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Oxy rides oil wave and record U.S. production to a 35% gain

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Times Staff Writer

Occidental Petroleum Corp. kicked off the oil industry’s fourth-quarter earnings results Wednesday. It announced a net profit increase of 35% to $1.63 billion compared to the same quarter a year ago as the company rode the crest of a high oil-price wave and record U.S. crude production levels.

Westwood-based Occidental is the nation’s fourth largest oil exploration and production company. It has a reputation among analysts as being one of the industry’s best managed firms. In 2011, Occidental and the rest of the oil industry enjoyed the highest average oil prices ever, but analysts said the company is built to maximize earnings even when oil prices are low.

“In our view,” said Phil Weiss, an oil industry analyst with Argus Research, “Occidental’s low cost structure and use of enhanced oil-recovery techniques to increase production and build reserves will enable it to maintain strong cash flow and profitability in almost any price environment.”

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Weiss added that Occidental “is also more heavily weighted toward oil than peers” whose production mix includes a higher percentage of natural gas. Prices for natural gas plummeted in 2011 and companies that rely more heavily on natural gas will see reduced earnings.

Some of Occidental’s boost came directly from high oil prices, the company said, noting that its average price for worldwide crude oil was $99.62 per barrel for the fourth quarter, up substantially from the $79.96 per barrel in 2010.

Stephen I. Chazen, Occidental’s president and chief executive,” said, “For the year, we continued to generate strong financial results,” later adding, “Our domestic fourth-quarter oil and gas production of 449,000 barrels of oil per day was the highest in Occidental’s history, breaking the previous record achieved last quarter.”

Occidental’s fourth-quarter profit of $1.63 billion, or $2.01 a share, compared with $1.21 billion, or $1.49 a share in the same quarter a year ago. Occidental’s sales jumped 19% for the quarter to $6.03 billion. That was enough to surpass Wall Street expectations. analysts polled by Thomsen-Reuters had been expecting $1.95 a share and sales of $5.77 billion.

Net profit for the full year was $6.8 billion, up 49% compared to $4.5 billion in 2010.

Occidental’s fourth-quarter production grew by nearly 5% to 748,000 barrels a day, compared to 714,000 barrels a day a year earlier. The company’s record domestic production offset some production losses overseas.

Experts said that the oil industry as a whole would see big profits, but that some would be hit with lower downstream earnings involving refined products.

“Oil producers did very well in 2011,” said James L. Williams, an energy economist and owner of WTRG Economics. “Refiners were not doing so well, especially toward the end of the year.”

For 2012, Williams said that the industry could be looking at a year as volatile as 2008, when oil prices swung from nearly $148 a barrel in the summer down to just over $30 a barrel in December.

“If Iran carries out its threat to try to close the Strait of Hormuz,” the strategic Persian Gulf chokepoint used to transport nearly 20% of the world’s daily oil consumption, Williams said, “prices could spike to $120 a barrel or even $140 a barrel.

Williams said that if the Iran situation cools, however, and Europe slides into recession, “you could see an equally steep drop in oil prices.”

In other oil industry news, Houston-based ConocoPhillips said it earned $3.39 billion, or $2.56 per share, compared with $2.04 billion, or $1.39 per share a year earlier while its sales rose more than 17% to to $62.4 billion.

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