Good morning and welcome to the Occidental Petroleum Corporation first quarter 2018 earnings conference call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Richard Jackson, Vice President, Investor Relations. Please go ahead.

Thank you, Kate. Good morning, everyone, and thank you for participating in Occidental Petroleum's first quarter 2018 conference call. On the call with us today are: Vicki Hollub, President and Chief Executive Officer; Cedric Burgher, Senior Vice President and Chief Financial Officer; Jody Elliott, President of Domestic Oil and Gas; and B.J. Hebert, President of OxyChem. In just a moment, I will turn the call over to Vicki Hollub. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements, as more fully described in our cautionary statement regarding forward-looking statements on slide 2. Our earnings press release, the Investor Relations supplemental schedules, and our non-GAAP to GAAP reconciliations and conference call presentation slides can be downloaded off our website at www.oxy.com. I will now turn the call over to Vicki Hollub. Vicki, please go ahead.

Thank you, Richard, and good morning, everyone. Our first quarter key highlights demonstrate the significant progress we made to increase the value of our business while delivering free cash flow and value-based growth. Our low oil price Breakeven Plan will be achieved in the third quarter, six months ahead of our original estimate. This accelerated schedule has been driven in part by better than expected performance from Permian Resources, which added 18,000 BOE per day this quarter, and is currently on a trajectory to deliver a 47% year-over-year growth rate. This will be accomplished with only 11 operated rigs. We're truly doing more with less, as we demonstrated by our increased guidance in all business segments. It is important to note that our Breakeven Plan not only provides us with the ability to continue value growth in a low price environment, it delivers significant upside in a higher oil price environment. Slide 8 illustrates how leveraged our Permian EOR business is to higher oil prices. EOR will generate significant incremental cash flow in the prevailing environment. Similarly, Chemicals and Midstream have been positioned for long-term value creation and are capitalizing on today's pricing and marketing spreads to generate substantial improvements in free cash flow versus our Breakeven Plan. We have increased our full-year guidance for these two businesses, and they're actually capable of generating over $2 billion of annual free cash flow. As we did last year, we will continue to focus on enhancing our portfolio, increasing the value of our assets, and using technology to drive superior operational performance. On slide 5, I'd like to point out a few important Permian Resources achievements during the first quarter. First, we continued to bring wells online at basin-leading rates in Greater Sand Dunes, with an average 30-day IP of 31 BOE…

Thanks, Vicki. I will begin with an update on our Breakeven Plan and then address financial results and 2018 guidance. On slide 10, we have updated our progress towards our Breakeven Plan at low oil prices. We continue to make substantial progress on our plan and are exceeding targets across our businesses. In an effort to be conservative on sustainable cash flow, we adjusted our first quarter cash flow from operations for a positive seasonality and market-related items in Midstream and Chemicals net of turnarounds in the Middle East, which is represented by the gray bar. Once we achieve our remaining milestones, we will be well-positioned in the future with the cash flow necessary for our $40 oil price business sustainability and $50 oil price business growth scenarios. But we will continue to operate our business to reduce those breakevens even further. Slide 11 illustrates our progress towards the Breakeven Plan. In the Chemicals business, the 4CPe plant began contributing to cash flow and will achieve peak operating rate in the third quarter of this year. We categorized additional chemical product pricing improvement as seasonal in the gray bar of other improvements to maintain conservatism in our plan. In the Midstream business, the Midland to Gulf Coast spread for the first quarter came within our guidance at $3.12 per barrel. Additional Midstream margin improvements for crude export, gas processing, and crude inventory sales were categorized as seasonal in the gray bar of other improvements. We also had planned turnarounds in the Middle East which reduced quarterly cash flow but will be back to normal rates in the second quarter of this year. In the Permian Resources business, we grew 18,000 BOE a day sequentially, leaving 32,000 BOE a day to achieve our Breakeven Plan goal. Jody will give additional guidance…

