OXY

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 1996, for Occidental Petroleum Corporation. The company operates in three primary segments: Oil and Gas, Natural Gas Transmission, and Chemical operations. As of March 31, 1996, there were 319,354,354 shares of common stock outstanding.

Key Financial Metrics

Note: Total Debt calculated as Current maturities ($50M) + Senior Funded Debt net of current maturities ($4,964M). Working Capital is Current Assets ($2,112M) minus Current Liabilities ($2,136M).

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased by $192 million (7.1%) primarily due to reduced chemical prices (petrochemicals and PVC resins). This was partially offset by higher crude oil and natural gas prices.
• Net Income Decrease: Net income fell by $44 million. This was driven by lower chemical earnings and a $30 million extraordinary loss resulting from the early retirement of high-coupon debt (11.75% Senior Debentures).
• Segment Performance:
  • Oil and Gas: Earnings increased significantly to $161 million from $60 million due to higher prices and production.
  • Natural Gas Transmission: Earnings rose to $121 million from $75 million, aided by colder weather increasing volumes and margins.
  • Chemical: Earnings dropped sharply to $118 million from $307 million due to lower profit margins and the absence of income from assets divested in 1995.
• Cash Flow: Operating cash flow increased slightly to $292 million. However, investing cash outflows increased to $224 million due to higher capital expenditures ($233 million vs. $160 million), primarily in oil and gas operations in Yemen.
• Debt Reduction: Financing activities used $470 million, largely to reduce debt and pay dividends, resulting in a significant drop in cash balances from $520 million at year-end 1995 to $118 million.

Outlook, Risks, and Unusual Items

• Unusual Items: The quarter included a $30 million extraordinary loss from debt retirement. Additionally, subsequent events in April 1996 included the sale of a drilling subsidiary for $32 million and the acquisition of a 64% interest in INDSPEC Holding Corporation for $87 million in stock.
• Management Outlook: Management expects cash from operations and asset sales to be adequate for operating requirements, capital spending, and dividends. Excess cash will be applied to debt reduction. The company maintains approximately $2.0 billion in unused committed bank credit.
• Risks and Contingencies:
  • Commodity Prices: Oil, gas, and chemical prices are sensitive to complex factors outside the company's control, making future trends difficult to predict.
  • Environmental Liabilities: The company is involved in 291 Superfund or comparable state sites. While reserves have been accrued for 106 sites where costs are estimable, management believes no pending proceedings will have a material adverse effect on financial position.
  • Legal Proceedings: The company faces various lawsuits and claims, though management asserts reserves are sufficient.

Investor Verification Checklist

• Verify the impact of the $30 million extraordinary loss on the true operating performance of the quarter.
• Monitor the volatility of chemical product prices (PVC, petrochemicals) given the significant earnings decline in that segment.
• Assess the sustainability of the $161 million earnings in the Oil and Gas segment given the company's statement that future price trends are unpredictable.
• Review the status of the 291 environmental sites and the adequacy of accrued reserves, particularly for the 10 sites where liability ranges could not be determined.
• Confirm the integration and financial impact of the INDSPEC acquisition completed in April 1996.