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Occidental Beats on Strong Sales

Zacks Equity Research

Occidental Petroleum Corporation’s (NYSE:OXY - News) fourth quarter 2011 operating earnings jumped 27.8% to $2.02 per share from $1.58 per share in the year-ago quarter. Earnings beat the Zacks Consensus expectation for the quarter by 6 cents.

GAAP net earnings during the quarter were $2.01 per share versus $1.49 per share reported in the year-ago quarter. The difference between operating and GAAP earnings of 1 cent was due to the loss from discontinued operations.

Occidental’s adjusted earnings for full year 2011 were $8.39 per share, surpassing the Zacks estimate of $8.32. The company’s earnings grew significantly by 46.7% from the 2010 figure of $5.72 per share. 

GAAP net earnings during fiscal 2011 were $8.32 per share versus $5.56 per share reported in the last fiscal.

Total Revenue

Occidental's quarterly revenue increased 19.2% to $6.03 billion from $5.06 billion in the year-ago quarter. Total revenue increased on the back of higher contributions from the Oil and Gas and Chemical segments. This was marginally offset by a decrease in contribution from the Midstream, Marketing and Other segment.

The top line was ahead of the Zacks Consensus Estimate of $5.79 billion.

Occidental's fiscal 2011 revenue increased 25.7% to $23.93 billion from $19.04 billion in the year-ago quarter.

Full year revenues scraped past the Zacks Consensus Estimate of $23.67 billion.

Fiscal Production, Sales and Realized Price

Occidental's average daily production volumes notched 733 thousand barrels of oil equivalents (:MBOE) in fiscal 2011, up 3.8% year over year. The volume expansion was mainly due to strong production from domestic operations, particularly from fresh projects in South Texas, California and the Williston Basin. Higher production in Oman’s Mukhaizna field and Iraq also boosted output. However, this was partly offset by lower volumes from Middle East/North Africa and Libya due to the impact of pricing and production sharing contracts.

Occidental’s daily oil and gas sales volumes during the year were 731 MBOE, up 4.3% from 701 MBOE a year ago.

Occidental’s overall realized price for crude oil increased 30.3% to $97.92 per barrel from the prior-year level of $75.16 per barrel, while realized NGL prices rose 23.2% to $55.53 per barrel from the prior-year level of $45.08 per barrel. For the fiscal realized gas prices declined by 10 cents per thousand cubic feet (AMEX:MCF - News) to $3.01 per MCF from $3.11 per MCF last year.

Segment Earnings

For fiscal 2011, segment earnings were $11.55 billion versus $8.06 billion at the end of fiscal 2010. The results were boosted by a strong show at its Oil & Gas and Chemicals segments.

Oil & Gas: Earnings from this segment were $10.24 billion, up 43.2% from $7.15 billion reported last year. The improvement emanated from higher crude oil prices and higher volumes, offset partially by higher operating costs.

Chemicals: Earnings were $861 million versus $438 million in 2010. The year-over-year growth was attributable to strong export sales and higher margins resulting from rising demand across most products.

Midstream, Marketing and Other: Segment earnings were $448 million, down by $24 million from the year-ago level. The decline was primarily attributable to lower trading results, marginally offset by higher income from its pipeline businesses. 

Financial Update

Occidental continues to generate strong cash flow from operations. In fiscal 2011, the company generated $12.3 billion in cash flow, up from the year-ago level of $9.6 billion.

Capital expenditure for 2011 was $7.52 billion compared with $3.9 billion in 2010. The majority of the expenditure was directed towards the development of its Oil &Gas and Midstream, Marketing and Other segments.

Total long-term debt as of December 31, 2011, was $5.87 billion compared with $5.11 billion as of December 30, 2010. The company’s total debt-to-capitalization ratio at quarter end was 13%, down by a percentage point from the year-end 2010 ratio.

Peer Update

The company’s primary competitor Exxon Mobil Corp. (NYSE:XOM - News) is expected to announce its operating earnings for fiscal 2011 on January 31, 2012. Analysts polled by Zacks expect Exxon Mobil to clock earnings of $2.00 and $8.45 per share for fourth quarter and fiscal 2011, respectively.

Our Take

The results of the company were driven by higher realized prices and sales volume expansion. However, the decrease in the realized gas price in fiscal 2011 remains a cause of concern. Given the present market scenario, we believe Occidental will continue to benefit from rising oil prices given its oil-heavy production and reserve base.

Occidental has been regularly paying dividends to its shareholders for more than three and a half decades now. We appreciate this gesture to increase shareholder worth.

Based in Los Angeles, California, Occidental Petroleum along with its subsidiaries operates as an oil and gas exploration and production company. Occidental has operations in the United States, Middle East/North Africa and Latin America. The company presently retains a short-term Zacks #2 Rank, which translates into a short-term Buy rating.

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