Occidental Petroleum Corporation — Q1 2022 Form 10-Q Summary
Business context and reporting period
Occidental Petroleum Corporation is an integrated energy company with oil and gas, chemical, and midstream and marketing segments. The filing covers the three months ended March 31, 2022, with comparisons to the three months ended March 31, 2021 and December 31, 2021. Financial statements are unaudited.
Key financial metrics
- Net sales: $8.349 billion, up from $5.293 billion in Q1 2021 and $7.913 billion in Q4 2021.
- Income from continuing operations: $4.876 billion, compared with $299 million in Q1 2021 and $1.561 billion in Q4 2021.
- Net income attributable to common stockholders: $4.676 billion, or $4.96 basic and $4.65 diluted per share, versus a net loss of $346 million, or $0.37 basic and $0.36 diluted per share, in Q1 2021.
- Reported net margin: approximately 58%; this was substantially affected by a $2.6 billion non-cash tax benefit and other unusual items.
- Operating cash flow: $3.239 billion, including $3.239 billion from continuing operations, versus $910 million in Q1 2021, including $788 million from continuing operations.
- Capital expenditures: $858 million, compared with $579 million in Q1 2021.
- Free cash flow proxy: continuing-operations operating cash flow less capital expenditures was approximately $2.381 billion; the filing does not label this as a formal non-GAAP measure.
- Cash and cash equivalents: $1.909 billion at March 31, 2022, compared with $2.764 billion at December 31, 2021. Total cash, cash equivalents and restricted cash were $1.951 billion.
- Debt: total debt and finance leases were $26.372 billion; long-term debt, net, was $25.865 billion, down from $29.431 billion at December 31, 2021.
- Liquidity: the company reported $4.0 billion of undrawn revolving credit capacity and up to $400 million of undrawn receivables securitization capacity. Management expected available cash and RCF capacity to cover obligations for the next 12 months.
- Segment performance: oil and gas income was $2.898 billion, chemical income was $671 million, and midstream and marketing reported a $50 million loss.
- Commodity pricing: average WTI was $94.29 per barrel versus $57.84 in Q1 2021. Worldwide realized oil price was $91.91 per barrel, compared with $55.65 in Q1 2021.
Material changes versus comparable periods
- Results benefited from materially higher oil, NGL, natural gas and chemical prices, as well as improved chemical margins.
- Oil and gas sales volumes declined to 1,074 Mboe per day from 1,113 Mboe per day in Q1 2021 and 1,193 Mboe per day in Q4 2021. Declines reflected plant shutdowns and maintenance, reduced capital investment, and production-sharing effects from higher prices.
- Oil and gas segment income improved from a $62 million loss in Q1 2021 to $2.898 billion, while chemical segment income increased from $251 million to $671 million.
- Midstream and marketing results declined from $282 million of income in Q1 2021 to a $50 million loss, primarily due to derivative accounting and the timing of crude export sales.
- Depreciation, depletion and amortization decreased to $1.643 billion from $2.194 billion, primarily because of lower per-unit DD&A rates following positive reserve revisions.
- Occidental repaid $3.3 billion of debt during the quarter using cash on hand and repaid an additional $263 million of principal after March 31, 2022 but before filing.
- The company paid $216 million of common and preferred dividends and authorized a $3 billion share repurchase program; no purchases under the publicly announced program occurred during the quarter.
Guidance, outlook, risks and unusual items
- Management’s 2022 priorities were to sustain 2021 production levels, maximize cash flow, reduce financial leverage, increase the dividend, and initiate an active share repurchase program.
- Management cited significant oil-price volatility related to the Russia-Ukraine war, OPEC and non-OPEC actions, COVID-19 impacts, global demand, inflation and supply constraints. Occidental does not operate or own assets in Russia or Ukraine.
- The company recorded an estimated $2.6 billion non-cash tax benefit from a legal-entity reorganization that reduced deferred tax liabilities. The benefit produced a negative 58% worldwide effective tax rate, and further refinement may be required.
- Q1 results also included a $123 million gain on the sale of non-strategic Permian assets, $135 million of interest-rate swap gains, $198 million of midstream and marketing derivative mark-to-market losses, $65 million of Anadarko acquisition-related costs and $18 million of early debt-extinguishment expense.
- The $2.3 billion Zero Coupon notes may be put to Occidental in October 2022; a full put would require approximately $1.1 billion. Management stated it currently has the ability to meet this obligation.
- Environmental remediation liabilities totaled $1.088 billion across 166 sites. Occidental estimated reasonably possible additional environmental losses of up to $1.3 billion beyond recorded liabilities.
- In the Ecuador arbitration matter, a U.S. court confirmed an award of approximately $558 million plus prejudgment interest against OEPC; OEPC appealed. An unfavorable outcome could materially affect future results or cash flows.
- Occidental disclosed an unresolved Anadarko tax matter involving a potential repayment of approximately $1.1 billion of federal taxes, $28 million of state taxes and $329 million of accrued interest; related liabilities are recorded.
- Management stated that disclosure controls were effective and that there were no material changes to previously reported risk factors. A system conversion affected internal controls, but no material adverse effect was identified.
Investor verification checklist
- Determine the sustainable earnings and cash-flow impact excluding the $2.6 billion non-cash tax benefit and other unusual gains and losses.
- Verify production-volume trends, planned capital spending and whether management can sustain 2021 production levels while prioritizing debt reduction and shareholder returns.
- Review upcoming debt maturities, the October 2022 Zero Coupon put option, interest-rate swap settlements and credit-rating risks.
- Assess sensitivity to oil, NGL, natural gas and chemical prices, as well as derivative mark-to-market volatility.
- Monitor the Ecuador arbitration appeal and the Anadarko tax litigation, including potential cash requirements.
- Evaluate environmental remediation reserves and the disclosed potential additional losses of up to $1.3 billion.