Occidental Petroleum Corporation — Q2 2022 Form 10-Q Summary
Business context and reporting period
Occidental Petroleum Corporation reported unaudited results for the three and six months ended June 30, 2022. Operations comprise oil and gas, chemical, and midstream and marketing segments. Results were strongly influenced by higher oil, NGL, natural gas, and chemical prices, with average WTI of $101.35 per barrel in the first half of 2022 versus $61.96 in the comparable 2021 period.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $10.676 billion | $5.958 billion | $19.025 billion | $11.251 billion |
| Income from continuing operations | $3.755 billion | $100 million | $8.631 billion | $399 million |
| Net income attributable to common stockholders | $3.555 billion | $(97) million | $8.231 billion | $(443) million |
| Diluted EPS | $3.47 | $(0.10) | $8.11 | $(0.47) |
| Operating cash flow | Not separately provided | Not separately provided | $8.568 billion | $4.224 billion |
| Capital expenditures | Not separately provided | Not separately provided | $1.830 billion | $1.277 billion |
Net income attributable to common stockholders represented approximately 33% of Q2 sales and 43% of first-half sales; these margins were materially affected by commodity pricing, derivative results, debt extinguishment gains, and the first-quarter non-cash tax benefit.
- Q2 segment income from continuing operations before corporate items was $4.094 billion for oil and gas, $800 million for chemical, and $264 million for midstream and marketing.
- Worldwide realized oil prices averaged $107.72 per barrel in Q2 and $100.10 per barrel for the first half, compared with $60.05 per barrel for the first half of 2021.
- Continuing-operations sales volumes averaged 1,150 Mboe/d in Q2 and 1,112 Mboe/d for the first half, versus 1,156 Mboe/d in the first half of 2021.
- Cash and cash equivalents were $1.362 billion at June 30, 2022; total cash, cash equivalents, and restricted cash were $1.401 billion.
- Total debt and finance leases were $22.202 billion, including $21.562 billion of net book debt before finance leases. Long-term debt, net, was $21.743 billion.
- Shareholders’ equity increased to $27.830 billion from $20.327 billion at December 31, 2021.
Material changes versus prior comparable periods
- First-half net sales increased 69%, primarily from higher commodity prices and improved chemical pricing and demand.
- First-half income from continuing operations rose to $8.631 billion from $399 million. Oil and gas segment income increased to $6.992 billion from $569 million, while chemical segment income increased to $1.471 billion from $563 million.
- Midstream and marketing first-half income declined to $214 million from $252 million, although Q2 improved to $264 million from a $50 million loss in Q1 2022.
- Operating cash flow from continuing operations increased to $8.568 billion from $4.112 billion, primarily due to higher commodity prices.
- Occidental repaid $7.108 billion of long-term debt during the first half, reducing face-value debt by approximately $8.1 billion and producing a $161 million gain on debt extinguishment. Debt repayments included $4.8 billion of face value in Q2.
- Cash used for financing included $539 million of common and preferred dividends and $568 million of treasury-share purchases.
- Occidental repurchased 12.4 million shares during the first half at an average price of $57.89 and repurchased an additional 6.8 million shares through August 1, 2022.
Guidance, outlook, commentary, risks and unusual items
Management’s 2022 priorities were to sustain 2021 production levels, maintain capital discipline, reduce financial leverage, preserve liquidity, and continue common dividends and share repurchases. The filing does not provide a quantitative earnings or production guidance range.
- A first-quarter legal-entity reorganization generated an estimated $2.6 billion non-cash tax benefit by reducing deferred tax liabilities. The benefit drove a negative 7% effective tax rate for the first half; further refinement may be required, and the timing of future cash-tax reductions remains uncertain.
- Q2 included a $179 million gain on early debt extinguishment, a $127 million gain on interest-rate swaps, and $96 million of midstream and marketing derivative gains. These items are not necessarily recurring.
- Oil prices are expected to remain volatile because of geopolitical risks, the Russia-Ukraine war, COVID-19-related demand uncertainty, supply responses, and OPEC or non-OPEC actions.
- As of June 30, Occidental had no borrowings under its $4.0 billion revolving credit facility and had up to $400 million available under its receivables securitization facility. Management expected available cash and facilities to cover near-term obligations for the next 12 months.
- Near-term debt maturities were approximately $362 million in 2023 and $1.4 billion in 2024. Zero Coupon notes could be put to Occidental in October 2022 for approximately $415 million if put in full.
- Environmental remediation liabilities totaled $1.073 billion across 167 sites, with reasonably possible additional losses of up to $1.2 billion. Occidental also faces ongoing Maxus-related remediation matters.
- An arbitration judgment related to former Ecuador operations totaled $558 million including prejudgment interest; Occidental appealed. An unfavorable outcome could materially affect a future period’s cash flows or results.
- Occidental has recorded no tax benefit on an $881 million tentative refund claim related to the Tronox matter. If unsuccessful, repayment could total approximately $1.2 billion of federal taxes, $28 million of state taxes, and $347 million of accrued interest, subject to the filing’s stated assumptions.
- Long-term debt remained non-investment grade at Ba1 from Moody’s and BB+ from Fitch and Standard & Poor’s. Downgrades could increase financing costs and collateral requirements.
Most important facts for investors to verify
- Whether oil, NGL, natural gas, and chemical prices remain sufficiently high to support current cash flow and deleveraging.
- The sustainability of production volumes, particularly after planned maintenance and expansion activity in Algeria and Al Hosn Gas.
- Debt repayment progress, 2023–2024 maturities, Zero Coupon put exposure, and the effect of interest-rate swaps.
- The recurring versus nonrecurring components of reported earnings, especially the $2.6 billion tax benefit, derivative gains, asset-sale gains, and debt-extinguishment gains.
- Potential cash impacts from environmental remediation, the Ecuador arbitration, the Tronox tax dispute, and other contingencies.
- The pace and funding of share repurchases and dividends relative to debt reduction and liquidity preservation.