Attached files
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| EX-99.3 - EXHIBIT 99.3 - OCCIDENTAL PETROLEUM CORP /DE/ | ex99_3-20100128.htm |
| EX-99.4 - EXHIBIT 99.4 - OCCIDENTAL PETROLEUM CORP /DE/ | ex99_4-20100128.htm |
| EX-99.1 - EXHIBIT 99.1 - OCCIDENTAL PETROLEUM CORP /DE/ | ex99_1-20100128.htm |
| EX-99.5 - EXHIBIT 99.5 - OCCIDENTAL PETROLEUM CORP /DE/ | ex99_5-20100128.htm |
| 8-K - FORM 8-K - OCCIDENTAL PETROLEUM CORP /DE/ | form8k-20100128.htm |
EXHIBIT
99.2
Occidental
Petroleum Corporation
DR.
RAY R. IRANI
Chairman
and Chief Executive Officer
-Conference
Call-
Fourth
Quarter 2009 Earnings Announcement
January
28, 2010
Los
Angeles, California
Thank
you, Chris. Good morning, ladies and gentlemen.
2009 was
an interesting year that tested strategic and execution capabilities across the
U.S. oil and gas industry. We believe that Oxy passed last year’s test with an
A+. We achieved solid financial results in a challenging
environment.
In a few
minutes, Steve Chazen will provide details on our financial results for the
fourth quarter and full year of 2009. But first, I want to mention some
highlights and key developments of the past year that we believe are integral to
Oxy’s continued success in 2010 and beyond.
Notably,
in 2009 we were able to grow our worldwide production 7-percent year-over-year
while not increasing our net debt to capitalization ratio. This brought us to
the highest annual production volume in our history – 645,000 BOE per day. We
expect a similar increase in oil and gas production both this year and next
while continuing to focus on operational efficiency.
Also
noteworthy, during the next two weeks we will be announcing the official results
of our 2009 production replacement. The results look very favorable. We expect
to announce that the 2009 reserve replacement ratio is about 200
percent.
In 2009
we maintained our “A” debt rating across all ratings agencies. And we continued
to build our pipeline of exciting opportunities, which gives
us
confidence that our production increases from continuing operations of about 5
to 8 percent annually over the last five years will again be an achievable
target for the next five years.
These
results are attributable to consistent execution of our long-term financial
strategy, as well as a successful companywide initiative to reduce
costs.
We
aggressively managed our oil and gas production costs in 2009’s volatile
commodity price environment, reducing our oil and gas production costs per BOE
by 15 percent, excluding production and property taxes. We ended the year with
cash on hand of $1.2 billion, very little debt and one of the strongest balance
sheets in the industry.
During
the past 12 months, we capitalized on some key opportunities to strengthen our
position and achieve further growth.
In the
United States, we announced a significant discovery of oil and gas reserves in
Kern County, California, with initial estimated reserves of 150 to 250 million
gross barrels of oil equivalent. Steve will give you an update on its continued
production growth in his upcoming comments.
We also
made numerous acquisitions of properties adjacent to our key operations in Texas
and California, and expanded other areas of our core business.
In our
chemical segment, we acquired Dow Chemical Company’s calcium chloride
operations. Calcium chloride is a premium salt with a variety of beneficial
applications, including ice control on roads and sidewalks. Our product line has
an approximately 65 percent share of the North American calcium chloride
market.
There were also significant, positive
developments in the Middle East.
In
Bahrain, we are partnering with Mubadala of Abu Dhabi on a project to redevelop
the Bahrain Field. Field operations began on December 1st.
We
2
expect to
increase oil production from the Bahrain Field to about three times its current
level of production, to reach 100,000 barrels of oil equivalent per day within
seven years, and increase gas production by more than 65 percent to
approximately 2.5 billion cubic feet per day.
It was
announced in the fourth quarter that Oxy, partnering with a consortium led by
Eni, was awarded a license for development of the Zubair Field in Iraq. Last
Friday we announced the signing of the contract with the government of Iraq. We
expect Zubair to reach production of approximately 1.2 million barrels of oil
per day within the next six years.
Solid
production growth continued at the giant Mukhaizna oilfield in south-central
Oman, where we have a major steam flood project for enhanced oil recovery. As of
year-end 2009, gross daily production was over 10 times higher than the
production rate in September 2005, when Oxy assumed operation of the
field.
