10-QPeriod: Q1 FY2020

OCCIDENTAL PETROLEUM CORP /DE/ Quarterly Report for Q1 Ended Mar 31, 2020

Filed May 6, 2020For Securities:OXYOXY-WT

Summary

Occidental Petroleum Corporation (OXY) reported a significant net loss of $2.013 billion for the first quarter of 2020, a stark contrast to the $631 million profit in the prior year period. This deterioration was driven by a confluence of factors, including a substantial increase in depreciation, depletion, and amortization expenses, significant asset impairments totaling $1.803 billion (including $1.2 billion of goodwill impairment related to WES), and increased interest expenses due to higher debt levels resulting from the Anadarko acquisition. The company's revenue also saw an increase to $6.41 billion from $4.00 billion, largely due to higher production volumes from the acquired Anadarko assets, but this was outpaced by surging costs and lower commodity prices impacting realized gains. The challenging operating environment, exacerbated by the COVID-19 pandemic and the subsequent collapse in oil prices, led Occidental to implement aggressive cost-saving measures. These include a significant reduction in the 2020 capital budget, substantial cuts to operating and corporate costs, and a planned reduction in the common stock dividend. The company also took steps to preserve liquidity by electing to pay its preferred stock dividend in common stock for the second quarter of 2020. Despite these efforts, the company faces considerable uncertainty regarding future commodity prices and their impact on its financial condition, with potential for further impairments and a need to explore additional liquidity sources.

Financial Highlights

48 data points
Beta

Revenue

$6.61B

90.7% Gross Margin

Net Income

-$2.01B

-30.4% Net Margin

EPS (Diluted)

$-2.49

Total Assets

$101.64B

Cash & Equivalents

$2.02B

Free Cash Flow

$39.00M

Financial Statements
Beta
Revenue$6.61B
Cost of Revenue$612.00M
Gross Profit$6.00B
SG&A Expenses$264.00M
Operating Income-$2.01B
Net Income-$2.01B
EPS (Basic)$-2.49
EPS (Diluted)$-2.49
Shares Outstanding (Basic)896.70M
Shares Outstanding (Diluted)896.70M

Key Highlights

  • 1Occidental Petroleum reported a significant net loss of $2.013 billion for Q1 2020, compared to a net income of $631 million in Q1 2019, largely due to increased expenses and asset impairments.
  • 2Total assets decreased to $101.64 billion from $109.33 billion, while total liabilities also decreased to $79.35 billion from $75.09 billion.
  • 3Total stockholders' equity declined to $31.295 billion from $34.232 billion, reflecting the net loss for the quarter.
  • 4Net sales increased to $6.41 billion from $4.00 billion, driven by higher production volumes from the Anadarko acquisition, but was offset by lower commodity prices.
  • 5Depreciation, depletion, and amortization (DD&A) expenses more than doubled to $2.24 billion from $0.97 billion, primarily due to assets acquired in the Anadarko transaction.
  • 6Occidental recognized substantial asset impairments totaling $1.803 billion, including a significant goodwill impairment of $1.2 billion related to its investment in Western Midstream Partners (WES).
  • 7The company implemented significant liquidity-enhancing measures, including a reduction in its 2020 capital expenditure budget and planned dividend cuts, in response to the severe downturn in oil prices due to the COVID-19 pandemic.

Frequently Asked Questions

Occidental Petroleum reported a substantial net loss of $2.013 billion for the first quarter of 2020, a significant decline from the $631 million net income in the same period of 2019. Key factors contributing to this loss include a more than doubling of depreciation, depletion, and amortization expenses to $2.24 billion, primarily due to the Anadarko acquisition. Additionally, the company recorded significant asset impairments totaling $1.803 billion, including a $1.2 billion goodwill impairment related to its investment in WES. Higher interest expenses due to increased debt from the acquisition also impacted profitability. While net sales increased to $6.41 billion from $4.00 billion, driven by higher production volumes, this was insufficient to offset the surge in costs and the negative impact of lower commodity prices on realized gains.

The COVID-19 pandemic and the subsequent collapse in oil prices have severely impacted Occidental Petroleum. The company experienced a dramatic reduction in oil and gas demand and prices, leading to record inventory builds and storage capacity concerns. In response, Occidental has implemented aggressive measures to preserve liquidity, including reducing its 2020 capital expenditure budget by over 50%, making substantial cuts to operating and corporate costs, and announcing a significant reduction in its quarterly common stock dividend. The company also elected to pay its preferred stock dividend in common stock to conserve cash. These conditions also led to impairments on oil and gas properties and increased the risk of further impairments if commodity prices remain low.

Occidental significantly expanded its oil and gas portfolio through the acquisition of Anadarko Petroleum Corporation. While the acquisition contributed to higher production volumes and revenues in the first quarter of 2020, it also substantially increased the company's debt and operating expenses, including depreciation, depletion, and amortization. The fair value allocation of the acquisition consideration was largely complete as of March 31, 2020, but the integration process and its associated costs, such as $148 million in acquisition-related costs for the quarter, continue to influence financial results. The increased scale and associated debt are key considerations for investors assessing the company's financial health.

Occidental faces significant risks and uncertainties. The ongoing volatility and low levels of commodity prices due to the COVID-19 pandemic and market supply dynamics pose a primary threat, potentially leading to further impairments and impacting cash flows. The company's substantial debt burden, incurred for the Anadarko acquisition, remains a critical concern, especially in a low-price environment, and necessitates ongoing efforts to manage debt maturities and liquidity. The ability to successfully execute planned asset divestitures to reduce debt is crucial. Furthermore, the company must navigate potential operational disruptions, regulatory changes, and the successful integration of the Anadarko assets. The possibility of further limitations on the use of net operating losses due to ownership changes is also a noted risk.