Filed by Occidental Petroleum Corporation
pursuant to rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities and Exchange Act of 1934, as amended
Subject Company: Vintage Petroleum, Inc.
Commission File No.: 1-10578
CONFERENCE CALL TRANSCRIPT
--------------------------
OXY - OCCIDENTAL AGREES TO ACQUIRE VINTAGE PETROLEUM
EVENT DATE/TIME: OCTOBER 14, 2005 / 6:00 AM PT
ADDITIONAL INFORMATION AND WHERE TO FIND IT
-------------------------------------------
Oxy will file a Form S-4, Vintage will file a proxy statement and both
companies will file other relevant documents concerning the proposed merger
transaction with the Securities and Exchange Commission (SEC). INVESTORS ARE
URGED TO READ THE FORM S-4 AND PROXY STATEMENT WHEN THEY BECOME AVAILABLE AND
ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION. You will be able to obtain the documents free of charge
at the website maintained by the SEC at www.sec.gov. In addition, you may obtain
documents filed with the SEC by Oxy free of charge by contacting Christel Pauli,
Counsel and Assistant Secretary, Occidental Petroleum Corporation, at 10889
Wilshire Blvd., Los Angeles, California 90024. The documents will also be
available online at www.oxy.com.
PARTICIPANTS IN SOLICITATION
----------------------------
Oxy, Vintage and their respective directors and executive officers may be
deemed to be participants in the solicitation of proxies from Vintage
shareholders in connection with the merger. Information about the directors and
executive officers of Oxy and their ownership of Oxy stock is set forth in the
proxy statement for Oxy's 2005 Annual Meeting of Shareholders. Information about
the directors and executive officers of Vintage and their ownership of Vintage
stock is set forth in the proxy statement for Vintage's 2005 Annual Meeting of
Shareholders. Investors may obtain additional information regarding the
interests of such participants by reading the Form S-4 and proxy statement for
the merger when they become available.
Investors should read the Form S-4 and proxy statement carefully when they
become available before making any voting or investment decisions.
FORWARD-LOOKING STATEMENTS
--------------------------
The matters set forth in this presentation, including statements as to the
expected benefits of the acquisition such as efficiencies, cost savings,
financial strength, and the competitive ability and position of the combined
company, and other statements identified by such words as "will," "estimates,"
"expects," "hopes," "projects," "plans," and similar expressions are
forward-looking statements within the meaning of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve risks and uncertainties that could significantly affect
expected
1
results, including a delay in or failure to obtain required approvals, the
possibility that the anticipated benefits from the acquisition cannot be fully
realized, the possibility that costs or difficulties related to the integration
will be greater than expected, the ability to manage regulatory, tax and legal
matters, including changes in tax rates, the impact of competition, and other
risk factors related to our industries as detailed in each of Oxy's and
Vintage's reports filed with the SEC. You should not place undue reliance on
these forward-looking statements, which speak only as of the date of this
presentation. Unless legally required, Oxy undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise. Actual results may differ from those set forth in or
implied by the forward-looking statements.
The SEC limits the ability of oil and natural gas companies, in their
filings with the SEC, to disclose reserves other than proved reserves
demonstrated by actual production or conclusive formation tests to be
economically producible under existing economic and operating conditions. We use
certain terms in this presentation, such as probable, possible and recoverable
reserves, that the SEC's guidelines limit in filings with the SEC.
Information contained in this presentation regarding Vintage's production,
reserves, results, assets and other information has been taken from Vintage's
public filings with the SEC. Oxy makes no representation with respect to the
accuracy of this information.
CORPORATE PARTICIPANTS
KEN HUFFMAN
Occidental Petroleum Corp. - IR
RAY IRANI
Occidental Petroleum Corp. - Chairman, President & CEO
STEVE CHAZEN
Occidental Petroleum Corp. - CFO
CONFERENCE CALL PARTICIPANTS
BRUCE LANNI
AG Edwards - Analyst
ARJUN MURTI
Goldman Sachs - Analyst
DOUG LEGGATE
Citigroup - Analyst
PAUL SANKEY
Deutsche Bank - Analyst
JENNIFER ROWLAND
JP Morgan - Analyst
SUBASH CHANDRA
Morgan Keegan - Analyst
DUANE GRUBERT
Fulcrum Partners - Analyst
VAN LEVY
Dahlman Rose & Co. - Analyst
JOHN ZENGER
Loomin Sales (ph) - Analyst
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PRESENTATION
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OPERATOR
Good morning, ladies and gentlemen. My name is Elsa and I will be your
conference facilitator today. At this time, I would like to welcome everyone to
the Occidental Petroleum Corp. conference call. All lines have been placed on
mute to prevent any background noise. After the speakers' remarks, there will be
a question-and-answer period. (OPERATOR INSTRUCTIONS). It is now my pleasure to
turn the floor over to your host, Mr. Ken Huffman. Sir, you may begin your
conference.
