going to deliver a great year for us this year.

Great. And then how do you think about what you would need to see to allocate more capital to this business? And maybe talk about some of the potential margin improvement projects on recent earnings calls.

Yes. So we've indicated we're in the middle of a FEED study of what I would call a technology modernization on some of our Gulf Coast assets. So the plants have a, what's called a diaphram inside them and inside these cells that allow the separation of the chlorine and the caustic molecules. And so this membrane technologies and more modern technology, we have it in several of our facilities already, and it allows you to consume far less energy in the actual production of the products. It also results in a caustic stream that comes out of the plant. It's much closer to the merchant concentration. So there's less energy put in the caustic side of it. But as we do that, we have the ability to increase capacity significantly if we want to do so. And so it is an opportunity for us to grow the chemical business without changing what we're doing today. And so I think that's what we're revealing to the marketplace in the third quarter with FEED study on what we actually anticipate in terms of potential growth in the business.

Great. And how does the decision work on whether or not to add capacity? What would you be looking for in terms of offtakes or signs of market demands to give you comfort in boosting the output there?

Yes. So we wouldn't build capacity in anticipation of future demand. We would build capacity where we've been able to secure commercial agreements such that the plants open -- if we did reach capacity, it will be sold before we actually started the place up.

Got it. Makes a lot of sense. Now let's talk about another exciting piece of the portfolio, and I won't go into too much detail on the questions here, because I know you all have an upcoming low carbon ventures right here. But let's talk about low carbon a little bit. I think you've been ahead of the curve in identifying low carbon and carbon reduction opportunities versus the broader industry. And you have some characteristics in your portfolio, including the enhanced level recovery business that gives you some competitive advantages there. Can you just talk at a high level first about how you think about building resilience in this business for a lower carbon future?

Yes. So I think that Oxy is unique in its approach to this because of its EOR history. So we've been sequestering CO2 in the Permian for 50 years now. And so our actual investment into low carbon began actually with a cost reduction exercise over a decade ago of trying to drive down our CO2 cost, which is that energy are the 2 biggest costs we have for EOR. And so -- but eventually, as the social aspects change of fossil fuel production, we began to realize that there's an opportunity actually to both address an ESG piece of it and our costs. And so kind of the center point is our direct air capture investment. And the idea would be -- is to displace the roughly 1 million tons per day of CO2 that we're purchasing or own coming out of organic reservoirs directly with anthropogenic CO2 coming from the atmosphere. And our view is that this allows us to actually produce a carbon-neutral, carbon-negative barrel of oil when combining the direct air capture with our investment in NET Power, which is a zero emission -- essentially, it's like a gas turbine plant but instead of running steam through the turbine, we're running carbon dioxide through the turbine. And so it will be a gas-powered facility that will emit no -- have no emissions -- carbon emissions off of it. And so partnering that with -- we believe the NET Power with the DAC over time will give us a DAC that is powered with 0 carbon emitting power coupled with the ability to capture and sequester CO2. So we think that is a model that will work well for the future.

Got it. I'm very excited for the additional details here in a few weeks. There's other opportunities outside of DAC you all focused on too. I think you have an ethanol capture facility that commenced operations perhaps a year or 2 ago. So are you looking at conventional capture or kind of fixed site capture opportunities as well to point source emissions?

Yes. So we have been working on a potential ethanol capture in the West Texas. One of the downsides of ethanol production is it has significant CO2 emissions. And so we will be looking for point source capture and really, we think proliferating our ability of handling CO2, capturing CO2 that we do in the Permian today and leveraging that outside of the Permian. So opportunities to build DACs over sailing reservoirs and not have to transport the CO2 but also point source capture, and sequestering that in reservoirs, really not even just in the United States but around the world. And that's part of what we'll review on the LCV day, but it's much broader than the Permian and the DAC. Yes.

