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Business Context and Reporting Period

Company: Occidental Petroleum Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2000
Business Overview: Occidental operates primarily in two segments: Oil and Gas operations and Chemical operations. The company is engaged in the exploration, production, and refining of oil and natural gas, as well as the manufacture and sale of chemical products.

Key Financial Metrics

Note: Total Debt calculated as Current maturities of long-term debt ($16M) + Notes payable ($38M) + Long-term debt ($4,513M) = $4,567M. The table reflects the primary debt components listed.

Material Changes vs. Prior Period

• Revenue Surge: Net sales increased 87% to $2.5 billion, driven by higher worldwide crude oil and natural gas prices, as well as increased prices and volumes for chemical products (VCM, EDC, PVC).
• Profitability Turnaround: The company reported a net income of $271 million compared to a net loss of $70 million in Q1 1999. The prior year loss included a $13 million after-tax charge for changes in accounting principles.
• Segment Performance:
  • Oil & Gas: Earnings rose to $394 million from $65 million due to higher commodity prices, partially offset by lower production volumes pending the sale of Peru assets.
  • Chemical: Earnings jumped to $143 million from $12 million, driven by higher prices and volumes, despite increased raw material costs.
• Cash Flow Shift: Operating cash flow improved significantly to $348 million. However, investing activities shifted from a net inflow of $1.3 billion in 1999 (due to a $1.4 billion note receivable from the MidCon sale) to a net outflow of $487 million in 2000, largely due to a $375 million deposit for the Altura acquisition.

Outlook, Management Commentary, and Risks

Subsequent Events and Acquisitions

• Altura Acquisition: On April 19, 2000, Occidental acquired Altura Energy Ltd. for approximately $3.6 billion. This adds ~135,000 barrels per day of production and 850 million barrels of proved reserves. The deal was funded by $1.2 billion in cash and $2.4 billion in partnership debt.
• CanOxy Sale: On April 18, 2000, Occidental sold its 29.2% stake in Canadian Occidental Petroleum Ltd. (CanOxy) for ~$1.2 billion CAD. Proceeds were applied to the Altura and THUMS acquisitions.
• ARCO Long Beach: Acquired for $57 million on April 24, 2000, adding 95 million barrels of reserves.
• Debt Redemption: Announced redemption of $75 million in 11-1/8% Senior Debentures due June 1, 2019.

Guidance and Liquidity

Management expects sufficient cash for 2000 operating needs, capital expenditures (projected at $950 million), dividends, and debt repayments. Available committed bank credit was approximately $2.0 billion as of March 31, 2000.

Risks and Contingencies

• Legal and Environmental: Occidental is a defendant in numerous lawsuits, including CERCLA proceedings. While reserves are accrued for probable costs, unfavorable resolutions could have a material adverse effect.
• Market Risk: Results are sensitive to global commodity pricing fluctuations, competitive pressures, and regulatory uncertainties.
• Y2K Compliance: The company reported no significant adverse Y2K events, with total costs estimated at $29 million.

Investor Verification Checklist

• Altura Financing Structure: Verify the terms of the $2.4 billion partnership debt and the $2.0 billion loan to sellers to understand recourse and repayment obligations.
• Commodity Price Sensitivity: Assess the sustainability of current oil and gas prices which drove the Q1 2000 earnings surge.
• Environmental Reserves: Review the adequacy of accrued reserves for the 54 sites where remediation is probable, given the potential for joint and several liability.
• Debt Maturity Profile: Confirm the impact of the $75 million debenture redemption and the new Altura-related debt on the company's leverage ratios.
• Peru Asset Sale: Monitor the final closing details of the Peru asset sale to Pluspetrol (closed May 8, 2000) to confirm final proceeds and write-down adjustments.