Occidental Petroleum Corp

NYSE:OXY

Earnings Call Analysis

Occidental Petroleum Surpasses Production Goals, Boosts Financial Outlook

In its third quarter earnings call, Occidental Petroleum reported a record production, reaching 1.45 million BOE per day. The company generated $1.5 billion in free cash flow and ended the quarter with $1.8 billion in cash. Notably, they raised their full-year production guidance by 12,000 BOE per day due to strong well performance and the acquisition of CrownRock. Operating expenses decreased to $8.68 per barrel. For 2025, Occidental plans to invest $900 million in capital projects, indicating a focus on low-carbon initiatives. They aim for $15 billion debt by continuing their deleveraging efforts after repaying $4 billion within two months of closing the CrownRock acquisition.

Strong Financial Performance Despite Challenges

In the third quarter, Occidental Petroleum demonstrated remarkable resilience, generating an adjusted profit of $1 per diluted share and a reported profit of $0.98 per diluted share. This financial success came against a backdrop of adverse weather conditions and commodity price volatility that typically hinder production. Despite these challenges, Occidental reported an impressive free cash flow of $1.5 billion for the quarter, supported by strategic operational execution across all business units.

Record Production Levels and Increased Guidance

Occidental's Oil & Gas segment not only exceeded production guidance but also achieved the highest quarterly production levels in the company’s history. The updated guidance for total company production has been raised to a midpoint of 1.45 million barrels of oil equivalent (BOE) per day for the fourth quarter, reflecting an increase from prior estimates. This surge is primarily attributed to sustained performance in the Permian Basin, particularly from the newly acquired CrownRock assets.

Operational Efficiency and Cost Management

The company’s emphasis on efficiency has led to significant operational improvements. For instance, domestic lease operating expenses have fallen to $8.68 per barrel, significantly below previous guidance and marking the lowest level since early 2022. Efforts to optimize drilling processes, including a notable 10% improvement in drilling cycle times year-over-year, have further contributed to enhancing margins and reducing costs across the board.

Promising Developments in New Ventures

Occidental is advancing its construction of STRATOS, the largest direct air capture (DAC) facility globally, with a notable $500 million award from the U.S. Department of Energy. This initiative not only positions Occidental as a leader in carbon capture technology but is also expected to generate significant cash flow in the long term. The company additionally sees potential in the booming demand for carbon dioxide renewable credits, particularly for data centers and other large-scale energy consumers.

Debt Reduction Commitment and Strategic Capital Allocation

The company reported notable progress in its debt reduction efforts, having repaid $4 billion within two months of completing the CrownRock acquisition. This accounts for approximately 90% of near-term debt commitments and is part of a broader goal to achieve a medium-term principal debt target of $15 billion. In 2025, Occidental plans to deploy approximately $450 million for capital expenditures in low carbon ventures, a $150 million decrease from the previous year, while still committing around $900 million for its chemical business expansion.

Future Outlook Amidst Market Volatility

Looking ahead, Occidental is positioned to benefit from potential increases in oil and gas production driven by secondary zone developments in the Delaware Basin. Despite the lower oil cut mix observed recently, the company expects overall production volume increases to continue. Occidental is prepared to strategically adjust its capital allocations in response to market conditions, ensuring flexibility in operations despite potential commodity price fluctuations.

Key Takeaways

Overall, Occidental Petroleum's third quarter performance reflects a strong operational execution amidst challenging market conditions. Continued investment in low-carbon initiatives and effective debt management position the company favorably for future growth. Investors should monitor the company's capability to maintain these positive trends while strategically managing capital and operational efficiencies.

Earnings Call Transcript 2024-Q3

[Operator]

Good afternoon, and welcome to Occidental's Third Quarter 2024 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.

[Jordan Tanner, executive]

Thank you, Drew. Good afternoon, everyone, and thank you for participating in Occidental's Third Quarter 2024 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 under 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.

[Vicki Hollub, executive]

Thank you, Jordan, and good afternoon, everyone. Our teams delivered another quarter of exceptional performance across all of our business segments. Despite weather disruptions and commodity price volatility [indiscernible] consent operational execution from our teams [indiscernible] the highest operating cash flow so far this year. Our strong financial results are a testament to the dedication and capabilities of our team as well as the premium quality of our assets.

I'll begin today by reviewing our third quarter performance and providing highlights from our Oil & Gas business, including the ongoing integration of CrownRock. I'll also give an update on our [indiscernible] projects and then share the progress on our near-term debt reduction program. Sunil will cover our financial results and fourth quarter outlook, including [indiscernible] increases in full year guidance for each of our segments and we'll provide [indiscernible] we're looking at our 2025 capital plans.

In the third quarter, our team's commitment and delivery across each of our business units enabled us to generate $1.5 billion in free cash flow before working capital, exceeding guidance in all 3 segments. Our Oil & Gas segment exceeded the high end of our production guidance and set a new company record for the highest quarterly U.S. production in our history. This was an outstanding achievement made even more impressive considering there are 3 hurricanes that impacted our operations across the Gulf of Mexico.

This production outperformance was primarily driven by strong new well performance and higher uptime throughout the Permian Basin. Our Midland Basin teams excelled surpassing production guidance in our recently acquired CrownRock assets and delivering the highest quarterly production in over 5 years across our legacy Midland Basin assets. Optimum geologic targeting drove well performance supplemented by nonrecurring OBO benefits.