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KEN HUFFMAN - OCCIDENTAL PETROLEUM CORP. - IR
Good morning, everyone. I would like to welcome you this morning. I'd like to
turn the conference call over to Dr. Ray Irani, our Chairman, President and CEO
and Steve Chazen, our CFO, who will discuss in much more detail the announced
acquisition of Vintage Petroleum. Dr. Irani.
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RAY IRANI - OCCIDENTAL PETROLEUM CORP. - CHAIRMAN, PRESIDENT & CEO
Thank you, Ken. Good morning, everybody and thank you for joining us. Yesterday,
we announced that Oxy had reached an agreement to acquire Vintage Petroleum for
approximately $3.8 billion in cash and Oxy stock. The addition of the Vintage
assets to our portfolio is consistent with our oil and gas business strategy of
focusing on three core areas; the U.S., the Middle East and Latin America. We
are especially excited about the significant growth opportunities represented by
Vintage's assets in Argentina, California and Yemen, all of which will
complement and enhance Oxy's current regional operations. We believe we will be
able to at least double production from the Argentina assets from the current
level of approximately 37,000 equivalent barrels per day over the next five
years.
We also believe that we can increase current production from the California
assets of 11,000 equivalent barrels per day by up to 20% within the next few
years. The Yemen assets, which are smaller, produced nearly 4000 barrels of oil
per day in the second quarter and offer attractive opportunities for future
growth as well as operational synergies with Oxy's adjacent physical operations.
In addition to providing growth opportunities, we believe this transaction would
make significant long-term contribution to Oxy's cash flow. Now I'll turn the
conference call over to Steve Chazen who will provide you with some of the
details of the transaction and outline our future plans for these assets. Later
on, we will answer your questions.
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
Thank you, Ray. As Ray said, we think this is a good strategic fit for us. This
is about transforming an exploration company like Vintage into an exploitation
company like Oxy. This is about generating free cash flow from these assets and
so we think that by this transformation for Vintage, we will generate a fair
amount of free cash flow.
In addition, there are some assets that won't fit us and those assets will be
sold into a relatively buoyant property sale environment. I am using the slides
that are in the website that is attached to the announcement. So if you want to
follow a long you can. We are offering 0.42 shares of Oxy for Vintage shares.
About 28.7 million Oxy shares would be issued and $20 of cash per Vintage share,
about $1.4 billion. As Ray said, this has good strategic overlap in our three
main areas; Latin America, United States, California and the Middle East. This
transaction is financially accretive by all measures; earnings per share, free
cash flow per share, free cash flow per barrel and it is neutral to our current
return on equity and perhaps slightly dilutive by maybe a point or so on our
return on capital employed.
Vintage has somewhere between 40 and 60 million of cost savings that we can
achieve. This is mostly overhead because again they have devoted most of their
effort to exploration and relatively little to exploitation. Their exploration
capital is about $100 million. They describe about 75 of it as exploration. The
other 25 or so is related to things that we would call exploration, which they
describe as exploitation. All of the cash that will be needed for this
acquisition will come off our balance sheet. There will be no borrowings at all,
including for the share repurchase.
The main growth drivers are Argentina and California. We are planning to buy
back 9 million shares in the market when we can. Consideration, about $3.8
billion, they should have about 225 million of cash at closing, which we expect
sometime early next year.
3
The Company has 437 million barrels of proved reserves. So on that basis, we're
paying about $8.80 a barrel. Additionally, they have engineered another 421
million barrels of probable and possible reserves. Many of the probables with
some work can be transformed fairly easily into proved and the possible reserves
will come over time. They currently produce about 76,000 barrels a day.
Looking at free cash flow per barrel as a way of measuring the addition and
showing you where it comes from, the free cash flow of the company is around $7
per barrel that is Vintage. Oxy's is around 13 to $14 depending on the
environment. If you add back the hedging, which Vintage did this year so they
can compare it to ours, the exploration capital savings and the cost savings and
the overhead. Their free cash flow per barrel should slightly exceed us on a pro
forma basis.
Turning now to the strategic overlap. The most important asset is in Argentina.
