Q4 2016 Real-Time Call Brief

Highlights

We ended 2016 with $2.2 billion in cash and we were able to achieve the higher end of our production guidance with less capital than expected.

We replaced nearly 190% of our production at a cost of $9.65 per BOE.

As a result our total group reserves increased from 2.2 billion BOEs to 2.4 billion BOEs.

Based on our Permian resources current inventory of 11,650 wells we'll be able to continue to replace reserves for the foreseeable future.

Last year's drilling program at Permian resources delivered strong reserve replacement in F&D cost of less than $9 per BOE.

When combined with our total cash cost of approximately $11 per BOE and incremental dollar invested in, our Permian Resources business, delivers pre-tax margins in excess of 50% at a $55 WTI.

Based on our available cash and market conditions, we'll execute a capital plan of between $3 billion and $3.6 billion in 2017.

With increased spending in our oil and gas business, we expect production from our core assets to grow 4% to 7% in 2017, adjusted for production sharing in contract effect.

Fourth quarter 2016 reported financial results for GAAP purposes were a loss of $0.36 per diluted share.

Our core financial results for the fourth quarter of 2016 were a loss of $97 million or $0.13 per diluted share compared to loss of $112 million or $0.15 a share during the third quarter.

Oil and gas pretax core income for the fourth quarter of 2016 was $2 million compared to losses of $49 million in the third quarter and a $106 million during last year's fourth quarter.

For the fourth quarter of 2016, total company oil and gas production volume averaged 607,000 boe per day coming at the high end of our guidance.

Full year 2016 production of 602,000 boe per day from ongoing operations grew 7% and was better than expected Permian Resources production of 123,000 BOE per day during the quarter improved sequentially due to our recent acquisition and increased drilling activity in the Delaware Basin.

Resources production for the full year of 2016 grew 13% to 124,000 BOE per day despite a two-thirds reduction in year-over-year capital.

Full year 2016 cash operating costs in Permian Resources were $8.42 per BOE, a 25% improvement compared to full year 2015 costs.

Our overall Permian oil and gas operations generated more than $130 million of free cash flow after capital during the fourth quarter, a sequential quarterly improvement of over $100 million.

International production for the fourth quarter was 311,000 BOE per day, flat with the third quarter.

Cash operating cost for our ongoing international oil and gas operations declined by 11% to approximately $10 per BOE for all of 2016.

Our international oil and gas operations from our core four countries generated more than $200 million of free cash flow during the fourth quarter.

Chemicals fourth quarter 2016 pretax core earnings of $152 million increased from $117 million on a sequential quarterly basis, well above our guidance of $100 million for the quarter.

Our Chemicals business generated roughly $140 million of free cash flow after capital during the fourth quarter.

Midstream pretax core results were a loss of $48 million in the fourth quarter of 2016 compared to a loss of $20 million in the third quarter.

Turning to our cash flows for the 12 months of 2016, we generated $3.6 billion of cash flow from continuing operations before working capital.

Changes in working capital consumed $400 million of cash most of which occurred during the first half of the year.

Capital expenditure for 2016 were $2.9 billion, approximately half the year's outlay and below the prior year's outlay and below our original budget of $3 billion.

Total oil and gas spending for the year was nearly $2 billion, a 55% decline compared to 2015.

Despite the sharp drop in year-over-year capital spending we managed to grow our production volume 7% during 2016.

Last year we spent approximately $1.7 billion on asset acquisitions, net of divestitures primarily on the oil and gas properties in the Permian basin.

We received $1.5 billion of net proceeds from debt issuance last year and have no material amount of debt maturities, until 2021.

We also received $880 million of cash from our settlement with Ecuador.

We also returned $2.3 billion to our shareholders in the form of cash dividends.

We started the year with $2.2 billion of cash after generating $1 billion $1 billion of cash from operations before working capital in the fourth quarter at WTI prices slightly under $50 a barrel.

We anticipate oil prices rising moderately through the year and every $1 per barrel change in oil price impacts our cash flow by about $100 million annually.

Higher oil prices together with growing production from Permian Resources should improve free cash flow after capital by more than $500 million from our combined Permian operations.

Our pricing as well as improved production and cost reductions at Al Hosn and in Oman should increase free cash flow from our international oil and gas operations by more than $400 million compared to last year.

Improved crude oil marketing economics, better NGL pricing and the ramp up of the Ingleside oil storage and export facilities expected to contribute approximately $150 million to $200 million of additional cash flow this year.

Free cash flow from our Chemicals business is expected to increase by about $400 million in 2017 due to Each $10 per ton increase in our realized price for caustic soda results in approximately $30 million of additional cash flow.

We expect to receive a cash tax refund in excess of $700 million sometime during the second quarter of this year.

We also plan to monetize some non-core and non-strategic assets including our investment in the planes general partnership which should generate proceeds of approximately of $1.5 billion this year.

In terms of our capital spending, we adjusted our capital program last year in response to the sharp decline in product prices especially during the first three quarters with our full year 2016 outlays of $2.9 billion at roughly half the prior year.

We estimate our 2017 total capital program to be between $3 billion and $3.6 billion.

