Houston oil producer earns $638M in Q3

Occidental Petroleum reports first profitable quarter in two years

Occidental Petroleum posted its first profitable quarter in more than two years as the economic recovery from the global pandemic lifted crude demand and prices, bolstering the oil company’s bottom line.

The Houston independent producer on Thursday said it earned $638 million during the third quarter, up from losses of $97 million in the second quarter and $3.8 billion a year earlier. Revenue during the three months ended Sept. 30 more than doubled to $6.8 billion, from $3.3 billion during the same period a year earlier.

“Our third quarter cash flow was the highest it’s been since at least the turn of the century,” CEO Vicki Hollub told analysts during a conference call Friday.

Oxy appears to have turned a corner after the pandemic crushed oil prices and stocks, just six months after the company made a $38 billion gamble to take over rival Anadarko Petroleum.

The mega-deal vaulted Oxy into one of the largest players in the prolific Permian Basin of West Texas. Oxy, however, was counting on selling Anadarko’s assets and capitalizing on rising oil prices to quickly pay down debt from the transaction.

The U.S. crude benchmark West Texas Intermediate barely surpassed $60 a barrel in late 2019 before the pandemic drove it to historic lows. Oxy found itself unable to sell many of its assets while its property values, revenue and earnings plunged.

The rollout of coronavirus vaccines, which lifted economies and crude prices, have been a boon to oil companies. Oil prices have been on a tear this year, rising to around $85 a barrel last month, up from around $48 a barrel in January.

West Texas Intermediate, the U.S. crude benchmark, settled Friday in New York at $81.17, up $2.36 from Thursday.

The higher oil prices have translated to more asset sales to help pay down Oxy’s debt. The company during the third quarter announced the sale of its interest in two offshore Ghana oilfields for $750 million.

Oxy has sold about $10 billion of its assets since acquiring Anadarko, using its sales proceeds to

help pay down $14 billion of its principal debt. The company repaid $4.3 billion of long-term debt during the third quarter, lowering its long-term debt to $30.9 billion.

Oxy, however, maintained its dividend at a penny, which remains well below its pre-pandemic dividend of 79 cents. Hollub said Oxy plans to pay down more of its debt before increasing its dividend.

“We’re pleased to have delivered such a sizable reduction in debt in a single quarter,” Hollub said. “In a healthy commodity price environment, we expect to continue reducing debt in future quarters as we deliver and take necessary steps to move toward returning additional capital to shareholders.”

Hollub said Oxy has become more efficient in drilling wells and producing oil, allowing the company to deliver higher production than initially planned this year. At the same time, the company has kept capital spending at historic lows, and Hollub promised to maintain capital discipline, heeding investor demands.

“Future growth for us really would be in support of growing a dividend, not growth for growth’s sake,” Hollub said.

Oxy also improved its environmental performance during the third quarter by increasing the capacity of its water recycling plant by 30 percent, allowing the company to use more recycled water for hydraulic fracturing and eliminating the disposal of water at some of its operations. The company also switched to using dual fuel drilling rigs that can run on natural gas, saving more than 6 million gallons of diesel.

While some oil companies are moving toward renewables, Hollub said Oxy is working on reducing emissions from its oil and gas operations and becoming a leader in carbon capture technology to mitigate emissions from fossil fuels. The company is working to build the first direct-air capture facility in the Permian Basin, capturing carbon dioxide from the air and storing it underground.

“We believe that’s a gap that nobody else is filling,” Hollub said of carbon capture. “The transition will take some time, but over the next 10 to 15 years, I think we’ll make a lot of progress toward becoming a carbon management company and a go-to company for those that need (carbon) offsets.”