Thank you, Cedric, and good morning, everyone. Today I'll provide an update on the continued improvements in our Permian operations and the progress we've made in delivering high-margin production growth to contribute to our Breakeven Plan. 2018 is off to a great start. Our value-based development approach continues to deliver record wells, and operational improvements are lowering cost and reducing time to market. On slide 18, you'll see that our Permian Resources New Mexico team delivered another quarter of play-leading results. We turned 16 new Greater Sand Dunes wells to production that averaged 30-day rates of 3,100 BOE per day, which is in line with the step change in productivity that began in the second half of 2017. I also want to highlight a two-well pad in the Wolfcamp XY bench that delivered an average 30-day peak rate over 10,000 BOE per day. As shown on slide 50 in the appendix, many of these record wells in New Mexico were stimulated with significantly less proppant than the industry average, which results in lower well costs and higher full-cycle value. We continue to integrate our vast seismic data with improved geomechanic and petrophysical analysis that enable us to land the wells in the best part of the rock and stimulate the rock with a customized frac. Our customized stimulation designs rely on our subsurface characterization workflows and data analytics to balance well productivity with incremental cost, ensuring we're developing each section for maximum value. Lastly in New Mexico, we continue to appraise and delineate our acreage across Greater Sand Dunes. We delivered one Second and one Third Bone Spring appraisal well in a field called Red Tank in the northern part of Greater Sand Dunes, which delivered an average 30-day peak rate of 2,300 BOE per day per well. We're excited…

Thank you, Jody. I'd like to close by congratulating two members of our team on role changes. Richard Jackson will be moving into Jody's team to lead our operations support groups. Richard has been an incredible asset for the Investor Relations team and will continue to be actively involved with our IR activity. He has done an incredible job to change our communication and sharing our story with our investors and shareholders. Replacing Richard as VP of Investor Relations is Jeff Alvarez. Jeff most recently led the Permian Resources Texas/Delaware business unit as President and General Manager. Jeff's extensive international and domestic experience has prepared him to be our investment community spokesperson. Richard and Jeff have a long working history together and will be transitioning over the next few months. We'll now open it up for questions.

We will now begin the question-and-answer session. The first question is from Brian Singer of Goldman Sachs. Please go ahead. Brian Singer - Goldman Sachs & Co. LLC: Thank you, good morning, and congratulations to Richard and Jeff. Vicki, share repurchases have not been vocally high in the pecking order for use of free cash. Can you talk to how you and the board will determine the magnitude and the timing of share repurchase and whether you view repurchases as more temporary to deploy excess free cash flow from above mid-cycle margins in Midstream and PetChem versus something more ongoing as an augmentation to OXY's dividend?

It's important to note that historically, we've always had a very active share buyback program. And as Cedric mentioned, from 2005 to 2015, we had bought back about $9 billion in shares. That's while we were paying a dividend over that time period of about $17 billion. That dividend that we paid over that time period had a CAGR of almost 14%. So even though we pay a healthy dividend, share buybacks are a part of our cash flow priorities. And in fact, in our last presentation on slide 6 for the last quarter, we had listed that share buybacks would be a possibility in an environment above $60. The reason we haven't talked about it here recently is the fact that we wanted to get a line of sight to see whether or not prices were going to remain that healthy, and we also wanted to get closer to our Breakeven Plan to resume our buyback program. As for the amount, as Cedric said, we have quite a volume of share repurchases that were authorized by the board for us to make. We'll begin those this year, but it really depends on the market conditions, pricing, and other opportunities. Brian Singer - Goldman Sachs & Co. LLC: Great, thanks. And then to shift on my follow-up to the Permian, you're planning an acceleration in the number of Permian Resources wells brought online in the second and third quarters, and you've guided to an acceleration in production and growth in the third and fourth quarters. What are the moving pieces around that and potential upsides? What type of well productivity improvements, if any, have you factored in versus what you're seeing? And how should we think about the natural decline rates in Permian Resources?

