Occidental Petroleum (OXY)
Q4 2012 Earnings Call
January 31, 2013 11:30 am ET
Executives
Christopher G. Stavros - Vice President of Investor Relations and Treasurer
Cynthia L. Walker - Chief Financial Officer and Executive Vice President
Stephen I. Chazen - Chief Executive Officer, President and Director
William E. Albrecht - President
W. C. W. Chiang - Executive Vice President of Operations
Edward Arthur Lowe - Vice President and President of Oxy Oil and Gas -International Production
Analysts
Douglas Terreson - ISI Group Inc., Research Division
Andrew Venker - Morgan Stanley, Research Division
Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division
Edward Westlake - Crédit Suisse AG, Research Division
Leo P. Mariani - RBC Capital Markets, LLC, Research Division
Paul Sankey - Deutsche Bank AG, Research Division
Matthew Portillo - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division
Faisel Khan - Citigroup Inc, Research Division
Roger D. Read - Wells Fargo Securities, LLC, Research Division
Eliot Javanmardi - Capital One Southcoast, Inc., Research Division
John P. Herrlin - Societe Generale Cross Asset Research
Presentation
Operator
Good afternoon. My name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Occidental Petroleum Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Christopher Stavros. Please go ahead sir.
Christopher G. Stavros
Thank you, Christie. Good morning, and welcome, everyone, and thank you for participating in Occidental Petroleum's Fourth Quarter and Full Year 2012 Earnings Conference Call.
Joining us on the call this morning from Los Angeles, we have quite a sizable group: Steve Chazen, Oxy's President and Chief Executive Officer; Cynthia Walker, Oxy's Executive Vice President and Chief Financial Officer; Bill Albrecht, President of Oxy's Oil and Gas Operation in the Americas; Sandy Lowe, President of our International Oil and Gas Business; Willie Chiang, Executive Vice President of Operations and Head of Oxy's Midstream Businesses; and our Executive Chairman of the Board, Dr. Ray Irani.
In just a moment, I will turn the call over to our CFO, Cynthia Walker, who will review our financial and operating results for last year's fourth quarter and full year 2012. Steve Chazen will then follow with comments on our plan to improve our operational efficiencies and reduce our operating costs, a discussion of our capital program for this year as well as our outlook for production and also some preliminary data of our year-end oil and gas reserves.
As a reminder, today's conference call contains projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to known and unknown risks and uncertainties that may cause our actual results to differ from those expressed or implied in such statements and our filings.
Our fourth quarter 2012 earnings press release, Investor Relations supplemental schedules and conference call presentation slides, which refer to both to Cynthia's and Steve's comments, can be downloaded off of our website at www.oxy.com.
I'll now turn the call over to Cynthia Walker. Cynthia, please go ahead.
Cynthia L. Walker
Thank you, Chris, and good morning, everyone. Core income was $1.5 billion or $1.83 per diluted share in the fourth quarter of 2012 compared with $1.6 billion or $2.02 per diluted share in the fourth quarter of 2011 and $1.4 billion or $1.70 per diluted share in the third quarter of 2012. The improvement from the third quarter reflected the effect of higher liquids production, higher realized NGL and domestic gas prices and reduced operating expenses in the oil and gas business. This partially offset by lower earnings in the midstream segment.
In the fourth quarter, we recorded pretax charges of $1.8 billion, representing $1.1 billion after-tax or $1.41 per diluted share. Almost all of the charges were for impairments in the oil and gas Mid-Continent business units, over 90% of which were related to the natural gas properties that we acquired more than 4 years ago on average.
While the performance of the properties was generally as expected, natural gas prices have declined by approximately 50% since the acquisitions. Also, in 2012, natural gas prices and NGL prices used for reserve calculations were significantly lower than prices used in 2011, resulting in declines in economically feasible reserves in these properties.
In addition, despite the recent modest increase in natural gas prices, drilling in many of the gassy areas remains uneconomic. As a result, we continue to operate at minimal levels in these areas as we've communicated previously. The charges related to the natural gas properties reflect the impairment of such properties to approximate their value.
Net income after the fourth quarter charge was $336 million or $0.42 per diluted share.
I will now discuss the segment breakdown for results of the fourth quarter. Oil and gas earnings for the fourth quarter of 2012, excluding the charge, were $2.3 billion compared to $2 billion in the third quarter of 2012 and $2.5 billion in the fourth quarter of 2011. We delivered a quarter-over-quarter improvement despite a decline in WTI prices as a result of higher liquids production, higher realized NGL and domestic gas prices, and importantly, lower operating expenses.
Oil and gas production costs were $14.99 per barrel for the 12 months of 2012, compared with $12.84 per barrel for the full year 2011.
Our fourth quarter production costs were $14.95 per barrel, which was $1.04 per barrel lower than the third quarter level. I would note that these reductions occurred during the course of the quarter and our year-end exit rate on a per-barrel basis was lower than the fourth quarter 2011 average and well below the fourth quarter 2012 level. This gives us confidence in our operational efficiency efforts as we begin 2013. Steve will review the drivers of the performance and our expectations for 2013 in more detail.
The fourth quarter 2012 total daily production on a BOE basis was 779,000 barrels, a new record set by the company. This was up 13,000 barrels per day from the third quarter of 2012 and up 4% from the fourth quarter of 2011. Our domestic production was 475,000 barrels per day, an increase of 6,000 barrels per day for the third quarter of 2012 and now the ninth consecutive quarter of domestic volume production. Production for the -- Production was 6% higher for the fourth quarter of 2011, almost all of the net sequential quarterly increase in production came from oil in California and the Permian Basin.
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