Good. Good. Another interesting point that I think you all have made in the past is some of the strategic benefits of having the chemicals business as it relates to the needs of the low carbon ventures business over time. Can you just talk at a high level about that? What you produce at chemicals or what attributes of the chemicals business fit within the low carbon opportunity longer term?

Yes. So there's actually quite a few synergies between the low carbon business and our chemical business. From a straight business standpoint, a lot of the DACs have a fair amount of it is built from PVC, from a structural standpoint and then the motive chemical that we're circulating in the DACs in order to do the capture is potassium hydroxide, which we're one of the largest producers in the world of. So there is synergies there. But beyond that, it is a lot of technologies we use in our chemical business today that are put together to make DAC work. That, coupled with the expertise our chemical business has on bringing new technologies to life is helping through. So we have a lot of chemical people working in the actual DAC project despite being an oil and gas project. And so that expertise of bringing technologies forward is helping a lot in the development of the DAC.

Got it. okay. I'm going to ask 1 more kind of tied to this topic, but also bridging to the next area, which is kind of capital return and the financing opportunities tied to these low-carbon ventures, growth projects. Are there areas where you can tap in the lower cost financing year as this LCV business scales over time? Green bonds or emissions reduction-linked credit facilities? What are you thinking about as the opportunity set there?

Yes. So I think -- so we tapped into emission reduction credit facilities for the first time as an E&P this year when we renewed our RCF facility. It has a KPI tied to our Scope 1, Scope 2 reductions between now and 2024. It sets forth the goal to reduce 3.7 million tons of those emissions. So that's a big part. So we're well aware of the opportunities to lower borrowing costs by associating KPIs. With the DAC-specific, I think the first DAC is going a lot about derisking and a lot about bringing forward the technology. But I do believe, as we move forward with project finance on subsequent DACs and accelerate the extra proliferation of DAC, there's opportunities for green bonds and project financing to really bring in opportunities for people to invest in what's essentially like an infrastructure-type project, but it has an ESG component to it.

Excellent. So let's shift away from LCV, save the rest for your upcoming event and then talk about cash returns. You recently announced the shareholder return framework. And as you mentioned before, one of the big themes across the industry over the past 12 to 18 months has been this free cash flow inflection coupled with rising shareholder returns. So how does Oxy fit into that? What is the strategy update you provided around shareholder returns in the earnings call?

Yes. So we were really excited to be able to start increasing shareholder returns on the most recent earnings call. During that sort of 18-month period where a lot of the cash return was being a big part of people's portfolio, we were not participating in that because we were deleveraging over that period of time. We feel like we've made significant progress of deleveraging. We paid off over of $16 billion of debt since the acquisition as of last quarter with -- so we've reached a point of net debt around $25 billion and began with the $0.13 increase to the dividend, so getting closer to an S&P-type return on the dividend. But we also announced a $3 billion share buyback in addition to the $5 billion of debt we're targeting to return this year -- I'm sorry, to retire this year. And for us, we evaluated -- the one good thing we had in terms of not being part of the share returns last year was we got to watch a lot of [indiscernible] doing, and see how things like special dividends and variable dividends are being received and what it did. And we've really felt like because our desire is to grow the dividend at whatever rate is sustainable to keep us in a kind of breakeven in that $40 basis, by retiring stock, we do both. We were able to, not only return value to shareholders, but we lower the threshold required to pay the dividend, which should allow us ultimately to accelerate the dividend growth faster than otherwise would be. So we're very excited to be at that part of our capital return framework.

Yes. It's exciting to see it's been great progress on the balance sheet improvement over the past few years, and it's good to finally be at this point. We also agree on the allocation for buybacks there. It's very nice, particularly with your valuation being very discounted on the strong free cash flow to be able to take down some of those shares and it facilitated this better per share growth on cash flow and EBITDA, even production per share growth and a better dividend longer term by taking out those shares today. So one of the questions we've gotten on the back of that announcement is just the timing for tapping into those buybacks. Can you talk about how you think about these, your excess cash in the near-term debt versus buybacks? And what the messaging is there?