Oxy was in Argentina a number of years ago so we're not unfamiliar with it.
Significantly enhances our Latin America core area. There's about 217 million
barrels of proved reserves here. There is at least 500 drilling locations and
I'll show you a map later but with some more seismic work, we could probably
increase that to 1000 or perhaps even 1500 locations. Historically, they've had
a 97% success rate with a three-year average finding cost of under $3 a barrel.
They are probably running closer to $4 a barrel now but I think that is probably
a reasonable guess about 4. We expect 10 to 15% production growth for the next
few years, which is driven by the 3-D seismic. Fundamentally, they shoot the
seismic; they drill the wells. A typical well will come in about 500 barrels a
day of oil. Runs about $0.75 million per well.
As many of you know, there is an export tax, which basically determines the
internal price as well as the external price. It is about 27% of $40 and 31% at
$50. Our numbers of course include this as taking out of all of our numbers.
On page 7 in the presentation, we show Vintage's projections for the growth of
the production. We expect to accelerate that some. We will probably put a little
more money in it than they have historically and some of their production will
probably come on a little sooner. We will probably spend a little more money on
seismic defining locations more quickly.
Page 8 is sort of a busy slide that shows locations of the land that they are
in. In the middle with all the dots there in green, that is Repsol's producing
properties. About 40% of Repsol's production comes from water flood compared to
Vintage's 10%. On these open areas here are areas where Vintage really hasn't
done anything, hasn't explored, hasn't run seismic. We expect to get at that and
do that fairly quickly. That is where the additional locations come from. You
can also see that generally Vintage's lands are less densely drilled than
Repsol's. So we expect to move to more Repsol-like results than Vintage has
historically. Vintage really hasn't had the money to invest in here and we
obviously can.
California properties are in some ways the easiest for us. They are similar to
the ones we own. Crude has high-quality generally. Currently about 11,000
barrels a day. It's about 70 million barrels of proved reserves. Vintage but
very little if any money in this in the last few years. We will put some money
into it. We have superior marketing of the crude in the area because of our
large volumes. As Ray said, we expect to increase production around 20% over the
next few years. Although personally I would be disappointed if we didn't do
better than that.
A fair amount of probable reserves exist here and from our perspective fairly
easily moved into proved over the next two or three years. Yemen, while small,
is right next to one of our blocks and we can share some facilities there with
them. There is additional prospects on this block and we expect to find at least
one more field that looks like the one that Vintage has found here. Vintage has
some other properties. They have Bolivia, which we don't value highly, but it
needs a long-term market there and we will wait for some time in the future to
decide what to do with that.
Candidates however for portfolio rationalization or sale is another way to say
that is there remaining properties in the United States that are unconventional
North American gas play, which is an acreage play. It is in the hot air rather
than the gas phase I think. Proved reserves are about 71 million barrels and
produces about 19,000 barrels a day. We would expect these divestitures to
reduce our purchase price per barrel and further improve the economics of the
transaction.
Page 12 is taken from a Vintage presentation. We have sort of simplified it here
and what we did was -- what they did was they took 100% of their proved
reserves, 50% of the probable, 20% of their possible reserves and gave an asset
value for the company using $35 oil to get $53 and using $40, they get 64. Of
course this is sort of a breakup value or asset value. It doesn't include the
overhead that was being spent on it. But it is -- while in detail we may
disagree with some of this, generally speaking we think this is a reasonable
representation of the company's value managed by us.
Page 13 shows contribution analysis that shows what percentage of the enterprise
Vintage -- Oxy's enterprise Vintage we don't have and what percent of our market
value -- our stock market value. They'd own about 5% of the company, contribute
about 7% of our EBITDA, 6% of our cash from operations, 12% of our production
and 13% of our proved developed producing reserves.
4
On a pro forma basis for this year, we would expect the transaction to be
slightly accretive but right on neutral and while our cash flow per share would
be accretive. Going forward, we expect these numbers to improve and the
transaction would be accretive in '06 and further accretive in '07, remembering
still only 5% of the Company.
Page 15, we show you where Vintage's reserves are located and how they add to
ours. Take our proved reserves to about 3 billion barrels on a pro forma basis
just slightly increases our reserve life. Our production on page 16 -- the
breakout of it has not much changed. The U.S. is still about 60%. Latin America
increases to about 18 and Middle East to about 16 but of course over the next
couple of years the Middle East will grow fairly sharply and so it will overtake
Latin America probably in 2007.
