8-KEarnings & ResultsOther Events

OCCIDENTAL PETROLEUM CORP /DE/ 8-K Report, Financial Results (Oct 31, 2005)

Filed October 31, 2005For Securities:OXYOXY-WT

Summary

Occidental Petroleum Corporation (OXY) reported strong third-quarter 2005 financial results, with net income soaring to $1.747 billion ($4.32 per share) from $758 million ($1.91 per share) in the prior year's third quarter. This significant increase was boosted by several one-time events, including a substantial after-tax gain from the Valero acquisition of Premcor and a significant tax benefit from the reversal of tax reserves. Despite these non-recurring items, the company's core operations also showed improvement. The oil and gas segment experienced a 45% surge in earnings to $1.760 billion, driven primarily by higher crude oil and gas prices, partially offset by increased operating costs and higher DD&A. While the chemical segment's reported earnings were significantly impacted by plant write-offs and hurricane-related charges, its core earnings showed a modest increase due to higher sales prices for key products. Investors should note the impact of these one-time items on the reported net income and focus on the underlying operational performance and core earnings trends.

Key Highlights

  • 1Third-quarter 2005 net income was $1.747 billion ($4.32 per share), a significant increase from $758 million ($1.91 per share) in Q3 2004.
  • 2Key drivers for the net income surge included a $463 million after-tax gain from the Valero/Premcor transaction and a $335 million tax benefit from reversed tax reserves.
  • 3Core earnings for Q3 2005 were $1.089 billion ($2.69 per share), up from $759 million ($1.92 per share) in Q3 2004, indicating underlying operational strength.
  • 4The oil and gas segment's earnings increased by approximately 45% year-over-year to $1.760 billion, primarily due to higher commodity prices.
  • 5The chemical segment reported significantly lower segment earnings ($3 million vs. $141 million) due to substantial charges for plant write-offs and hurricane impacts, though core chemical earnings saw a modest rise.
  • 6Worldwide oil and gas production for the first nine months of 2005 remained relatively stable compared to 2004, with some production impacts noted from higher prices and weather events.
  • 7Occidental is also involved in a proposed merger transaction with Vintage, with related filings (Form S-4, proxy statement) expected to contain important information for investors.

Frequently Asked Questions

The significant increase in net income for Q3 2005 was primarily driven by two major non-recurring items: a $463 million after-tax gain resulting from Valero's acquisition of Premcor and the subsequent sale of Occidental's Valero shares, and a $335 million tax benefit from the reversal of tax reserves no longer required.

The hurricanes had a notable impact on Occidental's operations. The oil and gas segment experienced a $9 million increase in insurance premiums, while the chemical segment incurred a $5 million charge due to higher insurance premiums. Additionally, the chemical segment reported a $139 million charge for the write-off of previously idled and one currently operated plant, and a $20 million charge for the write-down of another plant, which were partly attributed to the hurricane impacts and disruptions.

Core earnings is a non-GAAP financial measure used by Occidental's management to provide investors with a view of operational performance that excludes significant transactions and events that can vary widely and unpredictably. In Q3 2005, core earnings were $1.089 billion ($2.69 per share), compared to reported net income of $1.747 billion ($4.32 per share). The difference is largely due to the one-time gain from the Valero/Premcor transaction and the tax benefit, which are included in net income but excluded from core earnings.

Occidental announced a proposed merger transaction with Vintage. The company stated that a Form S-4 and proxy statement would be filed with the SEC, which would contain important information for investors regarding this transaction. Investors are urged to read these documents when they become available.