Yes, sure. So we still prioritize debt. I mean you can look at our cash flow priorities that we update every quarter in our slide deck, still shows behind our sustaining capital of our assets, that's number two. And so it remains our primary focus. We -- obviously, the macro is very constructive right now from a price standpoint, but we also know how volatile it is. And so we didn't want to get in a position where we would be in a downward price adjustment and hadn't addressed the debt yet. So we feel like by being fully exposed, unhedged to the commodity prices, we're giving our shareholders the full exposure to that. And riding the bull wave, so to speak, but we're monitoring some of that risk by taking care of the debt first. And so I see us being maybe just not all the $5 billion to retire, but substantially complete or at least line of sight on getting there, before we begin the actual buyback of shares, which won't be a difficult lift for us. The stocks are very liquid. I mean it's not like it's going to be a challenge to come up with $3 billion of buybacks with the way the volume is, I think it was like 65 million shares yesterday so.

Yes. In quite a move over the past few days and just overall. And with oil now, I think, above $110 today, free cash flow is coming in quickly. So there's a lot of flexibility that you have financially. Can you talk about the path to investment grade? And the dialogue with the rating agencies and the time line that you're seeing for that?

Yes. So this rating agencies. We've been -- we obviously have a close relationship with all of them and maintain -- make them aware of what our plans are. Certainly, deleveraging is still very much on the forefront of the discussions. We were able to get to BB+ or with 1 notch was Fitch and S&P right now. Moody's has got us a positive outlook, but hopefully, they'll be -- move us up another notch soon. To get there, I think we've got to get our net debt down into the mid-teens to high teens potentially. So we still got some work to even after the $5 billion of debt. But again, with the macro being as constructive as it is, that may not take as long as maybe we anticipated. But certainly, it's something we're committed to. We think it's really important for us to get there not only just from being representative of an S&P-type dividend, investment-grade type company that we want to be. but also because of the financing we're in need for LCV, et cetera. I mean just a lot of more windows are open to us than it has been a high-yield company long term.

Got it. Makes sense. And then another potential use of this excess cash would be growth, either growth in the LCV, growth in the upstream business. What scenarios would you move back towards upstream growth? I think in your long-term plan, you've left room for 0% to 5%, depending on market conditions, where the balance sheet is. Under what conditions would you go to 5%? Or when does growth make sense?

Yes. So certainly, prospective changes like as the rest of industry. I mean, before the downturn, and we were forecasting roughly $6.5 billion of capital to grow at 5% every year. We're anticipating growing that 1 million barrel portfolio year in and year out, which is going to consume obviously a lot more capital. It's -- I think for '22, we've essentially said that growth is off the table and we're going to continue to delever and work on our shareholder return profile. I think the macro would have to be pretty clear for us that it was the right time to grow. But also we're still focused on the deleveraging side of the balance sheet. And so -- but we have a portfolio that's very deep. We just updated our inventory for shareholders last week. And before the acquisition, we had roughly 3,000 locations with a breakeven cost of less than $50. 3 years of production later. And with the acquisition, we still we have 6,000 locations at $50 or lower. So we're in a very good place when it comes to inventory. It's very deep. We don't need any additional inventory. And so if we want to grow, we definitely have the ability to do it. And the nice thing about it is with so many -- such inventory on our short-cycle assets, we can grow for short periods of time and then dial it back if we want to very easily.

Yes. Very nice flexibility from a capital allocation standpoint with the short-cycle portfolio. On the low carbon ventures side, you have some capital going toward that this year for the first DAC. How do you think about the right level of funding and investment for that piece of the business that's still emerging?

Yes. And I wouldn't say that's where we're at right now. We're in the emerging side of it. Frankly, a year ago, it wasn't an option for us to allocate capital at all to it. And so the shift this year has been really through the work that we've done, we believe that right now, the right for our shareholders is to finance some of that derisking ourselves, get it closer to fruition. And then ultimately, we may end up financing more of the first DAC than we would other DACs. But after that, once we've got something that's operating that is demonstrated technology, I think it's going to be pretty easy to go out and get other people to help finance that for us.

