10-QPeriod: Q1 FY2005

OCCIDENTAL PETROLEUM CORP /DE/ Quarterly Report for Q1 Ended Mar 31, 2005

Filed May 5, 2005For Securities:OXYOXY-WT

Summary

Occidental Petroleum Corporation reported a strong first quarter for 2005, with net income increasing significantly to $846 million ($2.11 per share) from $487 million ($1.24 per share) in the same period of 2004. This growth was driven by higher oil and gas prices, as well as improved chemical margins. The company also made strategic acquisitions in the Permian Basin and continued to focus on operational efficiency and debt management, including the redemption of senior notes. Financially, Occidental demonstrated robust operating cash flow of $1.23 billion, an increase from the prior year, largely due to favorable commodity prices. While capital expenditures were higher, driven by oil and gas investments and acquisitions, the company maintained a solid liquidity position with significant cash and available credit lines. Key risks and contingencies include ongoing environmental remediation liabilities and significant legal proceedings, particularly the dispute with Petroecuador over Block 15 and lawsuits in Nicaragua, though management believes these will not materially affect the company's financial position.

Key Highlights

  • 1Net income surged to $846 million ($2.11 EPS) in Q1 2005, up from $487 million ($1.24 EPS) in Q1 2004, driven by higher commodity prices and chemical margins.
  • 2Operating cash flow increased to $1.23 billion, reflecting strong performance in the oil, gas, and chemical segments.
  • 3The company made strategic oil and gas acquisitions in the Permian Basin for approximately $304 million.
  • 4Occidental redeemed $459 million in 7.65 percent senior notes, strengthening its balance sheet.
  • 5The company's effective tax rate was 41% in Q1 2005, down from 43% in Q1 2004, due to a change in foreign tax credit elections.
  • 6Significant environmental reserves of $376 million were maintained, with a potential additional range of loss up to $375 million.
  • 7Legal proceedings, including a dispute with Petroecuador and lawsuits in Nicaragua, are ongoing, with management confident they will not materially impact financial results.

Frequently Asked Questions

The primary drivers were significantly higher oil and natural gas prices, which boosted revenues and earnings in the oil and gas segment. Additionally, improved chemical margins resulting from higher sales prices contributed to the strong performance.

Occidental redeemed its outstanding 7.65 percent senior notes for approximately $459 million. This action reduced current maturities of long-term debt and is part of the company's ongoing debt management strategy.

Occidental faces ongoing environmental remediation liabilities with reserves of $376 million and a potential additional range of loss. Key legal risks include a dispute with Petroecuador regarding its Block 15 contract in Ecuador, which could affect future profitability and reserves, and lawsuits in Nicaragua related to pesticide exposure, which the company believes are without merit and unenforceable in the U.S.

In the first quarter of 2005, Occidental invested $536 million in capital expenditures, with the majority allocated to oil and gas. This included approximately $304 million for oil and gas acquisitions in the Permian Basin and $90 million for exploration lease bonuses in Libya. The company plans to spend approximately $2.2 billion on capital projects for the full year 2005.