Houston based Occidental Petroleum reported better than expected second-quarter earnings Tuesday and announced it had paid down $4.8 billion in debt and set to return more cash to shareholders. Occidental has been riding the surge in global crude oil prices topping Street forecasts thanks in part to its foothold in the shale-rich Permian Basin of West Texas and New Mexico. Billionaire investor Warren Buffett’s Berkshire Hathaway has been boosting his bet on OXY just as activist Carl Icahn sold the last of his stake earlier in the year and is now the largest shareholder.
$3.16 Beat $3.03 EPS AND $10.735 billion Beat $9.779 Billion Revenue Forecast
Earnings release: before market; conference call: 11 a.m.
Earnings
Occidental’s net income for the quarter, $3.555 billion, was 24% lower than the first-quarter earnings of nearly $4.68 billion, but significantly higher than April through June 2021, when Oxy lost $97 million. OXY earned an adjusted profit of $3.2 billion, or $3.16 per share in the second quarter, above the consensus estimate of $3.03 a share and up sharply from 32 cents in the year-earlier period.
Occidental however cut its 2022 output outlook for the Permian knocking its shares down more than 6% to close at $60.99.
““We still see the potential for market conditions to dampen from where we are today due to inflationary pressures, though the long-term fundamentals continue to remain supportive, and we expect third and fourth quarters to be strong by historical standards,” Rob Peterson, Oxy’s CFO and senior vice president.
Highlights
Occidental Petroleum Q2 22 Earnings:
- Adj EPS: $3.16 (Estimate: $3.03)
- Total Revenue $10,735 million, v consensus estimates of $9,779 million.
- Total capital expenditure for second-quarter 2022 was $972 million compared with $698 million invested in the year-ago period.
- Oil prices were up 17% from the first quarter
- Occidental bought back $1.1 billion of stock through Aug. 1 with about half that total coming in July and half in the second quarter.
- Launched a $3 billion share repurchase program.
- Berkshire now has a 19.5% stake in Occidental
Revenues
- Oil and Gas revenues for the quarter were $7,696 million, up 70.8% year over year.
- Chemical revenues for the quarter were $1,909 million, up 60.8% year over year.
- Midstream & Marketing revenues for the quarter were $1,474 million, up 196.6% year over year.
Earnings
- Occidental’s upstream earnings rose more than five times over the year ago, to nearly $4.1 billion.
- Occidental’s chemicals business OxyChem posted a record $800 million operating profit.
- The chemical subsidiary had its’ fourth-straight quarter of record-high earnings.
- OXY’s pipeline and marketing unit posted a $264 million profit, compared with a $30 million loss a year ago.
Production
Occidental is one of the top producers in the Permian Basin of West Texas and New Mexico and produced 1.14 million barrels of oil equivalent per day (boed) in the second quarter, within its guidance, but 32,000 boed less than the prior quarter. The company has been facing higher costs in the Permian.
- Occidental’s total production volume for the second quarter was 1,147 thousand barrels of oil equivalent per day (Mboe/d), which was within the company’s guidance of 1,130-1,160 Mboe/d.
- Strong production volumes were attributed to higher volumes from the Rockies and Other Domestic assets.
- Permian Resources’ production for the second quarter was 493 Mboe/d, which was near the upper end of the guidance of 488-498 Mboe/d.
Sales
- For the quarter under review, total sales volume was 1,150 Mboe/d, down 4.1% from 1,199 Mboe/d recorded in the year-ago period. The decline was due to a drop in U.S. and international sales volume.
- Second-quarter realized prices of crude oil improved 67.8% year over year to $107.72 per barrel on a worldwide basis.
- Realized natural gas liquids’ prices also improved 67.8% from the prior-year quarter to $42.04 per barrel worldwide.
- Natural gas prices increased 114.9% from the year-ago quarter to $5.03 per thousand cubic feet worldwide. The company benefited from a worldwide improvement in commodity prices.
