Occidental Profit Rises 72% as Oil Climbs to Record

By Joe Carroll

Oct. 28 (Bloomberg) -- Occidental Petroleum Corp., the fourth-largest U.S. energy company, said third-quarter profit jumped 72 percent as oil prices topped $147 a barrel for the first time and production increased.

Net income rose to $2.27 billion, or $2.78 a share, from $1.32 billion, or $1.58, a year earlier, the Los Angeles-based company said today in a statement. The per-share profit beat by 7 cents the average of 15 analyst estimates compiled by Bloomberg.

Occidental agreed to spend $3.2 billion so far this year acquiring oil and natural-gas assets from New Mexico to Alberta, and forged exploration deals in Libya and Abu Dhabi. The company is dipping into a $1.51 billion cash reserve to fund expansion as the global credit crisis and slowing demand for petroleum-based fuel make it harder for smaller rivals to finance projects.


``It's a cash-generating machine,'' said Pavel Molchanov, an analyst at Raymond James & Associates Inc. in Houston, who rates Occidental shares a ``buy'' and owns none. ``Their free cash flow is pretty colossal.''

Occidental rose $2.99, or 7.1 percent, to $45.07 at 9:52 a.m. in New York Stock Exchange composite trading, rebounding from a 7.9 percent drop yesterday. The stock, which has 11 buy recommendations from analysts and 6 holds, tumbled 22 percent in the third quarter.

Production, Prices

Production of oil and natural gas climbed 3.2 percent to the equivalent of 588,000 barrels of crude a day, led by increases in Qatar, Oman and the U.S. Rocky Mountains, Occidental said. The company received an average of $104.15 a barrel for its oil, 54 percent more than a year earlier.

Tina Vital, an equity analyst who follows the oil industry for Standard & Poor's in New York, said she expects Chief Executive Officer Ray Irani, 73, to meet his goal of increasing 2008 production of oil and gas by 6 percent to the equivalent of 604,000 barrels of oil a day.

With a capital budget of $4.7 billion, Irani expanded oil and gas exploration in Colombia and Argentina and increased the company's holdings in Texas, Colorado and New Mexico.

Sales rose 46 percent to $7.06 billion. Production is expected to rise by 7.6 percent next year and 8.5 percent in 2010, Chief Financial Officer Stephen Chazen said during a July conference call with investors.

Profit Margin

Occidental's 32 percent profit margin in the first half of this year was more than three times that of its largest rival, Irving, Texas-based Exxon Mobil Corp. At the end of 2007, Occidental's reserves were large enough to sustain production for almost 14 years.

The company agreed earlier this month to spend $500 million to develop two oil fields in Abu Dhabi that might boost the company's worldwide output by 3.4 percent.

Under an agreement with Abu Dhabi National Oil Co., Occidental will operate and own 100 percent of a concession in the Jarn Yaphour and Ramhan oil and natural-gas fields.

Jarn Yaphour, an onshore discovery located near the United Arab Emirates' capital city, will be developed first, with production scheduled to begin next year. The field is expected to pump the equivalent of 10,000 barrels of oil a day, Occidental said in an Oct. 8 statement.

The offshore Ramhan field will undergo appraisal work before Occidental decides whether it's commercially viable. If the company proceeds with the project, Ramhan also will begin pumping the equivalent of 10,000 barrels of crude a day in 2011.

Oil Futures

Oil futures traded in New York jumped 57 percent in the third quarter from a year earlier to an average of $118.22 a barrel. Prices have plunged 56 percent since reaching a record $147.27 on July 11, wiping out 16 months of gains and prompting companies such as Suncor Energy Inc. and Petro-Canada to postpone some projects.

Eighty percent of Occidental's production is crude oil, making it more weighted to oil than any of its larger U.S. rivals.

Occidental spent $860 million on stock buybacks in the first half of this year, a 56 percent increase from 2007. During the same period, free cash flow, or cash available after capital spending, more than doubled to $3.05 billion.

``The oil companies in the best position are those with strong balance sheets who don't have to borrow to drill,'' Standard & Poor's Vital said.

Exxon Mobil is the largest U.S. oil company by market value, followed by San Ramon, California-based Chevron Corp. and ConocoPhillips of Houston.

(Occidental will hold a conference call for analysts and investors, starting at 11:30 a.m. New York time. To listen, dial +1-800-473-6123 or go to the Web site at http://www.oxy.com).

To contact the reporter on this story: Joe Carroll in Houston at jcarroll8@bloomberg.net.