10-QPeriod: Q2 FY2017

OCCIDENTAL PETROLEUM CORP /DE/ Quarterly Report for Q2 Ended Jun 30, 2017

Filed August 2, 2017For Securities:OXYOXY-WT

Summary

Occidental Petroleum Corporation (OXY) reported a significant turnaround in the second quarter and the first six months of 2017 compared to the prior year. Driven by higher commodity prices across its oil and gas and chemical segments, the company achieved net income from continuing operations of $507 million and $624 million for the respective periods, a stark contrast to the net losses reported in 2016. This improvement was bolstered by substantial gains on asset sales, particularly the South Texas operations, and increased contributions from equity investments. The company demonstrated strong operating cash flow generation, primarily from its oil and gas segment, and managed its capital expenditures, focusing on Permian Basin drilling activity. Operationally, Occidental has been strategically refining its asset portfolio, divesting non-core acreage and operations while investing in growth areas like enhanced oil recovery (EOR) properties. The company maintains a solid liquidity position with $2.2 billion in cash at quarter-end and access to further borrowing capacity. While facing ongoing environmental remediation obligations and contingent liabilities, management believes these are manageable and do not pose a material risk to the company's financial position or results of operations. Overall, the filing indicates a company successfully navigating a challenging commodity price environment and executing on its strategic initiatives.

Financial Highlights

43 data points
Beta

Revenue

$3.06B

Net Income

$507.00M

16.6% Net Margin

EPS (Diluted)

$0.66

Total Assets

$41.98B

Cash & Equivalents

$2.22B

Free Cash Flow

$1.08B

Financial Statements
Beta
Revenue$3.06B
Net Income$507.00M
EPS (Basic)$0.66
EPS (Diluted)$0.66
Shares Outstanding (Basic)764.90M
Shares Outstanding (Diluted)765.90M

Key Highlights

  • 1Turnaround to profitability: Reported net income from continuing operations of $507 million and $624 million for Q2 and the first six months of 2017, respectively, compared to net losses in the prior year.
  • 2Improved commodity prices: Higher realized prices for oil, NGLs, and natural gas significantly boosted revenues and profitability across the oil and gas and chemical segments.
  • 3Strategic asset divestitures and acquisitions: Completed the sale of South Texas operations for $0.5 billion and simultaneously invested $0.6 billion to increase ownership in Permian EOR properties, demonstrating portfolio optimization.
  • 4Strong operating cash flow: Generated $2.5 billion in net cash from operating activities for the first six months of 2017, up from $1.8 billion in the prior year, supported by improved performance and tax refunds.
  • 5Increased capital expenditures: Increased capital spending, particularly in the Permian Basin, reflecting a focus on growth and future production.
  • 6Gain on asset sales: Recognized substantial gains, including $510 million from the sale of South Texas operations, contributing to net income.
  • 7Solid liquidity: Maintained $2.2 billion in cash and cash equivalents as of June 30, 2017, with ample capacity for future borrowings and dividend payments.

Frequently Asked Questions

The primary driver is the significant increase in commodity prices for oil, NGLs, and natural gas, which positively impacted revenues and profitability across the company's oil and gas and chemical segments. Additionally, gains from asset sales, particularly the disposition of South Texas operations, contributed substantially to the improved net income.

Occidental is strategically divesting non-core assets, such as the South Texas operations, while simultaneously investing in growth areas. A key investment during this period was the $0.6 billion acquisition to increase ownership and operatorship in Permian Enhanced Oil Recovery (EOR) properties, indicating a focus on optimizing its resource base and operational efficiency.

As of June 30, 2017, Occidental had $2.2 billion in cash and cash equivalents. The company expects to fund its liquidity needs, including ongoing operations, capital expenditures (which increased in the first half of 2017, particularly in the Permian Basin), and future dividend payments, through a combination of cash on hand, cash generated from operations, monetization of non-core assets, and potentially through future borrowings or capital issuances.

Occidental faces ongoing environmental remediation obligations and participates in various proceedings under environmental laws. The company has accrued reserves for these liabilities, totaling $873 million as of June 30, 2017. While management believes these and other contingent liabilities are manageable and not material to the financial position, investors should note these ongoing commitments. The company is also actively pursuing recovery from Maxus Energy Corporation's former parent companies concerning indemnified environmental costs.