Occidental Petroleum Corporation — Q3 2023 Form 10-Q Summary
Business Context and Reporting Period
Occidental operates through oil and gas, chemical, and midstream and marketing segments, including low-carbon ventures. This unaudited Form 10-Q covers the three and nine months ended September 30, 2023, with comparisons to the corresponding 2022 periods and, for selected metrics, the quarter ended June 30, 2023.
Key Financial Metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Net sales | $7.158 billion | $9.390 billion | $21.085 billion | $28.415 billion |
| Net income | $1.375 billion | $2.746 billion | $3.498 billion | $11.377 billion |
| Net income attributable to common stockholders | $1.156 billion | $2.546 billion | $2.744 billion | $10.777 billion |
| Diluted EPS | $1.20 | $2.52 | $2.83 | $10.64 |
| Net margin | 19.2% | 29.2% | 16.6% | 40.0% |
| Cash flow from operations | Not separately provided | Not separately provided | $9.069 billion | $12.835 billion |
| Capital expenditures | Not separately provided | Not separately provided | $4.726 billion | $2.977 billion |
Q3 income before income taxes was $1.809 billion, and the worldwide effective tax rate was 24%. Nine-month income before income taxes was $4.870 billion, with a 28% effective tax rate. The prior-year nine-month tax rate was unusually low at 3%, primarily because of a $2.7 billion tax benefit from a 2022 legal-entity reorganization.
At September 30, 2023, cash and cash equivalents were $611 million, total current assets were $8.266 billion, and total current liabilities were $8.941 billion. Total debt and finance leases were $19.821 billion, including $1.224 billion of current maturities. Long-term debt, net, was $18.597 billion. Substantially all debt was fixed rate.
Occidental had no borrowings under its $4.0 billion revolving credit facility and no outstanding receivables-securitization balance at quarter-end. The company reported up to $600 million of available receivables-securitization capacity and compliance with financing covenants.
Material Changes Versus Comparable Periods
- Q3 net sales decreased 24% year over year, while net income decreased 50% and diluted EPS decreased 52%. Nine-month net sales decreased 26%, net income decreased 69%, and diluted EPS decreased 73%.
- The primary year-to-date earnings pressure was lower worldwide crude oil prices, lower domestic NGL and natural gas prices, lower PVC prices and chemical demand, and weaker crude margins in marketing.
- Average WTI was $77.41 per barrel for the first nine months of 2023 versus $98.09 in the prior-year period. Worldwide realized oil price was $76.19 per barrel versus $98.30, while total sales volumes increased to 1,220 Mboe/d from 1,135 Mboe/d.
- Q3 results improved sequentially: net income rose to $1.375 billion from $860 million in Q2, primarily from higher domestic commodity prices and higher domestic crude volumes.
- Oil and gas segment income was $1.969 billion in Q3 and $4.668 billion for nine months, compared with $3.345 billion and $10.337 billion, respectively, in the prior-year periods.
- Chemical segment income was $373 million in Q3 and $1.281 billion for nine months, down from $580 million and $2.051 billion, respectively, primarily because of lower caustic soda and PVC pricing and weaker demand.
- Midstream and marketing reported a $130 million Q3 loss and a $158 million nine-month loss, compared with income of $104 million and $318 million in the prior-year periods. Results reflected derivative mark-to-market losses, weaker marketing margins, lower NGL and sulfur prices, and increased low-carbon-venture activity.
- Operating cash flow declined 29% year over year, while capital expenditures increased 59% to $4.726 billion. Investing cash use increased to $5.011 billion from $2.974 billion.
Outlook, Management Commentary, Risks and Unusual Items
Management stated that financial performance remains highly dependent on oil, NGL, natural gas and chemical prices, spreads, inflation and geopolitical conditions. Commodity prices are expected to remain volatile because of OPEC and non-OPEC actions, conflicts in Ukraine and the Middle East, energy demand and other macroeconomic factors. The filing does not provide formal quantitative earnings or production guidance.
2023 priorities are to invest in core oil and gas and chemical assets, develop low-carbon businesses, maintain a growing common dividend and share-repurchase program, redeem preferred stock, and reduce leverage opportunistically. Occidental expects cash on hand, operating cash flow and committed facilities to fund near-term obligations for the next 12 months.
- Occidental repurchased 29.1 million common shares for approximately $1.8 billion through the filing date and had approximately $1.2 billion remaining under its $3.0 billion authorization.
- Preferred stock redemptions totaled $1.5 billion of face value during the first nine months; approximately $8.5 billion of face value remained outstanding as of the filing date. Preferred-stock terms require matching redemptions when common distributions exceed specified thresholds.
- September 2023 asset sales generated a $142 million gain from non-core Permian properties, and the sale of WES units generated a $51 million gain.
- Nine-month unusual items included $209 million of impairments, consisting primarily of a $180 million Powder River Basin acreage impairment and a $29 million Black Butte Coal investment impairment, as well as a $260 million gain from remeasuring the Maxus Liquidating Trust valuation allowance.
- Occidental acquired the remaining interest in Carbon Engineering on November 3, 2023 for approximately $1.1 billion, payable in three approximately equal annual installments; $355 million was paid at closing. Purchase accounting was incomplete when the filing was issued.
- Occidental entered into a BlackRock joint venture for a large-scale direct-air-capture plant, with $550 million of committed investment from BlackRock's fund.
- Environmental remediation liabilities totaled $1.001 billion across 160 sites. The company estimated reasonably possible additional environmental losses of up to $2.7 billion.
- The EPA directed OxyChem to design the Lower Passaic River OU4 remedy and provide approximately $93 million of financial assurance. A proposed settlement involving 85 potentially responsible parties could expose OxyChem to substantially greater remediation responsibility if approved and not overturned.
- In the Andes arbitration, a $391 million award plus interest was confirmed, although the Second Circuit overturned $166 million of prejudgment interest and ordered recalculation. Occidental intends to seek U.S. Supreme Court review.
- Occidental faces a potential repayment obligation of approximately $1.4 billion of federal taxes, $28 million of state taxes and $534 million of accrued interest if it loses the Anadarko Tronox tax dispute; no tax benefit was recorded for the disputed refund position.
Most Important Facts for Investors to Verify
- Commodity-price sensitivity, particularly the effect of WTI, NGL and natural gas prices on cash flow and earnings.
- Progress on debt reduction, the $1.1 billion of 2024 maturities, the October 2024 Zero Coupon put opportunity of approximately $362 million, and remaining preferred-stock obligations.
- Capital-spending levels and whether operating cash flow remains sufficient to fund capital expenditures, shareholder returns and debt reduction.
- Outcomes and potential cost exposure from the DASS environmental proceedings, the Alden Leeds settlement, the OU4 order and related contribution actions.
- Resolution of the Anadarko tax litigation and potential repayment of taxes and interest.
- Financial effects of the Carbon Engineering acquisition and direct-air-capture investments, including future funding requirements and purchase-price allocation.
- Whether the improvement in Q3 results is sustained if commodity prices, chemical demand or marketing margins weaken.