Looking
ahead to our 2010 capital expenditures, we plan to increase CAPEX approximately
19 percent from the $3.6 billion spent in 2009 to about $4.3 billion, for
projects that will stimulate our continued growth while maintaining our targeted
financial returns.
Our 2009
results confirm that Oxy is well positioned to succeed in the volatile business
climate that has presented significant challenges to our industry and to the
global economy. We plan to maintain a low-risk, low-leverage profile and a
consistent focus on building stockholder value.
With our
concentration on core areas, growth in production and reserves, efficient
operations and strong balance sheet, we are confident in our ability to continue
achieving sustained growth and delivering solid profitability.
I’ll now
turn the call over to Steve Chazen.
###
3
Occidental
Petroleum Corporation
STEPHEN
CHAZEN
President
and Chief Financial Officer
–
Conference Call –
Fourth
Quarter 2009 Earnings Announcement
January
28, 2010
Los
Angeles, California
Thank you
Ray.
Net
income was $938 million in the fourth quarter of 2009, compared to $443 million
in the fourth quarter of 2008. The 2009 fourth quarter net income
included after-tax non-core charges, mostly consisting of a $115 million
impairment of certain Argentine producing properties. The 2008 fourth
quarter included after-tax non-core charges of $514 million for impairments, rig
termination costs and plant closures. Core results were $1.1 billion
in the fourth quarter of 2009, compared to $957 million in the fourth quarter of
2008.
Here’s
the segment breakdown for the fourth quarter.
Oil and
gas fourth quarter 2009 segment earnings were $1.6 billion, compared to $339
million for the fourth quarter of 2008. Oil and gas core results for
the fourth quarter of 2009 were $1.8 billion compared to $1 billion for the
fourth quarter of 2008, after excluding asset impairments in both periods and
rig termination costs in 2008.
|
●
|
The
increase in the 2009 fourth quarter earnings was due to higher crude oil
prices and sales volumes and lower operating
expenses.
|
4
|
|
Occidental’s
average realized crude oil price in the 2009 fourth quarter was $69.39 per
barrel, an increase of 30 percent from the $53.52 per barrel in the
comparable period of 2008. Oxy’s domestic average realized gas
price for the quarter was $4.37 per mcf, compared with $4.67 per mcf for
the fourth quarter of 2008.
|
||
|
●
|
Worldwide
oil and gas sales volumes for the fourth quarter of 2009 were 650,000
barrels of oil equivalent per day, an increase of nearly 5 percent,
compared with 620,000 BOE per day in the fourth quarter of last
year. Daily production volume increased 23,000 BOE from Oman
and Bahrain, 6,000 BOE from Argentina and 13,000 BOE from California
operations, excluding Long Beach. Partially offsetting these
increases were lower Middle East volumes of 7,000 BOE per day caused by
higher oil prices affecting our production sharing
contracts.
|
||
|
●
|
Fourth
quarter of 2009 worldwide oil and gas sales volumes increased 3 1/2
percent or 22,000 BOE per day from the third quarter 2009 sales volumes of
628,000 BOE per day.
|
||
|
○
|
We
began Bahrain production and development activities on December 1,
2009.
|
||
|
○
|
Argentina
volumes increased by 8,000 BOE per day. The third quarter
included a 9,000 BOE per day loss due to the Santa Cruz
strike.
|
||
|
○
|
California
volumes, excluding Long Beach, increased by 3,000 BOE per
day.
|
||
|
○
|
Oman
volumes increased by 4,000 BOE per day from the Mukhaizna
field.
|
||
|
●
|
Exploration
expense was $99 million in the
quarter.
|
||
5
Chemical
segment earnings for the fourth quarter of 2009 were $33 million, compared to
$127 million in last year's fourth quarter. After excluding plant
closure and impairments, the fourth quarter 2008 core results were $217
million. The fourth quarter 2009 results reflect the continued
weakness in most domestic markets, but in particular U.S. housing, durable goods
and agricultural sectors.
Midstream
segment earnings for the fourth quarter of 2009 were $81 million, compared to
$170 million in the fourth quarter of 2008. The decrease in earnings
was due to lower margins in the marketing business in 2009 compared to 2008,
partially offset by improved NGL margins resulting from lower maintenance
expenses, energy costs and property taxes in the gas processing business and
higher income from the Dolphin Pipeline.
The
worldwide effective tax rate was 41 percent for the fourth quarter of 2009, in
line with our guidance.
