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Business Context and Reporting Period

Company: Occidental Petroleum Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 1999
Business Overview: Occidental operates primarily in oil and gas exploration/production and chemical manufacturing. The quarter reflects a strategic shift following the 1998 contribution of major chemical assets to the Equistar partnership and the acquisition of the Elk Hills Naval Petroleum Reserve.

Key Financial Metrics

Note: Q1 1998 Operating Cash Flow includes a $244 million outflow from discontinued operations (MidCon sale). Q1 1999 Investing Cash Flow includes a $1.395 billion collection of a note receivable.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 21% to $1.344 billion, driven by the absence of sales from assets contributed to the Equistar partnership in May 1998, lower global oil and gas prices, and reduced chemical product prices.
• Profitability Reversal: The company reported a net loss of $70 million compared to a net income of $177 million in Q1 1998. This swing was influenced by:
  • A $13 million after-tax charge for the cumulative effect of accounting changes (SOP 98-5 and EITF 98-10).
  • The absence of a $38 million after-tax benefit from discontinued operations (MidCon) recorded in Q1 1998.
  • The absence of $105 million in pretax gains from the sale of nonstrategic oil and gas properties in Q1 1998.
• Segment Performance:
  • Oil & Gas: Earnings dropped from $232 million to $63 million due to lower commodity prices, partially offset by increased international production.
  • Chemicals: Earnings fell from $158 million to $9 million due to lower sales prices for commodity products.
• Liquidity Improvement: Cash and cash equivalents increased significantly from $96 million (Dec 31, 1998) to $571 million (Mar 31, 1999), primarily due to the collection of a $1.4 billion note receivable related to the prior year MidCon sale.

Guidance, Outlook, and Risks

• Capital Expenditures: Management expects to spend approximately $450 million on capital projects in 1999 ($375 million for oil and gas; $75 million for chemicals).
• Debt Management: The company issued $508 million in Trust Preferred Securities and $792 million in senior notes in early 1999 to repay commercial paper and reduce debt. It announced the redemption of $68.7 million of senior debentures in June 1999, expecting a $3 million extraordinary loss.
• Year 2000 (Y2K) Compliance: Remediation efforts are estimated at 80% complete. Total costs are estimated at $40 million, which management does not expect to have a significant effect on financial position. Contingency plans are 40% complete.
• Legal and Environmental Risks:
  • Chevron Litigation: A $742 million judgment (plus interest, totaling approx. $949 million as of April 30, 1999) against Chevron USA was affirmed by the Oklahoma Supreme Court. Chevron has petitioned for a rehearing.
  • Environmental: Occidental is involved in 162 Superfund or comparable state sites. Reserves have been accrued for 61 sites where costs are probable and estimable. Management believes reserves are adequate and no material adverse effect is anticipated.
• Forward-Looking Risks: Results are sensitive to global commodity pricing fluctuations, competitive pressures, and regulatory uncertainties.

Investor Verification Checklist

• Chevron Judgment Status: Verify the finality of the ~$949 million judgment against Chevron USA and the likelihood of collection given the petition for rehearing.
• Commodity Price Exposure: Assess the sensitivity of future earnings to fluctuations in crude oil, natural gas, and chemical commodity prices, which drove the Q1 loss.
• Debt Structure: Review the terms of the new $525 million Trust Preferred Securities and $800 million senior notes issued in Q1 1999 to understand future interest obligations.
• Y2K Contingency: Monitor the completion of Y2K contingency plans (currently 40% complete) and potential supply chain disruptions from third parties.
• Equistar Partnership: Evaluate the performance of the 29.5% equity interest in Equistar Chemicals, LP, which contributed to the loss from equity investments in Q1 1999.