10-QPeriod: Q2 FY2019

OCCIDENTAL PETROLEUM CORP /DE/ Quarterly Report for Q2 Ended Jun 30, 2019

Filed July 31, 2019For Securities:OXYOXY-WT

Summary

Occidental Petroleum Corporation's (OXY) Q2 2019 10-Q filing reveals a company navigating significant strategic shifts alongside its operational performance. Financially, the company reported a decline in net income and earnings per share for both the quarter and the year-to-date periods compared to 2018, primarily driven by lower realized prices for crude oil and caustic soda. Despite these headwinds, net sales saw an increase driven by higher crude oil volumes and improved marketing margins. The most impactful development disclosed is the proposed acquisition of Anadarko Petroleum Corporation, announced in May 2019. This transaction, if completed, will be financed through a combination of debt, a substantial investment from Berkshire Hathaway, and equity issuances, significantly altering Occidental's capital structure. The company also announced an agreement to sell Anadarko's international assets to Total S.A. to help finance the Anadarko acquisition. This period underscores OXY's strategic pivot towards a transformative acquisition, with significant financial implications and associated risks that investors must carefully consider.

Financial Highlights

50 data points
Beta

Revenue

$4.42B

85.6% Gross Margin

Net Income

$632.00M

14.3% Net Margin

EPS (Diluted)

$0.84

Total Assets

$44.77B

Cash & Equivalents

$1.75B

Free Cash Flow

$802.00M

Financial Statements
Beta
Revenue$4.42B
Cost of Revenue$636.00M
Gross Profit$3.78B
SG&A Expenses$163.00M
Operating Income$1.27B
Net Income$632.00M
EPS (Basic)$0.84
EPS (Diluted)$0.84
Shares Outstanding (Basic)748.30M
Shares Outstanding (Diluted)749.50M

Key Highlights

  • 1Net income for Q2 2019 was $635 million, a decrease from $848 million in Q2 2018. Diluted EPS was $0.84 versus $1.10.
  • 2Year-to-date net income was $1.266 billion, down from $1.556 billion in the same period of 2018. Diluted EPS was $1.68 versus $2.02.
  • 3Net sales increased to $4.42 billion in Q2 2019 from $4.083 billion in Q2 2018, driven by higher crude oil sales volumes and marketing margins, partially offset by lower commodity prices.
  • 4The company announced a proposed merger with Anadarko Petroleum Corporation for $59.00 cash and 0.2934 shares of Occidental common stock per Anadarko share.
  • 5To finance the Anadarko acquisition, Occidental entered into a $10 billion investment agreement with Berkshire Hathaway (8% cumulative perpetual preferred stock and a warrant) and secured $8.8 billion in term loan financing.
  • 6Occidental agreed to sell Anadarko's international assets (Algeria, Ghana, Mozambique, South Africa) to Total S.A. for $8.8 billion, contingent on the Anadarko merger closing.
  • 7The company reported $2.47 billion in capital expenditures for the first six months of 2019, primarily in the oil and gas segment.

Frequently Asked Questions

The decrease in net income for the three and six months ended June 30, 2019, compared to the same periods in 2018, was primarily due to lower realized crude oil prices and lower realized caustic soda prices. Additionally, the company incurred $50 million in Anadarko acquisition-related costs during this period.

Occidental plans to finance the Anadarko acquisition through a combination of sources, including approximately $21.8 billion in third-party indebtedness (including a $10 billion investment from Berkshire Hathaway in preferred stock and warrants, and an $8.8 billion term loan facility), and potentially other asset divestitures. The company has also agreed to sell Anadarko's international assets to Total S.A. for $8.8 billion, contingent on the merger closing.

Occidental adopted ASC 842 on January 1, 2019. This resulted in the recognition of operating lease right-of-use assets and lease liabilities on the balance sheet, totaling $772 million at adoption. The adoption did not have a material impact on net income, cash flows, or total stockholders' equity.

Key risks highlighted include the potential inability to achieve intended benefits or synergies, integration challenges, diversion of management attention, substantial indebtedness to be incurred (which may strain debt service capabilities), risks related to financing the merger on anticipated terms, uncertainty surrounding the consummation of the Total transaction and other planned divestitures, and the possibility that the merger may not be accretive, or could be dilutive, to cash flow per share and free cash flow per share.