Let me
now turn to Occidental's performance during the twelve months.
Net
income was $2.9 billion for the twelve months of 2009, compared with $6.9
billion for the same period of 2008. Core results for the twelve
months of 2009 were $3.1 billion, compared with $7.3 billion for the full year
of 2008. Income for the twelve months of 2009 included $168 million
of charges, net of tax and 2008 included $491 million of charges, net of tax,
for the items noted on the schedule reconciling net income to core
results.
Oil and
gas cash production costs, excluding production and property taxes, were $10.37
a barrel for the twelve months of 2009, a 15 percent decline from last year's
twelve-month costs of $12.13 a barrel.
Taxes –
other than on income were $1.77 per barrel for the twelve months of 2009
compared to $2.62 per barrel for all of 2008. These costs, which are
sensitive to product prices, reflect lower crude oil and gas prices in
2009.
6
Capital spending for 2009 was
$3.6 billion. Capital expenditures by segment were 79 percent in Oil
and Gas, 6 percent in Chemical and 15 percent in Midstream. The Oil
and Gas expenditures were 56 percent in foreign operations and 44 percent
domestically.
Cash flow from operations for
the twelve months of 2009 was $5.8 billion. We used $3.6 billion of
the company’s cash flow to fund capital expenditures and $1.8 billion on
acquisitions and foreign bonuses. These items amounted to $5.4
billion of cash use. We also used $1.1 billion to pay
dividends. These and other net cash flows decreased our $1.8 billion
cash balance at the end of last year by $600 million to $1.2 billion at December
31. Fourth quarter free cash flow after capital spending, dividends
and taxes but before acquisition activity was about $850 million.
The
weighted average basic shares outstanding for the twelve months were 811.3
million and the weighted average diluted shares outstanding were 813.8
million.
Our debt
to capitalization ratio was 9 percent. Oxy's 2009 return on equity
was 10.3 percent, with return on capital employed of 9.6 percent.
Now we'll
discuss some factors affecting our 2010 program.
Beginning
in 2010, we are making three reporting changes which will impact comparability
between years.
|
●
|
Historically,
our production volumes have been reported as a mix of pre-tax and after
tax volumes while our revenues have reflected only pre-tax
sales. This difference is caused by our production sharing
contracts in the Middle East and North Africa where production is
immediately taken and sold to pay the local income tax. We have
treated this as additional revenues but not additional
production. To simplify our reporting and to conform with
industry practice, our production and our revenues will now be
tied. Beginning this year we will refer to production on this
more
|
7
|
|
accurate
and consistent basis. To assist you in making comparisons, an
historical chart is presented in the Investor Relations Supplemental
Schedules that shows what the previous 5-year and the 2009 quarterly
volumes would have been on this basis. All references to growth
and volume comparisons will be against these reformatted production
volumes. For example the production from last year will be
referred to as 714,000 BOE per day rather than 645,000 BOE per day for the
year. This change will have no effect on the company's
financial statements.
|
|
|
●
|
We
have combined most of our gas production in the mid-continental regions of
the United States into a single business unit called Midcontinent Gas, in
order to take advantage of common development methods and production
optimization opportunities. This business unit will include the
Hugoton field, the Piceance basin as well as the bulk of the Permian basin
non-associated gas assets, which had been reported as part of the Permian
business unit through the end of 2009. Starting in 2010, these
assets will be reported in Midcontinent Gas. As a result,
Midcontinent Gas unit's production will be approximately 75 percent gas
and 25 percent liquids. Permian's production will go from 84
percent liquids and 16 percent gas, to 89 percent liquids and 11 percent,
mostly associated, gas. Included in the Investor Relations
Supplemental Schedules are charts showing what the previous 5-years and
the 2009 quarterly sales volumes would have been for these business units
if those Permian gas properties had been reported as part of Midcontinent
Gas.
|
|
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●
|
Capitalized
CO2 –
Occidental's policy regarding tertiary recovery is to capitalize costs,
such as CO2,
when they support development of proved reserves and generally
expense these costs when they support current production. In
2009, we capitalized approximately 50 percent of the CO2
injected in the Permian basin. Over the years, as the
CO2
program
|
8
|
matures,
a larger portion of the injected gas supports current
production. Beginning in 2010, we will be expensing 100 percent
of the CO2
injected, in order to simplify the process of determining the
portion that should be capitalized versus expensed. In 2009,
$69 million of CO2
costs were capitalized.
