OCCIDENTAL PETROLEUM CORP DE

MANAGEMENT’S DISCUSSION AND ANALYSIS

CURRENT BUSINESS OUTLOOK AND STRATEGY

GENERAL

Occidental’s operations, financial condition, cash flows and levels of expenditures are highly dependent on oil prices and, to a lesser extent, NGL and natural gas prices, Midland-to-Gulf-Coast oil spreads, chemical product prices and inflationary pressures in the macro-economic environment. In 2023, as compared to 2022, the average annual price per barrel of WTI crude decreased to $77.64 from $94.23, and the average annual Brent price per barrel decreased to $82.25 from $98.83. The macroeconomic softening of major world economies as inflation pressures are being mitigated with higher interest rates have resulted in a decrease in benchmark oil prices year-over-year. It is expected that the price of oil will be volatile for the foreseeable future given the current geopolitical risks, evolving macro-economic environment that impacts energy demand, future supply actions by OPEC and non-OPEC oil producing countries, the Russia-Ukraine war and conflicts in the Middle East, and the Biden Administration's management of the U.S. Strategic Petroleum Reserve. Occidental does not operate or own assets in Russia or Ukraine, or in the immediate vicinity of ongoing conflicts in the Middle East.

Occidental works to manage inflation impacts by capitalizing on operational efficiencies, locking in pricing on longer term contracts and working closely with vendors to secure the supply of critical materials. As of December 31, 2023, substantially all of Occidental's outstanding debt was fixed rate.

STRATEGY

Occidental is focused on delivering a unique shareholder value proposition with its portfolio of oil and gas, chemicals and midstream and marketing assets and its ongoing development of carbon management and storage solutions and GHG emissions reduction efforts. Occidental conducts its operations with a priority on HSE, sustainability and social responsibility. Occidental aims to maximize shareholder returns through a combination of:

■Delivering a sustainable and growing dividend;

■Enhancing its asset base with new investments in its cash-generative energy and chemical businesses as well as emerging low-carbon businesses;

■Advancing technologies and business solutions to help drive a sustainable low-carbon future;

■Further reducing long-term financial leverage; and

■Strengthening Occidental’s U.S. onshore portfolio with premier Permian Basin assets through the CrownRock Acquisition, which is expected to be immediately cash flow accretive.

OPERATIONAL EXCELLENCE AND CAPITAL EFFICIENCY

Occidental's operational priorities for 2023 were to maximize operational efficiencies by investing $5.0 billion in high return upstream assets to generate long-term free cash flow that will provide cash flow stability throughout the commodity cycle. Occidental set new operational records and efficiency benchmarks in the Permian, Rockies, Gulf of Mexico, Oman and UAE. Despite a softer market, OxyChem generated its third-highest year of earnings. With favorable commodity prices and Occidental’s success with operational efficiencies, Occidental’s generated cash flow enabled share repurchases and the commencement of preferred equity redemption, advancing its shareholder return framework.

DEBT

As of December 31, 2023, future principal payments of debt were less than $18.0 billion, of which $1.1 billion is due in in 2024, $1.2 billion in 2025, $1.4 billion in 2026, $0.9 billion in 2027, and $13.3 billion due in 2028 and thereafter.

In connection with entering into an agreement to acquire CrownRock, Occidental secured a fully-committed $5.3 billion bridge loan facility, a $2.0 billion 364-day term loan, and a $2.7 billion two-year term loan. Prior to or concurrent with the closing of the acquisition, Occidental plans to issue new debt comprised of a combination of the term loans and senior unsecured notes. In addition, Occidental plans to refinance a majority of the $1.2 billion of CrownRock’s existing debt assumed in the acquisition. Occidental intends to repay at least $4.5 billion of debt within twelve months of closing the acquisition with proceeds from the divestiture program and excess cash flows.

DEBT RATINGS

As of the date of this filing, Occidental’s long-term debt was rated Baa3 by Moody’s Investors Service, BBB- by Fitch Ratings and BB+ by Standard and Poor’s. Occidental's credit rating was upgraded to investment grade by Moody's Investors Service in March 2023 and by Fitch Ratings in May 2023. Any downgrade in credit ratings could impact Occidental's ability to access capital markets and increase its cost of capital. A non-investment grade debt rating may require Occidental or its subsidiaries to provide financial assurance in the form of cash, letters of credit, surety bonds or other acceptable support under certain contractual arrangements.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SHAREHOLDER RETURN PRIORITIES

Capital is returned to shareholders through Occidental’s dividend and share repurchases. In 2023, Occidental declared dividends to common shareholders of $646 million, or $0.72 per share, and repurchased 29.1 million common shares at an average price of $61.09 per share under the $3.0 billion share repurchase program announced in February 2023. In February 2024, Occidental’s Board declared an increased dividend rate of $0.22 per share per quarter or $0.88 on an annualized basis. Additional free cash flows from the CrownRock Acquisition are expected to support the increase of the quarterly dividend to $0.22 per share. As of December 31, 2023, $1.2 billion remained of Occidental’s $3.0 billion share repurchase program, which the Board authorized in February 2023.

