Houston based Occidental Petroleum had its most profitable year ever, with an annual net income of over $12.5bn, almost double its previous record. The company is back from the brink after the Andarko Takeover. Oxy cut debt levels by $10.5bn, or 37 per cent, during the year. For the fourth quarter reported Monday after the close that net income rose to $1.7B, or $1.74/share, from $1.3B, or $1.58/share, in the year-ago quarter, shy of $1.61 analyst estimates. The company announced a new $3 Billion stock buyback program and a 38% increase to its quarterly dividend to $0.18/share.
Occidental has been benefiting from part to its foothold in the shale-rich Permian Basin of West Texas and New Mexico despite energy prices pulling off their peaks. Billionaire investor Warren Buffett’s Berkshire Hathaway has been boosting his bet on OXY, grew its stake in Occidental to about 20.9%. In August, the U.S. energy regulator gave Berkshire permission to buy up to 50% of Occidental’s common stock.
Earnings release: before market; conference call: 11 a.m.
Occidental Q4 2022 Earnings
Lower crude oil and natural gas liquids prices contributed to the reduction in profits from the third quarter, which was partially offset by higher sales volumes across all commodities and higher gas prices, the company said. Occidental is one of the top producers in the Permian Basin of West Texas and New Mexico and has been facing higher costs in the Permian.
- Q4 net income rose to $1.7B, or $1.74/share, from $1.3B, or $1.58/share, in the year-ago quarter, but adjusted EPS of $1.61 was below analyst estimates.
- Q4 revenues nearly doubled to $8.22B from $4.16B a year earlier, just shy of analyst consensus $8.38B;
- Oil and gas revenues more than doubled to $6.3B from $2.98B in the year-ago quarter,
- Chemical sales jumped 48% Y/Y to $1.47B from $988M,
- Midstream and marketing sales increased 89% to $775M from $410M a year earlier.
- Oil price average of $83.64/bbl in Q4, up 11% Y/Y but ~12% lower than in Q3.
- Occidental (OXY) forecast FY 2023 global production of 1.15B-1.21B boe/day
- Q1 output of 1.16B-1.2B boe/day, compared to 1.227B boe/day in Q4.
- Declares $0.18/share quarterly dividend, 38.5% increase from prior dividend of $0.13.
- New $3B share buyback authorization. The company completed its earlier $3B buyback program with $562M of repurchases in Q4, bringing total year repurchases to 47.7M shares.
- Cut debt levels by $10.5bn, or 37 per cent, during the year.
- Berkshire now has a 20.9% stake in Occidental.
Stock Market Reaction
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Occidental is the second biggest oil and gas producer in the US’s prolific Permian basin. Rising costs mean scale is becoming increasingly important.
Paying Down Debt
Occidental’s strategy has been to use its ample free cash flow from the high energy prices to pay down debt, it cut debt levels by $10.5bn, or 37 per cent, during the year. It has met its short-term target that would enable a potential upgrade to investment grade by rating agencies.
In 2019 Occidental took on around $40 billion in debt in its acquisition of Anadarko, which closed in August 2019, just months before the pandemic sent the industry into a downturn in 2020. The company slashed costs, sold off assets and laid off workers to stay afloat and make debt payments. After losing $15.7 billion in 2020, Oxy began to turn a profit again last year thanks to rising oil prices.
The company has paid down almost half of the debt it took on to win Anadarko. Having soared to $39bn after the takeover, long-term debt levels had been halved to $19bn as of September 2022. The company’s market capitalization, which collapsed to less than $10bn after the Covid-19 pandemic, has recovered to $54bn higher than pre-deal levels. It is a stark turnround for a company that many feared was facing bankruptcy just three years ago as it led the US shale patch in slashing its dividend and cutting spending.
Occidental will focus more on returning cash to shareholders than in paying down debt the company has stabilized. Most energy companies are paying considerably higher dividends to holders than Occidental.
In 2023, Occidental may be able to start paying down the high-rate Berkshire preferred. Under a formula, the company must start paying off the preferred if it returns more than $4 a share to its common holders in a given year.
Direct Air Capture (DAC) Project
Occidental’s focus on carbon capture is developing quickly. Last week OXY said that it will work with a subsidiary to lease more than 100,000 acres at the King Ranch in Kleberg County for potential development of up to 30 direct air capture plants. The historic, 825,000-acre ranch south of Corpus Christi has access to underground geologic reservoirs that could be used to store captured carbon.
The plan would build on Occidental’s net-zero goals that rely on traditional carbon capture technology and direct air capture plants.