Brian, this is Jody. Good morning. We tend to take a cautious approach to updating our type curves and projections on new wells. So as we get data beyond the 24-hour IP, beyond the 30-day IP, we really want to start seeing consistency in the 6-month cumes or even the 1-year cumes we start moving up our type curves. So some of that is baked into this forward guidance. The wells online count, we're confident about that, given all the investment in Aventine and the logistics work and the improvements in our execution. The variability in those numbers is really just the fact that a lot of these land right at the end of the quarter, and so a few wells moving in or a few wells moving out changes your count, but it doesn't appreciably change your production forecast. Brian Singer - Goldman Sachs & Co. LLC: Great, thank you.

The next question comes from Guy Baber of Simmons & Company. Please go ahead. Guy Baber - Simmons Piper Jaffray & Co.: Thanks and congratulations, everyone, on the strong results.

Thank you. Guy Baber - Simmons Piper Jaffray & Co.: I wanted to start with just a point of clarification on the Midstream. But just to confirm here, the slides show that for every $0.25 per barrel widening in the spread, that's another $45 million of cash flow annualized to the Midstream, which is clear. However, there is I believe a partial offset in terms of your upstream realizations. So can you just confirm for us what that sensitivity is on a net basis to OXY at the corporate level, inclusive of the Midstream benefits but also accounting for the hit to the upstream realizations? I just want to make sure that we're triangulating to the right bottom line, as the guidance is premised upon a $6 to $7 spread, obviously, but we're currently sitting closer to $15 on a spot basis.

Guy, this is Cedric, and that's a good question. The net is about $30 million, so the $45 million minus the $15 million. Guy Baber - Simmons Piper Jaffray & Co.: Okay, great.

I think that answered it. Guy Baber - Simmons Piper Jaffray & Co.: Okay, perfect. And then for my follow-up here, I wanted to ask an ops question. But, Jody, you alluded to this, and you have a slide on this in the back of your deck, slide 50, I believe. But you highlight how you all drilled some of the most prolific wells in the basin in the last 12 months with a step function improvement in the recent quarters, yet you're seeming to do that without any meaningful increases in your completion intensity and at a completion intensity that's well below average for peers. So that appears to bode pretty well for your capital efficiency. So can you just talk about that dynamic in a little bit more detail? I'm just trying to better understand the sustainability there and what you're seeing leading edge on the capital efficiency front.

Yeah, Guy, thanks for the question. This all really starts with subsurface characterization. It's what we've been talking about over the last year of improvements on geomechanics and geochemistry and integrating our seismic and advancing our petrophysical modeling to better understand what we call flow units, and then how those flow units will behave with a stimulation. That leads to then a better stimulation design that's customized for basically each well. But from that customization comes efficiency gains built around standardization. So all of the execution with leveraging Aventine, with how we execute in the field, delivery of sand, the commercial arrangements that support that then turn something that's very customized into something that's very manufacturing-oriented. So the combination of those things is really what's driving what we believe is play-leading capital efficiency. The other piece in the middle that I want to highlight is what the team does in the area of field development planning. So they take all of those attributes and then optimize what's the best way to develop the field or the different flow units. Do we do them concurrently? Do we do them individually? How do you pace the rigs, how many rigs, how many frac cores? And there's many, many iterations on trying to optimize that, and the ultimate goal is maximum value per section. And so our teams have gotten very, very good at that, but they also retain flexibility in those field development plans, so as we have new learnings, we have surprises, both positive and negative, we can adjust those plans accordingly. So we really are hitting on all cylinders from subsurface through execution at the wellhead. Guy Baber - Simmons Piper Jaffray & Co.: That's great stuff. Thank you and congrats to you as well, Richard.

Thanks, Guy.

The next question is from Phil Gresh of JPMorgan. Please go ahead.

Yes, hi. Good morning. Congratulations on a strong quarter. First question is just on the capital spending for this year. If I look at the Permian specifically, the wells online in the first quarter are a fairly small percentage of the total-year plan. But the CapEx in the Permian, if I just take your guidance from the fourth quarter call, divide it by four, is tracking ahead of that. But I just want to get an understanding of how – it sounds like it was in line with your own expectations, but I just wanted to get an understanding of how you think about how that plays out. And if you could maybe just dovetail in the comments about potentially looking to spend more capital to sustain activity levels in the international investments that you talked about.