|
As we
look ahead in the current
quarter:
|
●
|
We
expect oil and gas sales volumes to increase from the reformatted fourth
quarter 2009 amount of 722,000 BOE/day to about 730,000 to 740,000 BOE/day
at about current oil prices. Increases will come from
California, Bahrain and Oman.
|
With
regard to prices
-
|
●
|
At
current market prices, a $1.00 per barrel change in oil prices impacts oil
and gas quarterly earnings before income taxes by about $36
million. The average fourth quarter WTI oil price was $76.19
per barrel.
|
|
|
●
|
A
swing of 50-cents per million BTUs in domestic gas prices has a $24
million impact on quarterly earnings before income taxes. The
current NYMEX gas price is around $5.60 per
MCF.
|
Additionally
-
|
●
|
We
expect exploration expense to be about $75 million for seismic and
drilling for our exploration programs.
|
|
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●
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For
the chemical segment, the international markets remain
solid. In the United States, we have a competitive advantage
against foreign products; however, the housing and construction markets
remain weak, which will limit improvement in sales volumes and
margins. Chemical earnings for the first quarter are expected
to be in the range of $30 million to $50
million.
|
9
|
●
|
We
expect our combined worldwide tax rate in the first quarter of 2010 to be
in the range of 42 to 43 percent depending on the split between domestic
and foreign sourced income. Our fourth quarter U.S. and foreign
tax rates are included in the “Investor Relations Supplemental
Schedule.”
|
For all of 2010:
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●
|
We
expect capital spending for the total year to be about $4.3
billion. Our capital program will continue to focus on ensuring
that our returns remain well above our cost of capital. The
additional capital from 2009's $3.6 billion level will be allocated to the
Oil and Gas segment. Of this increase, about a quarter each will go to
California and Iraq, about 15 percent to Bahrain and 10 percent to
Midcontinent Gas. As a result, the capital allocation will be
approximately 82 percent in Oil and Gas with the remainder being spent in
Midstream and Chemical.
|
|
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●
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Our
Oil and Gas DD&A expense for 2010 should be approximately $10.75 per
BOE. Depreciation for the other two segments should be
approximately $450 million.
|
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●
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California Exploration –
Excluding the Kern County discovery, over the course of a couple of years,
we have drilled 39 exploration wells seeking non-traditional hydrocarbon
bearing zones in California. Of these wells, 12 are commercial
and 10 are currently being evaluated. Occidental holds
approximately 1.3 million acres of net fee minerals and leasehold in
California, which have been acquired in the last few years to exploit
these opportunities.
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●
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At
the Kern County discovery we are producing approximately 145 million cubic
feet of gas and 7,500 barrels of liquids per day from 15
wells. This is 5,700 BOE per day higher production than the
26,000
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10
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BOE
we disclosed last quarter. Cumulative gross production since
the start of production through the end of December 2009 has been 19.4
billion cubic feet of gas and 1.5 million barrels of
liquids. We expect to drill 8 wells in the first half of the
year focusing on oil drilling and exploring the limits of the
field. We also expect to add skid mounted gas processing
facilities by the second quarter. We expect to add to our gas
production once these facilities are installed.
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●
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Copies
of the press release announcing our fourth quarter earnings and the
Investor Relations Supplemental Schedules are available on our website at
www.oxy.com or through the SEC’s
EDGAR system.
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Now we’re
ready to take your questions.
11
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Occidental
Petroleum Corporation
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Free
Cash Flow
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||||
|
Reconciliation
to Generally Accepted Accounting
Principles (GAAP)
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||||
|
($
Millions)
|
||||
|
Qtr
4
|
2009
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|||
|
Consolidated
Statement of Cash Flows
|
||||
|
Cash
flow from operating activities
|
1,970
|
5,813
|
||
|
Cash
flow from investing activities
|
(2,079
|
)
|
(5,327
|
)
|
|
Cash
flow from financing activities
|
(269
|
)
|
(1,033
|
)
|
|
Change
in cash
|
(378
|
)
|
(547
|
)
|
|
Free
Cash Flow
|
||||
|
Cash
flow from operating activities
|
1,970
|
|||
|
Capital
spending
|
(932
|
)
|
||
|
Cash
dividends paid
|
(269
|
)
|
||
|
Equity
method investment dividends
|
81
|
|||
|
Free
cash flow
|
850
|
|||