Occidental Petroleum Corporation — Q3 2022 Form 10-Q Summary
Business context and reporting period
Occidental Petroleum Corporation operates through oil and gas, chemical, and midstream and marketing segments. This unaudited Form 10-Q covers the three and nine months ended September 30, 2022, with comparisons to the corresponding 2021 periods and, in management’s discussion, to the second quarter of 2022.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Net sales | $9.390 billion | $6.792 billion | $28.415 billion | $18.043 billion |
| Income from continuing operations | $2.746 billion | $830 million | $11.377 billion | $1.229 billion |
| Net income attributable to common stockholders | $2.546 billion | $628 million | $10.777 billion | $185 million |
| Diluted EPS | $2.52 | $0.65 | $10.64 | $0.19 |
| Operating cash flow from continuing operations | Not separately provided | Not separately provided | $12.835 billion | $7.022 billion |
| Capital expenditures | Not separately provided | Not separately provided | $2.977 billion | $1.933 billion |
Q3 net income attributable to common stockholders equaled approximately 27% of net sales; the nine-month figure equaled approximately 38%. The nine-month margin was materially affected by a $2.6 billion non-cash tax benefit from a legal entity reorganization.
- Q3 segment income from continuing operations: oil and gas $3.345 billion, chemical $580 million, and midstream and marketing $104 million.
- Nine-month segment income from continuing operations: oil and gas $10.337 billion, chemical $2.051 billion, and midstream and marketing $318 million.
- Average WTI was $98.09 per barrel in the first nine months of 2022 versus $64.82 in 2021. Q3 worldwide realized prices were $94.89 per barrel for oil, $35.22 per barrel for NGLs, and $5.57 per Mcf for natural gas.
- Average continuing-operations sales volumes were 1.179 million barrels of oil equivalent per day in Q3 and 1.135 million barrels of oil equivalent per day for the first nine months.
- Cash and cash equivalents were $1.233 billion at September 30, 2022, compared with $2.764 billion at December 31, 2021.
- Total debt and finance leases were $21.024 billion at September 30, 2022, versus $29.617 billion at year-end 2021. Net book value of long-term debt was $20.478 billion.
- Occidental repaid $8.325 billion of long-term debt during the first nine months and repurchased $2.467 billion of treasury stock. It declared $369 million of common dividends and paid $863 million of common and preferred dividends.
- Liquidity included a $4.0 billion revolving credit facility, up to $400 million of receivables-securitization capacity, and approximately $1.2 billion of cash. No RCF borrowings or receivables-securitization borrowings were outstanding at September 30.
Material changes versus comparable periods
- Nine-month net sales increased 57%, primarily from higher oil, NGL, natural gas, and chemical prices. Oil and gas segment income increased 408%, while chemical segment income increased 111%.
- Q3 results declined sequentially from Q2: net sales fell 12% to $9.390 billion and income from continuing operations fell 27% to $2.746 billion. Lower crude oil and NGL prices, weaker PVC prices and chemical volumes, and lower sulfur prices were principal factors.
- Nine-month operating cash flow from continuing operations increased to $12.835 billion from $7.022 billion, principally due to higher commodity prices.
- Interest and debt expense declined year over year because of lower outstanding debt, although Q3 interest expense increased sequentially because Q2 included gains from early debt repayments.
- Cash declined despite strong operating cash flow because of debt repayments, capital expenditures, share repurchases, dividends, and other financing uses.
- The 2021 comparison included a $444 million after-tax loss from discontinued operations, primarily related to an Ecuador contingency, and Ghana results. These items were absent in 2022.
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 specific earnings or production guidance range.
- Management expects oil prices to remain volatile because of geopolitical risks, the Russia-Ukraine war, OPEC and non-OPEC actions, the macroeconomic environment, and inflation. Occidental does not own or operate assets in Russia or Ukraine.
- Substantially all outstanding debt was fixed rate. Debt ratings at September 30 were Ba1 from Moody’s and BB+ from Fitch and S&P; all three agencies upgraded Occidental between December 2021 and March 2022. A downgrade could increase financing costs and collateral requirements.
- Near-term debt maturities were expected to include $362 million in 2023 and $1.3 billion in 2024 after subsequent repayments. A $340 million 2.70% senior note was called in October 2022 for redemption on November 15, 2022.
- The company expected available cash, operating cash flow, and committed facilities to fund near-term maturities and obligations for the following 12 months. It was in compliance with financing covenants.
- The Inflation Reduction Act may impose a corporate book minimum tax and an excise tax on stock buybacks; the ultimate impact was still under evaluation.
- Environmental remediation liabilities totaled $1.048 billion across 166 sites. Management estimated reasonably possible additional environmental losses of up to $1.2 billion.
- An Andes arbitration judgment against OEPC totaled $558 million including prejudgment interest; Occidental appealed. An unfavorable outcome could materially affect cash flows or results.
- A separate Anadarko-related tax dispute involves a potential repayment of approximately $1.3 billion in federal taxes, $28 million in state taxes, and $369 million of accrued interest if Occidental does not prevail. The company has recorded a liability and no tax benefit for the tentative $881 million refund.
- Interest-rate swaps had a remaining fair-value liability of $221 million and mandatory termination dates in September 2023.
Most important facts for investors to verify
- Whether commodity prices and production volumes support the company’s cash-flow and deleveraging objectives after the Q3 sequential decline.
- The final tax consequences of the legal-entity reorganization and the Inflation Reduction Act, including the sustainability of the unusually low 3% nine-month effective tax rate.
- Progress on debt repayment, upcoming maturities, credit ratings, collateral requirements, and the company’s ability to preserve liquidity while funding shareholder returns.
- The outcome and timing of the Andes arbitration appeal and the Anadarko/Tronox tax litigation.
- Potential additional environmental liabilities, including the Maxus-related Passaic River matters and the estimated up-to-$1.2 billion range of reasonably possible additional losses.
- Completion of the remaining share-repurchase authorization, which had $562 million remaining at September 30 and approximately $414 million remaining as of November 7, 2022.