Occidental Petroleum Corporation: FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports fourth-quarter 2015 results. Occidental operates through oil and gas, chemical, and midstream and marketing segments.
Financial performance and position
| Metric | 2015 | 2014 |
|---|---|---|
| Net sales | $12.48 billion | $19.31 billion |
| Loss from continuing operations | $8.15 billion | $130 million loss |
| Net loss attributable to common stock | $7.83 billion | $616 million income |
| diluted EPS | $(10.23) | $0.79 |
| Operating cash flow from continuing operations | $3.25 billion | $8.87 billion |
| Capital expenditures | $5.27 billion | $8.93 billion |
| Cash and cash equivalents | $3.20 billion | $3.79 billion |
| Restricted cash | $1.19 billion | $4.02 billion |
| Long-term debt, net | $6.88 billion | $6.84 billion |
| Total assets | $43.44 billion | $56.26 billion |
| Stockholders’ equity | $24.35 billion | $34.96 billion |
- Reported gross profit was $126 million in fourth-quarter 2015, compared with $1.25 billion in fourth-quarter 2014.
- Fourth-quarter 2015 net loss attributable to common stock was $5.18 billion, or $(6.78) per diluted share.
- 2015 dividends declared were $2.97 per share; the quarterly rate increased to $0.75 after the first quarter.
- Net cash used in investing activities was $5.42 billion, while financing activities provided $1.48 billion, principally from $1.5 billion of debt issuance.
- The $2.0 billion revolving credit facility was undrawn at year-end, and management reported substantial covenant capacity for additional borrowings, dividends, and share repurchases.
Material changes versus the prior comparable period
- Sales fell approximately 35% year over year, primarily because average realized oil, NGL, and natural gas prices declined sharply. Average realized worldwide oil price fell to $47.10 per barrel from $90.13; NGL price fell to $15.96 from $37.01; and worldwide gas price fell to $1.49 per Mcf from $2.55.
- Average WTI declined to $48.80 per barrel from $93.00, while average NYMEX gas declined to $2.75 per Mcf from $4.34.
- Production from ongoing operations increased to 652,000 BOE per day from 571,000 BOE per day, driven by Permian Resources growth and the start-up of Al Hosn. Sales volumes from ongoing operations increased to 658,000 BOE per day from 572,000 BOE per day.
- Oil and gas segment results declined to an $8.06 billion loss from $428 million of earnings, including $8.5 billion of impairment and related charges.
- Chemical segment earnings increased to $542 million from $420 million, although underlying earnings excluding unusual items were broadly stable at $565 million versus $569 million.
- Midstream and marketing reported a $1.19 billion loss versus $2.56 billion of earnings, largely reflecting a $814 million Century gas processing plant impairment and the absence of significant 2014 asset-sale gains.
- Proved reserves declined to 2.20 billion BOE from 2.82 billion BOE. The decrease included 315 million BOE of primarily price-related revisions and 207 million BOE of reserve sales.
- Stockholders’ equity declined by $10.61 billion, primarily due to the net loss, dividends, and share repurchases.
Guidance, outlook, risks, and unusual items
- Management expected 2016 capital spending of no more than $3 billion, with approximately $500 million of planned commitments for long-term chemical and midstream projects under construction.
- Strategy focused on the Permian Basin, Colombia, and selected Middle East projects while exiting or reducing exposure to non-core operations. Occidental sold its Williston Basin assets for approximately $590 million and agreed to sell Piceance Basin assets for approximately $155 million, with closing expected in March 2016.
- The Ingleside ethylene cracker joint venture remained on budget and schedule, with start-up expected in early 2017. Occidental had invested approximately $530 million in the venture through year-end 2015.
- Occidental recorded $10.24 billion of asset impairments and related items, including $3.5 billion on domestic oil and gas assets, $5.0 billion on international oil and gas assets, $814 million on the Century gas processing plant, and $121 million on chemical assets. Further impairments were considered reasonably possible if commodity prices remained depressed or declined further.
- 2015 discontinued operations included a $322 million pretax gain related to the Ecuador arbitration settlement. By February 26, 2016, Occidental had received approximately $322 million.
- Environmental remediation reserves were $386 million across 149 sites, with reasonably possible additional losses estimated at up to $370 million. Occidental paid $190 million under a New Jersey environmental settlement and is pursuing indemnification from Maxus.
- Total contractual obligations were $22.04 billion, including $8.36 billion of debt, $9.91 billion of purchase obligations, and $1.18 billion of operating leases.
- Key risks include commodity-price volatility, reserve revisions, additional impairments, international political instability, environmental and climate regulation, operational incidents, cyberattacks, litigation, and the ability to execute divestitures and restructuring actions.
- Management and KPMG reported effective disclosure controls and internal control over financial reporting; KPMG issued unqualified audit opinions.
Facts investors should verify
- Whether oil, NGL, and natural gas prices recover sufficiently to restore positive free cash flow after capital spending and dividends.
- The sustainability of Permian production growth and the returns generated by the reduced 2016 capital budget.
- Potential additional impairment charges and changes in proved reserves under updated commodity-price assumptions.
- Completion and proceeds of the Piceance sale and the broader strategic review of non-core international assets.
- Liquidity after the 2016 debt maturities, subsequent debt retirement, dividends, share repurchases, and use of the remaining restricted cash.
- Progress, cost, and start-up timing for the Ingleside ethylene cracker and Al Hosn-related operations.
- Exposure to environmental remediation, contractual purchase commitments, international disputes, and the Ecuador settlement’s final cash recovery.