10-Q: Occidental Petroleum Reports Q1 2024 Results, Impacted by Lower Prices and Production

Occidental Petroleum's first quarter 2024 earnings were impacted by lower oil and gas prices and reduced production volumes, though a legal settlement provided a boost to net income.

Summary

• Occidental Petroleum reported a net income of $888 million for the first quarter of 2024, down from $1.263 billion in the same period last year.
• The decrease in net income was primarily due to lower oil and gas prices and reduced production volumes in the oil and gas segment.
• Net sales decreased to $5.975 billion from $7.225 billion year-over-year.
• The company's oil and gas segment saw a decrease in earnings to $1.238 billion, compared to $1.640 billion in the first quarter of 2023.
• Chemical segment earnings were $254 million, down from $472 million in the same period last year.
• Midstream and marketing segment reported a loss of $33 million, compared to a profit of $2 million in the first quarter of 2023.
• A legal settlement related to the Andes Arbitration resulted in a gain of $182 million, net of taxes, in discontinued operations.
• Capital expenditures for the quarter were $1.8 billion, compared to $1.5 billion in the same period last year.
• Occidental generated $2.0 billion in cash flow from operations during the quarter, down from $2.9 billion in the first quarter of 2023.
• The company's long-term debt was rated Baa3 by Moody's, BBBby Fitch, and BB+ by Standard and Poor's.

Sentiment

Score: 5

Explanation: The document presents mixed results with lower earnings and production offset by a legal settlement and strategic moves like the CrownRock acquisition. The outlook is cautiously optimistic, but the company faces significant challenges.

Positives

• Occidental's credit rating was upgraded to investment grade by Moody's Investors Service in March 2023 and by Fitch Ratings in May 2023.
• The company has a $4.0 billion borrowing capacity under its revolving credit facility, which matures on June 30, 2028.
• A legal settlement related to the Andes Arbitration resulted in a gain of $182 million, net of taxes, in discontinued operations.
• Occidental has approximately $1.2 billion remaining under its share repurchase program.
• The company is working to manage inflation impacts through operational efficiencies and proactive contract management.

Negatives

• Net sales decreased to $5.975 billion from $7.225 billion year-over-year.
• The company's oil and gas segment saw a decrease in earnings to $1.238 billion, compared to $1.640 billion in the first quarter of 2023.
• Chemical segment earnings were $254 million, down from $472 million in the same period last year.
• Midstream and marketing segment reported a loss of $33 million, compared to a profit of $2 million in the first quarter of 2023.
• Operating cash flow was $2.0 billion, down from $2.9 billion in the same period last year.
• The company experienced lower domestic crude oil volumes due to a third-party shut-in of production in Eastern GOM.
• Occidental has $1.1 billion of debt maturities due in the next 12 months.

Risks

• Occidental's operations are highly dependent on oil prices, which are expected to be volatile due to geopolitical risks and evolving macro-economic conditions.
• The company's ability to access capital markets and its cost of capital could be impacted by any downgrade in credit ratings.
• The CrownRock Acquisition is subject to regulatory approval and may be delayed.
• The company faces potential liabilities related to environmental remediation, particularly at the Diamond Alkali Superfund Site.
• Occidental is subject to ongoing tax audits and disputes, which could result in additional tax liabilities.
• The company is exposed to credit risk from counterparties and may be required to provide collateral under certain contractual arrangements.
• The Inflation Reduction Act and Pillar Two initiative could increase the company's cash tax and negatively impact its effective tax rate.

Future Outlook

Occidental intends to utilize future operating cash flows to maintain its production base, deliver a sustainable and growing dividend, enhance its asset base, advance low-carbon technologies, further reduce long-term financial leverage, and strengthen its U.S. onshore portfolio through the CrownRock Acquisition.

Management Comments

• Occidental's capital and operational priorities for 2024 are intended to maximize cash flow through focused investments in short and medium-cycle projects.
• The company intends to repay at least $4.5 billion of debt within 12 months of closing the CrownRock Acquisition with proceeds from the divestiture program and excess cash flows.

Industry Context

The results reflect the broader industry trend of fluctuating commodity prices and the impact of geopolitical events on energy markets. The company's focus on low-carbon ventures aligns with the industry's increasing emphasis on sustainability and emissions reduction.

Comparison to Industry Standards

• Occidental's production volumes and realized prices are comparable to other major oil and gas companies, such as Chevron and ExxonMobil, but the company's results were impacted by a third-party shut-in of production in Eastern GOM.
• The company's chemical segment results are in line with the industry trend of lower caustic soda prices, but the company benefited from improved product demand and lower ethylene and energy costs.
• The company's midstream and marketing segment results were impacted by lower winter weather activity in the Rockies compared to the prior year, which is a common factor for companies with operations in that region.
• Occidental's focus on carbon capture and direct air capture technology is a differentiating factor compared to some of its peers, but the financial impact of these ventures is still developing.

Legal Proceedings

• Occidental is involved in various legal proceedings, including environmental remediation matters and the Alden Leeds litigation.
• The company is challenging the proposed settlement and Amended Consent Decree in the Alden Leeds litigation.
• A legal settlement related to the Andes Arbitration resulted in a gain of $182 million, net of taxes, in discontinued operations.

Related Party Transactions

• Occidental has a significant investment in Western Midstream Partners, LP (WES), and its share of net income from WES and its subsidiaries was 50.9% as of March 31, 2024.
• Occidental has formed a joint venture with BlackRock for the development of a direct air capture facility, with BlackRock committed to invest up to $550 million.

Stakeholder Impact

• Shareholders will be impacted by the lower earnings and production, but the company's commitment to a sustainable and growing dividend is a positive.
• Employees may be affected by the company's cost management efforts and any potential restructuring.
• Customers may experience changes in pricing and supply due to market fluctuations and the company's operational adjustments.
• Suppliers and creditors will be impacted by the company's financial performance and its ability to meet its obligations.

Next Steps

• Occidental plans to complete the CrownRock Acquisition, subject to regulatory approval.
• The company intends to execute a divestiture program between $4.5 billion and $6.0 billion within 18 months of closing the CrownRock Acquisition.
• Occidental will continue to monitor and evaluate the potential impacts of the Inflation Reduction Act and Pillar Two initiative.
• The company will continue to evaluate the estimated costs currently recorded for remediation at the DASS.

Key Dates

Keywords

Occidental Petroleum, oil and gas, chemical, midstream, marketing, financial results, Q1 2024, earnings, production, debt, CrownRock Acquisition, environmental liabilities, legal proceedings, capital expenditures, cash flow