Yeah, I'll let Jody cover a little bit more of the lumpiness of the Resources business and what we had expected to see in the beginning of the year. But when we laid out our program, we intentionally designed it so that toward the end of the year we would have the flexibility to ramp down, and that's built into the capital program for 2018. What we wanted to do is to have the flexibility to ramp down to our $3.3 billion capital in 2019 if we were seeing a $50 environment, which is what we had talked about. Since we're not sure what pricing will do in 2019 and we want to stay within cash flow with our capital programs in the future, we haven't set that yet. So what you're seeing is an upfront-loaded 2018 capital. With respect to how the wells fit into that, I'll let Jody talk about that.

Yeah, when you think about the plan for this year, the front end is considerably loaded with more facility activity. In fact, in the second quarter, we'll be commissioning two large facilities in New Mexico. And so as you move through the year, even though some of the well count is going up on the completion side, you're offsetting that with less facility spending. The wells are also the place where all of these efficiencies, the benefits of Aventine which are just starting and which will grow over the year, start coming into play.

And if I could just clarify, Vicki, on the second part of that question around the activity levels and the potential for further investment in international and EOR, is that something that would lead to spending above the $3.9 billion for the year at this stage?

At this point, we haven't made any decisions regarding that. But what I will assure you is that we have flexibility. We have a vast inventory of not only things to do in the Permian but internationally. Our opportunities are pretty much unlimited at this point with respect to what we're seeing. But for the program this year, we haven't made any decision yet to increase our capital. What we would consider doing at the most probably would be to sustain the activity level we have at this point, but we haven't made that decision yet. We'll see how things look over the next few months.

Got it, okay. And then my follow-up was just around the balance sheet. In past quarters, you've had slides there where you've talked about asset sales as a means of bridging some of your spending gap, which obviously at higher prices isn't as necessary. But does that mean that you're not looking to monetize these assets anymore? And just in general, when you talked about your debt reduction objective, what would be the goal at this stage? Where do you want gross debt or net debt, whatever metric you would choose to go by?

Got it. This is Cedric, Phil. On monetizations, we'll always be looking at high-grading, improving our portfolio. If there are things that we can get a good value for that aren't core or strategic to us, then we certainly would be looking at those kind of exits, like what we just did in the first quarter with the gas plant. It really wasn't – we got a good price for it, and it wasn't essential to what we needed to do. In a lot of those particularly Midstream areas, we can contractually cover our needs just as easily. You don't necessarily have to own the asset. So there aren't any big plans necessarily, but at the same time we'll always be opportunistic with improving our portfolio. With respect to the balance sheet and debt, we don't have a precise target other than we want to be at the strong side of the group within the peer group. We've got a good credit rating and a good strong balance sheet, and we would like to make some improvements to it. But there's nothing that's kind of a must-have. So improving the net debt with some of the organic cash flow we expect to be generating over the next few quarters is also on the list of things we'd like to do.

Okay, thanks.

The next question is from Doug Leggate of Bank of America. Please go ahead.

Thanks. Good morning, everybody. Richard, you're not going to get rid of us that easily, but good luck in your new role. But two quick questions, if I can (34:41-34:54).

I'm sorry, Doug, but you're cutting out. Could you try to repeat that question for us, please?

Sorry, I apologize. Can you hear me now?

Yes.

Okay. So when I saw you last, you talked about achieving the milestone for cash breakeven as a potential turning point for the new OXY strategy going forward. I'm just wondering what you think is the right level of growth for a company of your size. What do you think your portfolio can support?

I think what the portfolio can support and what's appropriate and prudent to do are maybe two different things. Our portfolio would support significant growth rates. But we believe that a growth rate certainly above 8% is where we can be very efficiently and effective, and we think that that's the growth rate that would be appropriate for our dividend level and for the other cash flow priorities we have, as we mentioned earlier, buybacks. I'm not sure where that ultimate number would be. It really depends on how efficient we get and what types of projects come up. But certainly, one of the things we always want to do is stay within cash flow, so it will be somewhat driven by prices.

