Occidental Petroleum Corp. (NYSE: OXY), one of the largest acreage holders in the Permian Basin, continues to enhance its operations in the basin by using technology to add value as it brings down breakevens and costs while growing profit.

“Breakthroughs in geomechanics and petrophysical analysis of flow units drove an approximate 20% improvement in Permian resources well productivity,” Jody Elliott, senior vice president and president of Occidental’s domestic oil and gas operations in the U.S., said on an earnings call Feb. 14. “Permian resources lowered fourth-quarter operating costs to $7.63 per boe [barrel of oil equivalent], a 9% improvement from the fourth-quarter of2016.”

This comes in addition to adding 750 horizontal locations in 2017 with breakevens lower than $50 per barrel (bbl) and lowering drilling costs by more than 30% or $500,000 per well. Occidental also announced a new six-section module development area in New Mexico called Turkey Track, which the company said has a more than 40% all-in rate of return at $50/bbl.

The positives come as the industry bounces back from the downturn helped by rising crude prices and demand. Occidental said it plans to spend $3.9 billion overall in 2018 and increase production by between 8% and 12% with a 40% annual growth in the Permian in 2018.

However, the Houston-based company missed fourth-quarter production guidance, leaving analysts to ponder how investors will react. But profit earned for the quarter lived up to the street’s expectations.

Occidental’s fourth-quarter net income jumped to $497 million compared to a net loss of $272 million a year ago. Production increased by about 7% to 621,000 barrels of oil equivalent per day (boe/d).

“Our increased productivity came mostly from our Permian resources business where we achieved record initial production rates across eight benches and continued to deliver step-change well results in Greater Sand Dunes during the fourth quarter,” Occidental CEO Vicki Hollub said Feb. 14 on an earnings call with analysts. “These results have helped drive our capital intensity down while adding to our long-term reserve potential.”

“For two years in a row we have achieved all-in reserve replacement ratios of nearly 190% companywide with F&D [finding and development] costs of less than $10 per boe,” she said. “In Permian resources our reserve replacement ratio in 2017 was a record-setting 365% with an F&D of $9.77 per boe.”

Crucial to it all has been the company’s focus on advancing technologies such as multilateral technology and EOR, including CO2-EOR. Occidental has sequestered more than 800,000 MT of anthropogenic—manmade—CO2 for EOR purposes.

“Our investment in subsurface characterization has driven progress in both our unconventional EOR assets and our unconventional assets, and we’re increasingly finding more synergies between them,” Hollub said. “Four unconventional EOR technical pilots that we began in 2014 have increased our technical understanding of how these two assets will work together in the future and will provide significant option value across our large Permian position.”

She added that the innovative work combined with Occidental’s petrophysical advancements to improve primary recoveries positions the company to lead the industry in full-cycle value and return on capital employed.

Despite the positives, analysts couldn’t overlook the fourth-quarter 2017 production miss and lower than anticipated first-quarter 2018 guidance for Permian resources.

Cowen & Co. analysts expected investors to react negatively to the production miss. The firm said the fourth-quarter 2017 Permian production was 159 Mboe/d, lower than its estimated 165 Mboe/d and near the lower end of 156-170 Mboe/d company guidance.

“Strong Permian wells, a new development area, and potential for share buyback will be overshadowed by fourth-quarter 2017 production miss and lower than expected first-quarter 2018 guidance,” Cowen analysts said in a note Feb. 13. “We believe OXY understands that 2018 guidance needs to be met on a quarterly basis as operational execution is a key focus of investors.”

Occidental CFO Cedric Burgher addressed the miss on the call, pointing to production-sharing contracts (PSC) on the international side and third-party downtime in the Permian. Internationally, PSCs had about a 5,000 boe/d impact on the company’s production. The guidance was based on a Brent price assumption of $53/bbl; however, he noted that Brent averaged $61/bbl vs. the company’s guidance.

“While higher Brent prices are clearly a net positive overall it does result in reduced production volumes for us,” Burgher said. Turning to the Permian, third-party downtime, outside of operator production timing, and weather impacts combined to have a 7,000 boe/d impact on production.

 “We are confident with our plan for 2018 and the execution fundamentals of our production growth continue to improve,” he added.

The company aims to increase production by as much as 12% across its assets this year.

Occidental’s 2018 plans include 40% annual growth in its Permian resources business, where focus is on developing resources from the Delaware Basin’s Wolfcamp and Bone Springs formations and the Midland Basin’s Spraberry and Wolfcamp formations.

Analysts were more upbeat on 2018 exit guidance, particularly in the Permian calling it “strong.”

Velda Addison can be reached at vaddison@hartenergy.com.