Occidental Petroleum Corporation — Q1 2011 Form 10-Q Summary
Business context and reporting period
Unaudited results for the three months ended March 31, 2011, compared with the three months ended March 31, 2010. Occidental operates through oil and gas, chemical, and midstream, marketing and other segments. The company filed the report on May 4, 2011.
Key financial metrics
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Net sales | $5.726 billion | $4.616 billion | +24% |
| Income from continuing operations | $1.405 billion | $1.121 billion | +25% |
| Net income attributable to common stock | $1.549 billion | $1.064 billion | +46% |
| Diluted EPS | $1.90 | $1.31 | +$0.59 |
| Operating cash flow | $2.222 billion | $2.227 billion | Approximately flat |
| Capital expenditures | $1.325 billion | $0.768 billion | +$557 million |
| Cash and cash equivalents | $2.100 billion | $1.892 billion at March 31, 2010 | Comparable prior-year quarter |
| Dividends per common share | $0.46 | $0.33 | +39% |
Net margin was approximately 27.0% in Q1 2011, compared with approximately 23.0% in Q1 2010. Continuing-operations margin was approximately 24.5%, compared with approximately 24.3%. The filing does not provide a consolidated adjusted EBITDA figure.
At March 31, 2011, total debt carrying value was approximately $4.748 billion, consisting of $1.000 billion of short-term borrowings and $3.748 billion of long-term debt. Debt declined from $5.111 billion of long-term debt at December 31, 2010, after the redemption of $1.368 billion face value of senior notes. Available but unused committed bank credit facilities were approximately $1.5 billion.
Material changes versus the prior comparable period
- Oil and gas segment earnings increased to $2.468 billion from $1.861 billion, driven by higher crude oil and NGL prices and higher volumes. Production increased to 730,000 BOE per day from 706,000 BOE per day; sales volumes increased to 728,000 BOE per day from 691,000 BOE per day.
- Chemical segment earnings increased substantially to $219 million from $30 million, reflecting stronger export sales, improved margins and lower energy costs.
- Midstream, marketing and other earnings increased to $114 million from $94 million.
- Worldwide realized crude oil prices increased to $92.14 per barrel from $74.09, and realized NGL prices increased to $52.64 per barrel from $47.48. Worldwide realized natural gas prices declined to $3.05 per Mcf from $3.74, including a 25% decline in U.S. realized natural gas prices.
- Operating cash flow remained approximately $2.2 billion despite higher net income, primarily because of the timing of cash collections and a working-capital buildup.
- Investing cash outflows increased to $1.741 billion from $1.068 billion. Q1 2011 included approximately $3.0 billion of acquisition payments and approximately $2.6 billion of proceeds from the sale of the Argentine operations.
- Financing cash outflows increased to $959 million from $491 million, reflecting debt repayments, dividends and a $121 million distribution to a noncontrolling interest partner.
Guidance, outlook, risks and unusual items
- Management estimated 2011 capital spending of approximately $6.8 billion and stated that cash on hand and operating cash flow were expected to fund operating needs, planned capital expenditures, dividends and debt payments.
- Occidental acquired a 40% participating interest in the Shah Field high-sulfur gas development project in Abu Dhabi. The 30-year project has an estimated total cost of $10 billion, with Occidental's share approximately $4 billion. Accrued liabilities included approximately $500 million of Occidental's share of pre-signing development expenditures.
- Occidental paid approximately $3.0 billion for oil and gas acquisitions in South Texas, California and the Permian Basin.
- The sale of the Argentine oil and gas operations closed in February 2011 for after-tax proceeds of approximately $2.6 billion and generated a $225 million pretax gain, reflected in discontinued operations.
- Occidental ceased Libya exploration because of political unrest and U.S. sanctions and wrote off approximately $35 million of exploration costs. Its Libyan producing properties had a net book value of $839 million at March 31, 2011; the effect of the situation on those operations remained uncertain.
- The company recorded a $163 million pretax charge for early debt extinguishment, $62 million of nonrecurring state and foreign tax charges, and other items. Management reported aggregate net after-tax charges of $44 million for Q1 2011, including the Argentine and Colombian asset-sale gains and the Libya and debt-related charges.
- Environmental remediation reserves totaled $374 million across 168 sites. Management estimated reasonably possible additional environmental losses of up to $375 million beyond recorded reserves.
- Commodity prices, production volumes, international political conditions, project execution, acquisitions, environmental liabilities, litigation, taxes, operational disruptions and regulatory changes were identified as material risks. The filing states that quarterly results and cash flows are not necessarily indicative of full-year results.
Important facts for investors to verify
- Reconcile reported net income and EPS with the $144 million after-tax gain from the Argentine disposal and the other unusual charges.
- Assess whether the planned $6.8 billion capital program and Shah Field commitment can be funded without materially increasing leverage.
- Monitor oil, NGL and domestic natural gas prices, production-sharing effects, production growth and rising oil and gas cash production costs.
- Evaluate the operational, financial and sanctions-related consequences of the suspension of Libya activity, including the $839 million net book value of producing properties.
- Review environmental reserves, the potential additional loss estimate of up to $375 million, and the status of litigation and tax examinations.
- Confirm the timing and repayment of the $1.0 billion short-term borrowing, which the filing states was fully repaid in April 2011.