The Delaware Basin continues to perform at an industry-leading level with our New Mexico performance being instrumental in our third quarter results. [indiscernible] notably, a 6-well Wolfcamp development project in our [indiscernible] in New Mexico produced an impressive 1.2 million barrels of oil in the first 90 days. In previous earnings calls, we highlighted that Oxy had 8 of the top 10 industry wells in the entire Delaware Basin from a 6-month cumulative production standpoint.

Today, I'm proud to announce that our Rockies [indiscernible] 8 of the top 10 DJ Basin wells drilled since 2019, several of which came online in 2024. Such remarkable industry achievements are only possible because our teams solely pursue innovation and excellence. Not only is our onshore development and exceeding expectations on well productivity, we're also executing in a more efficient manner. For example, every new well drilled in the third quarter New Mexico development firm is [indiscernible] existing infrastructure.

As discussed in the past, this significantly enhances project returns and, in many cases, enable secondary bench developments to deliver stronger returns than our [indiscernible]. We continue to [indiscernible] efficiency as evidenced by a 10% improvement in Permian unconventional drilling cycle times relative to last year.

In the DJ Basin, we successfully drilled a 2-mile lateral in only 80 hours and our teams reduced third quarter well costs by 20% compared to the first half of last year. [indiscernible] reducing well costs. These improvements also accelerate time to market, allowing us to turn capital dollars into production factor. Our teams continue to make well design and execution improvements with exceptional results, we expect to carry this momentum into 2025.

Another factor in our success, along with continued well performance leadership and capital efficiency and progression is our team's persistent focus on driving down lease operating expenses across our assets, which ultimately enhances our cash margins. Over the last year, we have meaningfully reduced our domestic operating expenses on a per well basis.

Looking to the fourth quarter, we anticipate continued progress will result in a greater than 20% year-over-year reduction in quarterly owned fee [indiscernible]. These steady improvements are driven by several factors, including increased uptime, improved CO2 utilization and more recently, the integration of low-cost high-margin ground rock barrels in our portfolio. Our teams continue to deliver their operational and technical strengths to drive margin expansion from both sides, reducing costs while constructing industry-leading wells.

Turning to our Chemicals and [indiscernible] businesses. OxyChem outperformed in the third quarter, modestly exceeding guidance while overcoming disruptive Gulf weather. And our midstream segment also had another impressive quarter with our marketing teams once again leveraging natural gas price locations between [indiscernible] and the Gold Coast to deliver value to the company.

Our demonstrated leadership and midstream expertise allowed us to optimize transport strategy, effectively bringing both our products and third-party volumes to market even in adverse positions.

I'd like to now share more on the successful addition of CrownRock to our Oxy portfolio since the acquisition closed in early August. We're [indiscernible] pleased with the integration of assets and more importantly, people. We've been highly impressed with the legacy CrownRock culture as well as the stewardship excited and running day-to-day operations in a safe, profitable manner.

Our focus these first months have been centered on safety, organizational integration and retention of talent, and it's gone very well. There have been no significant safety incidents dating as far back as the December [indiscernible] announcement and that's a testament to the CrownRock's teams for efficiency and professionalism. The combined teams are now sharing best practices and identifying opportunities to enhance field operations through our combined [indiscernible] position, as well as constructing our 2025 development plan.

As Sunil will cover later, we envision a consistent level of investment in this premier Permian asset next year. I want to highlight a few areas where our teams are identifying opportunities for operational improvements and cost efficiencies. The first one I'll mention is leveraging Oxy's supply chain expertise to reduce cost of materials of construction. We're also evaluating opportunities to leverage our broader Permian frac [indiscernible] and overall resources to accelerate time to market and increase utilization rates.

We have spoken in the past about the ample water capacity and network associated with these new assets and how well they fit with our existing water assets and how they can benefit our legacy business. Recently, we've identified nearly $10 million in expected savings for our singular development plan in the first quarter of 2025. [indiscernible] by one integration across assets.

We think this opportunity is just the first of many as we leverage the shared infrastructure across our combined position. We also see opportunities to enhance the base production through improved operability and artificial [indiscernible]. Already, we received incremental base production improvements into CrownRock assets. Because of this and stronger-than-anticipated UL performance, our third quarter production volumes exceeded the expectations that we laid out in August.

We're now projecting a 9,000 BOE per day increase to our fourth quarter exit rate for these assets. We're still in the early stages of integration, but are very excited about the opportunities ahead, of bringing our teams together, we expect to unlock new value and achieve existing [indiscernible].

Turning now to our low-carbon businesses. I'd like to provide an update on our – Direct Air Capture project. Construction of STRATOS, which will be the largest direct air capture facility in the world is progressing smoothly and [indiscernible]. As we have previously shared, we have faced the construction sequence of STRATOS to help integrate the latest advancements, research and development efforts.

We've been thoroughly impressed with the infusion of talent, fashion and performance coming from the carbon engineering team of last year, driving an innovation cycle that's moving even faster than we anticipated. Collaboration within our technical teams across [indiscernible] of the CE Innovation Center, have given rise to incredible technological breakthroughs and engineering design innovation, which we will integrate [indiscernible] continued build-out STRATOS.

