Occidental Petroleum (OXY)

Q1 2011 Earnings Call

April 28, 2011 11:30 am ET

Executives

Christopher Stavros - Vice President of Investor Relations

Stephen Chazen - President, Chief Operating Officer and Director

Unknown Executive -

Analysts

David Heikkinen - Tudor, Pickering, Holt & Co. Securities, Inc.

John Herrlin - Societe Generale Cross Asset Research

Faisel Khan - Citigroup Inc

Douglas Leggate - BofA Merrill Lynch

Joseph Stewart - KeyBanc Capital Markets Inc.

Paul Sankey - Deutsche Bank AG

Presentation

Operator

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Good morning. My name is Christy, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Occidental Petroleum 2011 First Quarter Earnings Release Call. [Operator Instructions] Mr. Stavros, you may begin your conference.

Christopher Stavros

Thanks, Christy. Good morning, everyone, and welcome to Occidental Petroleum's First Quarter 2011 Earnings Conference Call. Joining us on the call this morning from Los Angeles are Dr. Ray Irani, Oxy's Chairman and Chief Executive Officer; Steve Chazen, our President and Chief Operating Officer; Bill Albrecht, President of Oxy's U.S. Oil and Gas operations; and Sandy Lowe, President of our International Oil and Gas business.

Our first quarter earnings press release, Investor Relations supplemental schedules and conference call presentation slides can be downloaded off of our website at www.oxy.com.

I'll now turn the call over to Steve Chazen, who will review the first quarter financial and operating results. Steve, Please go ahead.

Stephen Chazen

Well, thank, you, Chris. I hope you can hear me better than I can hear you. Thank you, Chris. Core income was $1.6 billion or $1.96 per diluted share in the first quarter of this year compared to $1.1 billion or $1.35 per diluted share in the first quarter of last year. Non-core items amounted to a net after-tax charge of $44 million. Non-core items included pretax gains of $225 million from the sale of the Argentina operations and a $22 million gain from the sale of our interest in the Columbia pipeline. Non-core pretax charges included $163 million related to the early redemption of $1.4 billion face value of debt, $35 million write-off, the entire accumulated estimated cost of exploration properties in Libya and nonrecurring out-of-period charges for state and foreign taxes, $62 million.

This resulted in net income of $1.5 billion or $1.90 per diluted share in the first quarter of 2011 compared to $1.1 billion or $1.31 per diluted share in the first quarter of last year.

We reorganized our Permian operation to 2 business units this quarter. One unit will hold the CO2 flood assets and the other will operate the conventional production. In connection with these, we've moved the production from Southwest Texas, which was previously part of the Midcontinent and other, into the Permian. The Midcontinent and other includes production from the recently acquired South Texas and North Dakota properties.

Natural gas liquids account for about 10% of our Oil and Gas volumes and sell at a discount to crude oil. Starting this quarter, reporting NGL and crude oil production and sales volume separately as opposed to the previously disclosed combined liquids volumes. Please see the Investor Relations supplemental schedules for the 2010 quarterly realized prices and production sales volumes reflecting these changes.

Here's the segment breakdown for the first quarter. Oil and Gas segment and core earnings for the first quarter of 2011 were $2.5 billion compared to $1.9 billion from the first quarter of 2010. Realized prices increased 24% for crude oil in 2011 and 11% for NGL prices on a year-over-year basis, but domestic natural gas prices declined 25% from the first quarter of last year. Sales volumes to first quarter of 2011 were 728,000 BOE a day, a 6% increase compared to 685,000 BOE a day for the first quarter of 2010.

The production guidance we gave you in last quarter's conference call was 740,000 to 750,000 BOE a day, was an $85 average price assumption. The actual first quarter oil price reduced our production volumes by about 10,000 BOE per day, including 1,000 BOE a day at THUMS in Long Beach in California.

As we previously disclosed, our Iraq production was lower by about 9,000 BOE a day to the less than planned spending levels as we are in the startup phases of operations. Inclement weather, mainly in Texas, caused an additional reduction of about 7,000 BOE a day.

These reductions were offset by less-than-expected production loss from the Elk Hills maintenance shutdown and operational enhancements, providing higher-than-expected production in Colombia, Yemen and Qatar as well as the new assets resulting in production of 730,000 a day. Please see the production and sales volume reconciliations schedules in the Investor Relations supplemental schedules.

First quarter production 730,000 a day was higher than the fourth quarter 2010 production of 714,000 a day. First quarter volumes compared to the prior fourth quarter included 25,000 barrels a day from the new domestic acquisitions in South Texas and North Dakota.

Sales of 728,000 a day, which is higher than our initial guidance of 725,000 a day, differ from production volume to the timings of liftings principally caused by Iraq, where liftings are expected in later half of 2011.

First quarter 2011 realized prices improved for all our products over the fourth quarter of 2010. Worldwide crude oil realized prices $92.14 a barrel, increase of 15%. Worldwide; NGLs were $52.64 a barrel, improvement 7%; and domestic natural gas prices were $4.21 per MCF, increase of 2%. Oil and Gas production costs were $11.30 a barrel for the first quarter of 2011 compared to last year's 12-month cost of $10.19 a barrel. The increase reflects increased workovers and maintenance activity and higher cost for energy.

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