Occidental Petroleum Corporation — FY2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual Form 10-K, not a standalone fourth-quarter report. Occidental operates through oil and gas, chemical, and midstream and marketing segments, including low-carbon ventures.
Financial and Operating Highlights
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | $28.257 billion | $36.634 billion | Down 23% |
| Income from continuing operations | $4.696 billion | $13.304 billion | Down 65% |
| Net income attributable to common stockholders | $3.773 billion | $12.504 billion | Down 70% |
| Diluted EPS | $3.90 | $12.40 | Down 69% |
| Operating cash flow | $12.308 billion | $16.810 billion | Down 27% |
| Capital expenditures | $6.270 billion | $4.497 billion | Up 39% |
| Net debt, approximate book value | $19.0 billion debt plus $1.4 billion cash | $19.1 billion debt plus $1.0 billion cash | Debt broadly stable |
Net sales and earnings declined primarily because average WTI, Brent and NYMEX natural gas prices fell 18%, 17% and 54%, respectively. Higher production volumes partly offset price pressure. The worldwide effective tax rate increased to 27% from 6% in 2022, when Occidental recorded a $2.7 billion tax benefit related to a legal-entity reorganization.
- Oil and gas: Segment sales were $21.284 billion and segment earnings were $6.240 billion, compared with $27.165 billion and $12.803 billion in 2022. Production from continuing operations increased 6% to 1,223 Mboe/d, led by Permian growth and expanded Al Hosn Gas capacity.
- Chemical: Segment sales were $5.321 billion and earnings were $1.531 billion, compared with $6.757 billion and $2.508 billion. Results reflected weaker PVC, caustic soda and other chemical pricing and softer demand.
- Midstream and marketing: Segment sales were $2.551 billion and earnings were $24 million, compared with $4.136 billion and $273 million. Lower crude marketing margins, NGL and sulfur prices, lower WES equity income and increased low-carbon activity weighed on results.
- Margins and costs: Oil and gas lease operating expense increased to $4.677 billion from $4.028 billion; average lease operating expense rose to $10.48 per Boe from $9.52. Depreciation, depletion and amortization was $6.865 billion.
- Reserves: Year-end proved reserves increased to 3,982 MMboe from 3,817 MMboe. Production of 446 MMboe was more than offset by revisions, extensions, improved recovery and purchases.
- Balance sheet and liquidity: Cash and cash equivalents were $1.426 billion, total assets were $74.008 billion, and total equity was $30.349 billion. No amounts were drawn on the $4.0 billion revolving credit facility or $600 million receivables securitization facility at year-end.
- Debt: Face-value debt was $17.955 billion, with $1.1 billion due in 2024, $1.2 billion in 2025, $1.4 billion in 2026, $0.9 billion in 2027 and $13.3 billion thereafter. Approximately 99.6% of debt was fixed rate. Moody’s and Fitch rated the debt investment grade, while S&P rated it BB+.
- Shareholder returns: Common dividends declared were $646 million, or $0.72 per share. Occidental repurchased 29.1 million common shares for approximately $1.8 billion and redeemed $1.5 billion face value of preferred stock, incurring $151 million of redemption premiums. Approximately $8.5 billion face value of preferred stock remained outstanding.
Material Changes Versus the Prior Comparable Period
- Commodity prices and related realized prices fell materially, while oil and gas production increased.
- Operating cash flow fell by $4.5 billion, while capital expenditures increased by $1.8 billion, reducing internally generated funding available for debt reduction and shareholder returns.
- Oil and gas earnings declined by approximately $6.6 billion; chemical earnings declined by approximately $1.0 billion; and midstream and marketing earnings declined by approximately $249 million.
- Occidental acquired Carbon Engineering, recognizing a $283 million fair-value gain on its previously held interest. The transaction had approximately $1.1 billion of total cash consideration, payable in installments.
- Occidental recorded $209 million of asset impairments and other charges, including a $180 million impairment of Powder River Basin acreage and a $29 million impairment of a Black Butte Coal Company investment.
- Occidental recorded a $260 million gain from remeasuring its valuation allowance related to claims against the Maxus Liquidating Trust.
- Environmental remediation liabilities decreased to approximately $1.021 billion from $1.046 billion, but management estimates reasonably possible additional environmental losses of up to $2.6 billion.
Guidance, Outlook, Commentary and Unusual Items
- Planned 2024 capital expenditures are $6.4 billion to $6.6 billion, including $4.8 billion to $5.0 billion for oil and gas, approximately $0.7 billion for OxyChem and approximately $0.8 billion for midstream and marketing.
- Management expects commodity prices to remain volatile because of global supply and demand, OPEC and non-OPEC actions, geopolitical conflicts, macroeconomic conditions and U.S. Strategic Petroleum Reserve policy.
- Occidental entered into an agreement to acquire CrownRock for approximately $12.0 billion. The proposed funding includes up to $9.1 billion of new debt, approximately $1.7 billion of common equity and assumption of approximately $1.2 billion of CrownRock debt.
- The CrownRock transaction remained subject to regulatory approval. Occidental and CrownRock received an FTC Second Request on January 19, 2024, and management expected closing in the second half of 2024. Occidental planned $4.5 billion to $6.0 billion of divestitures within 18 months after closing and intended to repay at least $4.5 billion of debt within 12 months after closing.
- Occidental expects to increase the quarterly common dividend to $0.22 per share, but plans to prioritize reducing debt below $15 billion before resuming share repurchases.
- STRATOS, a large-scale direct-air-capture facility in Texas, was under construction and expected to begin commercial operations in mid-2025. BlackRock committed up to $550 million to the project.
- Significant contingencies include the CrownRock financing and regulatory process, the potential repayment of approximately $1.4 billion of federal taxes plus $574 million of accrued interest related to the Tronox tax dispute, Andes arbitration exposure, and environmental liabilities associated with the Diamond Alkali Superfund Site.
- Occidental’s net-zero targets depend on successful deployment of DAC, CCUS and other technologies, third-party financing, regulatory incentives and development of carbon-removal markets.
Key Risks and Investor Verification Items
- Verify the current status, final consideration, financing terms, regulatory approvals and closing date of the CrownRock Acquisition, including any resulting leverage and divestitures.
- Assess sensitivity to oil, NGL, natural gas and chemical prices. Management estimates that a $1 per barrel oil-price change affects 2024 pre-tax income by approximately $215 million, while a $0.10 per Mcf domestic gas-price change affects it by approximately $36 million.
- Review debt maturities, interest expense, preferred-stock redemption requirements and the ability to reduce debt after the CrownRock transaction.
- Evaluate the potential cash impact of the Tronox tax dispute, including approximately $2.0 billion of federal taxes and interest described as potentially repayable as of December 31, 2023.
- Review environmental reserves, the up-to-$2.6 billion range of reasonably possible additional environmental losses, and developments in the Diamond Alkali Superfund Site and Lower Passaic River matters.
- Assess whether DAC and CCUS projects achieve expected costs, permitting, financing, construction and commercial milestones.
- Monitor reserve revisions, production costs, capital efficiency and the conversion of proved undeveloped reserves into developed reserves.
- Confirm subsequent developments after the February 14, 2024 filing date, including debt issuance, CrownRock regulatory actions, dividend decisions and any material legal or environmental developments.