The new design will feature fewer air contactors and fewer solid reactors which should reduce operating expenses and increase reliability. We expect to bring the initial 250,000 tonnes per annum capacity online in mid-2025 with an additional 250,000 tons to phase in during the next year, incorporating [indiscernible]. This disciplined approach not only generates value for STRATOS but will benefit and derisk future DAC builds.

We're also advancing our South Texas DAC project and recently achieved a significant milestone with the U.S. Department of Energy awarding the project up to $500 million of the initial DAC facility of the site. This [indiscernible] potentially increased by $150 million from the development of an expanded regional carbon network in South Texas. The award is momentous and further commercial scale of DAC in the United States and validates our ability to accelerate the [indiscernible] on the technology.

A combination of factors will drive our continued progress in this market and technology, and you're seeing them work together now in this time. First, our innovative technical teams and continue investment in R&D, our intensive [indiscernible] projects. Second, we are leveraging projects and operational markets from STRATOS and applying them to enhance future designs. Third, government support and third-party capital are serving as catalysts to accelerate investment in developing DAC technology a climate relevant scale while also solidifying our leading position in the emerging markets.

We're excited about the progress made to date in constructing STRATOS, improving the DAC technology, driving demand in the voluntary and compliance carbon credit markets. From the development of STRATOS, Oxy is taking a leading role to demonstrate to the developing [indiscernible] markets that DACs geologic storage is a large-scale, highly durable and economic [indiscernible] to climate change. We believe we can help [indiscernible] like aviation and maritime [indiscernible] goals [indiscernible], which can also serve as complementary solutions with [indiscernible].

Equally as important CO2 from our DAC can also enable us to produce net 0 oil [indiscernible], providing resources to the U.S. needs for energy security and energy in the world will continue to need for decades. We also recognize that we are in a pivotal moment for our power and utilities in our country, especially with the proliferation of data centers and AI increasing the need for reliable low-cost emission power.

Over the coming decades, we believe Oxy will [indiscernible] positioned to contribute to its growing sectors of our equity investment in net power and our ability to provide DAC solutions at scale to meet the increased demand for our carbon dioxide renewable credits, for large-scale data centers and [indiscernible].

Finally, I want to share with you some of the recent progress we've made in debt reduction. In December, we made a commitment to repaying over $4.5 billion of debt in the 12 months of closing the CrownRock acquisition. Progress in our divestiture program, including the [indiscernible], the sale of proportion of our West Holdings in the third quarter, combined with our continuing strong organic cash flow [indiscernible]. In fact, during the third quarter, we repaid $4 billion, which is only 90% of our near-term commitments, and that's within just 2 months of the CrownRock closing. We remain fully committed to achieving our medium-term principal debt target of $15 billion.

I'll now hand the call over to Sunil to provide more details about our third quarter financial results, guidance and capital plan.

[Sunil Mathew, executive]

Thank you, Vicki. In the third quarter, we generated an adjusted profit of $1 per diluted share and a reported profit of $0.98 per diluted share. The difference between adjusted and reported profit was primarily driven by a loss on the sale of [indiscernible] non-operated U.S. offshore acreage, largely offset by a gain on the sale of common units representing related partner interest investor in [indiscernible].

As a result of strong operational performance across all business segments in the third quarter we generated $1.5 billion of free cash flow for working capital, and we finished the quarter with $1.8 billion of unrestricted cash. The strong free cash flow this quarter reflects our team's ability to translate high royalty assets into [indiscernible] financial results despite adverse weather conditions and commodity price volatility.

As Vicki mentioned, the success in the third quarter can largely be attributed with new wells and base production outperformed the [indiscernible] inclusive of our newly acquired CrownRock asset. While the majority of our performance was associated with [indiscernible] rated activities, the [indiscernible] of 6,000 TOE per day uplift associated with nonrecurring off-site operated volumes due to prior period [indiscernible].

In the Gulf of Mexico, production [indiscernible] below our third quarter guidance rate, largely due to unplanned downtime for hurricane-related activity and [indiscernible]. Despite these impacts, our domestic lease operating expenses at $8.68 on a per barrel basis, notably outperformed third quarter guidance and are the lowest since the first quarter of 2022. This demonstrates our operational spend and focus on delivery and higher-margin barrels over time, as illustrated on Slide 8.

In the midstream and marketing segment, we continue to capture value through optimizing our gas marketing positions out of the Permian phase. This was a significant catalyst in the segment generating positive earnings on an adjusted basis, approximately $145 million, above the midpoint of time.

As Vicki highlighted, we are raising our full year guidance of each of our business segments as a result of third quarter of performance and the improved expectations in the fourth quarter. In Oil & Gas, we are raising our fourth quarter total company production guidance from last quarter's implied guidance to a midpoint of 1.45 million BOE per day, driven by sustained well performance and operational [indiscernible], coupled with an improved outlook in the [indiscernible].

Supporting this, we have increased our full year production guidance for the [indiscernible] based on our outperformance from both our legacy unconventional business and the CrownRock assets. This rate includes an additional 12,000 BOE per day in the fourth quarter, 9,000 of which are coming from our CrownRock assets.

We are excited to build on the year-to-date success across our [indiscernible] portfolio and expect these positive production trends in the [indiscernible] should more than offset the fourth quarter production impact related to the Guld of Mexico's ongoing well workovers and disruption of [indiscernible].

