Business Context and Reporting Period
Occidental Petroleum Corporation filed this unaudited Form 10-Q for the three months ended March 31, 2023. The company operates through oil and gas, chemical, and midstream and marketing segments, including low-carbon ventures.
Financial Performance and Position
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $7.225 billion | $8.349 billion |
| Income before income taxes | $1.734 billion | $3.083 billion |
| Net income | $1.263 billion | $4.876 billion |
| Net income attributable to common stockholders | $983 million | $4.676 billion |
| Diluted EPS | $1.00 | $4.65 |
| Net margin | Approximately 17.4% | Approximately 58.4% |
| Cash flow from operations | $2.870 billion | $3.239 billion |
| Capital expenditures | $1.461 billion | $858 million |
- Segment income was $1.640 billion for oil and gas, $472 million for chemical, and $2 million for midstream and marketing.
- Cash and cash equivalents were $1.165 billion at March 31, 2023; total cash, cash equivalents, and restricted cash were $1.218 billion.
- Total debt and finance leases were $19.784 billion, including $19.105 billion of net book debt and $679 million of finance lease liabilities. Long-term debt, net, was $19.645 billion.
- Occidental had $4.0 billion of available revolving credit capacity and up to $600 million of receivables securitization capacity, with no amounts drawn or outstanding under those facilities as of the filing date.
- Net cash used in investing activities was $1.598 billion, while net cash used in financing activities was $1.080 billion. Cash increased by $192 million during the quarter.
- The worldwide effective tax rate was 27%, compared with a negative 58% rate in Q1 2022, when results included significant tax benefits from a legal entity reorganization.
Material Changes Versus Prior Comparable Period
- Net sales declined 13% year over year, primarily because of lower crude oil, NGL, and natural gas prices and lower realized PVC prices and chemical volumes.
- Net income fell 74%, and diluted EPS declined from $4.65 to $1.00. The prior-year period benefited from a $2.6 billion tax benefit related to legal entity reorganization, a $135 million interest-rate-swap gain, and other favorable items.
- Oil and gas segment income decreased from $2.898 billion to $1.640 billion. Average sales volumes increased from 1,074 Mboe/d to 1,214 Mboe/d, partially offsetting lower commodity prices.
- Chemical segment income decreased from $671 million to $472 million, primarily due to lower PVC pricing and reduced demand across most product lines.
- Midstream and marketing improved to $2 million of income from a $50 million loss, although Q1 2023 included lower NGL and sulfur prices and increased low-carbon ventures activity.
- Operating cash flow decreased 11%, while capital expenditures increased 70% to approximately $1.5 billion, primarily for oil and gas activities.
- Occidental repurchased 12.5 million common shares for $732 million at an average price of $60.09 per share. Approximately $2.248 billion remained under the $3.0 billion repurchase authorization at March 31, 2023.
- Common dividends declared were $164 million, or $0.18 per share. Preferred dividends were $200 million.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management’s 2023 priorities are to sustain 2022 production levels, maintain capital discipline, invest in core and low-carbon businesses, continue shareholder returns, and opportunistically reduce leverage. No specific earnings or production guidance was provided in the filing.
- Management expects operating cash flows to fund the remaining 2023 capital budget. It expects cash, operating cash flow, and available credit facilities to cover near-term debt maturities, operating expenses, and other obligations for the next 12 months.
- Occidental had no remaining debt maturities in 2023; stated maturities were $1.1 billion in 2024, $1.2 billion in 2025, $1.4 billion in 2026, and $14.2 billion thereafter. The Zero Coupon notes may be put to the company in October 2023, potentially requiring approximately $344 million if put in full.
- In March 2023, common shareholder distributions triggered mandatory preferred-stock redemptions. Occidental accrued $712 million, including a $65 million premium, and settled $551 million in cash after quarter-end but before filing.
- Oil prices remain a major risk. Average WTI declined to $76.13 per barrel in Q1 2023 from $94.29 in Q1 2022. Management cited commodity-price volatility, inflation, economic conditions, geopolitical risks, OPEC and non-OPEC actions, and energy-demand uncertainty.
- Environmental remediation liabilities totaled $1.031 billion across 161 sites, including $890 million classified as noncurrent. Management estimated reasonably possible additional losses of up to $2.7 billion beyond recorded liabilities.
- OxyChem received an EPA unilateral administrative order concerning the Diamond Alkali Superfund Site and was directed to design the OU4 interim remedy and provide approximately $93 million of financial assurance. The EPA has estimated remediation costs of approximately $1.4 billion for OU2 and $440 million for OU4 excluding OU2; Occidental’s ultimate share remains uncertain.
- A proposed EPA and DOJ settlement involving 85 parties could affect Occidental’s ability to seek contribution from other potentially responsible parties. The company is contesting the settlement and cannot estimate the timing or outcome.
- A Maxus-related settlement requires YPF and Repsol to pay $575 million to the Maxus Liquidating Trust, subject to approvals. If approved, OxyChem expects approximately $350 million of proceeds and expects to recognize a gain exceeding $200 million from remeasuring its valuation allowance.
- Occidental continues to appeal an Andes arbitration judgment. If unsuccessful, the judgment, including prejudgment interest, was approximately $558 million as of December 2021; the filing does not provide a current settlement amount.
- The IRS is challenging an $881 million tentative refund related to the Tronox settlement. If Occidental ultimately loses, it may be required to repay approximately $1.4 billion of federal taxes, $28 million of state taxes, and $453 million of accrued interest; the company has recorded a liability for these amounts.
Important Facts for Investors to Verify
- Commodity-price sensitivity, particularly the effect of oil, NGL, natural gas, and chemical pricing on cash flow and capital spending.
- Progress toward sustaining production levels while capital expenditures remain elevated relative to Q1 2022.
- Execution of the $3.0 billion share repurchase plan and the resulting mandatory preferred-stock redemption obligations.
- Debt repayment capacity, refinancing requirements after 2026, and the potential October 2023 Zero Coupon put.
- EPA actions, financial-assurance requirements, the Alden Leeds settlement, and potential environmental losses beyond the $1.031 billion recorded reserve.
- Approvals and expected timing of the Maxus settlement and the potential recovery and gain described by management.
- Outcomes of the Andes arbitration appeal and the IRS Tronox-related tax dispute.