Our committed project capital is expected to decline by more than $1 billion from our 2014 outlays to an estimated $200 million this year.

We expect our full year 2017 production growth from ongoing operations to be in the range of 4% to 7% between 625,000 BOE per day to 645,000 BOE per day slightly impacted by OPEC quota constraints and volume impacts under our production sharing contracts due to higher oil prices.

Our production growth expectations over the long-term remain at 5% to 8%.

Increased spending and drilling activity in Permian Resources is expected to provide production growth of 13% to 20% this year with total volumes in a range of between 140,000 BOE per day and 150,000 BOE per day.

Production in Permian Resources is anticipated to exit this year nearly 25% higher than yearend 2016 levels.

Operational improvements at Al Hosn are expected to account for an additional 8000 BOE per day of production this year compared to 2016.

For the first quarter, we expect our company-wide production volumes to be in the range of 590,000 BOE per day to 595,000 BOE per day.

Seasonal maintenance turnarounds associated with gas related projects at Al Hosn and Dolphin are expected to reduce volumes by about 15,000 BOE per day in the quarter.

Production at Permian Resources is expected to be between 127,000 BOE a day, and a 132,000 BOE per day in the first quarter.

In midstream, we expect the first quarter to generate a pretax loss of between $60 million and $70 million.

In Chemicals, we anticipate pretax earnings of about $150 million for the first quarter, on continued strength in caustic soda prices partly offset by higher energy and ethane cost impacting our margins.

Our DD&A expense for oil and gas is expected to be about $15 per BOE for 2017 compared to $15.44 per BOE last year, partially as a result of lower finding and development cost last year.

The combined depreciation for the Chemicals and Midstream segments should be approximately $685 million.

Cash operating costs for the domestic oil and gas business should be about $13 per BOE during 2017 compared to $12.12 per BOE last year Exploration expense for the full year is estimated to be about $100 million pretax with $25 million of the anticipated cost in the first quarter.

Every $1 per barrel change in WTI effects our annual operating cash flow by about $100 million.

A swing of $0.50 per million BTUs in domestic natural gas prices effects annual operating cash flow by about $45 million.

Using current strip prices for oil and gas we expect our full year 2017 domestic tax rate to be about 36%.

Our international tax rate should be about 55%.

During the two year downturn, we reduced our operating expenses by over 27% on a per BOE basis.

We reduced our drilling and completion cost 33%.

We decreased our F&D cost by 25%, while realizing 10% compounded annual growth in our production.

With over 2.5 million acres of diverse and growing opportunities, we believe we are uniquely positioned to be the long-term leader in the Permian Basin.

One of the highlights of our position and the focus of much of our development and growing inventories is our 650,000 net acres in the Delaware and Midland basins.

We increased the number of under $50 WTI breakeven locations by approximately 1,250 wells while at the same time, increasing the average lateral length of each well by 20% to 7100 feet.

These accomplishments along with many more give us the ability to drive double-digit growth from these assets for the foreseeable future.

Additionally, we will share an update from our Permian EOR business where our inventory of less than $6 BOE future development cost opportunities have now grown to over 870,000 million BOE.

As we've communicated in the past our entire Permian acreage position encompasses 2.5 million net acres with 1.4 million in our unconventional business area and 1.1 million in our enhanced oil recovery business.

Approximately 650,000 net acres of the 1.4 million lies within the Delaware and Midland basin boundary line as indicated on the on the map on Slide 31.

Of the 650,000 core unconventional acres, we have evaluated approximately 300,000 acres and have moved them into our development portfolio.

The updated inventory count of 11,650 locations is associated with these 300,000 net acres.

We will continue to evaluate the remaining 350,000 net core unconventional acres, as we have a degree of confidence in the potential and value of this acreage.

Our New Mexico Delaware basin position encompasses 290,000 net acres and includes the greater sand dunes area.

In the Texas Delaware basin we have a 150,000 net acres, which includes 35,000 net acres from our recent acquisition in the In total we added 3,150 locations an increase of 37%.

Nearly half of our drilling inventory or 5300 locations are economic under $70 WTI.

But what is most important in today's price environment is that our team nearly doubled our breakeven under $50 WTI inventory to 2500 locations.

Under a moderate scenario of a ramp to 9 rigs by 2019, we conservatively believe we can drive a production CAGR of 20% and an upside scenario with a ramp to 15 rigs by 2019, we conservatively believe that we can drive our production CAGR of 30%.

The majority of our $1 billion to $1.4 billion capital budget will be allocated to these two areas with approximately 80% in reserve adding capital investment.

This will fund roughly 6 operated rigs and 2 equivalent non-operated rigs during 2017.

Our second Bone Spring six month cumulative results have improved a 150% from our old design in 2014 to our most recent wells in the second half of 2016.

Our most recent well reserve continue to improve with average 30-day rates of 1479 barrels of oil per day.

Our three most recent Cedar Canyon wells averaged of 30 boe per day, rate of over 2,200 with 80% oil cuts and similarly a recent well in the Wolf Camp XY, IPed at a rate higher than 2,100 for the 71% oil cut.

We are currently recovering hydrocarbons from the labor down to the and realizing recovery factors about 60% in some of our CO2.