We believe this transaction is consistent with our policies that we told you
about over the years. We are obviously maintaining a strong balance sheet. Our
debt to capital will clearly be below 20%. Our capital spending program will
continue to be disciplined. We would expect this would increase our capital next
year by perhaps $150 million. We've talked about selective acquisitions. While
historically we have not bought companies, this is a relatively small company
and one can be viewed in some ways as an asset acquisition. We have talked about
moderate predictable reserve and production growth. This will boost our
production and our reserves and yesterday, we raised our dividend by $0.20 a
share on an annual basis and we will continue to review our dividend policy as
we go forward. I would now like to take your questions if I could. Ken.
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KEN HUFFMAN - OCCIDENTAL PETROLEUM CORP. - IR
Yes. Operator?
QUESTION AND ANSWER
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OPERATOR
(OPERATOR INSTRUCTIONS). Bruce Lanni, AG Edwards.
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BRUCE LANNI - AG EDWARDS - ANALYST
Just a couple of quick questions. I guess, Steve, if you are at liberty to do
so, can you kind of go over a little bit more how this deal was structured in
respect to the fact? I get around a 33% premium that you're paying for Vintage
stock. So how you arrived at that. And if it all possible, can you comment on
who approached who and why? And then the second part of the question I have is
on the production side, you just spoke about it, but will this be -- obviously
-- will Vintage be in addition to the production numbers that you've put out
prior to this as far as growth goes?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
The answer to the last question is yes. So we are not -- this is not a
replacement for that or something. Going back to the first question, it was
determined by negotiation against a premium against the value of assets rather
than a premium to the stock. You probably don't follow Vintage, but in the last
couple of years, there has been some difficulties. They made a large acquisition
in Canada, which didn't turn out very well and I think it hurt the company's
reputation. And so the price, if you will, was determined by looking at sort of
asset values rather than the premium to the stock. The last two weeks, it has
been hard to actually figure a premium. I think if we look back over the last
month, the premium would be viewed on average would be less.
We approached them. After the CEO retired and came back after the Canadian
fiasco and we went and visited him in June of 2004, said we would be interested
in, if he ever decided to sell the company. We made a number of other visits so
we sought them out. The company wasn't brought around and shopped to us.
5
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BRUCE LANNI - AG EDWARDS - ANALYST
Steve, just one other question --
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
We would have liked to have bought it at a lower-price but he wouldn't sell it.
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BRUCE LANNI - AG EDWARDS - ANALYST
One other question. On the returns, you said initially dilutive by about 1%.
When do you see that reversing?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
No, it is accretive.
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BRUCE LANNI - AG EDWARDS - ANALYST
To returns?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
Oh, returns? Return on capital employed.
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BRUCE LANNI - AG EDWARDS - ANALYST
Correct. ROC.
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
About 1%. It should turn around in '07 easily. Just depends on when the
properties are sold. It is really -- the returns get significantly better once
the assets that we are not interested in would be better in somebody else's
hands are sold. I think that is really the key to turning the returns more
positive.
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BRUCE LANNI - AG EDWARDS - ANALYST
Great. Good luck.
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
Thank you.
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OPERATOR
Arjun Murti, Goldman Sachs.
6
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ARJUN MURTI - GOLDMAN SACHS - ANALYST
In your slides regarding the fiscal terms in Argentina, I think you
characterized it as a 31% effective export tax rate above 50. I somehow recall
it being a highly taxed rate above $35 oil and maybe that works out to an
effective tax rate of 31.
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
Yes. This wasn't intended to be incremental.
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ARJUN MURTI - GOLDMAN SACHS - ANALYST
Is it not like a 99% tax rate above $35 oil or something like that?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
No.
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ARJUN MURTI - GOLDMAN SACHS - ANALYST
It's not that high?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
No, no. This is really the numbers.
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ARJUN MURTI - GOLDMAN SACHS - ANALYST
Okay. Right. Do you have the sensitivities for 60 and $70 oil?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
About the same percentage.
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ARJUN MURTI - GOLDMAN SACHS - ANALYST
About the same percentage. Okay.
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
Right now. They are talking about, as most governments are talking about
increasing their take at $100 oil.
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ARJUN MURTI - GOLDMAN SACHS - ANALYST
Perhaps you will let them do that right? Can you comment at all in terms of your
interest in the gas in Argentina or is this primarily oil --?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
This is an oil property. This is an oil play.
7
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ARJUN MURTI - GOLDMAN SACHS - ANALYST
And (indiscernible) split of the probable reserves by region that you cited for
Vintage between Argentina, California and presumably Yemen?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
I think we'd say it is about half in Argentina and probably maybe one-third in
California.
