Occidental Petroleum Corporation
(
OXY
) reported third-quarter 2012 pro forma earnings per share of
$1.70, beating the Zacks Consensus Estimate of $1.63. However,
quarterly earnings were down from the year-ago figure of $2.18.
The year-over-year decline was due to higher interest
expenses.
In the third quarter of 2012, Occidental's GAAP earnings per
share were $1.69 compared with $2.17 in the prior-year quarter.
The variance of a penny between pro forma and GAAP earnings were
due to a cent charge for net discontinued operations.
Total Revenue
Occidental's third-quarter 2012 revenue marginally decreased
to $5,965.0 million from $6,006.0 million in the year-ago
quarter. Quarterly revenue decreased due to lower contribution
from the Oil and Gas, and Chemical segments; partially offset
higher revenue from Midstream, Marketing and Other segment.
However, the top line beats the Zacks Consensus Estimate of
$5,761.0 million.
Quarterly Production, Sales and Realized Price
Occidental's average daily production volumes touched 766
thousand barrels of oil equivalents ("Mboe") in third-quarter
2012, up from 739 Mboe in the year-ago quarter. Volume growth was
driven by strong production from the company's domestic
operations; partially offset by lower production from North
Africa and Middle East operations.
Occidental's daily oil and gas sales volumes during the
quarter were 765 Mboe, up from 743 Mboe in the year-ago
period.
In the quarter under review, Occidental's realized price for
crude oil decreased to $96.62 per barrel from the prior-year
level of $97.24 per barrel. Realized worldwide natural gas
liquids ("NGL") prices were down 27.5% to $40.65 per barrel from
the prior-year quarter level of $56.06 per barrel. In
third-quarter 2012, domestic gas prices also declined 41% to
$2.48 per thousand cubic feet ("Mcf") from $4.23 per Mcf in the
year-ago quarter.
Segment Earnings
In third-quarter 2012, consolidated segment earnings were $2.3
billion versus $2.9 billion in the year-ago quarter.
Oil & Gas:
Quarterly earnings from this segment were $2.0 billion, down from
$2.6 billion reported in the year-ago quarter. This earnings
decline was due to higher costs and reduced product prices;
partially offset by increase in oil volumes.
Chemicals:
Segment earnings were $162.0 million in third-quarter 2012 versus
$245.0 million in the prior-year quarter. The year-over-year
decline was due to lower prices across most of the product lines,
primarily vinyl chloride monomer ("VCM") and polyvinyl chloride
("PVC"); partially offset by lower cost of ethylene and natural
gas.
Midstream, Marketing and Other:
Quarterly segment earnings were $156.0 million compared with
$77.0 million in the year-ago quarter. The significant rise in
earnings was primarily driven by higher margins in the marketing
and trading businesses. However, this was partially offset
by lower income from the company's gas processing and pipeline
businesses.
Financial Update
Occidental's cash from operations during the first nine months
of 2012 totaled $8.5 billion compared with $8.6 billion in the
year-ago comparable period.
The company's capital expenditure for third-quarter 2012 was
$2.6 billion, up from $2.0 billion in the year-ago quarter. The
rise in capital expenditure was due to increase in development
expenses at its Oil & Gas, Chemicals and Midstream, marketing
and other segments.
Total debt as of September 30, 2012 was $7.6 billion compared
with $5.9 billion as of December 31, 2011. The company's total
debt-to-capitalization ratio at quarter end was 16% compared with
13% at the end of full-year 2011.
Peer Update
Occidental Petroleum's competitor
Exxon Mobil Corporation
(
XOM
) is expected to release its third-quarter 2012 earnings results
on November 1, 2012. The Zacks Consensus Estimate for the
company's third-quarter and full-year 2012 are $1.97 per share
and $7.73 per share, respectively.
Our Take
Occidental Petroleum's third-quarter 2012 earnings and revenue
beat the Zacks Consensus Estimate due to higher revenue from
Midstream, Marketing and Other segment and decline in income tax
charges.
We view Occidental Petroleum as an organization with a strong
balance sheet and liquidity position along with a steady capital
investment program. We believe that the company will generate
steady production growth in the forthcoming quarters with its
well-diversified asset base, which is located in different
geographical territories, particularly the Middle East.
In addition, Occidental Petroleum continues to take several
cost-cutting measures like production curtailment and planned
shutdowns of few plants, which may improve its operating as well
as financial performance in the forthcoming quarters.
However, Occidental Petroleum's over-reliance on crude oil
prices movement is a threat for its future financial performance.
We are also skeptical about natural calamities, political
instability and risks related to oil exploration and production
infrastructure damages, which might obstruct the company's
operations.
Occidental Petroleum Corporation currently has short-term
Zacks #3 Rank (Hold rating).
Los Angeles, California-based Occidental Petroleum Corporation
along with its subsidiaries engages in the exploration,
development, production and marketing of crude oil, natural gas
liquids and natural gas. The company has operations in the United
States, Middle East/North Africa and Latin America. With a market
capitalization of $65.35 billion, Occidental has 11,300 full time
employees.
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