Even with an active [indiscernible], our OCTG was able to overcome the rate disruption and outperformed third quarter guidance for [indiscernible] income of $304 million. [indiscernible] guidance reflects an expected uptake in caustic soda pricing due to European satellite disruptions and represents an increase to full year guidance for the segment despite seasonal declines in volumes for both EDC and [indiscernible].

We are also raising full year guidance for our midstream and marketing segment as a result of a strong third quarter performance. Our guidance is used that our marketing teams will capture some natural gas transportation optimization benefits for the fourth quarter, those were a lesser extent than the prior 2 quarters as Permian gas takeaway [indiscernible]. Additionally, our guidance has been adjusted to account for Oxy's [indiscernible] ownership in west after our state of a portion of our [indiscernible] during the third quarter.

Capital spend net of noncontrolling interest in third quarter of approximately $1.6 million was in line with our expectations, and we renewed within our previously guided range for 2024 [indiscernible].

In closing, I want to share an update on how we are approaching our capital program for next year. 2025 will be a pivotal year for our low carbon ventures and OPM businesses as we advance construction of 2 major projects that are expected to generate cash flow growth and enhance long-term shareholder value. As Vicki shared, we are well underway with the construction of STRATOS, a first of its kind DAC [indiscernible]. We expect our 2025 [indiscernible] capital budget net of noncontrolling interest contribution to be approximately $450 million. This represents a $150 million decrease from our 2024 guidance of $600 million.

Our OxyChem expansion and modernization is also progressing well and is expected to reach a construction activity next year. We anticipate our chemical capital budget to be approximately $900 million in 2025, an increase of $200 million from this year due to the increase in project activity. The expansion remains on track for completion in midlines.

In our Oil & Gas business, we anticipate activity levels to be broadly similar to the [indiscernible]. Across our counter of acreage, we plan to maintain a 5-rig program as the assets have benefited from stable activity levels in the last few years. Next year's development program, which feature targeted adjustments to well spacing, along with accelerated production delivery through time-to-market improvements. Overall, we expect [indiscernible] production growth in the mid-single digits from these assets.

Considering the recent commodity price volatility, we are evaluating multiple 2025 activity scenarios across the rest of our U.S. onshore portfolio. As a result of our higher proportion of short cycle U.S. onshore activity, we have retained observable capital [indiscernible] within these assets. We look forward to sharing our [indiscernible] at the next quarterly earnings call.

As Vicki emphasized in our update on our debt reduction progress, we remain dedicated to our financial priorities. We believe the early success of our deleveraging program [indiscernible] us in a great position heading into 2025. We have no remaining 2024 debt maturities and our current unrestricted cash balance is sufficient to cover the remaining $1.5 million of 2025 debt 0 maturities, the majority of which are not due until the second half of the year.

We are comfortable with our debt maturity for [indiscernible] and capital investments we persecute in 2025 will be strategically guided by a commitment to further deleveraging and strengthening our financial position.

I'll now turn the call back over to Vicki.

[Vicki Hollub, executive]

Thank you, Sunil. Before we move to the Q&A, I'd like to close by recognizing the exceptional performance of our team, delivering value through operational excellence, world-class execution and through driving down costs in the safe and reliable manner. We continue to demonstrate industry-leading performance across our U.S. onshore assets, setting new records for our operations and well performance.

Now with the integration of the CrownRock assets bolstering our Permian footprint, our combined teams are enthusiastically unlocking operational efficiencies to enhance our margins. Our diversified portfolio across oil and gas, midstream and chemicals continues to deliver strong returns. And I'm proud of the achievements made across our low carbon business. Oxy has demonstrated leadership and proven capability of [indiscernible] management through our EOR operations and we are making great progress delivering our STRATOS project [indiscernible] at scale.

With that, we'll now open the call for questions. And as George mentioned, Richard Jackson [indiscernible] over with us today for the Q&A session.

[Operator]

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

[Douglas George Blyth Leggate, analyst]

Vicki, I hope you can hear me okay. The line is a little choppy today, but hopefully, I'll you can understand my question. The operational performance is quite extraordinary. And I think you never really laid out synergies with CrownRock. Obviously, they seem to be showing up. But I guess my question is, there seems to be a nervousness certainly in the market around the commodity outlook. And you guys, I guess, have some big decisions as Sunil laid out, whether you accept the growth or whether you slow down the program, which obviously has got capital implications.

So I'm wondering, first of all, if you could -- I know you don't want to give us numbers today, but just give us your thoughts on the macro in a world that clearly does not need any more oil? That's my first question.

My follow-up, I may -- if I may, is on disposals. You obviously have a lot of options and you also have laid out this $1.35 billion of chemicals and low carbon spend next year. So I guess my question is we're trying to understand what the deleveraging capacity of the portfolio is? You own [indiscernible] 48%. You obviously own [indiscernible] and you've got the roll-off, I assume of that capital after 2025. So just give us your thoughts on what the pace of deleveraging could look like and what the options are to achieve that as we go into perhaps a softer commodity backdrop?

