Occidental Petroleum 3Q Net Down 22% on Weaker Prices

Occidental Petroleum Corp.'s (OXY) third-quarter profits sank 22%, ushering in what is expected to be a dire quarter for U.S. oil-and-gas producers' earnings because of sharp drops in prices.

Occidental said its oil and gas segment earned $2 billion during the quarter, down nearly a quarter from the year before, because of lower selling prices and higher operation costs. Los Angeles-based Occidental's report follows ConocoPhillips, which reported Thursday a 31% drop in third-quarter earnings, and Chevron Corp., another California-based energy producer that posted slow performance in an interim earnings statement earlier this month.

Occidental's heavy investment in the U.S.--in California, Texas and the interior of the country--has boosted production in recent periods, and has led to strong results in its chemicals business. However, both those segments posted declining earnings in the second quarter from the first, a trend seen by most energy producers as energy prices fell amid the global economic slowdown.

Average prices were down 0.6% for crude oil, while natural-gas liquids prices dropped 28%. Domestic natural gas prices sank 41%.

Occidental reported overall profit of $1.38 billion, or $1.69 a share, down from $1.77 billion, or $2.17 a share, a year earlier. Revenue fell 0.7% to $5.97 billion. Analysts polled by Thomson Reuters expected earnings of $1.63 a share on revenue of $5.42 billion.

Although Occidental beat analysts' expectations, too much of its earnings came from lower-than-expected tax rates and corporate charges and higher-than-expected earnings in its chemical business.

"Overall, this was a mixed quarter," Simmons & Co. International analyst Bill Herbert said in a note to clients. "Higher-than-expected costs look to be the primary driver of earnings underperformance in the E&P segment."

Average daily oil and natural-gas production grew 3.7% from a year earlier to 766,000 barrels of oil equivalent per day.

Occidental Chief Exeuctive Stephen Chazen said the company would focus on cutting operating costs to improve profitability even as it completes several projects it hopes will boost income. If these efforts did not reverse the year-over-year decline in share price, the company would consider raising its quarterly dividend, currently 54 cents.

"The tool is bringing the costs under control and increasing profitability," Mr. Chazen said during a call with investors. "If the relative stock performance doesn't improve, we'll return more money to the shareholders one way or the other."

Copyright (c) 2012 Dow Jones & Company, Inc.


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