Occidental profit slips on drop in production, prices
Occidental Petroleum Corp. reported a slight decline in first-quarter profit Tuesday, citing a decrease in domestic crude oil production and prices that fell from their 2006 peaks.
Crude oil prices have recovered recently, reaching $65.89 a barrel Monday, but they are still down more than 14% from their July 2006 record high of $77.03.
Despite that, analysts said Westwood-based Occidental was in great shape because it had reduced debt, increased its dividends and is buying back company stock at favorable rates.
At the same time, Occidental is working to bolster its production business domestically and abroad.
The company announced Monday that it was securing more control over a key domestic production area by acquiring BP’s 2,300-mile-long West Texas pipeline system in the Permian Basin oil field. In a separate transaction, Occidental will sell its oil and natural gas assets in Pakistan to BP, which already operates them. Terms of the cash deals were not disclosed.
The first transaction “will further strengthen Oxy’s industry-leading position in the Permian. The exiting of Pakistan, which follows our departure from Russia in January, will further focus our effort into our major core areas,” Occidental Chief Executive Ray R. Irani said in a conference call with analysts Tuesday.
Irani added that the company was in various stages of negotiations over other oil and gas development projects in the Middle East and North Africa. Analysts said those projects could double the company’s production in coming years.
First-quarter oil and gas production averaged 587,000 barrels of oil equivalent in the first quarter, up from 563,000 a year earlier.
Occidental posted first-quarter net income of $1.21 billion, down from $1.23 billion a year earlier; per-share earnings remained flat at $1.43.
The company said core earnings, excluding one-time losses and gains, were $831 million, or 98 cents a share. That was down 28% from $1.15 billion, or $1.34, a year earlier but good enough to beat analysts’ consensus estimate of 91 cents a share.
“Their earnings are down only because of the price of oil, not because of management. The management gets an A-plus for doing a superb job,” said Fadel Gheit, senior energy analyst for Oppenheimer & Co. in New York.
Said Citigroup analyst Doug Leggate in New York: “They are generating an enormous volume of cash flow. They have been able to reinvest it in recovery projects, and they seem to be very close to obtaining new assets. It’s a great success story.”
The subject of CEO Irani’s 2006 compensation package of $460 million was not raised during the conference call.
Analysts were less pleased with BP, owner of the Arco brand, which saw its first-quarter earnings fall 17% to $43.7 billion.
Two of BP’s biggest U.S. refineries are still operating at only 60% capacity, representing a production loss of about 400,000 barrels a day, Gheit said.
He said BP’s Texas refinery explosion and fire, which killed 15 people in 2005, continued to reverberate in higher U.S. gasoline prices, as companies take more time to return to operation refineries that have been closed for maintenance or repair.
“Texas City set the standard in a bad way,” Gheit said. “You do not want to rush refineries back into service. It may cost you a lot if you do.”
