Occidental Petroleum Corporation’s (OXY) second quarter 2011 operating earnings jumped 68.9% to $2.23 per share from $1.32 in the year-ago quarter. Earnings also clearly surpassed the Zacks Consensus Estimate of $2.19 per share.
GAAP net earnings during the quarter were $2.23 per share versus $1.31 per share reported in the year-ago quarter.
Total Revenue
Occidental's quarterly revenue increased 34.1% to $6.17 billion from $4.6 billion in the year-ago quarter. The actual results of the company were also higher than the Zacks Consensus Estimate of $5.64 billion.
Total revenue increased on the back of higher contributions from all three of the company’s segments, namely Oil and Gas, Chemical and Midstream, Marketing and Other. The results were nominally hurt by higher eliminations compared with the year-ago quarter.
Production, Sales and Realized Price
Occidental's average daily production volumes notched 715 thousand barrels of oil equivalents (MBOE) in the second quarter, up 2% year over year. The increase in volume was mainly due to strong production from domestic operations, which were partly offset by lower volumes from Middle East/North Africa. Occidental’s daily oil and gas sales volumes remained flat year over year at 705 MBOE.
The higher realized price boosted the revenue of the company despite flattish sales volume year over year. Occidental’s overall realized price for crude oil increased 38.6% from the prior-year period to $103.12 per barrel, while realized NGL prices rose 30.8% to $57.67 per barrel. Domestic realized gas prices increased by 8 cents per thousand cubic feet (MCF) from last year to $4.27 MCF in the current quarter.
Segmental Earnings Results
Occidental's total segmental earnings at the end of the second quarter were $3.06 billion, up 54.1% from the second quarter of 2010.
Oil & Gas: Earnings from this segment for the second quarter were $2.62 billion, up 40.5% from $1.86 billion reported in the year-ago quarter. The improvement emanated from higher crude oil prices, partially offset by increasing operating costs.
Chemicals: Chemicals earnings in the quarter rose handsomely from $108 million in the second quarter of 2010 to $253 million. The year-over-year growth was attributable to strong export sales and higher margins resulting from improved supply-demand balances across most products.
Midstream, Marketing and Other: Segment earnings during the second quarter were $187 million, up $174 million from the year-ago quarter. The quantum of growth was driven by higher margins in marketing and improved earnings in the pipeline businesses.
Cash Flow and Capital Expenditure
Occidental continues to generate strong cash flow from operations, climbing to $3.4 billion from $2.2 billion reported in the sequentially preceding quarter. Capital expenditure for Occidental was $1.6 billion in the second quarter, compared with $792 million a year ago.
Total long-term debt at the end of the second quarter was $4.25 billion compared with $5.11 billion at year-end 2010. The company’s total debt-to-capitalization ratio at quarter end was 11%, an improvement from 14% at year-end 2010.
Our Take
The company continues to benefit from strong realized prices, helping it surpass prior performances. Given the present market scenario, we believe Occidental will continue to benefit from rising oil prices given its oil-heavy production and reserve base.
We appreciate the company's consistent policy of quarterly dividend payouts that increase shareholder value. It appears that the company is well positioned to create a long-term growth profile through its discoveries in the U.S. and the Middle East.
However, we note that attractive earnings and cash flows of the company are already adequately reflected in its premium valuation. Hence, we maintain a Neutral long-term rating on the stock. Occidental Petroleum currently has a Zacks #3 Rank (short-term Hold rating).
The company’s primary competitor Exxon Mobil Corp. (XOM) is expected to release its earnings results on July 28, 2011. The Zacks Consensus Estimate for the second quarter 2011 is $2.34 per share.
Based in Los Angeles, California, Occidental Petroleum along with its subsidiaries operates as an oil and gas exploration and production company. Occidental has operations in the United States, Middle East/North Africa and Latin America.
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