[Vicki Hollub, executive]

Thank you, Doug. I'll begin with the macro. [indiscernible] meaning our leadership team, we review the macro on weekly basis. We look at all the fundamentals like the activity levels, supply-demand numbers, inventory, external factors, anything could impact prices, that impact our operations to look at. And so we do [indiscernible] in 2025. And it's hard to predict prices though, I would say that over the past few years, very few people have accurately predicted prices in this incredibly volatile situation that we have today, where there's more volatility in oil prices than [indiscernible] have ever seen.

But we do believe that 2026 will be better than '25 is because [indiscernible] surplus in the market today has come from growth in the U.S. [indiscernible], Brazil and Canada, but there's declining growth rates, we believe, for the U.S. and Brazil, and if you take that along with a couple of other [indiscernible] countries that are helping to mitigate the current excess [indiscernible] on production. And at least the wildcards right now are [indiscernible] in Russia.

With that being said, we believe it's very prudent for us to be prepared in that situation and to be very much leaning forward and not [indiscernible] happened to us in past decades. So what we've done is our current thought is to recommend to our Board the plan of [indiscernible], which we feel is conservative. What -- that is doing is keeping activity levels in the CrownRock area as they are today. And then lowering slightly the capital in some of the other oil and gas areas.

So we wouldn't be growing the rest of the oil and gas [indiscernible] portfolio. CrownRock [indiscernible] just maintain those -- that rig activity in trying to maintain those efficiencies. Because it's always easier to ramp down than it is to ramp up. But I would assure you that our teams have prepared plans the next steps for multiple product scenarios along with the plan of [indiscernible], how to execute a decrease in activity [indiscernible].

[indiscernible] should prices go up, which we don't exactly expect we would not increase our capital beyond what we're talking about right now. We would only trigger some reaction in prices [indiscernible] like they're going down that trend is strongly downwards. So with that, they have the opportunities, we have the opportunity to make changes.

And as you saw what we did during the pandemic, we reacted quickly and strongly to that situation. So we have the same [indiscernible] that now. But I would say there's no better time to allocate capital to our [indiscernible] as we're doing it [indiscernible] in 2026 will provide $255 million of additional cash [indiscernible].

[indiscernible] that we feel like the high volatility in oil prices that are [indiscernible] gas projects in the Middle East, along with our production sharing contracts. Those [indiscernible] they're not as appreciated and other challenges as they are now looking through having a steady cash flow [indiscernible]. So that's where we are with the macro. That's where we are with we're thinking about capital spend.

And again, we have the capability to ramp down and a methodical approach to first working with our cost structure. So we've got details on [indiscernible]. With respect to the synergies in CrownRock, those synergies have been pretty strong that we're starting to see now. So we will -- I'll let Richard take a stab at that point [indiscernible] I just want to get to your deleveraging question.

As you mentioned, we have lots of opportunities. We have one of the largest portfolios in the Permian [indiscernible] company. We also have the other [indiscernible] that you mentioned. We have some things that they are marketing now. And as we go into the future, we have a lot of levers to pull. And we'll -- we always have everything on the table. We look at everything and the [indiscernible] the macro is, I can assure you that we have a plan for any kind of scenario and the opportunity to execute [indiscernible].

[Richard Jackson, executive]

Doug, this is Richard. Yes, I'd be glad to talk through some of the most recent updates on our CrownRock integration. I know that we've gotten several questions on that, so I appreciate you bringing that up. Obviously, going really well from the start of close. And really, that's -- means a lot from the team that's been operating in over the last year. So they really brought in some strong operational performance that led to the beat in the third quarter and the fourth quarter. So very appreciative of that.

But really been able to, as Vicki Hollub said, the teams dive into some of the potential synergies and a few just to highlight. As you know, we always start with our subsurface and -- we -- as we look into next year, we think we have a very strong program for those 5 rigs focused on some of the horizons that we well understand, but we are moving to some de spacing.

And so I think we'll be able to talk about that more as we get to the next call, but looking to the space and improve our recovery per dollar spent. Supply chain is another area we've been very focused because they've helped bring a lot to the table, but looking with this more balanced operational portfolio between the Delaware in the Midland Basin, we're seeing some opportunities.

And so one of the examples that they've highlighted is really our frac board utilization as we're able to take advantage of what we call white space, the time between sort of being complete with the well ready for frac until mobilizing that unit to frac the well. They're targeting quite a bit of improvement next year, north of 20% improvement in that white space. So what that does as you're carrying a normal sort of DUC level due to operations, that may go from something like 22 DUCs at any one time down to 15, and that adds barrels on the year for really no cost. So pleased with that.

The water example, Vicki talked about, that's a South Curtis Ranch development that we're able to use the nearby [indiscernible] Ranch facility that CrownRock [indiscernible] for water, and so that has $10 million that they're able to deliver there.

And then the final thing I would say is we're just now really getting into the, what we call, best of the best workshops. And so -- it's not just what Oxy brings, it's certainly valuing what CrownRock or the Oxy Rock team brings now to our overall operations. So the Midland Basin team as they look at next year, they're out looking better than 10% cost improvement across the Midland Basin operations due to these kind of best of the best synergies between the teams. So we think that's pretty meaningful and outpace certainly what we'd be able to do alone.

[Operator]

The next question comes from Roger Read with Wells Fargo.

