Why did net income decline in 2001 even though oil and gas earnings grew?

The decline was driven mainly by the chemical segment's $394 million loss and by special items. These included a $412 million pre-tax write-down of the Equistar investment, a $272 million after-tax loss on the sale of the Texas pipeline-owning entity, and $109 million of environmental remediation charges. These were partly offset by a $399 million after-tax gain on the Tangguh LNG sale. Before special items, earnings were essentially flat year over year.

What is happening with the Equistar investment?

In January 2002, Occidental agreed in principle to sell its 29.5% interest in Equistar Chemicals to Lyondell Chemical Company and to receive an equity interest of about 21% in Lyondell in return. The deal is subject to definitive documentation and corporate and regulatory approvals, and it is expected to close in the second quarter of 2002. Occidental had already written down the investment by $240 million after tax in December 2001.

How much debt did Occidental reduce, and how healthy is the balance sheet now?

Total debt declined from about $6.4 billion at year-end 2000 to about $4.9 billion at year-end 2001, including the extinguishment of the $1.9 billion Altura non-recourse debt. The debt-to-capitalization ratio fell to about 46% from 57% a year earlier and 67% at the end of 1997. Asset sales, including Tangguh LNG and the Texas pipeline entity, contributed about $750 million of after-tax proceeds to debt reduction. The company also had about $2.1 billion of committed credit lines available at year-end.

What are the main risks to Occidental's 2002 outlook?

Management flagged sustained low oil prices, which were below ten-year averages in early 2002, and significantly lower expected average gas realizations in 2002 due to higher supply and weaker demand. In chemicals, the company expects only gradual recovery, with North American PVC operating rates forecast at 80% to 85%. Other risks include Colombian pipeline attacks that reduced Cano Limon output, Ecuadorian VAT reimbursement disputes, and the Equistar transaction's approval and closing timing.

What is the company's capital spending plan and where will it go?

Occidental's 2002 capital budget is about $1.1 billion, of which roughly $1 billion is allocated to oil and gas. Qatar, Elk Hills and the Permian Basin receive the highest priority. Significant upcoming projects include first production from the Horn Mountain deepwater Gulf of Mexico discovery in late 2002, development of the Eden-Yuturi field in Ecuador tied to a pipeline expected in 2003, and a 45-megawatt power plant at THUMS.

OXY/OXY-WT 10-K FY2001 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 13, 2002. Cited figures are marked; the original filing is the authoritative source.

Occidental Petroleum's 2001 10-K shows a company that cut debt sharply and delivered solid oil and gas earnings, while its chemical business struggled badly.

Net income fell to $1.154 billion^a ($3.10 basic per share) from $1.570 billion in 2000, and net sales rose slightly to $13.985 billion. Earnings before special items were roughly flat at $1.328 billion versus $1.326 billion. The results were shaped by a $412 million pre-tax write-down of the Equistar investment, a $399 million after-tax gain on the Tangguh LNG sale, and a $272 million after-tax loss on the sale of a Texas pipeline-owning entity.

The oil and gas segment remained the engine of the company, with segment earnings of $2.845 billion^b, up from $2.417 billion. Production averaged 476,000 barrels of oil equivalent per day, and proved reserves rose to 2.241 billion BOE. The chemical segment swung to a $394 million loss from $169 million of earnings, reflecting weak PVC and chlor-alkali demand and idled plants.

Management plans to sell its 29.5%^c Equistar stake to Lyondell in exchange for about a 21% stake in Lyondell, with closing expected in the second quarter of 2002. Balance sheet repair was the main financial story.

Total debt fell to about $4.9 billion^d from $6.4 billion at year-end 2000, and the debt-to-capitalization ratio dropped to 46% from 57%. Management highlighted sustained low oil prices and weaker gas prices expected in 2002 as key risks, along with a planned capital budget of about $1.1 billion.

02—Key points

Key Highlights

Net income of $1.154 billion ($3.10 per basic share) in 2001, down about 26% from $1.570 billion in 2000, while earnings before special items were flat at about $1.33 billion.
Oil and gas segment earnings rose to $2.845 billion from $2.417 billion, driven by higher natural gas prices and production volumes of 476,000 BOE per day.
Chemical segment posted a $394 million loss, versus $169 million of earnings in 2000, after weak PVC and chlor-alkali demand and a $412 million Equistar write-down.
Total debt was reduced to about $4.9 billion from $6.4 billion, and the debt-to-capitalization ratio fell to 46% from 57%, using proceeds from asset sales and operating cash flow.
Proved reserves increased to 2.241 billion BOE from 2.171 billion, with reserve replacement of about 141% of 2001 production.
Agreed in principle to sell the 29.5% Equistar interest to Lyondell for roughly a 21% stake in Lyondell, expected to close in Q2 2002.
Quarterly dividend held at $0.25 per share ($1.00 annually), and the company remains focused on Elk Hills, Permian CO2 floods, Qatar and Oman assets.

03—Questions

Frequently Asked Questions

Why did net income decline in 2001 even though oil and gas earnings grew?
The decline was driven mainly by the chemical segment's $394 million loss and by special items. These included a $412 million pre-tax write-down of the Equistar investment, a $272 million after-tax loss on the sale of the Texas pipeline-owning entity, and $109 million of environmental remediation charges. These were partly offset by a $399 million after-tax gain on the Tangguh LNG sale. Before special items, earnings were essentially flat year over year.
What is happening with the Equistar investment?
In January 2002, Occidental agreed in principle to sell its 29.5% interest in Equistar Chemicals to Lyondell Chemical Company and to receive an equity interest of about 21% in Lyondell in return. The deal is subject to definitive documentation and corporate and regulatory approvals, and it is expected to close in the second quarter of 2002. Occidental had already written down the investment by $240 million after tax in December 2001.
How much debt did Occidental reduce, and how healthy is the balance sheet now?
Total debt declined from about $6.4 billion at year-end 2000 to about $4.9 billion at year-end 2001, including the extinguishment of the $1.9 billion Altura non-recourse debt. The debt-to-capitalization ratio fell to about 46% from 57% a year earlier and 67% at the end of 1997. Asset sales, including Tangguh LNG and the Texas pipeline entity, contributed about $750 million of after-tax proceeds to debt reduction. The company also had about $2.1 billion of committed credit lines available at year-end.
What are the main risks to Occidental's 2002 outlook?
Management flagged sustained low oil prices, which were below ten-year averages in early 2002, and significantly lower expected average gas realizations in 2002 due to higher supply and weaker demand. In chemicals, the company expects only gradual recovery, with North American PVC operating rates forecast at 80% to 85%. Other risks include Colombian pipeline attacks that reduced Cano Limon output, Ecuadorian VAT reimbursement disputes, and the Equistar transaction's approval and closing timing.
What is the company's capital spending plan and where will it go?
Occidental's 2002 capital budget is about $1.1 billion, of which roughly $1 billion is allocated to oil and gas. Qatar, Elk Hills and the Permian Basin receive the highest priority. Significant upcoming projects include first production from the Horn Mountain deepwater Gulf of Mexico discovery in late 2002, development of the Eden-Yuturi field in Ecuador tied to a pipeline expected in 2003, and a 45-megawatt power plant at THUMS.

04—Continue

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