The high oil prices that fueled healthy earnings gains at Occidental Petroleum… (Kevork Djansezian, Getty…)
Occidental Petroleum Corp. kicked off what was expected to be a parade of healthy earnings reports for the oil industry, announcing a fourth-quarter profit gain of 35% on the strength of high oil prices and record U.S. crude production.
Occidental's fourth-quarter net income of $1.6 billion, or $2.01 a share, compared with $1.2 billion, or $1.49 a share, in the same quarter of 2010. Occidental's revenue jumped 19% for the quarter to $6 billion. Analysts polled by Thomson Reuters had been expecting earnings of $1.95 a share and sales of $5.8 billion. Net profit for the full year was $6.8 billion, up 49% from $4.5 billion in 2010.
In 2011, the Westwood company and the rest of the oil industry enjoyed the highest average oil prices ever. Occidental, the nation's fourth-largest oil exploration and production company, said its average price for worldwide oil was $99.62 a barrel for the fourth quarter, up substantially from the $79.96 a barrel realized in 2010.
But analysts said the company is built to maximize earnings even when oil prices are low.
"In our view," said Phil Weiss, an oil industry analyst with Argus Research, "Occidental's low cost structure and use of enhanced oil-recovery techniques to increase production and build reserves will enable it to maintain strong cash flow and profitability in almost any price environment."
Occidental's production "is also more heavily weighted toward oil than peers" whose production mix includes a higher percentage of natural gas. Prices for natural gas plummeted in 2011, and those lower prices are expected to be reflected in the earnings of companies that rely more heavily on natural gas.
Occidental Chief Executive Stephen I. Chazen noted that the company's domestic fourth-quarter oil and gas production of 449,000 barrels per day was the highest in Occidental's history, breaking the previous record set the previous quarter.
Occidental's fourth-quarter global production grew nearly 5% to 748,000 barrels a day. The company's record domestic production offset some production losses overseas.
The boost in U.S. production "reflected the effect of the ramp-up in capital spending as well as higher levels of work over in well maintenance," said James M. Lienert, Occidental's chief financial officer.
In other oil industry news, ConocoPhillips said it earned $3.39 billion, or $2.56 a share, in the fourth quarter, a 70% increase from $2 billion, or $1.39 a share, a year earlier while revenue rose more than 17% to $62.4 billion.
The Houston oil giant is in the midst of a major restructuring that includes shedding its least- profitable segments and spinning off its refining business into a separate company that will be called Phillips 66.
Of the major oil companies that will report earnings in the next several days, the top performers will be those that had reduced their exposure to so-called downstream business, oil refining and U.S. gasoline retailing. With demand for fuel low in the U.S., many refiners felt they had to look overseas to sell some of their product.
"Oil producers did very well in 2011," said energy economist James L. Williams of WTRG Economics. "Refiners were not doing so well, especially toward the end of the year."
For 2012, Williams said, the industry could be looking at a year as volatile as 2008, when oil prices swung from nearly $148 a barrel in the summer down to slightly more than $30 a barrel in December.
"If Iran carries out its threat to try to close the Strait of Hormuz," the strategic Persian Gulf choke point through which nearly 20% of the world's daily oil consumption is transported, "prices could spike to $120 a barrel or even $140 a barrel," he said. But if the Iran situation cools and Europe slides into recession, "you could see an equally steep drop in oil prices."
Occidental rose $2.54 to $103.46, and ConocoPhillips fell 63 cents to $69.98.