OXY

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 1995, for Occidental Petroleum Corporation (Occidental). The company operates in three primary divisions: Oil and Gas, Natural Gas Transmission, and Chemical operations. As of March 31, 1995, there were 317,442,367 shares of common stock outstanding.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased by approximately 29% to $2.714 billion, driven by improved chemical prices and increased oil trading activity.
• Profitability Turnaround: The company reported a net income of $178 million, a significant improvement from a $40 million net loss in Q1 1994. This was primarily due to higher earnings in the Chemical and Oil & Gas divisions.
• Divisional Performance:
  • Chemical: Earnings surged to $307 million from $22 million, attributed to higher prices and margins for PVC, caustic soda, and petrochemicals.
  • Oil and Gas: Earnings rose to $60 million from $4 million, reflecting higher production and crude oil prices, partially offset by lower domestic natural gas prices.
  • Natural Gas Transmission: Earnings remained relatively flat at $75 million compared to $76 million, though revenues declined due to lower gas sales prices and volumes.
• Cash Flow: Operating cash flow improved dramatically to $285 million provided, compared to $39 million used in the prior year, reflecting higher operating earnings.
• Debt Reduction: Financing activities used $217 million in net cash, primarily to reduce long-term debt by $127 million and pay dividends of $98 million.

Outlook, Risks, and Unusual Items

• Guidance: Management expects cash generated from operations and asset sales to be adequate for operating requirements, capital spending, and dividends. Excess cash will be applied to debt reduction. The company maintains approximately $2.3 billion in unused committed bank credit.
• Subsequent Asset Sales: In May 1995, Occidental sold its high density polyethylene business, a PVC facility, and certain Canadian oil and gas assets for combined cash proceeds exceeding $500 million.
• Legal and Environmental Risks:
  • Antitrust: A jury verdict in a tortious interference case against OXY USA Inc. for $30 million in punitive damages was affirmed by the 10th Circuit Court of Appeals; a petition for certiorari was filed with the U.S. Supreme Court in May 1995.
  • Environmental: Occidental is involved in 284 Superfund or comparable state sites. While management believes reserves are adequate and no material adverse effect on financial position is expected, resolution of specific matters could materially impact results of operations in a reporting period.
  • Regulatory: A $200,000 civil penalty was agreed upon with FERC regarding archaeological compliance for a pipeline construction project.
• Contract Impairment: Reserves exist for disadvantageous gas purchase/sales contracts at MidCon Corp. due to regulatory changes, though settlement agreements are in place to recover costs over time.

Investor Verification Checklist

• Verify the sustainability of the chemical price increases (PVC, caustic soda) driving the Q1 1995 earnings surge.
• Monitor the status of the U.S. Supreme Court petition regarding the $30 million punitive damages verdict in the OXY USA antitrust case.
• Assess the impact of the $500+ million in asset sales completed in May 1995 on future revenue streams and debt reduction plans.
• Review the progress of environmental remediation at the 284 identified Superfund sites and the adequacy of current accruals.
• Confirm the execution of the divestiture of the Burlington South facility to Ozite Corporation, which remains subject to FTC approval.