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ARJUN MURTI - GOLDMAN SACHS - ANALYST
And then lastly, is there a breakup fee here?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
Yes. There is a $75 million breakup fee.
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ARJUN MURTI - GOLDMAN SACHS - ANALYST
If they accept another offer.
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
That's right.
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OPERATOR
Doug Leggate, Citigroup.
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DOUG LEGGATE - CITIGROUP - ANALYST
A couple of questions if I may. First of all, can you tell us how you are going
to treat the -- I don't know if there is going to be any goodwill associated
with this, Steve, or is at all going to come through on the depreciation line?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
There is no basis to put goodwill in this. Goodwill is supposed to be the excess
purchase price over the fair market value of the assets. We think if broken up,
there wouldn't -- you couldn't support a goodwill calculation. I've never
actually, as you know, understood what goodwill was in the oil business. Ill
will I understand but goodwill I really don't. So there will be no goodwill at
all go through the line.
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DOUG LEGGATE - CITIGROUP - ANALYST
So if we take the higher DD&A into account --
8
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
There will be some acreage allocation. For example, we will allocate some value
to probables. So it isn't just taking it all and doing it real simply. We'll
have to allocate some to probables because otherwise we are probably
overdepreciating. We think these probables will come through pretty quickly. So
that's probably where some of the -- what looks to you like extra depreciation.
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DOUG LEGGATE - CITIGROUP - ANALYST
I guess where I was going with this was that if I make some assumptions about a
higher DD&A charge related to what you're paying for the assets, I am kind of
struggling to see that you are being terribly accretive at least under a fairly
high oil price. Can you give us an idea what kind of oil price assumptions
you're using when you say that you think the deal is accretive to both earnings
and cash flow because you guys obviously are much more sensitive to that than
Vintage is assuming a lower oil price, one would assume that the deal
(indiscernible). Do you see what I mean?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
I understand. I think it is accretive to the company's earnings at about $35 and
higher.
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DOUG LEGGATE - CITIGROUP - ANALYST
Okay. Great. I guess the only final question I have is regarding disposal. Have
you already found buyers or do you have some line of sight as to when you are
likely to execute on those?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
I think it would have probably been illegal to go find the buyers yesterday.
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DOUG LEGGATE - CITIGROUP - ANALYST
Okay. Good stuff. And there is no hedging I guess associated with any of these
assets?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
They have some hedges. They have historically been active hedgers and they have
about 5% of their production hedged -- no, 2% of their production hedged next
year.
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DOUG LEGGATE - CITIGROUP - ANALYST
But you haven't put any hedging agreements in place?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
No, we have learned our lesson on hedging.
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DOUG LEGGATE - CITIGROUP - ANALYST
Okay. Great stuff. Thanks a lot, Steve.
9
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OPERATOR
Paul Sankey, Deutsche Bank.
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PAUL SANKEY - DEUTSCHE BANK - ANALYST
Steve, the cost savings and exploration savings that are important to make the
deal accretive, as I understand it, Vintage's exploration budget was only around
$75 million this year and you're talking about $100 million of savings. I can't
quite make that stack up. And could you also talk a bit about the cost savings,
which given that you are really expanding into Argentina, I just wondered how
you got such a good number from synergy overlap if you like.
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
Sure. The first one is fairly straightforward. When we looked at their capital
program there are items in their capital program which we wouldn't characterize
as development capital. Some in Yemen and some in the United States. There is
about 25 million of it that we would have characterized as exploration if we had
been doing it. So I think it is sort of a matter of semantics. But there is
about another $25 million that we would view as clearly as exploration.
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PAUL SANKEY - DEUTSCHE BANK - ANALYST
Does that mean you're going to stop it? I mean I don't quite understand how you
totally abandon their exploration. I mean that implies that their total
exploration budget is 100 million and you are saying you're going to save the
entirety of that?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
That's right.
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PAUL SANKEY - DEUTSCHE BANK - ANALYST
But aren't you going to have to continue exploration in Argentina?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
That's development. That's development capital. The exploration that is being
eliminated -- they have a fair exploration program, which is not Argentina,
which is not California, but it is elsewhere. They have this unconventional gas
program, which I view as exploration, which we would abandon. So the answer to
your question is yes we are going to eliminate it entirely. It is a moving of
their company from an exploration company to an exploitation company. We have
plenty of exploration at Oxy with out this.
