10-QPeriod: Q1 FY2007

OCCIDENTAL PETROLEUM CORP /DE/ Quarterly Report for Q1 Ended Mar 31, 2007

Filed May 3, 2007For Securities:OXYOXY-WT

Summary

Occidental Petroleum Corporation's (OXY) first quarter 2007 report highlights a period of significant asset divestitures and strategic debt management, alongside operational performance impacted by commodity price fluctuations. The company reported net income of $1.21 billion, slightly down from $1.23 billion in the prior year, with diluted EPS at $1.43 for both periods. A notable event was the $412 million after-tax gain from the sale of its 50% stake in the Russian Vanyoganneft joint venture, which, along with a $109 million gain from litigation settlements, significantly boosted non-operating income. However, lower crude oil and natural gas prices, coupled with increased depreciation, depletion, and amortization (DD&A) rates and higher production costs, tempered the overall financial results, particularly impacting the Oil and Gas segment's revenue despite increased production volumes. Financially, OXY actively managed its debt obligations by repurchasing $659 million in principal amount of its senior debentures and notes, incurring a pre-tax charge of $172 million for this transaction. The company also continued its share repurchase program, buying back approximately 7 million shares. Management expects to spend between $3.3 to $3.4 billion on its 2007 capital expenditure program, funded through operating cash flow, cash on hand, and short-term investments, indicating a continued focus on operational investment and shareholder returns.

Key Highlights

  • 1Occidental Petroleum reported a net income of $1.21 billion for Q1 2007, with diluted EPS of $1.43.
  • 2The company recognized a significant after-tax gain of $412 million from the sale of its 50% interest in the Russian Vanyoganneft joint venture.
  • 3Operational performance was challenged by lower crude oil and natural gas prices, although crude oil production increased.
  • 4Occidental repurchased $659 million in principal amount of its debt and continued its share repurchase program, buying back approximately 7 million shares.
  • 5The company's Oil and Gas segment earnings were $2.07 billion, an increase from $1.91 billion in Q1 2006, largely due to asset sale gains and higher production.
  • 6The Chemical segment experienced a decline in earnings to $137 million from $250 million in the prior year, driven by lower margins.
  • 7Capital expenditures for Q1 2007 were $784 million, with projections for the full year 2007 estimated between $3.3 to $3.4 billion.

Frequently Asked Questions

The key drivers of net income in Q1 2007 included a significant after-tax gain of $412 million from the sale of the Russian Vanyoganneft joint venture and a $109 million after-tax gain from litigation settlements. These gains were partially offset by lower crude oil and natural gas prices, increased DD&A rates, higher production costs in the Oil and Gas segment, and reduced margins in the Chemical segment.

Occidental actively managed its debt by repurchasing $659 million in principal amount of its senior debentures and notes through a cash tender offer, which incurred a pre-tax interest charge of $172 million. The company also continued its share repurchase program, acquiring approximately 7 million shares during the quarter. Occidental maintained a strong liquidity position with $1.5 billion in cash, cash equivalents, and short-term investments, and $1.5 billion in unused committed bank credit lines.

Occidental anticipates spending approximately $3.3 to $3.4 billion on its capital expenditure program for 2007. The company believes that its current cash on hand, short-term investments, and cash generated from operations will be sufficient to fund its operating needs, capital expenditures, dividend payments, and potential acquisitions, indicating a positive liquidity outlook.

The Oil and Gas segment's earnings increased to $2.07 billion in Q1 2007 from $1.91 billion in Q1 2006. This increase was primarily driven by the substantial gains from the Vanyoganneft sale and litigation settlements, along with higher crude oil production from acquisitions and in the Middle East/North Africa region. However, lower average realized prices for crude oil and natural gas, along with increased DD&A rates and higher operating expenses, acted as headwinds.