Business Context and Reporting Period
Company: Occidental Petroleum Corporation (OPC)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2008
Business Overview: OPC operates through three segments: Oil and Gas (exploration, development, production), Chemical (manufacturing and marketing), and Midstream, Marketing and Other (gathering, processing, transportation). The company reported strong performance driven by higher commodity prices and production volumes, particularly from the Dolphin Project.
Key Financial Metrics
| Metric (in millions, except per share) | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2007 |
|---|---|---|---|
| Net Sales | $7,060 | $20,196 | $13,267 |
| Net Income | $2,271 | $6,414 | $3,948 |
| Diluted EPS | $2.78 | $7.79 | $4.69 |
| Operating Cash Flow | N/A | $8,136 | $4,324 |
| Capital Expenditures | N/A | $(3,223) | $(2,510) |
| Cash and Equivalents (Sep 30, 2008) | $1,452 | ||
| Total Debt (Current + Long-Term) | $1,771 ($714 current + $1,057 long-term) |
Margins: The filing does not explicitly state a consolidated net profit margin percentage, but net income represented approximately 31.8% of net sales for the nine months ended September 30, 2008.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased by $6.9 billion (52%) for the nine months ended September 30, 2008, compared to the same period in 2007. This was driven by a 69% increase in realized oil prices and a 42% increase in realized natural gas prices in the U.S.
- Profitability: Net income increased by $2.5 billion (62%) year-over-year. Oil and Gas segment earnings rose from $5.5 billion to $10.3 billion.
- Production: Worldwide production increased to 594 MBOE per day (nine months 2008) from 563 MBOE per day (nine months 2007), largely due to the Dolphin Project.
- Balance Sheet: Total assets increased to $42.6 billion from $36.5 billion at year-end 2007. Receivables increased by $1.5 billion due to higher prices and volumes. Investments in unconsolidated entities increased by $467 million.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Capital Spending: Management expects to spend approximately $4.5 billion to $4.7 billion on capital expenditures for the full year 2008.
- Liquidity: The company believes cash on hand and operating cash flows are sufficient to fund operations, capital expenditures, dividends, and acquisitions. Available unused committed bank credit totaled approximately $1.5 billion as of September 30, 2008.
- Debt Capacity: Under the most restrictive covenants, capacity for additional unsecured borrowing was approximately $65.4 billion, and capacity for dividends/acquisitions was approximately $25.0 billion.
- Recent Financing: In October 2008, OPC issued $1 billion of 7% senior notes due 2013.
Risks and Contingencies
- Commodity Prices: Results are highly dependent on global crude oil and natural gas prices.
- Legal Proceedings: Significant litigation includes Nicaraguan pesticide lawsuits (judgments of ~$97 million and ~$800 million entered, though management believes they are unenforceable in the U.S.) and various environmental claims.
- Environmental Liabilities: Total reserves are $444 million. Management estimates reasonably possible losses could be up to an additional $410 million.
- Operational Risks: Includes exploration risks, political instability in operating regions (e.g., Libya, Middle East), and potential facility disruptions.
Investor Verification Checklist
- Commodity Price Sensitivity: Verify current oil and gas prices against the realized prices of $100.39/barrel and $6.95/MCF reported for the nine-month period to assess future earnings trajectory.
- Libya Contract Obligations: Confirm the status of the $750 million signature bonus obligation (first payment of $450 million made) and the $1.9 billion capital investment commitment over five years.
- Acquisition Closings: Monitor the closing of the $1.25 billion acquisition of Plains Exploration & Production Company's remaining Permian/Colorado interests, expected in Q4 2008.
- Legal Exposure: Review updates on the Nicaraguan litigation enforcement actions in U.S. courts and the status of environmental remediation reserves.
- Share Repurchases: Note that $1.5 billion was spent on share repurchases in the first nine months of 2008; verify if this program continues given the $25 billion distribution capacity.