Occidental Petroleum Corporation — FY2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020; filed February 26, 2021. The filing is an annual Form 10-K, not a standalone fourth-quarter filing. Occidental operates through oil and gas, chemical, and midstream and marketing segments. The 2020 results reflect a full year of Anadarko operations acquired in August 2019.
Financial performance and position
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net sales | $17.809 billion | $20.911 billion | Down 15% |
| Income from continuing operations | $(13.533) billion | $(0.507) billion | Greater loss |
| Net loss attributable to common stockholders | $(15.675) billion | $(0.985) billion | Greater loss |
| Basic loss per share | $(17.06) | $(1.22) | Greater loss |
| Operating cash flow | $3.955 billion | $7.375 billion | Down $3.420 billion |
| Capital expenditures | $2.535 billion | $6.367 billion | Down 60% |
| Long-term debt, net | $35.745 billion | $38.537 billion | Down $2.792 billion |
| Cash and cash equivalents | $2.008 billion | $3.032 billion | Down $1.024 billion |
| Total assets | $80.064 billion | $107.190 billion | Down $27.126 billion |
| Stockholders’ equity | $18.573 billion | $34.232 billion | Down $15.659 billion |
Margins and segment results: The filing does not present a single consolidated operating-margin measure. Segment earnings were $(9.632) billion for oil and gas, $664 million for chemicals, and $(4.175) billion for midstream and marketing. The oil and gas segment recorded $7.0 billion of impairment and related charges, while midstream and marketing recorded major WES-related impairments and other charges.
- Average WTI declined 31% to $39.40 per barrel; Brent declined 33% to $43.21; NYMEX natural gas declined 21% to $2.11 per Mcf.
- Worldwide realized oil price declined 34% to $37.41 per barrel; realized NGL price declined 27% to $12.58 per barrel; realized natural gas price declined 10% to $1.31 per Mcf.
- Continuing-operations production increased 34% to 1.320 million barrels of oil equivalent per day, largely because 2020 included a full year of Anadarko production.
- Average lease operating expense declined to $6.38 per Boe from $9.07 per Boe.
- Proved reserves declined to 2.911 billion Boe from 3.904 billion Boe, primarily due to price and development-plan revisions, divestitures, and production.
Material changes versus the prior comparable period
- COVID-19 sharply reduced energy demand and commodity prices, driving lower revenue and operating cash flow despite higher production volumes.
- Occidental recorded $11.083 billion of asset impairments and other charges, compared with $1.361 billion in 2019. Major items included oil and gas property impairments, a $2.7 billion other-than-temporary impairment of the WES equity investment, and approximately $1.2 billion of WES-related goodwill and other impairments.
- The company reduced its 2020 capital budget to approximately $2.6 billion from a prior range of $5.2 billion to $5.4 billion and reported annualized overhead savings of $1.5 billion and operating-cost savings exceeding $900 million.
- The quarterly common dividend was reduced from $0.79 per share to $0.01 per share effective July 2020. Total common dividends paid were $746 million, versus $2.585 billion in 2019. The current annualized common dividend rate was $0.04 per share.
- Occidental issued $7.0 billion of senior unsecured notes with maturities from 2025 through 2031 and used asset-sale proceeds, cash, and debt proceeds to retire or tender $6.0 billion of 2021 maturities, $2.7 billion of 2022 maturities, and $264 million of 2023 maturities.
- Asset divestitures generated approximately $2.281 billion of net proceeds, including sales of non-core Permian acreage, mineral and surface acres, and Colombia onshore assets. These transactions produced aggregate losses of approximately $1.6 billion.
- Ghana remained held for sale and was reported in discontinued operations, which generated a $1.298 billion after-tax loss in 2020, including an approximately $1.4 billion after-tax impairment.
Liquidity, debt, outlook, and risks
At December 31, 2020, Occidental had approximately $2.0 billion of cash and $5.0 billion of available borrowing capacity under its revolving credit facility, which matures in 2023. Reported debt maturities were approximately $398 million in 2021, $2.1 billion in 2022, and $0.9 billion in 2023. The company stated that cash on hand and available revolver capacity were expected to cover debt maturities, operating expenditures, and other obligations for the next 12 months, while acknowledging that prolonged pandemic effects could require additional capital.
Management’s strategy emphasizes sustaining fourth-quarter 2020 production, maximizing free cash flow, reducing leverage, pursuing additional divestitures, and maintaining liquidity. The company expected a 2021 capital program of approximately $2.9 billion, with about 40% allocated to the Permian Basin. Management also expects chemical demand to improve in 2021, although new PVC capacity may pressure operating rates.
- Debt ratings at year-end were non-investment grade: BB from Fitch, Ba2 from Moody’s, and BB- from S&P. Further downgrades could raise funding costs, restrict capital-market access, and increase collateral requirements.
- The company has approximately $1.5 billion notional of interest-rate swaps, with significant mandatory termination dates in September 2021 through 2023. Their fair value and required settlement cash may fluctuate materially.
- A potential repayment obligation related to the Anadarko Tronox tax refund was approximately $1.2 billion including interest at December 31, 2020. Occidental has recorded a liability for the uncertain tax position but no tax benefit for the refund.
- Environmental remediation liabilities totaled $1.151 billion at 170 sites. Management estimated reasonably possible additional environmental losses of up to $1.1 billion.
- Key risks include commodity-price volatility, COVID-19 effects, debt refinancing and liquidity, asset-sale execution, reserve revisions, further impairments, regulatory and climate-policy changes, permitting constraints, political instability, environmental liabilities, litigation, cyberattacks, and availability of carbon dioxide for enhanced oil recovery.
- The company targets net-zero operational and energy-use emissions before 2040 and is developing carbon capture, utilization, and storage businesses, but execution, technology, regulatory, and capital requirements remain uncertain.
Investor verification points
- Reconcile reported cash, restricted cash, revolver availability, debt maturities, interest obligations, and potential zero-coupon note put obligations.
- Assess whether planned divestitures can be completed on expected terms and whether proceeds are sufficient to reduce leverage.
- Review sensitivity of cash flow, reserves, impairments, and liquidity to oil, NGL, natural gas, and chemical prices.
- Evaluate the sustainability of the sharply reduced common dividend and the treatment of preferred-stock dividends, including payments made in common shares.
- Examine WES valuation, ownership-reduction plans, related-party transactions, and potential additional impairments.
- Review the Tronox tax dispute, environmental remediation exposure, pending securities litigation, and other contingent liabilities.
- Verify the effect of Colorado setback rules, federal leasing and permitting actions, and climate regulation on DJ Basin and Gulf of Mexico development plans.
- Distinguish recurring operating performance from substantial 2020 non-cash impairments, divestiture losses, derivative gains, and discontinued-operations charges.