Occidental Petroleum Corporation (OXY)

OXY 
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Occidental Petroleum (OXY)

Q2 2011 Earnings Call

July 26, 2011 11:30 am ET

Executives

Christopher Stavros - Vice President of Investor Relations

Stephen Chazen - Chief Executive Officer, President and Director

James Lienert - Chief Financial Officer and Executive Vice President

Analysts

Edward Westlake - Crédit Suisse AG

Katherine Minyard

Evan Calio - Morgan Stanley

David Heikkinen - Tudor, Pickering, Holt & Co. Securities, Inc.

John Herrlin - Societe Generale Cross Asset Research

Faisel Khan - Citigroup Inc

Doug Terreson - ISI Group Inc.

Douglas Leggate - BofA Merrill Lynch

Duane Grubert - Susquehanna Financial Group, LLLP

Paul Sankey - Deutsche Bank AG

Jason Gammel - Macquarie Research

Presentation

Operator

Good morning. My name is Christy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Occidental Petroleum Second Quarter 2011 Earnings Release Conference Call. [Operator Instructions] Mr. Stavros, you may begin your conference.

Christopher Stavros

Thank you, Christy. Good morning, everyone, and welcome to Occidental Petroleum's Second Quarter 2011 Earnings Conference Call. Joining us on the call this morning from Los Angeles are Steve Chazen, Oxy's President and Chief Executive Officer; Jim Lienert, Oxy's Chief Financial Officer; Dr. Ray Irani, Oxy's Executive Chairman; and Bill Albrecht, President of our U.S. Oil and Gas operations.

In a moment, I will turn the call over to our CFO, Jim Lienert, who will review our financial and operating results for the second quarter and first 6 months of 2011. Steve Chazen will then follow with some guidance and an outlook for the second half of the year. Our second quarter earnings press release, relations supplemental schedules and the conference call presentation slides, which refer to Jim and Steve's remarks can be downloaded off of our website at www.oxy.com. I'll now turn the call over to Jim. Jim, please go ahead.

James Lienert

Thank you, Chris. I'll discuss the second quarter results for the company and Steve Chazen will follow with guidance for the second half of the year. Core income was $1.8 billion or $2.23 per diluted share in the second quarter this year compared to $1.1 billion or $1.32 per diluted share in the second quarter of last year. Net income was $1.8 billion or $2.23 per diluted share in the second quarter of this year compared to $1.1 billion or $1.31 per diluted share in the second quarter of last year.

Here's the segment breakdown for the second quarter. Oil and Gas segment earnings for the second quarter of 2011 were $2.6 billion compared with $1.9 billion in the same period of 2010. The improvement in 2011 was driven mainly by higher commodity prices. The second quarter 2011 realized prices increased on a year-over-year basis by 39% for crude oil, 31% for NGLs and 2% for domestic natural gas.

Sales volume for the second quarters of 2011 and 2010 were flat at 705,000 BOE per day. Production volumes were 715,000 BOE per day in the second quarter of 2011 compared to 701,000 BOE per day in the second quarter of 2010. The production guidance assumptions we gave you on last quarter's conference call were at a $95 WTI average price assumption. The actual average second quarter oil price of $102.56 reduced our production volumes by about 5,000 BOE per day.

Domestic production volumes were 424,000 BOE per day compared to our guidance of 425,000 BOE per day. The higher crude oil prices reduced Long Beach volumes by about 1,000 BOE per day. Latin America volumes were 33,000 BOE per day. In the Middle East region, we recorded no production in Libya consistent with our guidance.

In Iraq, we produced 5,000 BOE per day. The decline from first quarter volume was due to the timing of development spending. Yemen daily production was 23,000 BOE compared to 33,000 BOE in the first quarter. Civil unrest and operational issues reduced our daily production by 3,000 BOE and higher prices and lower development spending rates reduced daily volumes by 7,000 BOE.

The remainder of the Middle East had production of 230,000 BOE per day compared with 235,000 BOE per day in the first quarter. Qatar production was lower by 7,000 BOE per day mainly due to planned maintenance and mechanical issues. Our second quarter sales volume guidance, which assumed a $95 WTI oil price was 725,000 BOE per day, which translates to about 720,000 BOE per day at the higher actual prices for the quarter.

Our actual volumes were 705,000 BOE per day. The lower volumes resulted mainly from the lower production in Yemen and Qatar and the timing of liftings in Oman and Qatar.

Second quarter 2011 realized prices improved for all our products over the first quarter of the year. Our worldwide crude oil price was $103.12 per barrel, an increase of 12%. Worldwide NGLs were $57.67 per barrel, an improvement of 10% and domestic natural gas prices were $4.27 per MCF, an increase of 1%.

The second quarter of 2011 realized oil price represents 101% of the average WTI price for the quarter.

Oil and Gas production costs were $11. Cash production costs were $11.88 a barrel for the 6 months of 2011 compared with last year's 12-month cost of $10.19 a barrel.

The cost increase reflects more workover and maintenance activity and higher support costs. Taxes, other than our income, which are directly related to product prices were $2.36 per barrel for the first half of 2011 compared to $1.83 per barrel for all of 2010.

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