8-KEarnings & ResultsOther Events

OCCIDENTAL PETROLEUM CORP /DE/ 8-K Report, Financial Results (Aug 4, 2006)

Filed August 4, 2006For Securities:OXYOXY-WT

Summary

Occidental Petroleum Corporation (OXY) reported its second quarter and six-month results for 2006, revealing a significant increase in oil and gas segment earnings driven by higher crude oil prices and production volumes. For the second quarter of 2006, OXY reported income from continuing operations of $2.77 per diluted share, down from $3.63 per diluted share in the prior year's quarter. Net income also declined to $857 million ($1.97 per diluted share) compared to $1.536 billion ($3.77 per diluted share) in Q2 2005. However, the company highlighted "core earnings," a non-GAAP measure, which increased to $1.204 billion ($2.77 per diluted share) in Q2 2006 from $799 million ($1.96 per diluted share) in Q2 2005. This core earnings improvement was primarily fueled by a substantial 56% rise in oil and gas segment earnings to $1.953 billion, largely due to a $557 million increase from higher crude oil prices and a $262 million increase from higher production. The chemical segment also showed modest growth in earnings. Investors should note the classification of Ecuador Block 15 operations as discontinued operations due to a contract termination and asset seizure by the Ecuadorian government.

Key Highlights

  • 1Occidental Petroleum's Q2 2006 net income was $857 million ($1.97 per diluted share), a decrease from $1.536 billion ($3.77 per diluted share) in Q2 2005.
  • 2Core earnings, a non-GAAP measure, showed a strong increase, reaching $1.204 billion ($2.77 per diluted share) in Q2 2006, up from $799 million ($1.96 per diluted share) in Q2 2005.
  • 3The oil and gas segment earnings surged by 56% to $1.953 billion in Q2 2006, driven by significantly higher crude oil prices (average $70.70/bbl for WTI vs $53.17/bbl in Q2 2005) and increased production.
  • 4Worldwide oil and gas daily production from continuing operations increased by 18% to 609,000 BOE in Q2 2006 compared to 516,000 BOE in Q2 2005, boosted by Vintage and Libya production.
  • 5Chemical segment earnings improved to $250 million in Q2 2006 from $225 million in Q2 2005, primarily due to higher chlor-alkali volumes.
  • 6Occidental has classified its Ecuador Block 15 operations as discontinued operations due to a contract termination and asset seizure by the Ecuadorian government in May 2006.
  • 7For the first six months of 2006, core earnings were $2.355 billion ($5.45 per diluted share), a significant increase from $1.612 billion ($3.96 per diluted share) in the same period of 2005.

Frequently Asked Questions

The decrease in reported net income for Q2 2006 is primarily due to the classification of Occidental's Ecuador Block 15 operations as discontinued operations, which includes a significant after-tax loss of $347 million. This is contrasted with Q2 2005, which benefited from a substantial $619 million tax benefit related to IRS tax issue resolution and a gain from an investment sale.

Occidental defines 'core earnings' as a non-GAAP measure that excludes significant transactions and events affecting earnings that vary widely and unpredictably. Management uses this measure to provide useful information for investors comparing earnings performance between periods, believing reported earnings are representative of long-term performance.

The substantial increase in Oil and Gas segment earnings was driven by two main factors: a $557 million increase from higher worldwide crude oil prices (average realized price of $60.67 per barrel in Q2 2006 vs. $46.27 in Q2 2005) and a $262 million increase from higher production volumes.

Occidental's contract for the operation of Block 15 in Ecuador was terminated by Ecuador's Minister of Energy in May 2006, and the government subsequently seized Occidental's assets there. As a result, these operations have been classified as discontinued operations on a retrospective basis.