OXY

Business Context and Reporting Period

Company: Occidental Petroleum Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2000
Business Overview: Occidental operates in two primary segments: Oil and Gas and Chemicals. The reporting period was defined by significant strategic restructuring, including the acquisition of Altura Energy Ltd. (Permian Basin assets) and THUMS (California assets), and the divestiture of its stake in Canadian Occidental Petroleum Ltd. (CanOxy).

Key Financial Metrics (Nine Months Ended Sept 30, 2000)

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 85% year-over-year, driven by higher global oil, natural gas, and chemical prices, as well as increased production volumes from recent acquisitions.
• Profitability Surge: Net income jumped from $65 million to $1.237 billion. This was significantly aided by a $493 million pre-tax gain from the sale of the CanOxy investment and a $39 million gain from Gulf of Mexico asset sales.
• Segment Performance:
  • Oil & Gas: Earnings rose to $1.647 billion (from $511 million) due to higher prices and volumes. U.S. net oil price realization improved to ~90% of WTI benchmark.
  • Chemicals: Earnings increased to $224 million (from $89 million) despite a $120 million pre-tax charge to exit certain intermediate businesses. Higher PVC and chlorine prices offset rising feedstock costs.
• Balance Sheet: Long-term receivables increased significantly to $2.113 billion (from $168 million) due to notes receivable from Altura partners. Non-recourse debt of $2.08 billion was added related to the Altura acquisition.

Guidance, Outlook, and Risks

• Debt Reduction: Management targeted a $2.0 billion debt reduction by year-end 2000. As of the filing, the company had reduced debt by approximately $2.1 billion since April through asset sales and internal cash flow, exceeding the target.
• Capital Spending: Total 2000 capital spending is expected to be approximately $900 million ($750 million for Oil & Gas, $150 million for Chemicals).
• Production Outlook: The Altura acquisition is expected to increase worldwide oil and gas production by approximately 135,000 barrels of oil equivalent per day (9% increase) for the full year 2000.
• Risks and Contingencies:
  • Commodity Prices: Results are highly sensitive to global oil, gas, and chemical pricing fluctuations.
  • Environmental Liabilities: Occidental is involved in 125 Superfund or comparable state sites. While reserves are accrued for probable costs, ultimate liabilities are uncertain.
  • Legal Proceedings: Includes a class action lawsuit regarding the MidCon ESOP valuation claiming at least $200 million in damages.
• Subsequent Events: Post-filing, the company announced the sale of Durez phenolic resins businesses (proceeds to reduce debt) and an asset swap with BP Amoco regarding a CO2 field in New Mexico.

Investor Verification Checklist

• Altura Integration: Verify the actual production ramp-up and cost synergies realized from the $3.6 billion Altura acquisition.
• Debt Structure: Confirm the distinction between recourse corporate debt and the $2.08 billion non-recourse debt tied specifically to Altura assets.
• One-Time Gains: Assess the sustainability of earnings by excluding the $493 million CanOxy gain and $39 million GOM gain to evaluate core operational performance.
• Environmental Reserves: Review the adequacy of accrued reserves for the 53 sites where remediation is probable, given the potential for cost-sharing disputes.
• Colombian Operations: Monitor the status of the Cano Limon pipeline disruptions and the company's ability to recover proved reserves in Colombia.