Occidental Petroleum Corporation: 2022 Form 10-K Summary
Business context and reporting period
Occidental Petroleum Corporation reported for the fiscal year ended December 31, 2022. Its principal segments are oil and gas, chemicals through OxyChem, and midstream and marketing, which includes low-carbon ventures focused on carbon capture, utilization and storage and direct-air capture.
Operations are concentrated in the United States, the Middle East and North Africa. The company’s results were highly influenced by higher commodity prices, including average WTI of $94.23 per barrel versus $67.91 in 2021 and average NYMEX natural gas of $6.35 per Mcf versus $3.61.
Key financial metrics
| Metric | 2022 | 2021 | Change/comment |
|---|---|---|---|
| Net sales | $36.634 billion | $25.956 billion | Up approximately 41% |
| Income from continuing operations | $13.304 billion | $2.790 billion | Up substantially |
| Net income | $13.304 billion | $2.322 billion | No discontinued-operations loss in 2022 |
| Net income attributable to common stockholders | $12.504 billion | $1.522 billion | Basic EPS increased to $13.41 from $1.62 |
| Diluted EPS | $12.40 | $1.58 | Includes dilutive warrants and awards |
| Operating cash flow | $16.810 billion | $10.434 billion | Continuing-operations cash flow was $16.810 billion |
| Capital expenditures | $4.497 billion | $2.870 billion | Primarily higher oil and gas investment |
| Cash used in investing activities | $4.872 billion | $1.253 billion | Included capital spending and acquisitions |
| Cash used in financing activities | $13.715 billion | $8.572 billion | Debt repayments and share repurchases |
| Cash and cash equivalents | $984 million | $2.764 billion | Excluding restricted cash |
| Debt at face value | $17.958 billion | $28.493 billion | Reduced by more than $10.5 billion |
Net income margin was approximately 36.3%, and operating cash flow was approximately 45.9% of net sales. These margins were favorably affected by commodity prices and a $2.7 billion tax benefit from a legal-entity reorganization.
- Oil and gas segment sales were $27.165 billion and segment earnings were $12.803 billion, compared with $18.941 billion and $4.145 billion, respectively, in 2021.
- Chemical segment sales were $6.757 billion and segment earnings were $2.508 billion, compared with $5.246 billion and $1.544 billion.
- Midstream and marketing sales were $4.136 billion and segment earnings were $273 million, compared with $2.863 billion and $257 million.
- Average oil and gas production from ongoing operations was 1,159 Mboe/d, down approximately 1% from 2021. Permian production increased 5% to 513 Mboe/d, while international production declined 5% to 222 Mboe/d.
- Worldwide realized oil prices increased 43% to $94.36 per barrel; realized NGL prices increased 18% to $35.48 per barrel; and realized natural gas prices increased 57% to $4.51 per Mcf.
- Year-end proved reserves increased to 3,817 MMboe from 3,512 MMboe. Proved undeveloped reserves increased to 1,119 MMboe from 865 MMboe.
- Property, plant and equipment, net, was $58.384 billion, and total assets were $72.609 billion at year-end.
- Environmental remediation liabilities were $1.046 billion across 162 sites. The company disclosed reasonably possible additional environmental losses of up to $2.7 billion.
Material changes versus the prior comparable period
- Higher oil, NGL, natural gas and chemical prices drove the sharp increase in sales, segment earnings and operating cash flow.
- Oil and gas capital expenditures increased to $3.844 billion from $2.409 billion, while total capital expenditures rose to $4.497 billion.
- Occidental repaid debt with a face value exceeding $10.5 billion, reducing face-value debt below $18 billion. Interest expense declined to $1.030 billion from $1.614 billion.
- The company completed a $3.0 billion share-repurchase program, purchasing approximately 47.7 million shares. A new authorization of up to $3.0 billion was approved in February 2023.
- Common dividends increased to $0.52 per share for 2022, and the quarterly dividend was increased to $0.18 per share in February 2023.
- There were no asset impairments in 2022, compared with $304 million in 2021 and substantial impairments in 2020.
- 2022 included a $2.7 billion tax benefit from a legal-entity reorganization, reducing the effective tax rate to 6% from 25% in 2021. The transaction is under IRS review.
- Interest-rate swaps were fully settled during 2022. No active commodity hedges were in place at December 31, 2022, leaving the company materially exposed to commodity prices.
- Occidental began construction of its first direct-air-capture facility, acquired approximately 265,000 net acres of Gulf Coast pore-space access and invested approximately $530 million in low-carbon businesses and net-zero initiatives.
Guidance, outlook, risks and unusual items
- Planned 2023 capital expenditures are $5.4 billion to $6.2 billion, including $4.3 billion to $4.7 billion for oil and gas assets. Planned oil and gas spending is focused primarily on high-return assets.
- Management expects 2023 low-carbon venture investment of $100 million to $500 million, dependent on partner participation. The first large-scale direct-air-capture facility is expected to be online in 2025.
- Management expects operating cash flow, cash on hand and available credit facilities to cover current debt maturities and obligations for at least the next 12 months. The company had a $4.0 billion revolving credit facility with no borrowings outstanding at the filing date.
- Debt maturities included approximately $1.1 billion in 2024 and $1.2 billion in 2025. The $22 million 2023 maturity was paid in January 2023. The Zero Coupon notes may be put to the company in October 2023 for approximately $344 million if exercised in full.
- Management expects a greater proportion of excess free cash flow to be returned to shareholders in 2023 and intends to begin redeeming preferred stock, subject to the preferred-stock redemption provisions.
- Key risks include volatile oil, NGL, natural gas and chemical prices; inflation and service-cost increases; non-investment-grade credit ratings; refinancing and liquidity requirements; regulatory and permitting delays; climate and methane regulations; environmental liabilities; political instability in international operations; catastrophic events; cyberattacks; and reserve-estimation uncertainty.
- The IRS dispute concerning the Anadarko/Tronox tax refund could require repayment of approximately $1.4 billion of taxes plus approximately $415 million of accrued interest, or about $1.8 billion in total as of December 31, 2022.
- OxyChem faces significant uncertainty related to the Diamond Alkali Superfund Site and proposed EPA remediation settlements. The EPA has estimated remediation costs of approximately $1.4 billion for one operating unit and approximately $440 million for another, but the company’s ultimate allocation is not yet determined.
- Occidental is defending an Andes arbitration judgment of approximately $558 million plus prejudgment interest and related claims. The appeal was argued in February 2023, with a decision expected later in 2023.
- The company’s long-term debt ratings were BB+ from Fitch, Ba1 from Moody’s and BB+ from Standard & Poor’s, all below investment grade.
Most important facts for investors to verify
- Whether commodity prices and production volumes can support the planned 2023 capital program and shareholder-return commitments.
- The pace and sustainability of further debt reduction, including the timing of preferred-stock redemptions and the October 2023 Zero Coupon put right.
- The outcome of the IRS review and the potential approximately $1.8 billion Tronox-related repayment exposure.
- The potential ultimate cost and financial-assurance requirements associated with Diamond Alkali and other environmental matters.
- The outcome of the Andes arbitration appeal and related enforcement proceedings.
- Whether direct-air-capture and CCUS projects achieve expected costs, financing, permitting, tax-credit and commercial milestones.
- The sensitivity of cash flow and earnings to commodity prices: management estimates approximately $200 million of annual pre-tax income impact for each $1 per barrel change in oil prices and approximately $30 million for each $0.10 per Mcf change in domestic natural gas prices.
- The effects of climate, methane, permitting and other regulatory changes on reserves, operating costs, production plans and access to capital.