Occidental Petroleum Corporation — Q1 2024 Form 10-Q Summary
Business context and reporting period
Occidental Petroleum Corporation reported unaudited results for the three months ended March 31, 2024. Operations comprise oil and gas, chemical, and midstream and marketing segments, including low-carbon ventures. The filing states that quarterly results and cash flows are not necessarily indicative of full-year results.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $5.975 billion | $7.225 billion | Down 17% |
| Income before income taxes | $1.010 billion | $1.734 billion | Down 42% |
| Income from continuing operations | $706 million | $1.263 billion | Down 44% |
| Discontinued operations, net of tax | $182 million | — | New in 2024 |
| Net income | $888 million | $1.263 billion | Down 30% |
| Net income attributable to common stockholders | $718 million | $983 million | Down 27% |
| Diluted EPS | $0.75 | $1.00 | Down 25% |
| Operating cash flow | $2.007 billion | $2.870 billion | Down 30% |
| Capital expenditures | $1.783 billion | $1.461 billion | Up 22% |
Net income margin was approximately 14.8%, compared with 17.4% in Q1 2023. Income from continuing operations margin was approximately 11.7%. Operating cash flow less capital expenditures was approximately $224 million, although the filing does not label this measure as free cash flow.
- Segment results: Oil and gas income was $1.238 billion, versus $1.640 billion; chemical income was $254 million, versus $472 million; and midstream and marketing reported a $33 million loss, versus $2 million of income.
- Production: Total sales volumes averaged 1,175 Mboe/d, compared with 1,214 Mboe/d. The decline primarily reflected a third-party shut-in in the Eastern Gulf of Mexico; production resumed in April 2024.
- Realized prices: Worldwide oil realization was $76.04 per barrel, compared with $74.22; worldwide NGL realization was $22.14 per barrel, compared with $24.41; and worldwide natural gas realization was $1.68 per Mcf, compared with $2.76.
- Cash and liquidity: Cash and cash equivalents were $1.272 billion at March 31, 2024. Available liquidity included $4.0 billion under the revolving credit facility and up to $600 million under the receivables securitization facility; neither facility had borrowings outstanding.
- Debt: Total debt and finance leases were $19.748 billion, including $18.545 billion of long-term debt, compared with $19.738 billion and $18.536 billion, respectively, at December 31, 2023. Approximately $1.1 billion of debt matures within 12 months.
- Capital returns: Occidental declared $197 million of common dividends, or $0.22 per share, and paid $170 million of preferred dividends. No treasury stock was repurchased during the quarter.
- Tax: Income tax expense was $304 million, producing a 30% worldwide effective tax rate versus 27% in Q1 2023.
Material changes versus comparable periods
- Revenue and earnings declined year over year, primarily because of lower natural gas and NGL prices, lower domestic oil volumes, lower chemical product pricing, and weaker midstream and marketing results.
- Oil and gas earnings declined because of lower domestic crude volumes and lower natural gas and NGL prices, partly offset by higher domestic and international realized oil prices.
- Chemical earnings declined by $218 million, primarily from lower caustic soda prices, partly offset by stronger demand and lower ethylene and energy costs.
- Midstream and marketing results weakened because of lower winter weather activity, higher equity investee losses, and increased low-carbon venture costs. The segment also recorded a $91 million derivative loss.
- Operating cash flow decreased by $863 million while capital expenditures increased by $322 million, reducing cash generation after capital spending.
- Cash used in financing activities fell to $328 million from $1.080 billion, principally because Q1 2023 included $732 million of treasury stock repurchases.
Guidance, outlook, risks, contingencies, and unusual items
- 2024 priorities: Management intends to maintain production, support a sustainable and growing dividend, invest in energy, chemicals and low-carbon businesses, reduce leverage, and strengthen the Permian portfolio through the CrownRock acquisition.
- CrownRock acquisition: Occidental agreed to acquire CrownRock for approximately $12.0 billion. The proposed financing includes up to $9.1 billion of new debt, approximately 29.6 million common shares, and assumption of $1.2 billion of CrownRock debt. Regulatory review remains ongoing after the Federal Trade Commission issued a Second Request. No acquisition financing had been drawn at March 31, 2024.
- Occidental expects to complete a $4.5 billion to $6.0 billion divestiture program within 18 months after closing CrownRock and intends to repay at least $4.5 billion of debt within 12 months after closing.
- Debt outlook: The company expects cash on hand, operating cash flow and committed facilities to cover near-term obligations, excluding the CrownRock acquisition. The $4.0 billion revolving credit facility was extended to June 30, 2028. The Zero Coupon notes may be put to Occidental in October 2024, potentially requiring approximately $362 million.
- Commodity exposure: Results remain highly dependent on oil, NGL, natural gas and chemical prices, production volumes, regional spreads, inflation, OPEC and non-OPEC actions, and geopolitical conditions. Substantially all outstanding debt was fixed rate.
- Environmental liabilities: Environmental remediation liabilities totaled $1.001 billion across 159 sites, including $131 million current and $870 million non-current. Reasonably possible additional losses could be up to $2.6 billion.
- Alden Leeds litigation: The company is challenging a proposed settlement and allocation process involving remediation of the Diamond Alkali Superfund Site. If approved and not overturned, Occidental warns that OxyChem could be required to bear substantially all estimated costs for certain remedies, which could materially adversely affect results. The EPA has required approximately $93 million of financial assurance for the OU4 remedy.
- Tax dispute: If Occidental is unsuccessful in the Tronox-related tax matter, it could be required to repay approximately $1.4 billion of federal taxes, $28 million of state taxes and $622 million of accrued interest as of March 31, 2024. No tax benefit has been recorded for the disputed positions.
- Unusual item: A confidential Andes Arbitration settlement completed April 5, 2024 resulted in a $182 million after-tax gain recorded in discontinued operations for Q1 2024.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting. No material changes were reported to the risk factors in the 2023 Form 10-K.
Important facts for investors to verify
- Regulatory approval, financing structure, closing timing and post-closing leverage for the CrownRock acquisition.
- Whether Eastern Gulf of Mexico production remains fully restored and how volumes affect subsequent quarters.
- Oil, NGL, natural gas and chemical price trends, derivative positions, and the impact of the $238 million net marketing derivative loss recognized in Q1.
- Funding of the $1.1 billion near-term debt maturities, the October 2024 Zero Coupon put, and planned debt repayment following CrownRock closing.
- Progress and potential exposure in the Alden Leeds litigation and Diamond Alkali Superfund Site remediation.
- Outcome of the Tronox-related tax dispute and potential repayment exposure of approximately $2.05 billion including taxes, state amounts and accrued interest.
- Whether the company can sustain dividends and reduce leverage while funding approximately $1.8 billion of quarterly capital expenditures and its low-carbon investments.