Occidental Profit Falls to 5-Year Low as Oil Plunges

By Joe Carroll

Jan. 29 (Bloomberg) -- Occidental Petroleum Corp., the biggest oil producer in Texas, said fourth-quarter profit fell to a five-year low after slumping fuel demand dragged down petroleum prices.

Net income dropped to $443 million, or 55 cents a share, from $1.45 billion, or $1.74, a year earlier, the Los Angeles- based company said today in a statement. Excluding such one-time items as costs recorded to reflect a drop in the value of some oil fields, per-share profit was 23 cents higher than the average of 17 analyst estimates compiled by Bloomberg.

Chief Executive Officer Ray Irani slashed capital spending for this year by 26 percent to $3.5 billion in response to tumbling crude prices and the collapse of global credit markets. Irani, 74, is focusing investment on fields in West Texas, the Persian Gulf, Libya and South America where production costs are below average.

“They posted a really, really strong number despite taking some writedowns, which means their operating costs must have been stellar,” said Cory Garcia, an analyst at Raymond James & Associates in Houston who rates Occidental shares a “strong buy” and doesn’t own any.

Occidental fell 24 cents to $59.14 at 9:35 a.m. in New York Stock Exchange composite trading. The stock dropped 22 percent last year, its biggest decline in a decade, as recessions in the U.S. and Europe sapped demand for gasoline, diesel and jet fuel.

Production Rises

Fourth-quarter oil and natural-gas output rose 6 percent to the equivalent of 623,000 barrels of crude a day, led by gains in the U.S., Argentina, Colombia, Oman and Abu Dhabi, Occidental said. U.S. fields account for 60 percent of the company’s production.

Sales tumbled 27 percent to $4.02 billion. Occidental said it was paid an average of $53.52 per barrel of oil, down 33 percent from a year earlier, and its average U.S. gas price dropped 31 percent to $4.67 per thousand cubic feet.

“Pricing was worse than we thought it would be,” Garcia said. “Their oil realization was $10 less than we were anticipating.”

Occidental recorded $599 million in pretax costs after declines in oil and gas prices reduced asset values. The company had a $58 million expense stemming from termination of rig contracts, and its chemicals business had $90 million in costs related to a plant closing and asset writedowns.

Project Won

Occidental shares trade at about $15 per barrel of proved reserves, a 27 percent discount to the average of the company’s peer group, according to data compiled by Bloomberg.

Occidental beat Exxon Mobil Corp., a company 17 times its size by sales, this month to win a contract to expand oil production in Bahrain. In October, Occidental signed a $500 million deal to develop fields in Abu Dhabi that will boost the company’s global output by more than 3 percent.

“They’re signing agreements that typically a company of that size wouldn’t be involved in,” said Philip Weiss, an analyst at Argus Research Corp. in New York who has a “hold” rating on Occidental shares and doesn’t own any. “Irani’s cultivated very good relations in those countries, and that’s part of the reason they’ve been able to compete with much larger oil companies for those contracts.”

(Occidental is scheduled to hold an earnings conference call for investors and analysts at 11:30 a.m. New York time. To listen, access a broadcast at http://www.oxy.com.)

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