[Roger Read, analyst]

Yes. One thing we noticed in the results last night, it was a discussion on the sell-side call. Was the oil mix in the Permian here? And I know there's been a lot of moving parts, right? CrownRock comes in, some things go out. But as you think about the go-forward drilling program, what is the right way for us to think about that Q3 a bit of a -- kind of a blip to the downside and then back up where you were? Or are we seeing a -- I don't know if the right term is structural change, but maybe a change in the resource base that you have there?

[Vicki Hollub, executive]

Roger, you cut out over the last couple of sentences. Sorry about that. Would you mind repeating it?

[Roger Read, analyst]

Yes. Sorry about that. I just said last night with the results and then on the sell-side call, there were discussions and questions about the percentage of oil produced out of the Permian. And I was just trying to understand, we had a lot of moving parts this quarter with the addition of CrownRock and then some assets sold as well. And as you look at the go forward, how should we think about that oil mix. It was kind of 58%, 59% this quarter, 55%. Just -- it's not a huge difference, but we're all watching those small changes and trying to figure out what they mean?

[Richard Jackson, executive]

Yes. Roger, I'll try to hit that a little bit. I think to start the question, I think moving forward, we're going to try to do what we can to help guide to that and help you understand what that means. A couple of things I would point to. One is increased secondary benches, especially in the Delaware. We moved year-on-year '23 to '24, I think we went from about 20%, secondary benches to 40%. But like Vicki mentioned in our script and we highlighted in the slides, that's adding a lot of value for us, even though there are a little more NGLs associated with that, the value being able to take those 2 existing facilities is quite accretive on a return basis. And so we're doing more of that blend between our primary and secondary benches, taking advantage of that existing infrastructure. So from a go forward, one, we'll try to help.

But two, I think what you're seeing in the second half sort of leveling off, and you can see it in the third quarter and fourth quarter implied percentage on that. So hopefully, that helps, and we'll do what we can to show that. Probably the one other point I want to mention on that, we did, from a pure volume basis on oil, I just wanted to reiterate the strong performance of the team, that was a beat on oil. So that's a plus 5% from the Permian on overall oil volume. So I understand the percentages but also want to give kudos to the team in terms of the delivery on that.

[Roger Read, analyst]

Yes. And I didn't mean to imply a bad total production. It was more just trying to understand the moving components in there. The other question I have, and I think this kind of has been addressed. But in terms of the goals on debt reduction now -- and let's leave aside what the oil price is going to be because obviously, that will change what CapEx and all that is. But if we just sort of took the forward curve, and we think where you're going to be in 12 to 18 months, how do you see the balance sheet? Like what would be defined as success from your standpoint?

[Vicki Hollub, executive]

We think we've already had some significant success over the $4 billion, but we do believe that even in a lower price environment, we're going to have some cash flow. We're still going to have some degustitures. We'll still make progress in 2025 regardless of where prices will be. And that's our target. Our target is to continue our debt reduction through the year, regardless of what it takes to do that.

[Operator]

The next question comes from Neil Mehta with Goldman Sachs.

[Neil Mehta, analyst]

Yes. Vicki, I had a macro question for you. I just -- I think you've talked a lot about how over the next couple of years, you expect shale to get more mature and while maybe not decline, but resource kind of tapers out and we're going to need to then pull on exploration. But one of the things that's emerged from this earnings season is very consistent beats productivity and oil volumes, not just from you guys but from the industry broadly and I just love your perspective, has that evolved the way that you're thinking about the macro, the continued resiliency of supply in the face of a declining U.S. rig count, our macro perspective would be great?

[Vicki Hollub, executive]

I do believe that we're going to continue to increase efficiency in the Permian Basin. And I think the Permian is a basin that will continue to deliver where we'll see volumes declining and ultimately achieving a plateau for the Permian with -- for the U.S. within the next 3 to 5 years will be because of declines from the other basins. These secondary benches that we have second and third and fourth benches that we can develop in the Permian in the Delaware and the Midland Basin. Those will continue to contribute to growth for the [indiscernible] since the growth from the Permian, that's going to offset the decline from the other basis in the near term and ultimately help us to achieve, I think, a larger, higher peak than where we are today, that's when most [indiscernible]. So that would be, in our view, 3 to 5 years out because as we said, we're still continuing to get [indiscernible] and there's a lot of productivity [indiscernible] remaining a lot of wells still to be completed.

And as always, we're seeing that increase, and I think that it's going to continue. I expect in the near term with [indiscernible] prices that what we used to think as a peak is, say, in 3 years, moves further out because with weaker prices, I think there's going to be less growth Permian in 2026 than what we saw or -- in 2025, [indiscernible] 2026. So it's going to push that [indiscernible] further out. But still productivity in the Permian as you have mentioned and as indicated, it's something [indiscernible] to continue to increase. It's the basin that we'll keep on giving for sure.

[Neil Mehta, analyst]

Thanks, Vicki, that's great color. And then just going back to the DAC and as you think about bringing on Unit 1 by the middle of next year, what are the sort of the gating items, the critical path items to get it into service? And what are you really focused on around the start-up from an engineering standpoint? And then in light of the election, has anything changed about the way you think about the economics of this business? Or is your view on [indiscernible] of the subsidy environment?