Yes, I'm sure. So let's pause there on my questions and just open it up to the audience here. If there's any questions from the room.

Thank you. I was just wondering if you could provide an update on some of the midstream assets, what Oxy is looking to do with those? Are you looking to divest those? I know that was discussed in the past. So any update on the midstream front?

Yes. So for what we have left in midstream, we don't have -- own our pipelines anymore, and we -- and the terminal is not ours. We have takeaway capacity on those. We -- those were great takeaway deals for us when the market was a lot more robust coming out of the Permian. And certainly now we find ourselves with takeaway costs that are above market. We were paying a little about $2.50 when the market say it's closer to $0.50 on takeaway. But those contracts start rolling off in 2025. We have a lot more takeaway capacity than we need today as it is just because of where the company is relative to the size we thought we're going to be. So all that's going to rightsize itself over the next couple of years. I don't see us investing significantly in those. Our relationship with WES, we've maintained our relationship with WES, and we've kept ownership just below 50%. And that, we think that's paid a lot of dividends for us in terms of us becoming more streamlined in our mixture and takeaway business but also helping WES become a better operator and connected to us as part of our business.

You referenced gaining efficiency in U.S. shale. The service industry's track record of being more efficient in a rising activity environment is bad. So how are you going to extract efficiency when each crew or each rig is worse than the last? Is it specific technologies? Are you going to pay up for the best people that you've already worked with? How do you think about that?

So we've tried to retain what we thought were key contractors on our rig teams. Certainly, there has been a purging of talent from the Permian through the course of the downturn. The people that left the business have truly left the Permian. And so there's a whole new group, a new generation, I guess, coming to the Permian. And certainly, a lack of experience doesn't bode well for efficiencies at time. But I think when we have experienced people from the standpoint of trying to distribute out the contracts we have that are really good rig crews, we feel good about what we've done on the retention of talent on that side. And then within the own Oxy side, we haven't had significant turnover in our drilling and completion groups. And so it's probably put more supervision pressure on our own employees to make sure things are going well. But I will say that, again, that slowdown we went through in 2021 really allowed us to refine our processes and go after things. I mean honestly, where we drove capital intensity in '21 was a place that we would have thought was fiction a year earlier. And so I think that, that's where challenging those things and constantly driving towards those, our employees are passionate about doing. Competing for the capital. Everybody wants the next rig to go to there, the properties that the production engineers are in charge of. So they're competing pretty heavily internally to get that bid on that side of it. So I feel like we've got -- I'm not going say there aren't going to be bumps in the road, simply because there has been so much turnover on the contractor side, but I think you've done is what we can to try and retain the key contractors competencies. We do put a lot of value in that. It is important -- the people are important on the service company side.

I'll weave in one that came in just via the webcast here. It's on M&A. And the question is, can you talk about how you're viewing M&A opportunities, either from the standpoint of additional divestitures? I know you've done a good job in exiting noncore assets over the last few years or whether kind of bolt-ons or acquisition opportunities could make sense to fill in your portfolio?

Yes. I'd say the large-scale divestiture program is complete. I think that the -- we will still be active in smaller M&A transactions. I think a good example of that is what took place over the last 2 quarters. So in the fourth quarter, we purchased some share of EOR assets that we already had operations in. And then in the first quarter, we divested off some Permian acreage that we had no -- that wasn't developed, and we had no plans in the near future of developing it. And the cash cost of those 2 is about equivalent. But the end result was we ended up with 5,000 barrels a day of more low decline EOR barrels, but also we had greater ownership and working interest in some of those properties that give us better opportunities for CCUS in the future. And so I think that's the kind of things you'll see. We will continue to keep doing that. We are pretty active in coring up, so small acreage trades I think that you're going to see more and more of that, depending on what happens in the Gulf of Mexico in terms of future leases. If there is no future leases, I think there'll be some trades amongst producers there in terms of leaseholds that make sense. But we feel good about our portfolio across all of our assets now.

