# From the President

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/NYSE_OXY_2017/NYSE_OXY_2017.mmd` · pages 3-9_

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From the President
and Chief Executive Officer

2017 was a year of strong operational performance, constant innovation and value-enhancing growth for Occidental.

We finished the year with the highest-quality portfolio of assets in the company's nearly 100-year history and continued to deliver on our value proposition of dividend and moderate production growth. We raised the dividend for the 15th consecutive year, grew production from ongoing operations and materially increased reserves. We maintained a solid balance sheet and A grades from the major credit rating agencies, a reflection of our financial discipline and strength.

These were significant accomplishments and are a testament to our company's resiliency in a challenging commodities price environment. But we need to do more, and drive our performance to higher levels.

In 2017, we implemented a strategic cash flow breakeven plan, positioning our company for sustained annual production growth in a lower price environment and to support our dividend. The objective is to be cash-flow neutral at a $40 West Texas Intermediate (WTI) price per barrel of oil, meaning we can cover the dividend and production-sustaining capital. At $50 WTI, we will generate additional cash flows to grow production by 5 to 8 percent. We expect to achieve the $50 breakeven plan in the third quarter of 2018, ahead of schedule. All segments of our business are contributing to this effort. We continue to take significant and aggressive steps to reduce costs and eliminate inefficiencies.

Our goal is to invest in projects that generate long-term value, targeting returns well above the cost of capital. As always, our cash flow priorities are first to safely and responsibly maintain the business. Our second priority is to increase shareholder dividends. Our next priority is growing and strengthening the business. Excess cash flow is deployed to acquisitions and share repurchases, depending on the relative value created by each investment choice.

We remain committed to disciplined capital allocation and have set the 2018 budget at $3.9 billion with the flexibility to adjust activity if market conditions warrant. Our focus continues to be on delivering value-based production growth.

The Board of Directors increased the dividend in 2017, returning \(2.3 billion to our shareholders. This February, the Board affirmed an annualized dividend rate of \)3.08 per share, and we expect to continue funding the dividend from cash flow generated by our base business and increased production from organic growth and completed projects.

In the United States, we continue to hold a dominant position in the Permian Basin, one of the leading oil-and-gas basins in the world. Our unique portfolio of unconventional and conventional acreage differentiates us from competitors. Our Permian Resources business adds unconventional, short-cycle production at high rates, while our Permian Enhanced Oil Recovery (EOR) business provides reliable production and steady cash flow. Our midstream assets are complementary to and support upstream operations, providing an integrated business from point of production to point of sale.

In 2017, we enhanced our Permian Basin position with the goal of accelerating cash flow and improving future returns. We acquired the controlling interest in the Seminole-San Andres carbon dioxide (CO \( _{2} \) ) EOR unit, making it the largest such operation in our portfolio. Demonstrating our industry-leading capability in EOR technology and operating mature oil fields at a high margin, we increased plant throughput capacity by 10 percent within one month of assuming operatorship, improving gross production by 2,300 barrels of oil equivalent (BOE) per day. Concurrently, we divested non-core Permian Resources acreage, maximizing the net present value of our portfolio.

Our investment in data analytics, subsurface characterization, seismic acquisition and petro-physical models generated breakthrough productivity gains in Permian Resources. Some of our New Mexico wells ranked among the most productive in the basin's history, based on average 30-day performance rates.

Internationally, our long-term, low-decline assets continued to be a significant driver of free cash flow. We operate in four core countries where we have decades of experience and valuable partnerships — Oman, Qatar and the United Arab Emirates in the Middle East and Colombia in Latin America. In 2017, we produced our billionth gross barrel of oil, including condensate, in Oman, a demonstration of operational excellence.

Worldwide oil and gas production was 594,000 BOE per day from ongoing operations in 2017, compared to 575,000 from a year ago. We ended the year with Permian Resources production up 29 percent in the last quarter of 2017, compared to the same period the year before.

We had a strong year growing the company's reserve base, with estimated total proved reserves of 2.6 billion BOE at year-end 2017, compared to 2.4 billion BOE at year-end 2016. Our total company reserve replacement ratio was nearly 190 percent. We replaced about 280 percent of our domestic production, with Permian Resources replacing 365 percent of its production. Our finding-and-development costs were $8.53 per BOE company-wide, a 12 percent improvement from a year ago. Occidental's ability to replace reserves and improve the efficiencies of our operations makes us more competitive.

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OxyChem, Occidental's world-class chemical business, continued to generate high financial returns, a result of improved market fundamentals, operational excellence and focus on efficiency. We successfully completed two major projects on time and within budget. In Ingleside, Texas, we began operations of our joint venture ethylene cracker with Mexichem. In Geismar, Louisiana, we started manufacturing 4C Pe, a raw material enabling the efficient production of next-generation, climate-friendly refrigerants. This product was developed by OxyChem, and we've patented the process globally.

In midstream, our crude oil terminal at Ingleside made Occidental a leader in exports from the U.S. Gulf Coast. Benefiting from widening Brent-to-WTI price differentials, we delivered Permian crude to new markets in Europe, India, China and East Asia. We were the first Gulf Coast terminal to dock a 2-million-barrel-capacity Very Large Crude Carrier (VLCC) — among the largest oil tankers in the world — and are in the process of upgrading our facility to load these vessels more quickly. Our ability to load VLCCs dockside will reduce the per-barrel cost of transportation and make our terminal more competitive in shipping Permian crude to global markets.

Our commitment to safety remains unchanged. I'm proud to say that our teams live this philosophy every day and our entire organization continues to make strides toward preventing all incidents. For example, in 2017, we achieved our best-ever employee safety performance, based on the U.S. Department of Labor's Injury and Illness Incidence Rate, and, in Qatar, our employees and contractors achieved a second full year without a recordable injury.

We strive to be a Partner of Choice \( ^{®} \)  everywhere we operate, and to be a valued partner in the communities where we do business. We were honored to be named No. 1 in the Mining, Crude-Oil Production category in Fortune magazine's 2018 World's Most Admired Companies list. This was our 10th time to achieve this top ranking, which we have received every reported year since 2008.

As part of our ongoing commitment to environmental stewardship and shareholder communication, we published a climate report on our efforts to reduce emissions and prepare for a lower carbon economy. The report demonstrates how we are uniquely positioned to help reduce  \( CO_{2} \)  emissions because of our expertise in EOR and carbon capture, utilization and sequestration. We believe our leadership in these areas provides a long-term competitive advantage.

I want to express my appreciation to our Board of Directors, my fellow employees, investors and other stakeholders. Occidental continues to sustain our unique value proposition of dividend and moderate production growth with the strongest portfolio in our company's history, a focused plan and a best-in-class workforce that continues to innovate and improve the way we do business.

This is an exciting time for our industry, and I am confident that Occidental is well-positioned for success.

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Vicki Hollub
President and Chief Executive Officer