[Vicki Hollub, executive]

I'm going to take that first one first, and then Kenneth is going to go through the milestones and what he's looking [indiscernible] with respect to construction. But I will say that -- and weaker prices in the scenario we see today, I think the DAC is going to be one of those businesses for us that kind of [indiscernible] same category as our chemicals business and our gas business in the Middle East. I think that is going to be a value creator and a cash flow generator for us for a long time. We have work to do in the near term. But in the long term, what we -- what's happening with respect to support for DAC is pretty amazing and taking advantage of that. But because of what we're able to do here, apply innovations even as we're building the first stacks very encouraging from a commercial standpoint.

So we're already working down on the cost curve. We're already looking at opportunities for improvements in DAC 2. So we do believe that the commerciality is still there for these units and the borrowing is getting stronger all the time. So we're still excited and encouraged about where we are with respect to commerciality.

[Kenneth Dillon, executive]

[indiscernible] DAC project is doing very well. First phase is nearly 90% completion now, and this includes the first 2 capture trends, which should be mechanically complete by the end of the year, as well as the central processing areas, all the major equipments there. Good checks have been done ongoing at the moment. Central processing size for 500,000 tons which will support the additional 2 capture [indiscernible] and they come online between '25 and '26. So overall, if you take both together, the project is by 70% [indiscernible] capacity.

Since the CE purchase, our engineers have been working closer than ever [indiscernible] any cost on ideas that we continue to work [indiscernible] could see what the project team and recently incorporated into STRATOS.

On this slide, you've seen physical changes that Vicki mentioned earlier resulted in fewer [indiscernible] reactors and also smaller contractors with a 30% production. What you can see, which was [indiscernible] all the savings in the piping, the number of valves, the instruments that have all been eliminated. This also makes it much simpler to build and there's also a massive improvement in the air contactor construction lane going forward by using modules, which will have the [indiscernible] time for [indiscernible].

Future [indiscernible] plan [indiscernible] 10% to 15% savings [indiscernible] these modifications and you could see additional improvements to take it past 20% also with reduced [indiscernible], maintenance improved, [indiscernible] the team at [indiscernible] has been key to being able to adapt on the [indiscernible] in engineering and procurement [indiscernible] was at the site to meet with his team recently, shows support for the project. So overall, the teams are working incredibly [indiscernible] at the project that's on schedule.

[Vicki Hollub, executive]

And then I'll just follow up to your question about the election results impact that will have. I think the election [indiscernible] become our next President is [indiscernible] very positive for our industry, especially for this [indiscernible]. The reality is that, I believe he understands [indiscernible], our need for energy independence here in the United States. He understands the industry, understands how it plays in the geopolitical policies. He knows what we're trying to accomplish and what we're doing. And he also understands the part that our [indiscernible] and helping with that energy [indiscernible] security.

So I believe that the funding from the infrastructure investment and Jobs Act that the DOE is already awarded [indiscernible] will be dispersed as per the agreement, such as for our DAC [indiscernible]. We do expect to get the $500 million with potential $650 million. We also believe that [indiscernible] will continue to have bipartisan support because [indiscernible] benefit, first of all, [indiscernible] companies to [indiscernible] but also the recovery of additional reserves [indiscernible] reservoir.

President Trump clearly supports that as well. And he, again, understands that that's something that's necessary, getting oil [indiscernible] you already have the best possible way to provide affordable gasoline to our customer. It's impossible to [indiscernible] with that ample supply of [indiscernible]. The use of CO2 for [indiscernible], as I mentioned, is a good part of what makes that so important for the country. And some people don't understand that process. I won't take the time to go into how it works. [indiscernible] just helping people to understand -- again, [indiscernible] that the CO2 [indiscernible] then the incremental oil that generates [indiscernible]. But we just don't have enough CO2 to use in the reservoirs here. We don't have enough organic CO2. So that is necessary to achieve the incremental [indiscernible] we need.

And then going from DAC to [indiscernible] ownership of [indiscernible] to make our DAC emission-free. We'll initially and [indiscernible] throughout use some amount of solar, but we'll also need to build in that power, which is an emission freeway to generate electricity by combusting in [indiscernible] acids with oxygen [indiscernible] that creates a water and CO2. CO2 drives determined to create the electricity, but it also captures CO2 as a part of the process. That is incremental CO2 from net power can also be used to [indiscernible] recovery ordinate products.

So we're developing what I believe [indiscernible] of the technologies that the world really needs to [indiscernible] not only [indiscernible] the companies that want to decarbonize to help them, but you get incremental [indiscernible] to just extend our country's [indiscernible]. So that's where we stand [indiscernible] we're pretty confident about where we are and how that's going to play out with this [indiscernible].

[Operator]

The next question comes from Paul Cheng with Scotiabank.

[Paul Cheng, analyst]

I think the first one is for [indiscernible]. You probably already addressed it, but trying to make sure I understand this year based on the fourth quarter CapEx, so your full year CapEx is about, say, $7.1 billion or that about $200 million higher than your previous midpoint guidance. And is that all in the [indiscernible] because you are doing [indiscernible] permit because you are doing better?

If I'm looking at next year, [indiscernible] CapEx is still looking for [indiscernible]. So I think [indiscernible] is assuming that this is a $500 million incremental. So now that -- I mean, how much is the incremental CapEx from [indiscernible] next year? This is the first question.

