Occidental’s Profit Cut by Ecuador Loss

Occidental Petroleum Corp. said Wednesday that the recent seizure of its Ecuadorean oil project would cut second-quarter earnings by $306 million.

In taking a one-time charge, the Westwood-based company quantified the near-term fallout, after taxes, from the lost investments and oil production at fields that were taken over by the Ecuadorean government in May.

The Andean country kicked Occidental off the Block 15 project amid an escalating contract dispute and a populist push to earn more from the nation’s oil.

As a result, Occidental fired more than 300 workers and lost production that amounted to 7% of its oil output in 2005. In addition, the takeover triggered a halt in trade negotiations between the United States and Ecuador.

Occidental said it would take the write-off, equal to 71 cents a share, in the quarter that ended Friday. The company reclassified the Ecuadorean production as discontinued and said it expected second-quarter profit from continuing operations to total $2.70 to $2.80 a share. That compares with analysts’ average estimate of $2.88, according to a survey by Thomson Financial.

“It’s not a shock,” said Fadel Gheit, an analyst at Oppenheimer & Co. in New York, who rates Occidental’s stock a “buy” and doesn’t own any shares. The company can lower its tax bill by writing off the Ecuador investment, he noted. “You might as well make the best of a bad situation.... It doesn’t mean they are throwing in the towel.”

Indeed, Occidental continues to fight its ouster through an arbitration claim that it filed in May at the World Bank’s International Center for Settlement of Investment Disputes, shortly after Ecuador took over the oil fields. The company asked the group to restore its Block 15 contract and to prevent the Ecuadorean government from replacing Occidental with a new operator while the case proceeds.

If the international settlement panel in Washington allows arbitration, it would form a tribunal to weigh a possible preliminary injunction and begin proceedings. Occidental has said the process could take more than a year.

Occidental, which estimated its damages at more than $1 billion, accused Ecuador of taking over the fields in retaliation for the company’s victory against it in a $75-million tax-arbitration case.

Ecuador said the takeover was justified because the oil company breached its agreement by farming out some production to EnCana Corp. of Canada in 2000 without government permission. Occidental said that it sold a 40% economic interest in the project to EnCana and that the Canadian company’s stake would be converted to ownership only if Ecuador agreed.

Brian Janiak, an analyst at Standard & Poor’s Corp., said Occidental’s planned write-off would not immediately affect the company’s earnings outlook. And Occidental did not issue revised estimates for full-year results.

“This is just a one-time charge,” Janiak said. “The company has other growth initiatives, and the high commodity prices help mitigate any impact that this has.”

Occidental shares fell as low as $101.16 on Wednesday before rebounding to close up 22 cents at $104.81. The company’s shares fell more than $14 in eight days in May, to $92.38, as the Ecuadorean troubles unfolded.