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Occidental Petroleum profit plunges, but production expands

Net income drops 59.7% to $927 million in the third quarter compared with a year earlier, when crude prices were near record highs. The company's Kern County oil discovery boosts output.

October 23, 2009|Ronald D. White

Its production already bolstered by the biggest oil discovery in California in 35 years, Occidental Petroleum Corp. on Thursday announced a third-quarter net income of $927 million, or $1.14 per diluted share, based on overall sales of just over $4.1 billion.

The results were far removed from the same quarter a year ago, when oil prices were still drifting down from a record trading-day high of more than $147 a barrel in July 2008. But the company's profit did improve on its second-quarter 2009 results by 36%.

The news came as the price of oil remained above $81 a barrel for the second day in a row, boosting predictions that energy company revenue would be strong in the fourth quarter.

Analysts said Occidental would also get a huge production boost from the Middle East in the months and years to come. The Westwood company said it would launch a joint venture in the next few weeks with Bahrain's national oil company that would gain about 450 million barrels of oil equivalent over the life of the project. Occidental is also part of a consortium that has been awarded the license for development of the Zubair oil field in Iraq.

"We hope to expand our position over time and continue our involvement in Iraq while meeting our standards for security and rate of return," said Ray R. Irani, Occidental's chairman and chief executive.

Analysts said both Middle East developments were a sign of Occidental's expertise in management and negotiation.

"They continue, to me, to be one of the best-managed oil companies out there. Iraq is a nice plus," said Phil Weiss, senior equity analyst for Argus Research's energy division.

But it was the new California production that took center stage in the earnings report. Occidental has not disclosed the location of the new oil field.

"Our Kern County discovery has made a significant contribution to this production growth," Irani said. "Kern County gross production run rates grew from 7,700 barrels per day around the end of the first quarter to approximately 26,000 barrels per day at the end of the third quarter."

Altogether, the company's production in the third quarter was up nearly 7% from a year earlier, Irani said.

Results at the nation's fourth-largest oil company topped analysts' expectations. A Thomson Reuters poll of 19 analysts found that, on average, they had expected earnings of $1.08 a share.

Fadel Gheit, senior energy analyst for Oppenheimer & Co., said Occidental performed well and would benefit greatly from the fact that its recent oil find was in a readily accessible area of California where the company already had a thriving production infrastructure.

"When you find oil in foreign countries, there will be delays, red tape," he said. "When you find it in the U.S., like Occidental, you can be off to the races."

The California discovery also differed greatly from new and potentially much larger finds announced by other companies this year that are miles below the bottom of some of the deepest areas of the Gulf of Mexico, Gheit said.

"Occidental is drilling in its own backyard," he said.

Despite the increase in production, lower prices for oil in 2009 brought down the company's year-over-year profit.

Occidental's third-quarter profit represented a decline of 59.2% from the $2.3 billion, or $2.77 per diluted share, posted in the same quarter a year earlier. Sales were down 41.9% from $7.1 billion a year earlier.

Oil and gas segment earnings were $1.5 billion for the quarter, down from $3.6 billion for the same period in 2008.

Boosted by the company's Kern County oil discovery, which was announced in late July, the company's daily oil and gas sales volumes averaged 628,000 barrels of oil equivalent a day, compared with 588,000 in the third quarter of 2008.

Its realized price for worldwide crude oil was $62.79 a barrel for the third quarter, down from $104.15 a year earlier.

On Thursday, crude oil futures for December delivery gave back a little of the ground they had gained Wednesday, falling 18 cents to $81.19 a barrel on the New York Mercantile Exchange. Wednesday's close was the high for the year at $81.37 a barrel.

Although Gheit said there was a plentiful supply of oil and nothing strong enough in terms of recovery from the global recession to justify such a high level for crude futures, he said oil companies in general should do well if futures remain above $80 a barrel.

"The energy sector will thrive," he said.

--

ron.white@latimes.com

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