And the second question, if we look at the -- I just want to go back into the gas oil ratio. If we look at the third quarter versus the second quarter, you dropped by about 2% in permit. Is that something one-off that triggered it? Or is all driven by [indiscernible]? And it does look like fourth quarter that the gas oil ratio is relatively close to the third quarter. So I suppose that maybe that this is all driven by [indiscernible]? I just want to clarify and make sure that we understand correctly.

[Kenneth Dillon, executive]

Okay. So Paul, if I understand correctly your question, your first question was -- what was the driver for the increase in the full year guidance for 2024. Is that correct? Or is that ...

[Paul Cheng, analyst]

And also correspondingly that from '24 to '25 [indiscernible], what is the incremental CapEx that we should assume? .

[Kenneth Dillon, executive]

Okay. So with respect to your first question, yes, all the incremental CapEx for the full year of [indiscernible]. So what we had disclosed in the last earnings call was is going to be around $400 million, and that is for the 5 months that we are operating from. So with respect to what the capital would be for next year, like I mentioned in my prepared remarks, we are planning a 5-year program for next year, and we are still working the details around what the capital would be, but we expect it somewhere in the $900 million to $950 million range.

And so with respect to your second question, that was on the [indiscernible], right?

[Paul Cheng, analyst]

Is there anything one-off in the third quarter that related to that because it's a drop of 2%, that is a pretty substantial drop comparing to the second quarter oil cut in the Permian?

[Richard Jackson, executive]

Yes, I can start, and Sunil can help on any other macro. Yes, it really is -- I mean, one, Permian growing unconventional. So we had growth in the Rockies and Permian. And so that significant jump in production with a lower oil cut mix was one piece of it. Two, a bigger part of that is our secondary benches that I mentioned earlier. In a first year oil cut is significantly less for our secondary benches, but the value is better. And so we want to continue to reinforce that. So I think to your point, the growth in CrownRock is a part of that growth in unconventional, that is really driving that oil percent. But we see that percentage in the back half of this year sort of extending into next year.

And as we develop different areas that may drive that change over a period of time, we're going to -- we'll try to help guide to that so that you can understand and follow that. Hopefully, that helps.

[Operator]

The next question comes from Scott Gruber with Citi.

[Scott Gruber, analyst]

A couple of questions here. Just back on the Permian, you mentioned raising the percentage of secondary zone development in the Delaware from 20% to 40%, if I heard correctly. What does that figure go in '25? And then as you look at the Midland side of the basin with the CrownRock assets, could you step up the percentage? Where is that percentage currently? And can you step it up in '25 as well?

[Richard Jackson, executive]

Yes. Thank you. So I think a similar percentage on the overall Permian in terms of primary and secondary benches, I think we did sort of a level set utilizing these existing infrastructure facilities for that. So I don't expect that to largely change at least with activity levels that we're currently operating. Obviously, we adjust down or up, depending on what our final program is, that could change a bit. But I think that will be very similar.

From a CrownRock perspective, our base plan for those 5 rigs next year is really what we call 85% primary benches. And so while we see some opportunities in secondary benches, the program that's been put together is very de-risked and we did that really to be able to perform operationally. So we tried to get out in front of sort of those operational plans. So the [indiscernible] kind of [indiscernible], Wolfcamp A and B, those are the primary zones that we're looking at next year. If we see opportunity to improve on that, we obviously would change, but that's the going-in plan for next year.

[Operator]

The next question comes from Arun Jayaram with JPMorgan Securities.

[Arun Jayaram, analyst]

I wanted to see if you could discuss your thoughts on what you view as a more normalized CapEx in [indiscernible], you mentioned that you'll spend about $900 million next year given some projects. And what you think about more normalized CapEx? And what does the growth CapEx you're spending next year? What does that do to the earnings power of that segment?

[Vicki Hollub, executive]

[indiscernible] with OxyChem, pretty special projects as we were running about $300 million [indiscernible] and the less what we expect to be able to get back down to those battleground and a couple of pipeline projects we just had.

[Richard Jackson, executive]

And with respect to the earnings part like, as Vicki mentioned in prepared remarks and later, we expect around $325 million uplift once we complete the project, and the project is expected to be completed in 2026. And that is primarily driven by the expansion in capacity of around 80%, and this assumes around the mid cycle [indiscernible].

[Arun Jayaram, analyst]

All right. That's helpful. And just one question on the Rockies. It looks like from your disclosure that you have sold some properties in the Rockies, it looks like the [indiscernible] River Basin. Just give us a sense of future thoughts on the powder and what exactly you've divested there?

[Vicki Hollub, executive]

So in the [indiscernible] River, we've got the whole thing, obviously, as a part of the [indiscernible] acquisition. But we saw early on that there's a southern part of [indiscernible] River Basin [indiscernible], the most contiguous and the card that we felt like we could -- we can get less value of. So that's why we sold -- and we want to always be focused and always have continuous acreage where possible and always looking at subsurface where we think we can optimize and create value.

So we sold the park that's north of that local part of the southern part of the basin. We sold that [indiscernible] because it's in a better area for them to be able to develop. And so for -- I think we did a win-win situation there. And now have the focus on the [indiscernible]. We think it's going to create a lot of value for us in the future.

[Operator]

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.

[Vicki Hollub, executive]

I want to thank you all for your questions and for jo inning our call today. Have a great rest of your day.Thank you.

[Operator]

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