Occidental Petroleum Announces Record Third Quarter Earnings
Occidental Petroleum Corporation (NYSE:OXY) announced net income for the third quarter 2005 of $1.747 billion ($4.32 per share), compared with $758 million ($1.91 per share) for the third quarter 2004. Included in the third quarter 2005 net income are the effects of three significant items -- a $463 million after-tax gain resulting from Valero's acquisition of Premcor, a $335 million tax benefit due to the reversal of tax reserves no longer required and a $98 million after-tax charge from the write-off of certain chemical plants. Core earnings for the third quarter were $1.089 billion ($2.69 per share), compared with $759 million ($1.92 per share) for the same period in 2004.
In announcing the results, Dr. Ray R. Irani, chairman, president and chief executive officer, said, "In the current commodity price environment we continue to strengthen our operational and financial fundamentals, as well as enhance our potential for above-average production growth. In July, Oxy became the first U.S. oil company to resume oil producing operations in Libya, and the government of Oman approved a contract for Oxy to develop the Mukhaizna oil field, one of the largest oil fields in the country. We began operating Mukhaizna on September 1. We also had our first lifting of Libyan crude oil in late September. Earlier this month, we announced the acquisition of Vintage Petroleum, which is the latest in a series of strategic transactions aimed at strengthening the company's prospects for material growth in its core areas in California, the Middle East and Latin America. We also announced a 16-percent increase in the dividend rate and the planned repurchase of 9 million Oxy shares. All of our actions are driven by a disciplined strategy, built around the objective of producing superior total returns for our stockholders by balancing near term profitability with sustainable long-term growth."
Oil and Gas
Oil and gas segment earnings were $1.760 billion for the third quarter 2005, compared with $1.216 billion for the third quarter 2004, an increase of approximately 45 percent. The third quarter 2005 included a $9 million insurance premium increase related to hurricanes in the Gulf of Mexico. After adjusting for the impact of this increase, core earnings were $1.769 billion for the quarter. The improvement in the third quarter 2005 core earnings included $692 million from higher worldwide crude oil and gas prices, partially offset by higher operating, exploration, and other costs and increased DD&A rates.
Chemical segment earnings were $3 million for the third quarter 2005, compared with $141 million for the third quarter 2004. The third quarter 2005 included a $139 million charge for the write-off of two previously idled plants and one currently operated plant, a charge of $20 million for the write-down of a plant and a $5 million charge due to higher insurance premiums directly related to hurricanes in the Gulf of Mexico. After adjusting for the $164 million pre-tax charges, core earnings were $167 million for the third quarter 2005, compared with $141 million for last year's third quarter.
The improvement in the third quarter 2005 core earnings was primarily due to higher margins in chlorine, caustic soda and polyvinyl chloride resulting from higher sales prices, partially offset by higher energy and feedstock costs. Volumes were reduced and feedstock costs increased as a result of the hurricanes.
The $335 million tax benefit recorded in the third quarter 2005 is due to the reversal of tax reserves no longer required as U.S. federal corporate returns for tax years 1998-2000 became closed due to the lapsing of the statute of limitations.
A $726 million pre-tax gain resulting from Valero's acquisition of Premcor and our subsequent sale of 89 percent of the Valero shares received was recorded in the third quarter 2005. Occidental tendered its 9 million shares of Premcor for cash and shares of Valero Energy Corporation stock pursuant to the Premcor-Valero merger agreement.
For the first nine months of 2005, net income was $4.129 billion ($10.26 per share), compared with $1.826 billion ($4.63 per share) for the first nine months of 2004.
Core income was $2.806 billion for 2005, compared with $1.819 billion for 2004. See the attached schedules for a reconciliation of net income to core earnings for the third quarter and nine months.
Worldwide production for the first nine months of 2005 was 561,000 barrels of oil equivalent per day, compared to 569,000 barrels for the first nine months of 2004. Horn Mountain's production for the first nine months of 2005 was 14,500 barrels of oil equivalent, compared to 24,500 barrels of oil equivalent in 2004, primarily as a result of weather in the Gulf of Mexico and scheduled maintenance downtime. Compared to a year ago, production under the company's production-sharing contracts in Oman, Qatar, Yemen and Long Beach was negatively impacted by higher prices. If prices had remained at the nine months 2004 levels, production in the first nine months of 2005 would have been about 13,000 equivalent barrels per day higher. The nine months of 2005 included production of 13,000 equivalent barrels per day from the recent Permian acquisitions and the first lifting from Libya of 3,000 barrels per day.
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