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Quarterly Earnings

A Mixed Bag

By Elliott H. Gue, on May. 17, 2014

Fueled by its efforts to ramp up oil production in California and the Permian Basin, Occidental Petroleum grew its domestic crude output by 1.4 percent sequentially.

However, the integrated oil and gas company’s total hydrocarbon production came in at 745,000 barrels of oil equivalent per day, down 0.6 percent from the fourth quarter and 2.3 percent year over year.

This decline reflected a calculated decision to scale back gas-focused drilling in California and field and port disruptions in Yemen and Libya.

Results should improve over the next 12 months. The New Johnsonville chlor-alkali plant comes online in March, the BridgeTex Pipeline serving the Permian Basin starts operations in the third quarter, and the Al Hosn gas project in the United Arab Emirates ramps up toward year-end.

Management also provided an update on the company’s ongoing restructuring efforts:

  • The $1.3 billion sale of its assets in the Hugoton basin closed on April 30, with management using the proceeds to repurchase shares.
  • The long-anticipated spinoff of Occidental Petroleum’s California operations as California Resources Corp will occur in the fourth quarter, with the company’s existing shareholders receiving at least 80 percent of the shares.
  • Occidental Petroleum will look to monetize the remainder of its general-partner interest (worth about $4 billion) in Plains All American Pipeline LP (NYSE: PAA) in early 2015.  
  • The company continues to explore strategic alternatives for its assets in the gas-rich Piceance Basin. CEO Steve Chiazen indicated that the firm would likely form a joint venture with a privately held operator that would develop the assets with an eye toward an eventual initial public offering.
  • Efforts to divest a minority interest in its operations in the Middle East and North Africa continue, though the complexity of these negotiations would delay any movement on this front until the back half of 2014.
  • The firm removed its roughly 20,000 acres in the Bakken Shale from the market, citing unfavorable valuations.

What will Occidental Petroleum do with the proceeds from all this wheeling and dealing? CEO Steve Chiazen indicated that the firm will complete its current 26.5 million stock buyback program and repurchase another 40 million to 50 million shares.

Management also emphasized that the cash flow generate from its growth projects expected to come onstream this year should offset any lost in the spinoff of its California business.

More important, Occidental Petroleum’s extensive asset base in the Permian Basin provides ample opportunity to drive production growth in coming years.

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