Occidental Petroleum (OXY) Misses Marginally

Occidental Petroleum Corporation (OXY) announced second-quarter 2010 operating earnings of $1.31 per share versus 84 cents in the year-ago quarter, reflecting growth of 56%. The results of the company fell short of the Zacks Consensus Estimate of $1.34 per share by 3 cents.

Total Revenue

Occidental’s total operating revenue for second-quarter 2010 was $4.8 billion versus $3.7 billion reported in the year-ago period. The actual results of the company were in line with the Zacks Consensus Estimate of $4.8 billion.

The year-over-year increase in total revenue was due to higher revenue contribution from the Oil and Gas and Chemical segments. The results were marginally pinned down by lower contribution from Midstream, Marketing and Other and higher eliminations compared to the year-ago period.

Production, Sales and Realized Price

Occidental’s average daily production volumes were 743,000 barrels of oil equivalents (BOE) in the second quarter of 2010 versus 717,000 BOE in the year-ago period, reflecting an increase of 3.6%. Volumes increased in the Middle East/North Africa and California, but were partially offset by decreases in Colombia.

Occidental’s daily oil and gas sales volumes in the second quarter of 2010 averaged 747,000 BOE compared with 719,000 BOE in the second quarter of 2009.

The realized price for worldwide crude oil was $72.13 per barrel for the second quarter of 2010, compared with $52.97 in the year-ago period. Domestic realized gas prices increased $1.32 per MCF to $4.19 MCF in the second quarter 2010 from $2.87 per MCF in the second quarter 2009.

Segmental Earnings Results

Occidental’s total segmental earnings at the end of the second quarter were $1.97 billion versus $1.26 billion in the year-ago period.

Oil & Gas: Earnings from this segment during the second-quarter 2010 were $1.85 billion versus $1.08 billion in second-quarter 2009, reflecting growth of 71.1%. The improvement in results was due to higher crude oil and natural gas prices and higher volumes.

Chemicals: Earnings from this segment during the second-quarter 2010 were $108 million versus $115 million in second-quarter 2009, reflecting a decline of 6.0%. The second quarter of 2010 results continue to reflect the impact of the significant caustic soda price erosion and higher raw material prices experienced in the year-ago period, offset by improved volumes across most product lines.

Midstream, Marketing and Other: Earnings from this segment during the second-quarter 2010 were $107 million versus $77 million in second-quarter 2009, reflecting a growth of 39.0%. The year-over-year improvement in results reflect higher margins in the gas processing business and increased earnings in the pipeline and power generation businesses, partially offset by lower marketing and trading income.

Cash Flow and Capital Expenditure

Occidental continues to generate strong cash flow from operations. Cash flow at the end of the second quarter 2010 was $2.1 billion and cash generated from operations in the first six month of 2010 was $4.3 billion. Free cash flow at the end of second quarter 2010 was $0.9 billion and free cash flow at the end of the first six months was $2.0 billion.

Capital expenditure of Occidental increased $37 million to $868 million at the end of second quarter 2010 from $831 million in the year-ago period.

Our View

Even though Occidental was below the consensus estimate for the second consecutive quarter in the year, it is encouraging to see that the company is improving its performance on a year-over-year basis.

We believe that expectations of attractive earnings and cash flows are already adequately reflected in Occidental’s premium valuation, hence we maintain a short-term Zacks #4 Rank (Sell) and a longer-term Neutral recommendation on the stock.

Based in Los Angeles, 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.

OCCIDENTAL PET (OXY): Free Stock Analysis Report

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