Occidental Petroleum Corporation (OXY) announced third quarter 2010 operating earnings of $1.47 per share versus $1.14 in the year-ago quarter, reflecting a growth of 28.9%. The third quarter result surpassed the Zacks Consensus Estimate of $1.37 by 10 cents.
Total Revenue
Occidental’s total operating revenue for third quarter 2010 was $4.9 billion versus $4.1 billion reported in the year-ago quarter, reflecting a growth of 19.3%. The actual results of the company were higher than the Zacks Consensus Estimate of $4.6 billion.
The year-over-year increase in total revenue was attributable to higher revenue contribution from all the three segments of the company, which are Oil and Gas, Chemical and Midstream, Marketing and Other. The results were marginally pinned down by higher eliminations compared with the year-ago quarter.
Production, Sales and Realized Price
Occidental’s average daily production volumes were 751,000 barrels of oil equivalents (BOE) in the third quarter versus 705,000 BOE in the year-ago quarter, reflecting an increase of 6.5%. The increase in volume was mainly due to higher contribution from the company’s Middle East/North Africa operation, with a small production growth experienced in Argentina and United States.
Occidental’s daily oil and gas sales volumes in the third quarter averaged 749,000 BOE compared with 702,000 BOE in third quarter 2009.
The realized price for worldwide crude oil was $70.71 per barrel in the quarter compared with $62.79 in the year-ago quarter. Domestic realized gas prices escalated $1.16 per thousand cubic feet (MCF) to $4.20 MCF in the third quarter from $3.04 per MCF in the prior-year quarter.
Segmental Earnings Results
Occidental’s total segmental earnings at the end of the third quarter were $2.09 billion versus $1.61 billion in the year-ago quarter.
Oil & Gas: Earnings from this segment during the third quarter were $1.74 billion versus $1.46 billion in third quarter 2009, reflecting a growth of 19.2%. The improvement in results was due to higher crude oil and natural gas prices and higher volumes; however, the results were partially pegged down by higher operating costs.
Chemicals: Earnings from this segment during the quarter were $189 million versus $72 million in the year-ago quarter, implying a whopping growth of 162.5%. The solid performance in the reported quarter was attributable to improved margins and volumes across chlor-alkali and vinyl products. The export volumes of the chemicals also surged by 22% compared with third quarter 2009.
Midstream, Marketing and Other: Earnings from this segment during the third quarter were $163 million versus $77 million in the year-ago quarter, indicating an increase of 111.7%. The year-over-year improvement in results reflects higher margins in the trading and marketing businesses and higher pipeline income.
Cash Flow and Capital Expenditure
Occidental continues to generate strong cash flow from operations. Cash generated from operations in the first nine months of 2010 was $6.6 billion. Free cash flow in the same period was $3.08 billion.
Capital expenditure for Occidental rose $354 million to $1,100 million at the end of third quarter from $746 million in the year-ago quarter.
Our View
We remain encouraged to see that all the three divisions of Occidental Petroleum have performed better than the comparable period in the previous year. Aided by higher contribution from its divisions, the company surpassed the Consensus Estimate for the first time in fiscal 2010.
Occidental Petroleum currently retains a Zacks #3 Rank (short-term Hold rating). We maintain our long-term Neutral rating on the stock.
Based in Los Angeles, California, Occidental Petroleum along with its subsidiaries, operates as an oil and gas exploration and production company. Occidental has operations in the United States, Middle East/North Africa and Latin America.
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