Occidental said costs have increased by about 22% its estimated investment for the world’s first large-scale direct air capture (DAC) project and disclosed plans to build others. The company now expects to spend $1.1 billion on the project under construction in Ector County, Texas, up from the previous estimate of $800 million-$1 billion.
“Inflationary pressures felt across the economy, especially for construction materials and labor,” explain the added costs, Chief Executive Officer Vicki Hollub told analysts in a webcast.
Occidental’s first large-scale project started construction in September and is on schedule to begin operations in late 2024.
The company has expanded future plans for DAC. Government incentives and passage of the Inflation Reduction Act allow it to plan 100 DAC facilities by 2035, from 70 before, Hollub said. Land for half of them has been secured.
“It’s not as well recognized yet. But when the world realizes how much the transition will cost, I do believe that this will become the preferred option to ensure that we can continue the production of low carbon fuel for those that need it,” Hollub said.
OxyChem’s First Big Investment in 5 Years
In the second quarter the chemical subsidiary of Occidental Petroleum announced it is going ahead with its first big project in five years, bringing $1.1 billion of investment to its Deer Park manufacturing complex. Oxy is expanding and overhauling the technology of its chlor-alkali production unit, CEO and President Vicki Hollub said during Oxy’s second-quarter earnings call with investors Aug. 3.
The chlor alkali unit is part of the Deer Park chemical complex OxyChem calls Battleground, which borders the San Jacinto Battleground National Historic Site on Independence Parkway. Construction on the project will start in 2023, and the investment of $1.1 billion will be spread over three years while the unit continues to produce chlorine and caustic soda, Hollub said.
“The Battleground project represents the first sizable investment we’ve made in OxyChem since the construction and completion of the 4CPe and ethylene cracker that we completed in 2017,” Hollub said.
OxyChem, which says it is the largest chlor alkali producer in the U.S., uses diaphragm-cell technology for at least some of its production at Battleground. Now the company will replace that production process with a newer technology known as membrane cell. In addition, the complex’s chlorine and caustic soda production capacity will increase by 8%, and the chemical production process will be more energy-efficient after construction finishes, thereby decreasing the carbon intensity of those products, the company said.
While OxyChem would not disclose the Battleground unit’s production capacity, Hollub said it is the company’s biggest chlor-alkali unit.
Looking further ahead, Hollub said the company is working on front-end engineering and design studies that explore similar tech switches at two more sites: chlor-alkali units in Convent, Louisiana, on the Mississippi River and in Ingleside, Texas, near Corpus Christi. Both units use asbestos diaphragm technology.
If or when OxyChem moves ahead on those projects, they won’t involve any capacity expansions, and the price tags might not be as high as the $1.1 billion slated for the Battleground project, said Rob Peterson, Oxy’s CFO and senior vice president.
Based on its full-year 2021 revenue of $25.96 billion, Oxy is No. 8 on the Houston Business Journal’s 2022 Largest Houston-Area Public Companies List.
Buffett Moves into OXY as Icahn moves out
Berkshire’s holding of 181.7 million Occidental shares represented a 19.5% stake at the end of June. Berkshire also owns holds warrants to buy 83.9 million Occidental shares at $59.62 and owns $10 billion of 8% preferred stock. Ina battle of Wall Street scions The Wall Street Journal reported at the time Buffet was increasing his stake early in the year Icahn, who began building a stake in Occidental three years ago when he disputed the group’s $38 billion acquisition of Anadarko Petroleum, sold the last of his shares in the group and pulled two executives Andrew Langham and Gary Hu from the board of directors.
Berkshire’s stake should hit 20% in the coming months as Occidental completes a $3 billion buyback program. A 20% stake would then allow Berkshire to include in its earnings a proportionate share of Occidental’s profits. That would boost Berkshire’s reported earnings by about $2 billion at this time.
Occidental is an international energy company with assets primarily in the United States, the Middle East and North Africa. They are one of the largest oil producers in the U.S., including a leading producer in the Permian and DJ basins, and offshore Gulf of Mexico. Our midstream and marketing segment provides flow assurance and maximizes the value of our oil and gas. The chemical subsidiary OxyChem manufactures the building blocks for life-enhancing products. The Oxy Low Carbon Ventures subsidiary (OLCV) is advancing leading-edge technologies and business solutions that economically grow our business while reducing emissions. They are committed to using our global leadership in carbon management to advance a lower-carbon world. Visit oxy.com for more information.
Source: TC, Occidental
From The TradersCommunity News Desk