Occidental Petroleum Q2 2010 Earnings Call Transcript

Occidental Petroleum Q2 2010 Earnings Call Transcript
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Occidental Petroleum (OXY)

Q2 2010 Earnings Call

July 27, 2010 11:30 am ET

Executives

Christopher Stavros - Vice President of Investor Relations

Edward Lowe - Vice President and President of Oxy Oil and Gas -International Production

Stephen Chazen - President, Chief Financial Officer and Director

Analysts

David Neuhauser - Livermore Partners

Arjun Murti - Goldman Sachs Group Inc.

Robert Kessler - Simmons & Company

Douglas Leggate - BofA Merrill Lynch

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

Paul Sankey - Deutsche Bank AG

Presentation

Operator

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Good morning. My name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Occidental Petroleum Second Quarter 2010 Earnings Release Conference Call. [Operator Instructions] Mr. Stavros, you may begin your conference.

Christopher Stavros

Thanks, Christie, and good morning, everyone. Welcome to Occidental Petroleum's Second Quarter 2010 Earnings Conference Call. Joining us on the call this morning from Los Angeles are Dr. Ray Irani, Oxy's Chairman and CEO; Steve Chazen, our President and CFO; Bill Albrecht, President of Occidental's U.S. Oil and Gas Operations; and Sandy Lowe, President of our International Oil and Gas business.

Our second quarter earnings press release, Investor Relations supplemental schedule and the conference call presentation slides, which refer to Steve's Chazen's commentary can be downloaded off of our website at www.oxy.com. I'm now going to turn the call over to Steve who will review our second quarter and first half 2010 financial and operating results. Steve, please go ahead.

Stephen Chazen

Thank you, Chris. Net income was $1.1 billion or $1.31 per diluted share in the second quarter of 2010, compared to $682 million or $0.84 per diluted share in the second quarter of last year. Here's the segment breakdown for the second quarter.

Oil and Gas second quarter 2010 segment earnings were $1.9 billion, compared to $1.1 billion for the second quarter of 2009. The improvement in 2010 was driven mostly by higher commodity prices, with additional contributions from higher volumes. Realized crude oil prices increased 36% in 2010, and domestic natural gas prices improved 46% in the second quarter of 2009. Partially offsetting these gains were higher DD&A rates and higher operating expenses, partly resulting from fully expensing CO2 costs in 2010.

Worldwide Oil and Gas production for the second quarter of 2010 was 743,000 barrels of oil equivalent per day, an increase of 3.5% compared to 717,000 BOE a day in the second quarter of last year. Second quarter of 2010 production was lower than our guidance due primarily to shortfalls in California and adjustments resulting from the mechanics of production sharing contracts in the Middle East. Our production in California continues to be affected by the gas plants' and related infrastructure's inability to process oil and gas that could be produced. Also, this affects the liquids that are associated with this production.

Year-over-year production was negatively impacted by 29,000 BOE a day in the Middle East/North Africa, Long Beach and Colombia, as a result of higher oil prices affecting our production sharing and similar contracts. Second quarter 2010 production includes volumes in Bahrain of 3,000 barrels of oil and 161 million cubic feet of gas, and 16,000 BOE a day higher volumes in the Mukhaizna field of Oman. Our domestic operations added 11,000 BOE. Volume gains in the Kern County discovery area were moderated by production declines in Elk Hills, which was caused by gas gathering and processing issues.

Exploration expense was $73 million in the quarter.

Oil and Gas cash production costs, excluding production and property taxes, were $9.90 a barrel for the first six months of 2010. The second quarter 2010 per barrel production costs were slightly lower than this figure. Last year's 12-month costs were $9.37 per barrel. The increase reflects $0.30 a barrel higher CO2 costs due to our decision to expense 100% of injected CO2 beginning in 2010 and somewhat higher field support operations and maintenance costs.

Taxes, other than on income, were $1.80 a barrel for the first six months of 2010, compared to $1.60 per barrel for all of 2009. These costs, which are sensitive to product prices, reflect the effect of the higher crude and gas prices this year.

Chemical segment earnings for the second quarter of 2010 were $108 million. Second quarter results reflect improvement from the first quarter in 2010 in margins and volumes across most product lines.

Midstream segment earnings for the second quarter of 2010 were $13 million, compared to $63 million last year. The decrease in earnings was mainly due to a pre-tax $104 million, $0.07 per share after taxes, loss at Phibro, the bulk of which resulted from marking its quarter end open positions to market.

This was partially offset by higher margins in the marketing, gas processing and pipeline business. The worldwide effective tax rate was 43% for the second quarter of 2010.

Now let us turn briefly to our first six months results. The net income was $2.1 billion or $2.61 per diluted share for the first six months of 2010, compared to $1.1 billion or $1.29 per diluted share for the first six months of 2009. Capital spending for the second quarter of 2010 was about $865 million and $1.7 billion for the first six months.

Year-to-date capital expenditures by segment were 81% in Oil and Gas, 13% Midstream and the rest in Chemicals. Our total year capital expenditures is estimated to be about $4.5 billion. The capital spending rate will increase in the second half of the year largely from Iraq, Bahrain and California.

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