I appreciate that. That was, just to be clear, compared to the current 5% to 8% target, right?

That's right, because currently, we've averaged 5% to 8% over the years. We now have the capability to go well above that. And how far above that we go, to say it more clearly, is going to be dependent on prices and cash available.

Thanks. My follow-up is probably for Cedric, if you can still hear me. Cedric, buybacks and dividend growth go hand in hand, meaning that on a per-share basis, buybacks amplify dividend growth, so I'm just curious. How do you think about the dividend policy going forward in the context of restarting the buyback program? Is that a per-share growth target on the dividend or an absolute target on the dividend amount? I'll leave it there. Thanks.

Thanks, Doug. No, on dividends, really our philosophy has not changed. We are absolutely committed to the dividend, as we've proven through the downturn, not just sustaining it but growing it at a modest rate. It will be dependent on our view of – a dividend is long-term commitment. Share buybacks are more opportunistic. This may be the way to say it. But on the dividend, we would look to continue with modest increases. Because it's a long-term, permanent commitment, if you will, the dividend, we look to do that at a more mid-cycle price. So today plus or minus $50 is what we have in mind. So with the higher price, as we showed last quarter on slide 6 of last quarter's presentation, buybacks come into play when you're in a significantly higher price than $50. So we run our business on a $40 to $50 price deck in terms of being prepared for lower prices, running a low-cost business, and then look for dividend increases as we continue to improve our efficiencies, our well productivity. The Aventine, all the things we've been talking about to drive our breakevens lower, we'll continue to do that. And that's what will position us potentially for further dividend increases.

I appreciate the answer. Thanks, everybody.

The next question is from Leo Mariani of NatAlliance Securities. Please go ahead.

Hey, guys. I just wanted to follow up on one of the earlier comments that you guys made. Obviously, your breakeven has been pushed forward to the third quarter. Obviously, that's nice. You talked about potentially higher CapEx later in the year. But you specifically said that that would likely be portioned over to international EOR. I just wanted to get your thought on that. Why those areas versus Permian Resources, for example, do you see better returns in international EOR? What's the thought behind that?

So for 2018, if we increased our capital, it would be not beyond the program we currently have planned for international. Any increase in capital this year would be to just sustain the Permian Resources business. We do have some capital allocated to our international assets to do some appraisal work and evaluations for a little more aggressive program internationally in 2019, if prices permit, but that's probably what you're talking about is just the work to set up those programs for 2019.

Okay, that's helpful. And I guess with respect to the Aventine hub, obviously you guys have put a lot of time and effort onto getting that up and running. If you were to do a bit of a lookback and project forward, is there any way to quantify what you might be able to save in terms of Permian Resources well cost? Is there any way to say look, once this is fully up and running by the end of the year, we can save 10%? Is there any way to quantify that?

Leo, this is Jody. Thanks for the question. I think we've stated $500,000 to $750,000 a well impact when we're up and running. But the concept of Aventine actually wasn't just well cost focus. It was also securing supply. And so we're really getting multiple benefits out of Aventine. Clearly, we think we will drive costs down. We have already shown that securing supply during this tight period has been very, very helpful, not just in New Mexico, but supporting contingency sand deliveries in Texas as well. The other part that really starts growing over time are the efficiencies that are gained because we've got all of our strategic partners in place that we can start whittling out all of the inefficiencies, the wasted motion, which does two things. It lowers our well cost and shortens time to market. But for our partners, it drives up their utilization. So their profit per frac core, per rig crew, per flowback unit, all of those things go up because we're more efficient than the industry average. And so the result of that is less pressure on price increase because they're driving higher margins. That's how we look at it. The number we've talked about is $500,000 to $750,000 a well. We think there's upside as the teams mature, not just in the physical assets but how we work the process.

Thanks a lot.

The next question is from Bob Morris of Citi. Please go ahead.