In 2023, Occidental redeemed preferred stock with a face value of $1.5 billion, and incurred $151 million in redemption premiums as its trailing 12-month distributions to common shareholders were above $4.00 per share. As of December 31, 2023, $8.5 billion face value of the preferred stock remains outstanding. In light of the CrownRock Acquisition, Occidental’s shareholder return priorities aim to provide a growing sustainable dividend and reduce outstanding debt principal to below $15 billion before resuming share repurchases.

SUSTAINABILITY AND ENVIRONMENTAL STEWARDSHIP STRATEGY

In 2020, Occidental was the first U.S. oil and gas company to announce goals to achieve net-zero GHG emissions for its total emissions inventory including use of sold products. These goals include achieving net-zero GHG emissions (i) from its operations and energy use before 2040, with an ambition to do so before 2035, and (ii) from its total carbon inventory, including the use of its sold products, with an ambition to do so before 2050. In 2020, Occidental also set various interim targets, including 2025 carbon and methane intensity targets, and Occidental was the first U.S. oil and gas company to endorse the World Bank’s initiative for zero routine flaring by 2030. In 2022, the Board of Directors adopted Occidental’s updated HSE and Sustainability Principles, based on engagement with shareholders, employees and other stakeholders. The Principles reinforce the alignment among Occidental’s core values, goals and strategies, underpin its Operational Management System, and help to guide the workforce across its businesses.

Occidental seeks to meet its sustainability and environmental goals through its development and commercialization of technologies that lower both GHG emissions from industrial processes and existing atmospheric concentrations of CO 2. Occidental believes that carbon removal technologies, including DAC and CCUS, can, with incentives necessary for their development and deployment, provide essential CO 2 reductions to assist the world’s transition to a less carbon-intensive economy. As a result of these initiatives, Occidental has completed the following actions, among others, toward advancing its low-carbon strategy:

■Acquired full ownership of DAC technology developer Carbon Engineering, Ltd;

■Reduced estimated methane emissions by approximately 58% from 2019 and 40% from 2021, along with CO 2 reductions;

■Entered into a joint venture agreement with BlackRock, through a fund managed by its Diversified Infrastructure business, for the development of STRATOS, Occidental’s first large-scale Direct Air Capture plant in Ector County, Texas, which provides $550 million of committed investment from BlackRock's fund;

■STRATOS construction progressed on schedule;

■South Texas DAC Hub selected for a U.S. Department of Energy DAC demonstration grant, with funding to be announced in 2024, and commenced front-end engineering and design;

■Achieved global 67% reduction in routine flaring of gas in 2023 from its 2020 baseline through commissioning additional compression in Oman while its U.S. oil and gas operations sustained zero routine flaring;

■Removed or converted all remaining high-bleed pneumatic control devices found in Occidental’s U.S. onshore oil and operations; and

■Original signatory to the Oil and Gas Decarbonization Charter and committed funding to the World Bank’s Global Flaring and Methane Reduction Partnership, both announced at the UN’s COP28 Climate Change Conference.

The future costs associated with emissions reduction, carbon removal and CCUS to meet its long-term net-zero GHG goals may be substantial and execution of Occidental’s plans and net-zero pathway depends on securing third-party capital investments. As reflected by the joint venture with BlackRock, Occidental is pursuing multiple pathways to fund these projects including project financing, long-term carbon removal or CCUS agreements, and identifying business opportunities with stakeholders in carbon-intensive industries.

MANAGEMENT’S DISCUSSION AND ANALYSIS

KEY PERFORMANCE INDICATORS

Occidental seeks to meet its strategic goals by continually measuring its success against key performance indicators that drive total stockholder return. In addition to efficient capital allocation and deployment discussed below in the section titled Oil and Gas Segment - Business Strategy, Occidental believes its most significant performance indicators are:

OPERATIONAL

■Total spend per barrel - In 2024, Occidental will continue to focus on controlling total costs from a per-barrel perspective. Total spend per barrel is the sum of capital spending, general and administrative expenses, other operating and non-operating expenses and oil and gas lease operating costs divided by global oil, NGL and natural gas sales volumes.

■Daily production - Occidental seeks to maximize field operability and minimize production down-time.

FINANCIAL

■CROCE - CROCE is calculated as (i) the cash flows from operating activities, before changes in working capital, plus distributions from WES classified as investing cash flows, divided by (ii) the average of the opening and closing balances of total equity plus total debt.

■Credit rating - Maintain and improve financial leverage to a level consistent with investment grade credit metrics.

SUSTAINABILITY AND ENVIRONMENTAL

■Specific interim emissions reduction and emissions intensity targets to advance the goal of net-zero operational and energy use emissions before 2040, with an ambition to achieve before 2035.

■Milestones in specific carbon removal and CCUS projects that advance a net-zero total emissions inventory, including use of sold products, with an ambition to achieve before 2050.

■Facilitate deployment of carbon removal, CCUS and other solutions to advance total carbon impact past 2050.