Yes. That makes sense. You definitely do a very attractive depth across the portfolio. So these swaps and trades make a lot of sense strategically to core things up. Another question I wanted to ask is just on emissions reduction goals. Not specific to the LCV side of things, if you think about emission reduction across your legacy portfolio, you do have some forward-looking targets, including things like reducing flaring or eliminating routine flaring over time. Can you talk a little bit about the line of sight that you all have on that for the milestones and steps that we should be looking for in achieving those goals?

Yes, absolutely. So our goal is to reduce routine flaring and eliminate it by 2030. And also, we plan to have our Scope 1 and Scope 2 emissions addressed by 2040 with an aspiration of 2035 -- and so we're making real progress on those. And as I mentioned earlier, we've included reduction targets in our RCF. But there's a lot of opportunities. People talk about electrified in the Permian. In a lot of cases, a lot of the future emissions come from the valving that is done, where there's no electricity so you actually use the gas in the pipeline as the driving force. So we're replacing a lot of pneumatic devices. We've got $80 million of capital in the budget this year, largely related to that. Replacing devices, capturing emissions, and so we think we're on a great track and well ahead of our schedule to do that. But also, we're challenging the operations, how we operate on a regular basis. And so whereas maybe in prior practices, flaring would have been more acceptable to protect barrels during upset conditions -- even during upset conditions, we're trying to find ways to reduce the amount of flaring that goes on during those times, too.

Got it. Makes a lot of sense. You mentioned electrification. How broad is the opportunity there thinking about your Permian operations as an example?

It's pretty significant because the further away you get from the satellite hubs, the more difficult it is to have power in those locations. And so I think first, when we first looked at the problem, it was a little overwhelming because we think we're going to have to transport power out to all these locations. But now after a further study between the opportunity with pneumatics, capturing emissions of those, but also consolidation of facilities, one of the things we gained a lot with the WES -- I mean with the APC acquisition was tankless batteries. So eliminating potential emission sources altogether is something we're working on -- and so the opportunity -- I think we can get a long ways toward those Scope 1, Scope 2 is just from the opportunities we're doing that and reducing the emitting from those locations.

Got it. Exciting. One just to wrap up here from my standpoint in the last minute or so that we have is just within the U.S. shale portfolio, can you talk about how you think about allocating between Colorado, DJ Basin versus the Permian, I think there is a bit of a shift back towards the Permian? How do those 2 compete against each other for capital?

So the DJ has fantastic assets, quick turnarounds, very low OpEx and attractive opportunities for our portfolio. This year, we have purposely moved capital from the DJ down to the Permian. A big driver of that is timing of permits, okay? So the process in Colorado slowed from what it was before. We have been successful in gaining permits inside the 2,000-foot setback limitations, but it has taken longer. And we feel like as time, as the process goes on, that the regulatory process will get faster and more efficient, and we'll be back to more of a normal pace. But we moved it down there because we don't want a situation where we had 2 new rigs or too much capital going into place waiting on permits, for example. And so the net result is our oil cut's higher because we have better oil cut in the Permian and in DJ, but the flip side is our OpEx is up a little bit because the OpEx in the DJ is so low. And so it's a great opportunity and a great throttle for us. I anticipate that you'll still see that sort of 1 to 2 rig rate in the DJ over time and the balance of the rigs being done in the Permian.

Got it. Makes sense. well, I think we'll wrap it there in the interest of time. It's been a really helpful update. It's great to see all the progress you all have made over the last few years, the recent shareholder return announcement. And if I haven't said enough already, I'm very excited for the LCV day here. So thanks so much for the time. I appreciate it.

Appreciate it. Thank you.

Thank you all for joining. Thanks.