Thank you, good morning, Vicki and team. Congratulations on the continued improvement in the Delaware Basin wells. My first question is you raised the guidance on the Midstream pre-tax income, and that's based on an assumed spread of $7 to $8 from Midland to the Gulf Coast for the rest of the year. But that spread is currently around $15, and the strip on that is similarly wide. Would you or could you – have you given any thought to hedging that or trying to lock that in? Because that would be significant incremental cash flow that then you could use for the share buyback or otherwise.

I would say, Bob, up to this point this quarter, we're seeing an average of just a little more than $8. So while it might seem like we're being conservative, it's really based on some information, and some of the spikes we're seeing go well above that, but we're not sure we'll see that. But with respect to your question, I'll pass that to Cedric.

Bob, I'd love to lock in $15 if we could. The truth is there's no market really for hedging those differentials. It's very thin and short-term and just really non-existent. So it's a volatile market. Its outlook is difficult to predict. As we've seen, the primary driver is pipeline utilization, which we expect to continue to be high until these new pipes come on, particularly in the second half of 2019. But as it stands, hedging is just not really an option available to us.

I suspected the market was pretty thin. And obviously, it would be nice to be able to lock that in. My follow-on question is I know you did mention you'd be opportunistic on non-core asset sales. You did say last quarter you expected to execute on some non-core asset sales this year. Has either the recent deal at a very high per-acre value or the widening in these Midland differentials change your view or approach on executing on non-core asset sales this year?

No, it's still the same. We will look for opportunities, and the opportunities have to be compelling enough to execute on. But we're still continuing to look at ways to monetize those things that are noncore to us.

Okay, great. Again, congratulations. Thank you.

Thank you.

The next question is from Matt Portillo of Tudor, Pickering, Holt. Please go ahead. Matthew Merrel Portillo - Tudor, Pickering, Holt & Co. Securities, Inc.: Good morning, all. Jody, you highlighted the value proposition of the Aventine logistics hub in the northern Delaware Basin, which appears to have a strong competitive advantage regionally. I was wondering if you see similar logistics potential in the southern Delaware and in the Midland Basin.

Matt, we sure do, but in a different scale. Actually, the one in the southern Delaware Basin is called Palatine, and it's more of a contractual relationship on sand trans-load. Midland Basin, there's more access to infrastructure, and so you could service Midland out of either Palatine or direct from some of the regional sand mines that are coming online. It's a little less exposed, plus our activity set is considerably lower in Midland. So we're really focusing on the Delaware Basin to ensure we have logistics, maintenance capabilities, those kind of things that are more regional to the activity to take out trucks, to take out inefficiency and downtime. Matthew Merrel Portillo - Tudor, Pickering, Holt & Co. Securities, Inc.: Great. And the follow-up question is actually around your export business. As pipeline capacity ramps towards Corpus, you mentioned industry volumes will continue to increase, allowing you to expand your Ingleside dock capacity for crude oil. My question actually revolves around your LPG asset base. I know OXY mothballed that facility due to lack of propane access. And I was wondering with some of the new greenfield NGL pipes potentially heading southbound if you see the potential to bring this asset back into service.

We stay aware of all the activity in the area, and we're just keeping a watchful eye to determine at what point. We believe at some point that could be an opportunity for us, but we don't see that now. We're really focused more on expanding the oil export part of that. However, we're going to stay opportunistic with respect to how those pipelines play out and what opportunities might come our way. Matthew Merrel Portillo - Tudor, Pickering, Holt & Co. Securities, Inc.: Great, thank you very much.

Thank you.

The next question is from Pavel Molchanov of Raymond James. Please go ahead. Muhammed Ghulam - Raymond James & Associates, Inc.: Hey, this is Muhammed on behalf of Pavel. Thank you for taking the questions. First of all, when the buyback eventually does start, how should we think about it? Should it be a flex variable, as in will it remain relatively constant, or flex up or down with free cash flow?

