Occidental Petroleum Corporation — 2021 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2021, filed February 24, 2022. Occidental operates through oil and gas, chemical (OxyChem), and midstream and marketing segments, including low-carbon ventures. The company’s results remain highly sensitive to oil, NGL, natural gas and chemical prices.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $25.956 billion | $17.809 billion | +46% |
| Income from continuing operations | $2.790 billion | $(13.533) billion | Improved |
| Net income attributable to common stockholders | $1.522 billion | $(15.675) billion | Improved |
| Diluted EPS | $1.58 | $(17.06) | Improved |
| Operating cash flow | $10.434 billion | $3.955 billion | +164% |
| Capital expenditures | $2.870 billion | $2.535 billion | +13% |
| Cash and cash equivalents | $2.764 billion | $2.008 billion | +38% |
| Total borrowings at face value | $28.493 billion | $35.235 billion | Down $6.742 billion |
Net income attributable to common stockholders represented approximately 5.9% of net sales; continuing-operations income represented approximately 10.8% of net sales; and operating cash flow represented approximately 40.2% of net sales. These are calculated ratios, not company-reported margins.
- Oil and gas segment sales were $18.941 billion and segment earnings were $4.145 billion, compared with segment losses of $9.632 billion in 2020.
- Chemical segment sales were $5.246 billion and earnings were $1.544 billion, versus $664 million in 2020. Management described 2021 as OxyChem’s highest earnings year in 30 years.
- Midstream and marketing sales were $2.863 billion and earnings were $257 million, versus a $4.175 billion loss in 2020.
- Average realized worldwide oil price rose to $66.14 per barrel from $37.34; NGL rose to $30.01 per barrel from $12.58; and natural gas rose to $2.87 per Mcf from $1.31.
- Continuing-operations production declined to 1,167 Mboe/d from 1,289 Mboe/d, primarily because capital spending was set to sustain the 2020 fourth-quarter production rate.
- Proved reserves increased to 3,512 MMboe from 2,911 MMboe, principally due to price revisions, infill development, extensions and discoveries. The increase is partly dependent on higher commodity-price assumptions.
Material changes versus the prior comparable period
- Results rebounded sharply from the 2020 pandemic-driven downturn as WTI averaged $67.91 per barrel versus $39.40 and Brent averaged $70.78 versus $43.21.
- 2020 included approximately $11.1 billion of asset impairments and other charges; 2021 included $304 million, primarily related to undeveloped leases that expired or were expected to expire.
- Debt was reduced by more than $6.7 billion at face value through repayments and tenders. Long-term debt, net, declined to $29.431 billion from $35.745 billion.
- Asset divestitures continued, including the October 2021 sale of Ghana assets for $750 million, with net proceeds of $555 million. The large-scale divestiture program was declared complete.
- Discontinued operations generated a $468 million after-tax loss, including a $437 million Ecuador-related loss contingency and Ghana-related losses.
- Net property, plant and equipment declined to $59.930 billion from $65.889 billion, while total assets declined to $75.036 billion from $80.064 billion.
Liquidity, debt and capital allocation
- Occidental reported $2.8 billion of cash and cash equivalents, a $4.0 billion fully committed revolving credit facility maturing in June 2025, and a receivables securitization facility with $400 million of capacity; neither facility was drawn at filing.
- Debt maturities at December 31, 2021 were approximately $101 million in 2022, $465 million in 2023 and $1.7 billion in 2024. The $101 million 2022 maturity was repaid in January 2022.
- The $2.3 billion face-value Zero Coupon notes may be put to Occidental in October 2022; management estimated a potential payment of approximately $1.1 billion and stated it had the intent and ability to meet it.
- Common and preferred dividends paid in 2021 totaled $839 million. The annualized common dividend rate was $0.04 per share at year-end.
- On February 10, 2022, the board authorized a new $3 billion share repurchase program with no stated term limit.
- 2022 capital spending was forecast at $3.9 billion to $4.3 billion, including approximately $1.7 billion to $1.9 billion for the Permian Basin, approximately $300 million for low-carbon ventures and approximately $83 million for emissions-reduction projects.
Outlook, commentary, risks and unusual items
- Management intends to sustain production, reduce leverage, improve capital efficiency and return additional capital to shareholders while remaining exposed to commodity-price movements. No active commodity hedges were in place at December 31, 2021.
- Management expects OxyChem demand and margins to remain supported by housing, construction, automotive and infrastructure activity, but identified feedstock, energy, labor, inflation and supply-chain costs as risks.
- Occidental targets net-zero greenhouse-gas emissions from operations and energy use before 2040, with an ambition to achieve this before 2035, and net-zero emissions from the use of sold products with an ambition before 2050. Execution depends on technology, financing, regulatory incentives and carbon-removal demand.
- A legal-entity reorganization expected in the first quarter of 2022 was estimated to produce a one-time non-cash tax benefit of up to $2.6 billion. The timing and amount were not final at filing.
- The Tronox tax dispute could require repayment of approximately $1.0 billion of federal tax, $27 million of state tax and approximately $314 million of accrued interest. A liability for these amounts was recorded; the matter was scheduled for Tax Court proceedings in July 2022.
- Environmental remediation liabilities totaled $1.099 billion across 165 sites. Management estimated reasonably possible additional losses of up to $1.3 billion beyond recorded liabilities.
- Occidental faced an Ecuador arbitration judgment confirmed at approximately $558 million including prejudgment interest; the judgment was under appeal.
- Key operating risks include commodity-price volatility, high leverage and non-investment-grade ratings, climate and emissions regulation, permitting and political risks, catastrophic events, cyberattacks, reserve-estimation uncertainty and potential future impairments.
- Hurricane Ida reduced 2021 Gulf of Mexico production by approximately 2.5 MMboe.
Important facts investors should verify
- Whether commodity prices and cash flows remain sufficient to fund the $3.9 billion–$4.3 billion 2022 capital program, dividends, repurchases and debt reduction.
- Progress on debt repayment, the October 2022 Zero Coupon put right and the company’s ability to maintain liquidity under lower-price scenarios.
- The final amount and tax impact of the 2022 legal-entity reorganization benefit.
- Outcomes of the Tronox tax case, Ecuador arbitration appeal and other litigation and contingency matters.
- Whether proved-reserve growth persists after separating price-driven revisions from operational additions and production replacement.
- Execution, financing and commercial demand for DAC, CCUS and other low-carbon projects, including the planned $300 million 2022 investment.
- Potential increases in environmental, emissions, Superfund, permitting and remediation costs beyond recorded liabilities.
- Effects of the 2021 production decline and future production plans in the Permian, Gulf of Mexico, Oman and other core areas.