The Permian basin this year should deliver around 521,000 barrels of oil equivalent per day (boed) for the company, from around 532,000 boed projected in May, it said.
The reduction follows third party processing issues and a partial Permian production transfer to Colombian oil producer Ecopetrol, with whom Occidental signed a joint venture.
Total 2022 production outlook was kept stable at around 1.55 million boed, with higher production in the Rockies and the Gulf of Mexico basins offsetting losses in the Permian.
Paying Down Debt
Occidental’s strategy has been to use its ample free cash flow from the high energy prices to pay down debt, which totaled $21.7 billion on June 30, and effectively transfer wealth to shareholders who now own a greater share of the business.
- As of Jun 30, 2022, Occidental had cash and cash equivalents of $1,362 million compared with $2,764 million as of Dec 31, 2021.
- As of Jun 30, 2022, the company had long-term debt (net of current portion) of $21,743 million compared with $29,431 million as of Dec 31, 2021. The decrease in the debt level was due to the effective management of debt since the acquisition of Anadarko.
- For second-quarter 2022, cash flow from operations was $5,148 million, up from $2,710 million in the prior-year period.
Occidental also said it wants to accelerate a three-year target to bring debt down to $15 billion, from more than $21 billion now and investment targets were unchanged.
“We don’t feel the need to grow production until we get beyond that point,” Hollub told analysts on a webcast to discuss second quarter earnings. “Because we feel like one of the best values right now is investment in our own stock.”
Occidental will focus more on returning cash to shareholders than in paying down debt s the company has stabilized. That may include a higher dividend, which now is low at 52 cents annually for a yield of less than 1%. 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.
Guidance
For third-quarter 2022, OXY expects production of 1,140-1,170 Mboe/d and output from Permian Resources of 523-533 Mboe/d. Occidental expects third-quarter exploration expenses of $75 million.
For 2022, OXY expects production of 1,140-1,170 Mboe/d and output from Permian Resources of 516-526 Mboe/d. Occidental expects 2022 exploration expenses of $215 million.
Occidental has plans to invest $3.9-$4.3 billion in 2022 to further strengthen its operation.
OxyChem’s First Big Investment in 5 Years
The chemical subsidiary of Occidental Petroleum 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.
Record chemical earnings
Oxy reported better-than-expected profits during the second quarter, as its adjusted, diluted earnings per share came to $3.16 — about 5% higher than analysts expected, per Yahoo Finance.
The company’s net income for the quarter, $3.555 billion, was 24% lower than the first-quarter earnings of nearly $4.68 billion, but significantly higher than April through June 2021, when Oxy lost $97 million.
The chemical subsidiary reported $800 million of income during the second quarter, which Peterson said marked the fourth-straight quarter that OxyChem brought in record-high earnings.
“We still see the potential for market conditions to dampen from where we are today due to inflationary pressures, though the long-term fundamentals continue to remain supportive, and we expect third and fourth quarters to be strong by historical standards,” Peterson said.
Recommended
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.
Oil Giants Turnaround Has Been Remarkable
Occidental’s release follows that of the two largest American oil companies almost reporting Friday. Energy giant ExxonMobil, the largest U.S. oil company, reported its second-quarter profit rose to $17.9 billion, its highest ever and nearly four times the same period a year ago. Chevron, the second-largest U.S. oil company said it made a record profit Friday of $11.6 billion, up from $3.1 billion in the same period last year.
Houston based oil refiner Phillips 66 on Friday reported better than expected second quarter earnings. PSX generated $1.8 billion of operating cash flow; $3.6 billion excluding working capital and repaid $1.5 billion of debt and returned $533 million to shareholders through dividends and share repurchases. Shell, Europe’s largest oil company reported stronger than expected second quarter results Thursday with $11.5 billion second-quarter profit smashing the mark it set only last quarter.
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.
About Occidental
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
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