I think the way to think of it, Muhammed, is opportunistic. We're going to be looking at – there's a competition for capital around here, and that's one great use of capital, but we'll look at reinvestment and other options as well. And obviously, we'll be looking at the value of the shares. So periods of weakness and things like that, we certainly could step in, but we'll be opportunistic with those buybacks. Muhammed Ghulam - Raymond James & Associates, Inc.: A follow-up on a different topic. The Middle East, it's now been almost a year since the economic embargo against Qatar started. You've said in the past there hasn't really been a significant impact on you guys. Is that still the same, or have there been any changes?

No, that's still the same. It never really impacted our business very much, and I think Qatar in general has made a lot of changes to the way the country now manages that. And so we don't expect, didn't see any, and don't expect to see any problems with any of our operations. Muhammed Ghulam - Raymond James & Associates, Inc.: That's all for me, thank you.

Thank you.

The next question is from Roger Read of Wells Fargo. Please go ahead.

Yeah, thanks. Good morning. Am I on?

Good morning. Yes, you're on.

Good morning. Okay, I just wanted to make sure. Kind of blank there. Maybe to follow up on the dividend question that hasn't been quite beaten to death, Cedric, if you look at your debt and thinking about the period we've just been through here of focusing more on cash flow neutrality in a low oil price environment than where we are today, do you look at any of your long-term debt and evaluate that as something you might prefer to retire rather than buy back shares?

Certainly, we would look at that, have looked at it. We know the terms, so that's it. That is one option that we could consider down the road. So again, framing it, hopefully we've laid this out pretty clearly, but we have a plan that we're about to achieve that means we can pretty much in any reasonable oil price scenario stay within the guardrails of cash flow. And then with that, we've laid our priorities, and net debt improvement is one of them. And so in the short term, it likely means building cash a little bit because most of our debt is termed out, as you've noted. But there are ways to bring that in and make some reductions there too over time. But again, in that area we'd be opportunistic. I've worked on in the past debt buybacks and even a defeasance, and a defeasance is probably the last thing we'd want to do. They tend to be expensive, but there are ways to bring that debt in, and that's something we would look at over time should the cash flow continue to stay at a high level.

Okay, thanks, and then maybe two quick questions on the Permian. This call, no comments or, at least that I saw in the presentation, anything on acreage swaps or additions or anything. Is that an indication the markets slowed down or just a quarterly kind of event? And then the other question was, if you could help us, just because it's been quite a while since we've had to think about high oil prices having an impact on EOR ops or OpEx, what exactly is exposed, what the percentage, maybe the right way to think about how that stair-steps in, in a higher oil price environment.

Yeah, Roger, no. The first question on acreage trades, no, there's still a lot of activity there. Last year we did about 17,000 net acres in trades, and in the first quarter we've done 11,000. So there's still a desire to core up, be able to drill longer laterals, leverage your larger positions. With regard to EOR OpEx, it's primarily two things. It's energy, so as the cost of electricity goes up, you have some exposure to energy. And then some of the CO2 contracts have an oil price relationship. We can follow up with you later on trying to help model that a little closer. But the things we control with well work and activity, that's all managed pretty well and not so exposed to inflation. Our improvement activities typically offset any inflation.

Okay, great.

Roger, sorry, this is Cedric. I just want to add one thing just for clarification. The first quarter financials, in our cash flow you'll see $177 million of acquisitions and $275 million of sales. We talked about the roughly $150 million Delaware Basin gas plant sale, which was non-core, in that sale number, but the other piece of it was really the swap. So really the acquisition, we just broke – the way we did from an accounting standpoint, we broke both the acquisition and the sale out in the financial statement. But it really was done as one deal and it was essentially a swap, a large one.

Great, thank you.

And the other thing I'd add, Roger, about EOR is that we put the slide in there to show you it's leveraged to oil. And the reason for that is that it's about 80% liquids. And so on a BOE basis, we have a higher liquid – higher oil production from EOR on a BOE basis. So that's why it's that margin for – even though OpEx will go up a little bit, we really benefit from higher oil prices in the EOR business.

I appreciate that.

