Occidental Petroleum Corporation — Q1 2021 Form 10-Q
Business context and reporting period
Occidental Petroleum Corporation reported unaudited results for the three months ended March 31, 2021. Operations comprise oil and gas, chemical, and midstream and marketing segments. Results remained highly sensitive to crude oil, NGL, natural gas, chemical-product prices, COVID-19 developments, and OPEC+ supply decisions.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $5.293 billion | $6.613 billion |
| Income from continuing operations | $299 million | $(2.013) billion |
| Diluted continuing-operations EPS | $0.10 | $(2.49) |
| Net loss attributable to common stockholders | $(346) million | $(2.232) billion |
| Diluted net loss per common share | $(0.36) | $(2.49) |
| Operating cash flow from continuing operations | $788 million | $1.295 billion |
| Capital expenditures | $579 million | $1.300 billion |
| Cash, cash equivalents and restricted cash | $2.468 billion | $2.364 billion |
| Total debt and finance leases | $36.025 billion | $36.185 billion |
Continuing-operations income as a percentage of net sales was approximately 5.6%; the filing does not present a consolidated operating margin or adjusted EBITDA. Total assets were $79.355 billion and stockholders’ equity was $18.300 billion at March 31, 2021.
Material changes versus the prior comparable period
- Net sales decreased approximately 20%, primarily because of lower production volumes and the absence of substantial 2020 three-way oil-collar gains, partly offset by higher realized commodity prices and improved chemical pricing.
- Continuing operations swung from a $2.013 billion loss to $299 million of income. The improvement reflected higher oil and gas prices, lower operating and transportation costs, stronger chemical pricing, improved marketing margins, and favorable interest-rate-swap mark-to-market results.
- Oil and gas production from continuing operations declined to 1,113 Mboe per day from 1,432 Mboe per day, primarily reflecting reduced capital investment in the Permian and DJ Basin.
- Oil and gas segment results were a $62 million loss versus $236 million of earnings. Chemical earnings increased to $251 million from $186 million, while midstream and marketing earnings increased to $282 million from a $1.287 billion loss.
- Operating cash flow from continuing operations declined despite the return to profitability, principally because higher commodity prices increased working-capital requirements. Capital spending was reduced by approximately 55% year over year.
- Q1 2021 included a $135 million impairment of non-core domestic undeveloped leases, a $102 million gain on the sale of WES limited partner units, and a $399 million gain on interest-rate swaps. Q1 2020 included substantially larger impairment charges and a $1.4 billion WES goodwill impairment.
Guidance, outlook, risks and unusual items
- Management’s 2021 priorities are to sustain production near the 2020 fourth-quarter rate, operate within an annualized $2.9 billion capital budget, preserve 2020 cost savings, and use excess cash flow and asset-sale proceeds to reduce debt and other obligations.
- Additional asset sales were expected to be announced later in 2021, but timing and proceeds were uncertain. Occidental completed the sale of certain DJ Basin assets for approximately $280 million and sold WES units for approximately $200 million during the quarter.
- Remaining near-term debt maturities were approximately $224 million in 2021, $2.1 billion in 2022, and $0.9 billion in 2023. The company also faced a potential approximately $1.0 billion October 2021 put of its zero-coupon notes.
- Management stated that cash on hand and available borrowing capacity were expected to cover debt maturities, operating expenditures, and other obligations for the 12 months following the filing. The company reported approximately $5.0 billion of revolving-credit capacity and up to $400 million under a receivables securitization facility.
- Ghana assets remained held for sale and generated a $42 million after-tax loss in discontinued operations. Discontinued operations also included a $403 million after-tax loss contingency related to former Ecuador operations. An arbitration award against OEPC was approximately $391 million plus interest, and the company intended to seek vacatur.
- Environmental remediation liabilities totaled $1.152 billion across 168 sites, with reasonably possible additional losses estimated at up to $1.1 billion.
- Occidental disclosed a potential repayment obligation of approximately $925 million plus approximately $270 million of accrued interest related to an $881 million tentative tax refund if its tax position is unsuccessful.
- Key risks include commodity-price volatility, COVID-19 demand effects, high leverage and non-investment-grade credit ratings, asset-sale execution, interest-rate-swap settlements, litigation, environmental liabilities, regulatory changes, and counterparty risk.
Most important facts for investors to verify
- Whether asset sales and operating cash flow generate sufficient proceeds to reduce debt and meet the 2021–2023 maturities and the potential October 2021 note put.
- The sustainability of improved earnings after excluding the $399 million swap gain, $102 million WES-sale gain, and other unusual items.
- Production trends and the effect of the reduced capital budget on future volumes and reserves.
- The outcome of the Ecuador arbitration challenge and the related discontinued-operations contingency.
- Developments in the $881 million tax refund dispute and the approximately $1.1 billion range of possible additional environmental losses.
- Commodity prices, OPEC+ actions, COVID-19 demand conditions, credit ratings, collateral requirements, and interest-rate-swap settlement obligations.