So their overhead is around $60 million a year -- corporate overhead. The
Argentina operation is separate and we will keep that in place. So we don't need
their corporate overhead total. Some of their people will be moved into our
places, places where we have openings. But as far as overhead itself goes, we
are perfectly capable of handling more production, compounding and that sort of
thing.
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PAUL SANKEY - DEUTSCHE BANK - ANALYST
Great. That's very helpful. Thanks, Steve. On political risk perhaps for Ray or
you, obviously there has been issues in Ecuador that you have faced and now
Argentina is notorious for its fiscal changes. Bolivia also. Have you thought
about the political risk profile of Oxy now that you have moved deeper into
Latin America?
10
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RAY IRANI - OCCIDENTAL PETROLEUM CORP. - CHAIRMAN, PRESIDENT & CEO
I am not concerned. Basically we have tremendous experience in handling foreign
operations and as I have said many times that I love our production in Long
Beach. It is close to our office and where I live. However, one has to go
overseas for additional reserves and production and you notice our U.S.
production will still be 59% of the total. So it's really an extension of our
philosophy of being primarily U.S. with significant operations in the U.S. and
Latin America.
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PAUL SANKEY - DEUTSCHE BANK - ANALYST
Okay. So you are not concerned about the backdrop of if you like volatile fiscal
regimes that you're moving into?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
The whole world is filled with volatile fiscal regimes. The state of Texas
probably isn't, although they're going to impose a new tax there. Certainly
California has one but the whole world is filled with volatile fiscal regimes
where people -- when they see high oil prices, they want a larger take. The
whole world is going that way. So you can't just say well I am not going to
participate in this and go to Long Beach. We do have a spread of these and we
will be looking at some of our other properties around the world that may not --
may no longer fit and maybe bring our risk profile a little closer to where we
would like to be.
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PAUL SANKEY - DEUTSCHE BANK - ANALYST
Great. Thanks. And the last one from me, your production forecast is through '06
now. When can we expect to see a new one from you?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
We have a meeting in February -- we have scheduled I think a meeting in February
in New York, an analyst meeting. So I expect we will roll out something new.
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PAUL SANKEY - DEUTSCHE BANK - ANALYST
Thank you very much indeed.
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OPERATOR
Jennifer Rowland, JP Morgan.
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JENNIFER ROWLAND - JP MORGAN - ANALYST
I wonder if you can just elaborate a little bit on the share buyback program? Is
this going to be a onetime deal buying back the nine million shares or would you
consider potentially buying back more later to offset some of the issuance? And
also when will that share buyback program begin, now or after the deal closes?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
The answer to the last question is when the lawyers let us do it. There are
obviously some legal issues in buying back shares in the middle of what is
viewed as an offering. So as soon as we clear that we will probably begin.
Second, I think we have always said that if we had access capital, we were
overcapitalized, we would return the money to shareholders and if it turns out
that when we are through with this and after we have sold the properties we
probably may consider a slight reduction again.
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JENNIFER ROWLAND - JP MORGAN - ANALYST
Okay. But your estimates were slightly accretive to earnings. That is assuming
that the full 9 million is bought back immediately?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
Bought back before the deal closes or when the deal closes. From our
perspective, we are just issuing 28 million or 29 million shares. We are issuing
20. They wanted some extra shares issued for their own reasons and so -- for
their own reasons. And that is why we bought it back, just to bring it back in
line with what we thought was the proper ratio. But right now we are not
contemplating any five (ph) buybacks beyond this but we obviously can reconsider
over time.
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JENNIFER ROWLAND - JP MORGAN - ANALYST
And then just one other question. The 1.7 billion of cash on hand that you
mentioned having at the end of September, does that include in that proceeds
from the sale of the Premcor shares or is that something that hasn't been
completed yet?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
At the end of this past quarter, the third quarter, we had 1.7 billion in cash.
That includes virtually all of the Valero shares that were sold. We have very
little left of the Valero shares.
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OPERATOR
Subash Chandra, Morgan Keegan.
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SUBASH CHANDRA - MORGAN KEEGAN - ANALYST
Steve, I was wondering if you had any proceeds target, some range of proceeds in
mind from the asset sales from I guess substantially all the Gulf assets and the
unconventional?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
Well we certainly have one in mind but that is probably not what you're asking
whether I have one.
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SUBASH CHANDRA - MORGAN KEEGAN - ANALYST
A range, however wide.
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
If you looked at it -- we tell you I think somewhere that -- what the -- how
much it produces and what the reserves are. I think there are 70 million barrels
of reserves. Current market today is probably no less than $13 and probably no
more than $20.