The next question is from Jason Gammel of Jefferies. Please go ahead.

Yes, thanks very much. I just wanted to come back to the updated guidance on the Midstream, which obviously a very significant increase. I realize that most of it is due to differential. But if I just take the midpoint change in the differential, multiply it by the $45 million rule of thumb, which sounds like maybe I should be using $30 million, I get to about $625 million versus the $750 million step-up in the guidance. So I was wondering if you could talk about any other factors that are positively affecting your outlook for the Midstream this year.

Certainly, the Midstream business has more than just that – those contracts related to the takeaway. The export terminal in particular has been doing fantastic this year. As you know, we're a leader in that area, and so I think it would probably be the other thing I'd point to more specifically.

So that's the ability to capture the arbitrage between, let's say, Brent and Corpus Christi pricing or something along that one?

This is Richard. I may help with one piece of that. I wanted to clarify. The $45 million per $0.25 change, the Midstream segment fully benefits from that. The $30 million is really our upstream production that's based on Midland pricing, and so you'll see that in our realizations and our production schedules. So you do need to take the full $45 million and apply it to Midstream, and that's the benefit.

Okay, thanks. That is to say even that would be a fairly significant uplift relative to just the rule of thumb that you're giving in guidance. But maybe if I could just transition, your comments around essentially pipeline utilization rates being very high and not really much relief until midyear next year, I know you're only giving guidance for 2018. But should we be able to extrapolate that Midstream is looking to have a pretty good first half of 2019 earnings period as well?

Yes, that's our view. If you look at the alternatives, rail would be great, but it's got an $8 a barrel range, but that's limited today to around 100,000 to 150,000 barrels a day in terms of rail capacity. I think there will be efforts to try to increase that, but it's difficult to do. And then trucking – by the way, slide 63 lays this out pretty well for you. And then trucking, again, it's a higher cost with around $12 or so a barrel. So those would be some upper limits you might think about. However, with trucking, we've all seen bottlenecks there. The roads are crowded and in disarray, and getting trucks and getting truck drivers even is a difficult thing to do. So as we've said, the outlook for spreads is difficult to predict. It's going to be bouncy for a while as all of the takeaway systems are being stretched to their limits.

That's really very useful. Thanks very much.

You bet.

And the final question today comes from Michael Hall of Heikkinen Energy Advisors. Please go ahead.

Thanks, a lot of mine have been addressed. I guess just one I wanted to hit on, on the Aventine facility, I guess dovetailing off of the comment on crude-by-rail. Is there any opportunity to I guess convert any of that facility into a crude-by-rail terminal, and to what extent might there be any interest in doing that on you all's end?

Michael, this is Jody. You've got to recall, we have 2.5 times our equity oil production volume that we can move on pipe. So for us, we wouldn't likely consider that as an option. We really see this more as an operational facility to support right now mostly the capital side of the business. Then as you go through the full life cycle, it will support the operating cost side of the facility as well.

Okay, I guess I was thinking about it from a marketing business angle, so that was another way to capture even more potential upside from the current situation, but it sounds like no. And then I guess the other piece is just on local sand usage. To what extent, if at all, are you guys testing that in the Delaware Basin in particular is I guess where I'm curious.

Hey, Michael, we see application of local sand in both the southern Delaware and the Midland Basin. Our preferred sand provider is coming online now with their local sand mines, so we will start utilizing more local sand as a percentage of the total. We've the background work, the geoscience work, the lab work and all to test different sands, different sand quality, so we're comfortable applying those. It's just a matter of getting more activity in the local sand market.

Great, I appreciate it.

This concludes our question-and-answer session. I would like to turn the conference back over to Vicki Hollub for closing remarks.

I'd like to leave you with three takeaways today. First, we are ahead of schedule for achieving our Breakeven Plan. Second, our first quarter outperformance and improving business results have led us to increase our full-year guidance. Finally, we will reinvest excess cash flow in our highest-return opportunities. And to close, I'd like to thank all of our employees because they are the true drivers of our success. Thank you for joining our call today.

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