(OXY) Occidental Petroleum Corporation Outpaces Expectation

Occidental Petroleum Corporation’s (OXY) third quarter 2011 operating earnings jumped 47.3% to $2.18 per share from $1.48 per share in the year-ago quarter. Earnings beat our expectation for the quarter by a penny.

GAAP net earnings during the quarter were $2.17 per share versus $1.46 per share reported in the year-ago quarter. The difference of operating and GAAP earnings of 1 cent during the reported quarter was due to the loss from discontinued operations.

Total Revenue

Occidental’s quarterly revenue increased 26.1% to $6 billion from $4.76 billion in the year-ago quarter. The actual results of the company were also higher than the Zacks Consensus Estimate of $5.76 billion.

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.

Production, Sales and Realized Price

Occidental’s average daily production volumes notched 739 thousand barrels of oil equivalents (MBOE) in the third quarter, up 4.6% year over year. The volume expansion was mainly due to strong production from domestic operations, partly offset by lower volumes from Middle East/North Africa and Columbia.

Occidental’s daily oil and gas sales volumes during the quarter were 743 MBOE, up 4.2% from 713 MBOE a year ago. Sales volumes surpassed production volumes during the reported quarter due to the timing of liftings.

Occidental’s overall realized price for crude oil increased 38.6% from the prior-year period to $97.24 per barrel, while realized NGL prices rose 41.21% to $56.06 per barrel. Domestic realized gas prices increased by 3 cents per thousand cubic feet (MCF) from last year to $4.23 MCF in the current quarter.

Segment Earnings

Occidental’s total segment earnings at the end of the third quarter were $2.93 billion, up 39.1% from the third quarter of 2010.

Oil & Gas: Earnings from this segment for the third quarter were $2.61 billion, up 48.7% from $1.76 billion reported in the year-ago quarter. The improvement emanated from higher crude oil prices and higher volumes.

Chemicals: Earnings in the quarter were $245 million versus $189 million in the third quarter of 2010. The year-over-year growth was attributable to higher pricing across most product lines, which more than offset higher feedstock costs.

Midstream, Marketing and Other: Segment earnings during the third quarter were $77 million, down by $86 million from $163 million from the year-ago quarter. The decline was primarily attributable to lower trading results, marginally offset by higher income from its pipeline and power generation businesses.

Cash Flow and Capital Expenditure

Occidental continues to generate strong cash flow from operations. In the first nine months of fiscal 2011, the company generated $8.6 billion in cash flow, up by $0.9 billion from the year-ago period. Capital expenditure was $2.01 billion in the third quarter, compared with $1.02 million in the year-ago quarter.

Total long-term debt at the end of the third quarter was $5.87 billion compared with $5.11 billion at year-end 2010. The company’s total debt-to-capitalization ratio at quarter end was 14%, at par with the year-end 2010 ratio.

Peer Update

The company’s primary competitor Exxon Mobil Corp. (XOM) reported earnings per share during the third quarter of $2.13, way ahead of the year-ago results of $1.44 and beating our expectation of by 2 cents.

Total revenue during the reported quarter was $125.3 billion, ahead of the Zacks Consensus Estimate of $115.7 billion.

Our Take

The company’s strong showing was a function of higher realized prices and sales volume expansion. 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.

The company presently retains a short-term Zacks #3 Rank, which translates into a short-term Hold rating. We have a long-term Neutral recommendation on the stock.

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.

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