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SUBASH CHANDRA - MORGAN KEEGAN - ANALYST
That is helpful. And could you comment -- I think you made a reference to this
but in that Vintage had that PB10 (ph) roughly I think at 667 and 40. It was $4
billion just on the proved stuff. Any comment if that's accurate or kind of
numbers you came up with.
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
Well it is accurately computed I think because it comes right off their
engineering reports. Because it comes off their Netherlands Sewell reports that
those reposed numbers were done by the Netherland Sewell Company. So it is
accurate to that extent. We might have a slightly different view about some of
the probables and such.
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SUBASH CHANDRA - MORGAN KEEGAN - ANALYST
But you were in full agreement on the proved and the calculations?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
Yes. The reserves -- if you remember the history, if you don't, they went
through some difficult time in the long pass and now they've gone to outside
engineered reserves. We reviewed those reserves and their process with the
outside engineers and we believe this deserves to be correctly stated.
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OPERATOR
(OPERATOR INSTRUCTIONS). Duane Grubert, Fulcrum Partners.
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DUANE GRUBERT - FULCRUM PARTNERS - ANALYST
I recognized that in the context of overall Oxy, some of these assets I'm going
to ask about are small. But given that I do understand that, I guess I'm kind of
surprised at your enthusiasm in California about the Vintage assets being that
they are quite fragmented locationally versus what you have and I wonder if you
can give some color on whether you might be considering divesting some of that.
You've talked about in pretty firm terms, gee, we don't want to be in the
unconventional gas but might there be some divestitures out of the California
assets as well?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
Yes.
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DUANE GRUBERT - FULCRUM PARTNERS - ANALYST
Okay. And in terms of not having an ongoing interest in the gas, you've talked
about pure divestitures. In concept, would you also consider doing joint
ventures with some of the players out there who seem to be more interested in
that stuff?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
Oh, for sure. When we talk about divestitures as the -- unconventional gas
acreage I think is the best way to describe it. We probably would be better off
joint venturing or taking back a royalty or something like that rather than just
a cash sale.
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DUANE GRUBERT - FULCRUM PARTNERS - ANALYST
Okay. And then finally and a again respectfully I realize this is real small to
Oxy but on the Bolivia reserves, that has been kind of a sore point for some
people like me with Vintage in that they actually book a 70 year reserve life on
Bolivia and for example in your dollar per barrel calculation for the way I look
at it I see that booking as being bloated. Have you given any consideration to
reducing the actual booking of the Bolivia stuff relative to the pace in the
market development?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
We won't really have to book it. It will turn out until the end of '06. I need
these reserves because the deal won't close until next year. We will look at the
Bolivia -- we are cognizant of the same issue you are. A 57 year reserve life or
whatever it is beyond our corporate guidelines for reserve life and so we will
look carefully at that. But we think by the end of next year, whatever we will
be able to book additional reserves elsewhere that will offset that. But in not
basically the United States and in Argentina but we are -- it is really beyond
our guidelines. If that answers your question.
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DUANE GRUBERT - FULCRUM PARTNERS - ANALYST
Yes, those are all great answers.
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OPERATOR
Van Levy, Dahlman Rose & Co.
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VAN LEVY - DAHLMAN ROSE & CO. - ANALYST
Congratulations. I cover Vintage. I think you got a fantastic deal here. My
question is really trying to understand the kind of order of this transaction or
really the focus of it. Was the focus primarily Argentina and then you took
California as part of it or is there something specific about assets in
Argentina or just assets with upside like Argentina had that you are really
focused on expanding your company with?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
I think going to Argentina -- California is part of our company. It isn't a
hobby here. So we think California was important to us and there are some things
that we see there that maybe some others don't. But Argentina -- we are not
interested in buy and decline curves. We can create those ourselves quite
nicely. We are interested in growth opportunities. We are familiar with
Argentina. We were in this space some years ago. We like their position. We saw
a lot of opportunity for growth. So the main driver was the growth and the
profitability we see in Argentina. They have done, with a relatively modest
expenditure, very well in Argentina and their refining costs as you know were
quite low and their operating costs are reasonable. So while Argentina is a
difficult place, no argument there. We think the returns we will get will pay us
for the difficulty.
