Occidental Petroleum Corporation 2014 Form 10-K Summary
Business Context and Reporting Period
Occidental Petroleum Corporation reported for the fiscal year ended December 31, 2014, with fourth-quarter results materially affected by the sharp decline in oil and NGL prices. The company operates through oil and gas, chemical, and midstream and marketing segments. California oil and gas operations were spun off to California Resources Corporation on November 30, 2014, and are presented as discontinued operations for all periods shown.
Financial Performance and Key Metrics
| Metric | 2014 | 2013 |
|---|---|---|
| Net sales | $19.312 billion | $20.170 billion |
| Income from continuing operations attributable to common stock | $(130) million | $4.932 billion |
| Net income attributable to common stock | $616 million | $5.903 billion |
| Diluted EPS | $0.79 | $7.32 |
| Operating cash flow from continuing operations | $8.871 billion | $10.229 billion |
| Capital expenditures | $8.930 billion | $7.357 billion |
| Long-term debt, net | $6.838 billion | $6.939 billion |
| Cash and cash equivalents | $3.789 billion | $3.393 billion |
| Restricted cash | $4.019 billion | — |
| Total assets | $56.259 billion | $69.443 billion |
| Stockholders’ equity | $34.959 billion | $43.372 billion |
Net income included $760 million from discontinued operations. The reported continuing-operations loss was driven primarily by $7.379 billion of asset impairments and related items, including domestic and international oil and gas impairments, an $805 million Joslyn oil sands impairment, and a $553 million other-than-temporary loss on retained California Resources shares.
Segment sales and earnings were: oil and gas sales of $13.887 billion and earnings of $428 million; chemical sales of $4.817 billion and earnings of $420 million; and midstream and marketing sales of $1.373 billion and earnings of $2.564 billion. Midstream earnings included approximately $2.0 billion of gains from the BridgeTex and Plains Pipeline transactions.
Worldwide oil and gas production was approximately 597,000 barrels of oil equivalent per day, versus 609,000 in 2013. Excluding Hugoton production, production was flat at approximately 591,000 BOE per day. Average worldwide realized oil prices fell to $90.13 per barrel from $98.81, while domestic natural gas prices increased to $3.97 per Mcf from $3.22.
Proved reserves increased to 2.819 billion BOE from 2.738 billion BOE. Reserve additions totaled 380 million BOE, including 354 million BOE from improved recovery, while revisions reduced reserves by 58 million BOE.
Occidental paid $2.210 billion of cash dividends and repurchased $2.500 billion of stock. The quarterly dividend was $0.72 per share, or $2.88 for the year. The debt-to-capitalization ratio was 16 percent, compared with 14 percent in 2013.
Material Changes Versus the Prior Comparable Period
- Net sales decreased 4 percent, primarily because of lower oil prices in the fourth quarter and lower NGL prices.
- Continuing-operations earnings declined from $4.932 billion of income to a $130 million loss attributable to common stock.
- Operating cash flow from continuing operations declined 13 percent to $8.871 billion.
- Capital expenditures increased 21 percent to $8.930 billion, principally due to higher Permian Resources development activity and midstream spending.
- Domestic oil production increased, but international production declined because of lower cost-recovery barrels and political or operational disruptions.
- Chemical earnings, excluding the 2014 impairment and 2013 Carbocloro gain, decreased to $569 million from $612 million because of higher energy and ethylene costs and lower chlor-alkali pricing.
- Underlying midstream and marketing earnings increased modestly to $549 million from $537 million, excluding disposition gains.
- Total assets and equity declined substantially, primarily because of the California Resources spin-off, impairments, dividends, and share repurchases.
Guidance, Outlook, Risks, and Unusual Items
- Management expected 2015 net capital spending of approximately $5.8 billion, including approximately $4.5 billion for oil and gas. Permian Basin capital spending was expected to be approximately $2.2 billion.
- Development activity was reduced or minimized in the Williston Basin, domestic gas properties, and Bahrain because of sub-par returns at prevailing commodity prices.
- Management expected Al Hosn gas project production startup in the UAE to proceed as planned; initial production began in January 2015.
- Management expected moderate improvement in chemical margins in 2015 if housing, automotive, construction, and global demand improved and feedstock costs remained favorable.
- The company remains highly exposed to commodity prices. A $1-per-barrel change in oil prices was estimated to affect annual pretax income by approximately $126 million; a $0.50-per-Mcf change in domestic gas prices by approximately $50 million.
- Additional sustained declines in oil, gas, or NGL prices could cause further impairments, lower cash flow, reduced capital spending, and slower development of proved undeveloped reserves.
- International operations expose the company to political instability, civil unrest, sanctions, nationalization, contract changes, production interruptions, and security risks, particularly in Libya, Yemen, Iraq, Bahrain, and other Middle East and North African locations.
- Environmental remediation reserves were $334 million, with reasonably possible additional losses of up to $380 million. The company also agreed to a $190 million New Jersey environmental settlement, subject to potential additional Passaic River-related costs.
- Total contractual obligations were approximately $20.160 billion, including $10.109 billion of purchase obligations, $6.857 billion of long-term debt principal, and $1.386 billion of operating leases.
- The company had a $2.0 billion undrawn revolving credit facility expiring in 2019 and stated that available cash and operating cash flow were expected to fund operations, capital expenditures, dividends, and debt payments.
Most Important Facts for Investors to Verify
- Whether the substantial 2014 impairments adequately reflect the carrying value of oil and gas assets under subsequent commodity-price assumptions.
- The sustainability of cash flow, dividends, and share repurchases after the decline in oil prices and the separation of California Resources.
- Execution, production growth, and returns from Permian Resources, Al Hosn, and other major development projects.
- Exposure to political and contractual risks in Bahrain, Iraq, Libya, Yemen, Oman, Qatar, and other international operations.
- The use and expiration restrictions on the $4.019 billion of restricted cash distributed in connection with the California Resources spin-off.
- The effect of chemical feedstock costs, chlor-alkali pricing, PVC margins, and the planned 2017 Ingleside ethylene cracker.
- Potential environmental, legal, tax, and indemnification obligations, including the New Jersey settlement and Passaic River cleanup matters.
- Reserve quality and development timing, particularly for proved undeveloped reserves and reserves dependent on higher commodity prices.