Occidental Petroleum Corporation (OXY) reported first quarter 2012 operating earnings of $1.92 per share, up 1.1% year over year from $1.90 per share in first quarter 2011. The quarterly earnings missed the Zacks Consensus Estimate by a penny.
Total Revenue
Occidental’s quarterly revenue increased 9.5% to $6,268 million from $5,726 million in the year-ago quarter. Revenue increased on the back of higher contributions from the Oil and Gas segment. This was partially offset by a decline in contribution from the Chemical, and Midstream, Marketing and Other segments. The top line beat the Zacks Consensus Estimate of $6,178 million.
Quarterly Production, Sales and Realized Price
Occidental’s average daily production volumes touched 755 thousand barrels of oil equivalents (“MBOE”) in first quarter 2012, up 3.4% year over year. The volume expansion was driven by strong production from domestic operations, increase in production from Libya; partially offset by a decline in volume in Middle East and North Africa related to the completion of the Masila Field contract in Yemen. Disruption in its Colombian operation due to pipeline interruptions also affected volumes.
Occidental’s daily oil and gas sales volumes during the quarter were 745 MBOE, up 2.3% from 728 MBOE in the year-ago period.
Occidental’s overall realized price for crude oil increased 17.2% to $107.98 per barrel from the prior-year level of $92.14 per barrel. Realized natural gas liquids (“NGL”) prices were down 0.2% to $52.51 per barrel from the prior-year quarter level of $52.64 per barrel. In this quarter, domestic gas prices declined by 33% to $2.84 per thousand cubic feet (“MCF”) from $4.21 per MCF in the year-ago quarter.
Segment Earnings
For the first quarter 2012, segment earnings were $2,819 million versus $2,801 million in the year-ago quarter. The results were boosted by a strong show at its Oil & Gas and Midstream, Marketing & Other segments.
Oil & Gas: Quarterly earnings from this segment were $2,504 million, up 1.5% from $2,468 million reported in the year-ago quarter. The growth was attributable to higher oil prices and increases in total sales volumes; offset partially by higher operating costs and depreciation, depletion and amortization (“DD&A”) rates, and a decline in natural gas prices.
Chemicals: The segment earnings were $184 million versus $219 million in first quarter 2011. The year-over-year decline was due to lower export volumes, a decrease in calcium chloride sales due to a mild winter and higher raw material costs primarily due to a rise in ethylene prices.
Midstream, Marketing and Other: The quarterly segment earnings were $131 million compared with $114 million in the year-ago quarter. Growth was primarily attributable to increase in income from pipeline and gas processing businesses; partially offset by a decline in power margins.
Financial Update
In first quarter 2012, the company reported $2,800 million in cash flow from operations, up 27.3% year over year from $2,200 in year-ago quarter.
Occidental’s capital expenditure for first quarter 2012 was $2,412 million, compared with $1,325 million in the year-ago quarter. The majority of the expenditure was directed towards the development of its Oil & Gas segment.
Total debt as of March 31, 2012 was $5,873 million compared with $5,871 million as of December 31, 2011. The company’s total debt-to-capitalization ratio at quarter end was 13%, flat compared with the fiscal 2011 number.
Peer Update
Occidental Petroleum’s competitor ConocoPhillips (COP) announced first quarter 2012 adjusted earnings of $2.02 per share compared with $1.82 per share in the year-ago quarter. Quarterly earnings fell short of the Zacks Consensus Estimate of $2.08 per share.
ConocoPhillips’ first quarter 2012 revenue was $58,354 million versus $58,247 million in the prior-year quarter. The reported revenue failed to meet the Zacks Consensus Estimate of $59,737 million.
Our Take
We believe that Occidental Petroleum is well positioned with a combination of large-scale energy operations and financial strength to stimulate its domestic and international oil and natural gas production.The company’s exploration and shale programs at KernCounty in California and investments in the Permian Basinwill likely act as catalysts for the growth of the stock in the near term.
We believe that the company’s new international projects in Iraq, Bahrain and Oman will help to generate higher production volumes in the coming years.
But, we are skeptical about global oil prices volatility, and uncertainties surrounding Middle East production volume. We currently retain a Zacks #3 Rank on Occidental Petroleum Corporation, which translates into a short-term Hold recommendation.
Based in Los Angeles, Occidental Petroleum Corporation along with its subsidiaries, engages in the exploration, development, production and marketing of crude oil, natural gas liquids and natural gas. The company has operations in the United States, Middle East/North Africa and Latin America.
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