Occidental Petroleum Corporation: Q1 2015 Form 10-Q Summary
Business context and reporting period
Occidental Petroleum Corporation reported unaudited results for the three months ended March 31, 2015. Operations comprised oil and gas, chemical, and midstream and marketing segments. The 2014 comparative period reflects California Resources Corporation as discontinued operations following its November 30, 2014 spin-off.
Key financial metrics
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Net sales | $3.089 billion | $4.968 billion | Down 38% |
| Income from continuing operations | $(215) million | $1.137 billion | Declined to a loss |
| Net income attributable to common stock | $(218) million | $1.390 billion | Declined to a loss |
| Diluted EPS | $(0.28) | $1.75 | Down $2.03 |
| Operating cash flow | $561 million | $2.697 billion | Down 79% |
| Capital expenditures | $1.675 billion | $1.794 billion | Down 7% |
| Dividends per share | $0.72 | $0.72 | Unchanged |
Net loss margin was approximately 7.1% in Q1 2015, compared with net income margin of approximately 28.0% in Q1 2014. The company’s operating cash flow covered approximately one-third of capital expenditures during the quarter.
At March 31, 2015, cash and cash equivalents were $2.153 billion and restricted cash was $3.265 billion. Total debt was $6.839 billion, comprising $700 million of current maturities and $6.139 billion of long-term debt. Estimated debt fair value was $7.2 billion. Total stockholders’ equity was $34.164 billion.
- Net cash used in investing activities was $2.206 billion.
- Net cash provided by financing activities was $9 million, including $207 million of treasury-stock purchases and $557 million of dividends paid.
- Worldwide oil and gas production increased to 645,000 barrels of oil equivalent per day from 573,000 in the prior-year quarter; sales volumes increased to 637,000 from 562,000.
- Worldwide realized oil price fell to $48.50 per barrel from $98.14; worldwide NGL price fell to $17.96 per barrel from $41.70; and total worldwide realized natural gas price fell to $1.66 per Mcf from $2.90.
Material changes versus the prior comparable period
- Oil and gas segment earnings fell to a $266 million loss from $1.719 billion of earnings, primarily because of sharply lower commodity prices, partly offset by higher production and lower DD&A expense.
- Chemical segment earnings increased modestly to $139 million from $136 million, benefiting from lower ethylene and natural gas costs, partly offset by lower caustic soda volumes.
- Midstream and marketing reported a $15 million loss versus $162 million of earnings, reflecting lower NGL prices, weaker pipeline and marketing results, and lower commodity-trading results.
- Asset impairments and related items were $324 million, including approximately $160 million of pre-tax impairment charges on proved domestic oil and gas properties. Charges also included Eagle Ford properties no longer being developed, remaining Yemen investments, a carbon dioxide derivative mark-to-market loss, and spin-off-related items.
- Other comprehensive income was $151 million, primarily from unrealized gains on the California Resources investment, reducing the comprehensive loss to $67 million.
Outlook, management commentary, risks and unusual items
Management did not provide specific financial guidance in the filing. Management stated that results and cash flows depend substantially on oil and gas prices, production volumes and costs. The company expects to fund operating needs, capital expenditures, dividends and debt payments from cash on hand and operating cash flow, while retaining substantial borrowing capacity and reporting compliance with financing covenants.
Of the $4.95 billion of restricted cash received in the California Resources spin-off, $3.3 billion remained at March 31, 2015. This cash was restricted to dividends, share repurchases, debt repayment, or a combination of those uses, within 18 months of the distribution to preserve the spin-off’s tax-free status.
Environmental reserves totaled $324 million across 146 sites, including $79 million classified as current. Occidental estimated that reasonably possible additional environmental losses could be up to $385 million. The company also made $70 million and $60 million payments in February and April 2015 under a $190 million New Jersey settlement and is pursuing indemnification from Maxus Energy.
Principal risks include commodity-price volatility, production and exploration risks, project execution, environmental liabilities, litigation, geopolitical conditions, operational disruptions, regulatory changes, tax matters, counterparty credit risk and cyber or physical-security events. The filing states that other reasonably possible legal and tax losses beyond recorded reserves were not expected to be material.
As a subsequent event, the company announced a CEO succession plan on May 5, 2015, under which Vicki A. Hollub was expected to succeed Stephen I. Chazen after a transition period.
Important facts for investors to verify
- Whether commodity prices and production growth can restore oil and gas profitability after the Q1 2015 price collapse.
- The sustainability of capital spending, the $0.72 quarterly dividend and share repurchases given operating cash flow of only $561 million.
- The permitted timing and remaining uses of the $3.3 billion restricted cash balance.
- The potential for further impairments, particularly in domestic oil and gas assets, Yemen investments or other exposed properties.
- The ultimate cost and recoverability of the New Jersey environmental settlement and the broader environmental exposure beyond the $324 million reserve.
- Execution of the Al Hosn gas project and other development programs, including production and cost assumptions.
- The effect of the announced CEO succession and any related changes in capital allocation or operating strategy.