Occidental Petroleum Corporation — Q2 2023 Form 10-Q Summary
Business context and reporting period
Occidental Petroleum Corporation is an integrated energy company with oil and gas, chemical, and midstream and marketing segments, including low-carbon ventures. This unaudited Form 10-Q covers the three and six months ended June 30, 2023, compared primarily with the corresponding 2022 periods and, for selected items, the quarter ended March 31, 2023.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $6.702 billion | $10.676 billion | $13.927 billion | $19.025 billion |
| Net income | $860 million | $3.755 billion | $2.123 billion | $8.631 billion |
| Net income attributable to common stockholders | $605 million | $3.555 billion | $1.588 billion | $8.231 billion |
| Diluted EPS | $0.63 | $3.47 | $1.63 | $8.11 |
| Operating cash flow | Not separately provided | Not separately provided | $5.940 billion | $8.568 billion |
| Capital expenditures | Not separately provided | Not separately provided | $3.107 billion | $1.830 billion |
Q2 net income margin was approximately 12.8%, versus 35.2% in the prior-year quarter. Six-month net income margin was approximately 15.2%, versus 45.4% in the prior-year period. Common-stockholder diluted EPS declined 82% in Q2 and 80% for the six-month period.
- Average worldwide realized oil price was $73.59 per barrel in Q2 and $73.91 per barrel for the six-month period, compared with $100.10 per barrel in Q2 2022.
- Average WTI was $73.83 per barrel in Q2 and $74.98 per barrel for the six-month period, versus $101.35 per barrel for the first six months of 2022.
- Six-month total oil and gas sales volumes increased to 1,218 Mboe/d from 1,112 Mboe/d, primarily due to higher Permian Basin and Gulf of Mexico activity and the Al Hosn Gas expansion.
- Q2 segment income was $1.059 billion for oil and gas, $436 million for chemical, and a $30 million loss for midstream and marketing.
- Cash and cash equivalents were $486 million at June 30, 2023, compared with $984 million at December 31, 2022. Including restricted cash, total cash was $533 million.
- Total debt and finance leases were $19.827 billion, including $19.082 billion of debt at net book value and $745 million of finance leases.
- Stockholders’ equity was $29.111 billion, compared with $30.085 billion at year-end 2022.
Material changes versus comparable periods
- Revenue declined 37% year over year in Q2 and 27% for the six-month period, primarily because of lower crude oil, NGL, natural gas, and chemical product prices.
- Oil and gas segment income declined 74% in Q2 versus Q2 2022 and 61% for the six-month period. Higher volumes partly offset lower commodity prices.
- Chemical segment income declined 46% in Q2 and 38% for the six-month period, primarily because of lower PVC and caustic soda prices and weaker demand, partly offset by lower ethylene and energy costs.
- Midstream and marketing shifted to a $30 million Q2 loss from $264 million of income before taxes in Q2 2022 and recorded a $28 million loss for the six-month period versus $214 million of income in the prior-year period.
- Operating cash flow declined 31% to $5.940 billion, while capital expenditures increased 70% to $3.107 billion. Free cash flow before other investing items was approximately $2.833 billion.
- Interest and debt expense increased to $230 million in Q2 from $114 million, while prior-year results included gains on interest-rate swaps and early debt extinguishment.
- The prior-year six-month period benefited from a $2.6 billion non-cash tax benefit related to a legal-entity reorganization. The 2023 six-month period recorded $938 million of income tax expense and a 31% effective tax rate.
Guidance, outlook, commentary, and unusual items
The filing does not provide specific full-year production, earnings, capital expenditure, or commodity-price guidance. Management’s stated 2023 priorities are to preserve and enhance core oil and gas and chemical assets, invest selectively in low-carbon businesses, maintain common-shareholder returns, continue preferred-stock redemptions, and reduce leverage opportunistically.
- Management expects oil prices to remain volatile because of geopolitical risks, macroeconomic conditions, energy demand, OPEC and non-OPEC actions, and Strategic Petroleum Reserve policy. Operations are highly sensitive to oil, NGL, natural gas, chemical prices, spreads, and inflation.
- Q2 included a $180 million impairment of non-core Powder River Basin undeveloped acreage and a $29 million impairment of an equity-method investment in Black Butte Coal Company.
- Q2 included a $260 million gain from remeasuring the valuation allowance related to expected recoveries from the Maxus Liquidating Trust. The Trust settlement requires YPF and Repsol to pay $575 million; Occidental expects to recover approximately $350 million by year-end, subject to the settlement becoming final.
- Occidental incurred a $68 million deferred tax charge related to the Algeria contract renewal.
- Occidental repurchased 19.7 million common shares for $1.177 billion during the first six months at an average price of $59.61 per share. Approximately $1.8 billion remained under the $3.0 billion repurchase authorization at June 30.
- Preferred-stock redemptions triggered by common-shareholder distributions totaled approximately $1.3 billion, including premiums, during the first six months. Approximately $8.8 billion of preferred-stock face value remained outstanding at the filing date.
- Occidental had no remaining 2023 debt maturities, with stated maturities of $1.1 billion in 2024, $1.2 billion in 2025, $1.4 billion in 2026, and $14.2 billion thereafter. The Zero Coupon notes could require approximately $344 million in October 2023 if put in full.
- The $4.0 billion revolving credit facility matures in June 2025; no amounts had been drawn through the filing date. Management stated that available cash, revolver capacity, and other committed facilities should cover near-term obligations for the next 12 months.
- Environmental remediation liabilities totaled $1.008 billion across 160 sites. Management estimated reasonably possible additional environmental losses of up to $2.7 billion, excluding amounts not reasonably estimable.
- At the Diamond Alkali Superfund Site, the EPA issued an order requiring OxyChem to design an interim remedy for OU4 and provide approximately $93 million of financial assurance. The EPA and DOJ also proposed a $150 million settlement with 85 potentially responsible parties that OxyChem is contesting.
- In the Andes arbitration, the Second Circuit confirmed the arbitration award but overturned $166 million of prejudgment interest, requiring recalculation. Occidental filed a petition for rehearing.
- Anadarko’s tax dispute could require repayment of approximately $1.4 billion in federal taxes, $28 million in state taxes, and $493 million of accrued interest if the company does not prevail. The filing states that a liability for these amounts is recorded.
Most important facts for investors to verify
- Whether commodity prices, particularly oil, domestic natural gas, NGLs, and PVC, support the company’s targeted cash-flow and shareholder-return plans.
- The pace and return on the elevated capital program, including whether operating cash flow continues to exceed capital expenditures.
- Future preferred-stock redemption requirements and their effect on cash available for common dividends, buybacks, and debt reduction.
- Debt maturities, the October 2023 Zero Coupon put option, credit ratings, and the availability of revolver and other committed liquidity.
- The ultimate cost and timing of environmental obligations, especially the Diamond Alkali Superfund Site, additional financial assurance, and potential losses beyond recorded reserves.
- The outcomes of the Andes arbitration, Alden Leeds litigation, related CERCLA cost-recovery claims, and the Anadarko tax dispute.
- The sustainability of the $350 million expected Maxus recovery and the accounting treatment of related proceeds.
- Management’s statement that disclosure controls were effective as of June 30, 2023 and that there were no material changes in internal control over financial reporting.