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VAN LEVY - DAHLMAN ROSE & CO. - ANALYST
Right. So you have got -- I think where the market misjudged this was the
political risk in Argentina. Obviously you are comfortable with that. The
recycle rates there are fantastic. In terms of California then, would this
signal that you are looking for other consolidating plays within California?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
We are always looking for consolidating plays in California. Our company in the
United States is really California and the Permian Basin. The Permian Basin is
sort of the burgundy of the oil business where everybody owns about an acre or
something. California unfortunately is very lumpy. There aren't a lot of
individual owners. So we're always looking for opportunities to acquire in
California. But generally we stay away from the heavier crudes.
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VAN LEVY - DAHLMAN ROSE & CO. - ANALYST
And then I guess my last question is private company versus public and clearly
there are a lot of other public companies obviously trading now with California
assets trading at pretty attractive valuations. Do you have a -- again, is this
a process in the M&A market that we should be aware of that the likely trend of
this consolidation will continue?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
I don't know. I really don't. California, there's very few people interested in
consolidating California. Most of those other companies with attractive
valuations have other stuff with them that maybe more difficult to get rid of
than this. The key for us I think in this particular transaction is a belief
that the individual properties when added together would get us at least our
purchase price even if we sold them all and did the whole breakup. If we have to
say that that isn't true and we'll wind up with some goodwill or ill will or
whatever it turns out to be, that is really not real interesting for us.
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VAN LEVY - DAHLMAN ROSE & CO. - ANALYST
Great. Thanks.
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OPERATOR
John Zenger (ph), Loomin Sales (ph).
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JOHN ZENGER - LOOMIN SALES (PH) - ANALYST
A quick question regarding the comparative operating cost structures of the
assets that you expect to retain in this acquisition as compared to the assets
that you're currently operating in your to date portfolio of Occidental. How do
they breakout, how do they compare? Are we going to be seeing higher lifting
costs?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
No, probably lower lifting costs because the Permian has a higher lifting cost
because of the CO2 flooding.
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JOHN ZENGER - LOOMIN SALES (PH) - ANALYST
And Argentina is presumably --.
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
This Argentina is probably around $5.
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JOHN ZENGER - LOOMIN SALES (PH) - ANALYST
Argentina is $5.
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
And California is about five.
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JOHN ZENGER - LOOMIN SALES (PH) - ANALYST
Five and Argentina five and California. Is their corporate average around $7?
Did I get that figure correct? I'm not that familiar.
15
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
I think it's higher now. It's probably $8.
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JOHN ZENGER - LOOMIN SALES (PH) - ANALYST
So the assets that you are looking to dispose of maybe in the Gulf, and onshore
U.S., etc. would be presumably higher LOE type assets. Is that a fair inference?
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
I don't know about -- our corporate runs about $8.
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JOHN ZENGER - LOOMIN SALES (PH) - ANALYST
Excuse me.
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
The stuff we retain is five. I can't honestly say I recall what the disposal
assets, if you want to call them that, have for their operating costs.
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JOHN ZENGER - LOOMIN SALES (PH) - ANALYST
So just so I heard you correctly, your current operating cost per barrel is
roughly $8.
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
Right.
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JOHN ZENGER - LOOMIN SALES (PH) - ANALYST
The assets that you are acquiring and will retain here presumably in California
would be in the $5 range.
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
Right.
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JOHN ZENGER - LOOMIN SALES (PH) - ANALYST
And Argentina, about $5.
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
Right.
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JOHN ZENGER - LOOMIN SALES (PH) - ANALYST
And then everything else is pretty much insignificant in this.
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STEVE CHAZEN - OCCIDENTAL PETROLEUM CORP. - CFO
That's right.
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JOHN ZENGER - LOOMIN SALES (PH) - ANALYST
As we -- okay. So that's a good operating cost model. Thank you for the help.
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OPERATOR
There appear to be no further questions at this time. I'd like to turn the floor
back over to you for any further or closing remarks.
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KEN HUFFMAN - OCCIDENTAL PETROLEUM CORP. - IR
Dr. Irani?
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RAY IRANI - OCCIDENTAL PETROLEUM CORP. - CHAIRMAN, PRESIDENT & CEO
Yes.
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KEN HUFFMAN - OCCIDENTAL PETROLEUM CORP. - IR
Do you have any comment or closing comments?
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RAY IRANI - OCCIDENTAL PETROLEUM CORP. - CHAIRMAN, PRESIDENT & CEO
No, thank you.
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KEN HUFFMAN - OCCIDENTAL PETROLEUM CORP. - IR
Thank you very much. If you have any questions give us a call.
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OPERATOR
Thank you. This concludes today's Occidental Petroleum Corp. conference call.
You may now disconnect.
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