Occidental Petroleum Corporation : Occidental 2nd Quarter Net Down 27% on Price Declines
07/26/2012| 02:06pm US/Eastern
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--Occidental Petroleum earnings down 27%, beat analysts' expectations
--Low prices offset record production
--Capital expenditures will be $9.2 billion for the year
(adds analyst comments in the fourth and eight paragraphs, CEO's comments)
By Alison Sider and Chelsea Stevenson
Occidental Petroleum Corp.'s (OXY) second-quarter earnings dropped 27%, though still beat analysts' estimates, as declining oil and natural gas prices offset record production for the quarter.
Occidental reported a profit of $1.33 billion, or $1.64 a share, for the quarter, compared with $1.82 billion, or $2.23 a share, a year earlier. The company had 2.3 million fewer shares outstanding in the latest quarter. Revenue declined 6.5% to $5.77 billion.
Analysts polled by Thomson Reuters were expecting earnings of $1.60 a share on revenue of $5.85 billion.
Occidental's heavy investment in the U.S.--in California, Texas and the interior of the country--has boosted production in recent periods, and has led to strong results in its chemicals business. However, both those segments posted declining earnings in the second quarter from the first--a trend seen by most energy producers as energy prices fell amid the global economic slowdown.
Occidental, based on Los Angeles, is the fourth-largest U.S. oil and gas company based on market capitalization.
Brian Youngberg, an analyst with Edward Jones in St. Louis, said he was pleased with the company's high production of 766,000 barrels of oil equivalent per day, 7% higher than in the second quarter of 2011.
"I think they had a good quarter," he said.
Revenue in the company's main oil and gas segment fell 9.2% as profit decreased 22%. Chemical sales fell 12% while profit was down 23%.
Average prices decreased 3.6% for crude oil, while natural-gas liquids prices dropped 27% worldwide. Domestic-gas prices declined 51%.
Analysts at Simmons & Co. expressed concern in a research note that Occidental's capital expenditures continued to rise. The company reported spending $2.73 billion in spending during the quarter, bringing its total to $5.1 billion for the first half of the year.
"This had been identified as a potential risk," but the increase still came as a surprise, they wrote.
Occidental Chief Executive Steve Chazen said during a conference call that the company now plans to spend $9.2 billion on capital expenditures for the year, compared to the $8.3 billion it had previously planned.
About $600 million of that increase will be spent on the Al Hosn Shah gas project, which is nearly half complete.
But Mr. Chazen said capital spending will slow down "modestly" through the rest of the year, and added that investors should not look for the company to be involved in major acquisitions anytime soon.
"We are not in any hurry," Mr. Chazen said. "You shouldn't expect to see any large scale M&A from us."
In the U.S., Mr. Chazen said the company's total average rig count will fall to 70 from 75 rigs by the end of the year, but he said he does not expect that to slow the pace of drilling.
"I expect we'll drill as many wells in the back half as we did the first half of the year with fewer rigs," he said.
Shares traded up 2.02% at $85.23. The stock has fallen 20% in the past 12 months.
Write to Alison Sider at alison.sider@dowjones.com. Write to Chelsea Stevenson at chelsea.stevenson@dowjones.com
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